If They're Too Big To Fail, They're Too Big Period
According to Treasury Secretary Hank Paulson, the biggest Wall Street banks now getting money from the government are just "too big to fail.” Fed Chairman Ben Bernanke uses a different euphemism – he calls them “systemically critical.” The point is that if any of them goes down, it could take the whole financial system with it. So we taxpayers have to keep them up.
We’re hearing the same argument elsewhere in Washington for saving General Motors. It’s just “too big to fail.” So Congress is considering a bailout that would keep GM afloat and sweeten a merger between GM and Chrysler.
Pardon me for asking, but if a company is too big to fail, maybe – just maybe – it’s too big, period.
We used to have public policies to prevent companies from getting too big. Does anyone remember antitrust laws? Somewhere along the line policymakers decided that antitrust would only be used where there was evidence a company had so much market power it could keep prices higher than otherwise.
We seem to have forgotten that the original purpose of antitrust law was also to prevent companies from becoming too powerful. Too powerful in that so many other companies depended on them, so many jobs turned on them, and so many consumers or investors or depositors needed them – that the economy as a whole would be endangered if they failed. Too powerful in that they could wield inordinate political influence – of a sort that might gain them extra favors from Washington.
Maybe the biggest irony today is that Washington policymakers who are funneling taxpayer dollars to these too-big-to-fail companies are simultaneously pushing them to consolidate into even bigger companies. They’ve prodded Bank of America to take over Merrill-Lynch and Countrywide. JP Morgan to acquire Washington Mutual and Bear Stearns. And now they’re urging General Motors to absorb Chrysler.
So we’re ending up with even bigger giants, with even more power over the economy and politics, subsidized by taxpayers, and guaranteed never to fail because they’re just ... too big.
We’re hearing the same argument elsewhere in Washington for saving General Motors. It’s just “too big to fail.” So Congress is considering a bailout that would keep GM afloat and sweeten a merger between GM and Chrysler.
Pardon me for asking, but if a company is too big to fail, maybe – just maybe – it’s too big, period.
We used to have public policies to prevent companies from getting too big. Does anyone remember antitrust laws? Somewhere along the line policymakers decided that antitrust would only be used where there was evidence a company had so much market power it could keep prices higher than otherwise.
We seem to have forgotten that the original purpose of antitrust law was also to prevent companies from becoming too powerful. Too powerful in that so many other companies depended on them, so many jobs turned on them, and so many consumers or investors or depositors needed them – that the economy as a whole would be endangered if they failed. Too powerful in that they could wield inordinate political influence – of a sort that might gain them extra favors from Washington.
Maybe the biggest irony today is that Washington policymakers who are funneling taxpayer dollars to these too-big-to-fail companies are simultaneously pushing them to consolidate into even bigger companies. They’ve prodded Bank of America to take over Merrill-Lynch and Countrywide. JP Morgan to acquire Washington Mutual and Bear Stearns. And now they’re urging General Motors to absorb Chrysler.
So we’re ending up with even bigger giants, with even more power over the economy and politics, subsidized by taxpayers, and guaranteed never to fail because they’re just ... too big.
posted by Robert Reich | 8:17 AM
192 Comments:
Agreed, and so does Joe Stiglitz:
6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is "too big to fail." If it is that big, it should be broken up.
http://www.cnn.com/2008/POLITICS/09/17/stiglitz.crisis/
Agreed.
As a formerly life-long conservative republican, I say this with the utmost sincerity:
If Obama wins, will you be associated with the administration? Please? Official or advisory, I don't care, but I would feel so much better voting for him knowing he's getting sensible economic advice.
Dr. Reich,
BIGNESS is the order of the day to cost compete in world markets--especially in capital intensive industries like cars/trucks, steel, pharmaceuticals, banking, insurance, chemicals, oil/gas, computers etc. Even Universities are getting bigger and bigger and more impersonal in the process.
But when the BIGGER firm fails, we will have an even BIGGER economic disaster. We are trapped in this culture of impersonal BIGNESS and I don't see us stopping it, perhaps slowing it down, but not stopping it ... unfortunately. Anti-trust for GM? Smaller would be a worsening of their situation.
Dr Reich,
This was genius. I never thought about it before like this, but you're absolutely right.
Alex
Paulson said that growth was the objective.
"To infinity and beyond." - Buzz Lightyear
Not growing is unacceptable, but endless growth results in crashes.
Is not failure part and parcel to the whole concept of the free market? If there is no failure, how do you have success? Without the ability to fail do you really have a free market?
Not only are we building oligopolies that go against antitrust, but we also need to protect America from too much foreign ownership. There are sovereign wealth funds that will be next to help save the US after the tax payers of the US run out of money and we face a solvency and failing dollar crisis. All of the measures taken and proposed seem to be too tactical and knee-jerk. Where is the strategic vision of what the new era of American capitalism should look like?
“If you don’t know where you are going, all roads will lead you there.”
We have long nationalized our security (military). Next, we need to nationalize our health (national health care plan). After that, we should nationalize our energy to ensure that Americans can grow food and have heat to survive. The form of nationalization needs to be redefined. We should have both ownership and regulatory control that focuses on “break even” for these institutions. Not all areas of commerce should be open to rogue capitalism. The basic needs of humanity (food, shelter, & security) should have government oversight and control at some level. Why must the entirety of society be profit based?
How do you define "bigness"? If the USA forces a breakup of GM, does that mean we should prohibit other very large foreign owned car makers such as Toyota and Honda from doing business in the USA?
Same goes for banks and insurance companues. I personally think breaking up the Citis and Bank of Americas and AIGs is a great idea, no non-governmental entity should be "too big to fail". Bring back Glass-Stegall.
But then, how do the USA banks and insurance companies compete in the global market against firms which have no such arbitrary size limitations?
Dr. Reich,
I just have to say this having been in the automobile industry for two years with Ford Motor Co.:
SMALLER by 35% (for all models) with a green non-fossil fuel engine would boomerang their sales out of sight within three years of first production. This combined with reducing the number of models by one-half would insure return to lower costs, profitable operations and stable shareholder dividends!
But, of course, highly paid executives within bureaucracies like Ford don't have an onze of courage to be creative, quick, major-mover entrepreneurs. That's why the innovative, market-sensitive Toyoto is laughing all the way with its constantly growing market penetration and relatively stable profits ... achieved in our own BACKYARD.
Ford is a good example for this discussion about bailouts.
Ford sells a 65mpg diesel auto in Europe, right now. It won't sell it in the US because their internal marketing dept thinks it might not do well.
Our country uses 30% energy on transportation. We should only help a company like Ford, if they agree to sell the 65MPG auto and help us cut our trans-energy by 2/3.
All bailouts should use some common sense and mutual benefit strategy.
Personally, I think our auto companies should fail. We get better quality from offshore. Ford has overpaid labor with under quality product. Goodbye !!
I don't want to see Ford fail but I agree they should sell their European models that gets 65 mpg here in the U.S. The fact that they think it won't sell shows they are out of touch with reality. Obviously, their other models aren't selling well enough or they would not be asking the government for a handout now. Many people in the U.S. want a fuel efficient car without the high price tag of a hybrid. Furthermore, if the taxpayers are going to bail out Detroit then the auto makers should be required to increase mpg in all of their models. Detroit should compete with Toyota and not act so helpless.
"with a small profit on top." What, Not A Cherry?
James Surowiecki responds to Felix Salmon:
http://www.newyorker.com/online/blogs/jamessurowiecki/
"I think there are two reasons to be optimistic that the $250 billion that will go into the banks directly (as opposed to whatever money we use to buy up toxic assets) will end up coming back to us, with a small profit on top."
1) It's not impossible.
2) There will be fewer banks, less competition, so the banks the government saves are in good shape.
"I’ll still say, though, that the $250 billion was an investment rather than an expenditure."
I'll agree with that, if he agrees that it's a poor one.
In other words, without consolidation, the banks wouldn't make it.
Who's Next? Google?
Look who wants into the party now, via James Hamilton on Econbrowser:
http://www.econbrowser.com/archives/2008/10/bailouts_for_co.html
"Bailouts for commodity speculators
If automakers are lining up at the trough, why not Big Agra?
Scott Irwin alerts me to this story from DomesticFuel.com:
Ethanol plants that have been hurt by dramatic fluctuations in commodity prices this year could be eligible for assistance from the US Department of Agriculture."
Don the libertarian Democrat
"If they're too big to fail, they're too big"... to exist --
Dude, you pinched that line from Bernie Sanders, what, something like a month ago. Search for "exist" here. Credit where credit is due, please.
On the positive side, I enjoyed your recent essay "Post-Meltdown Mythologies (I)". Didn't know you had a blog until somebody forwarded that one to me. Now I keep tuning in to see if you will continue the series -- what are some other Myths? There's plenty to go around, I'm sure.
Using corporatist nonsense as a justification to engage in socialist nonsense is, well, nonsense. Just let them fail.
Dr. Reich,
Having lived and worked in Europe for over 30 years, it has always astonished me to watch Ford and GM year-in and year-out produce attractive, compact cars with double the mileage efficiency of
any car they produced in the States.
Gas slurping big cars, big houses, big cups of coffee, big steaks. We are truly a society consumed by Bigness... including Big Debts!
There´s a rhyming Dutch phrase:
`Klein maar fijn.´ Small but special.
I would feel much better if Obama's inside cabinet members included Stiglitz and Reich. I'm just not happy about Larry Summers and Robert Rubin returning to the White House as Obama's closest economic advisors. They played a key role in convincing then President Clinton to endorse the final nail in removing any wall between commercial banks and investment banks back in 1999. It was a favor to CitiBank basically and not a very wise one either.
Nevertheless, I trust Reich to represent the "main street" citizen who is at the mercy of Wall Street's control of Congress. We're living in an age now where nothing is certain especially since the bad debts are still out there.
RS Love
Dear Prof. Reich:
As you have pointed out ,I think it safe to say no one seriously believes the US government will or even could permit Bank of America, Citigroup, General Motors, Honeywell,Boeing, Microsoft, etc. to collapse and die, without pouring billions of taxpayer dollars into a rescue effort. It would seem,beyond any reasonable doubt,that our government, by it's current policies and recent actions, has established a de facto taxpayer guarantee of intervention in cases of the super corporations now deemed too big to fail. So isn't it a valid arguement that we begin to question the validity of current corporate management practices, the degree to which CEO's and senior executives actually do or do not bear real responsibility for the success or failures of their charges, and importantly the current justifications for existing compensation incentives for those executives?
Hey, the exact same idea was discussed on Reddit a month ago!
That said, it is a good one.
Yeah buddy, I'd say you hit the nail square on the head!
JIFF
www.privacy-center.be.tc
This is crazy, me a republican and completely agreeing with Robert Reich? I'm scared.
***Cowers in corner***
Perhaps after consolidating these large companies, and after things to settle down a bit - they can break them up again into stable separate entities? :D
I'm sympathetic to the sentiment, but I wonder how companies will compete in a global economy if they are not allowed to reach the scale of global companies.
People do not want so much choice and so naturally markets tend towards two or three brands in any category. The only way to make many smaller companies work would be by restricting competition in geographical areas. I'm not sure the economic contraction that would come from such protectionist measures would benefit the country.
@Jackie...
...as a "life-long republican", maybe you should be asking why through 8 years in office, President Bush has neither received and/or utilized any "sensible economic advice"!!!
If you had voted for Al Gore, we'd have all been a lot better off than the current administration.
Robert - What I want to know is what's the alternative? It would seem that if the banks start to fail, sooner or later they will all start to merge and just two or three conglomerates would emerge from the ashes. But while the fires burned so would most of the U.S. economy. Believe me, I agree with you, and I think GM is a whole other story (it should fail or be sold for a fire sale price) but at this point we're talking about the importance of anti-lock breaks at a twelve car pile up. We need to do painful things... like bailing out banks who, frankly, f***ed up. As soon as we start to see the light at the end of the tunnel though, we need to start seeking ways to scale down the size of these banks. It may require AT&T style splits, but break them up none the less. Banking will become more expensive and less convenient but worth it.
Sean Muir
"BIGNESS is the order of the day to cost compete in world markets"
The way I see it, this is because tax laws favor big corporations. There are enough loopholes and write-offs that large corporations pay virtually no taxes, while small business owners pay around 40% of their income. I have worked for large corporations, and it is possible for a large corporation to be remarkably inefficient and still make it, because any small business that wants to get into the market has to be at least 40% more profitable. Add to that the startup costs, and it is a very effective barrier to competition. Small business would be much more efficient in many industries, but because they don't have the economy of scale in dealing with accounting and tax laws, and because they do only a few things instead of having numerous divisions - allowing the profits from the one section of the business to be written off as losses in another, and thus avoiding taxes - it means very few small businesses succeed. If large corporations had to compete on equal footing with small business - that is, if they had to pay 40% of their income in taxes - I expect a majority of the "too big to fail" businesses would indeed fail.
I am not advocating raising taxes on large corporations - quite the opposite. Significantly lower taxes on small business would give them more equal footing, and allow more startups to take off, creating more jobs. The large corporations would likely fight that course of action, however, as they know they can't compete with efficient small business on a level playing field.
I've also been thinking about this: the internet functions so beautifully because no server has too much responsibility and because its usually always possible to reroute around a problem connection. Business is continually doing the opposite, and its becoming more and more brittle.
Another classic example is genetic diversity, especially with regards to crops.
Variety and (manifold and small) failures are a hallmark of life and progress. Large failures are simply catastrophic.
It's never a good idea to put all the eggs in one basket.
DFX, in nature, and in the business of getting stuff done, the sort of networking and interconnectedness is necessary.
The internet must function that way, because if it was centralized, every failure would be costing businesses money. And the failures would occur more often, with increasing traffic.
Finally repair costs could lead to long lead times in repairs.
We see the same situations in agriculture where mono cropping with GMOs leads not to partial crop failures when a pest or disease adapts, but instead to complete failures.
We're not only putting all of our eggs into one basket, we're trying to reduce it to one giant egg in one basket. Lose that and it's all gone.
This system is designed for a dramatic failure.
Sorry, but your Too Big to Fail comments, along with your Meltdown Part IV comments, suggest that the Fed should stand back and let enormous American auto manufacturers and banks fail, so their creditors, their employees, their pensioners and their shareholders absorb the losses caused by improvident management. For the usual company, of course, that makes perfect sense. Please don't buy into the "Blame the victim" mentality. I thought you economists were the ones to do the math on the cascade of effects of a failure of, say, Citigroup or GM. What about the sum total effect on depositors, pensioners, employees, investors and creditors? Some of us, in fact, many of us, are baby boomers too close to retirement to wait another 20 years to reacquire the wealth that was stolen from us over the past 18 months.
Sorry, I simply have to disagree with the "Let them take their lumps" approach. The primary victims of it had nothing to do with this mismanagement. This crisis was caused by the foolish notion, massively implemented by law, that greed can be controlled through The Free Market. We are seeing the results of 15 years of minimal federal oversight, little anti-trust enforcement, and no private rights of action since Congress stripped us of the power to enforce laws the government refused to enforce.
This financial crisis reveals the evil of our national political system, where lobbyists now write the laws and lawmakers' primary focus is on fund-raising instead of law-making. Am I the only person alive to remember when we had Law Commissions to develop comprehensive, thorough and insightful legislation? It hasn't been done since the Bankruptcy Code of 1978. We need campaign finance reform, so our government becomes functional. Then we can address the obvious problems caused by the consolidation of risk caused by the repeal of Glass Steagall. We can shine a light into the abyss promoted by the Commodity Futures Modernization Act.
I don't like this bailout any more than anyone else. But those of us who don't have another 20 years to recover our losses are already imperiled enough by our dependence on retirement plans, company pensions, and the collapse of our property values. We were not imprudent. We are already too interconnected to withstand another large collapse.
Anonymous, I understand your concerns about retirement.
I don't think it is possible to save this system.
1. We will try. We will pump increasingly large quantities of money into the banking system. As we do so, the system will continue to fall apart.
2. The banking system contains more losses in derivatives and other instruments than can be repaid by the productivity of many planet Earths. It's a huge hole to fill.
3. The market increases when there's more money going in, than going out. Flow drives prices up.
4. The market decreases when the flow reverses.
5. The net effect of having millions of retirees withdraw their investments at the same time will probably crash the market or at least lead to major instabilities.
6. Putting tens, then hundreds, then thousands of trillions of dollars into the system will likely drive up the price of food so high that your investments will not buy you essentials.
7. I believe that some of the folks involved in this scam have known all along how this will turn out. It was intentional.
8. World oil exports are now in decline. Oil/energy drives industry. Though some people believe that money drives industry it just doesn't work that way. Machines burn energy to function. So worldwide, industry must decline. More money chasing declining industry leads to price inflation.
Further... More people chasing declining industry means more people chasing a declining number of jobs.
Let's say for the sake of argument that we can bloat the finance industry to contain enough funds to drive 500 planet Earths. Won't they just gamble all that money again to drive larger losses?
I see no sign that reform is on the horizon. In politics and business, reforms always seem to follow crashes. We didn't the banking reform we've been abandoning until after the Great Depression began. So it's likely we won't go back to a sane political and business policy until the whole system crashes again.
It's human nature.
I'm very sorry that you are probably going to lose everything. but likewise, when it's my turn, this financial fire will just be ashes.
Anonymous,
By your reasoning... We should save the banks because the shareholders are the ones who unfairly suffer... we would need to save almost every company that ever goes under. As a shareholder, you are a owner of the business. If your business fails, it's your fault, maybe not as much as some of the other owners but the failure is your own responsibility. If the money fortune you've made in banking has dried up, that's why we have social security, it might not be great but it still means that you won't be truly pennyless.... The banks need to be saved for the broader economy, those who did not put their money on the line by investing in them.
As a Libertarian, for the longest time I've thought you were extremely intelligent about the economy but also extremely wrong. Now, I can't find anything wrong with your conclusion. If a company is too big to fail it is no longer part of a free market. I feel forced to agree such companies should be broken up.
ANONYMOUS: who talked about tax laws favoring big as opposed to smaller corporations.
First, it's very true over past decades that big firms become poor job generators once they reach a certain mass. They actually start to sharply reduce jobs by improved efficiencies and automation. It's the $5 million sales to $5 billion sales firms that contribute nearly 60% of all new jobs. You are right to suggest that these firms should be placed on a more equitable playing field concerning Effective Taxes paid compared to the big, established firms who access to special tax privileges.
Your remark reminded me of a recent Congressional study that revealed that up to 60% of "medium size" firms (I don't remember the exact size-range, except the study was not referring to the large firms) are paying little, if no taxes. This may include quite a large number of corporations that exploit offshore tax havens.
A good presentation of the facts here in relation to what company groups by size and/or industry are producing most jobs and what taxes are they paying would be very useful in getting the incentive policies right.
Irregardless of this, Obama's idea to give tax breaks to firms that create a net increase in new jobs is in the right direction.
However, as part of a plan to pay for our Economic Recovery, Congress should also consider closing offshore corporate tax havens ... the charade of claiming expenses in the US and profits in countries that don't collect taxes.
Anti-trust: prevent a company from becoming too big. Try Microsoft. In a business magazine several years ago, the author referred to MS as "is the United States" given its money supply. How many times has Bill Gates been to Capitol Hill to request raising the cap on H-1B visas? I know the last time he went there, I emailed him 7.5 years of correspondence I've had with Carl Levin, Elizabeth Dole, and my spouse's resume. Obviously I didn't hear from Mr. Gates.
A couple of years ago, the washtech.org web site listed all of the MS managers who were ordered to state their plans for offshoring.
So, yes, if Barack Obama starts rolling back the Bush tax cuts on the wealthy, remember, in the past, you only had to work at MS for 5 years in order to become a millionaire. I stated early the IT CEOs that need to be in the IRS's gunsights. Several of them wouldn't be where they are today if it weren't for American IT workers; for example, neither Lou Gerstner nor Sam Palmisano of IBM can write a line of code or debug a subroutine. They would not be where they are today if it weren't for American IT workers.
I am sitting back to watch what happens after January 20th. Please consider banning lobbying and plowing up K Street. It would be appropriate symbolism for K Street to become a site for the homeless, because that's part of the effect lobbying has had in the United States.
Wow. Talk about a fallacy perched atop a falsehood launched from a misconception.
If we're going to put that amount of skill into our thinking, then how about these:
"If food is so important, then we should outlaw hunger."
"If they're too dumb to read, then we may as well burn these books."
"If some people are too smart for fifth grade, then they're too smart period."
We getting the hang of it yet?
Back in the day, the kind of statistical modeling that is the foundation of modern economics, required the use of normal distribution curves. These require at least 30 data points although a Student's t curve was derived for as few as 12. How can there be a 'free market' when there are fewer than 12 companies competing for the same customers in the same market? Is our more modern concept of a free market with 2, or maybe 5, choices not just another form of voodoo economics? Or do we really have a 'pseudo free market' and no one has bothered to tell us?
Despite the "un-American" nature of opposing "bigness" I think there's a very strong economic case. First, when a market becomes dominated by a few folks it's no longer a free one. Second, strength built upon capital disappears with capital.
On a more personal level, ever since working for a very "big" company I learned that their inability to fail made them & their market weaker.
I suspect that the only long term "big" & successful organization is a military one. And that assumes their support does not fail under the expense. ;-)
If the folks posting comments here want to experience some really bad sleepless nights, do a little research on Credit Default Swaps. They are a form of unregulated and under capitalized insurance contracts currently totaling nearly $50 trillion in US financial institutions. When the credit crisis finally catches up with the institutions having exposure to all those CDS's,look to expect losses measured in the trillions, not just billions. At that point the US just doesn't have anywhere near enough money or even borrowing power to bail out the losers. At that point the only thing to do is cancel the current dollar and reissue a new one with an exchange rate of 10 oldies getting you one new buck.
I love this site. It is a scream I tell you. The extreme left democrats are going to have their say and you are going to be fascinated with their environmental rules and regulations that will finish off whatever bit is left of the economy. They will want mule teams pulling plows the old fashioned way except for the animal rights nuts among them who will demand people pulling power which of course will be unionized and militant at that.
And that same leftist bunch will not be happy unless we shut off all power and live by the light of candles. You know, the old fashioned way and eating only what we can scrounge from the woods except the woods will be off limits.
HAHAHAHAHAHAHAAHAH.....I can hardly wait to see the outpouring of legislation to "fix" our woes. Gas cards for the "poor". Make all housing section 8.
Did I mention unions? Did unions not have a little to do with the sorry state of Ford, GM and that other one that also makes junk?
We can unionize the other automakers and break them too.
This is going to be a hoot! Marxism and Socialism failed in Russia, China, Cuba and Europe, but we can make it work here. We are just sooooo smart.
No one has a solution to this mess including the good Dr. Reich. And don't get me wrong, I do like Dr. Reich. He may be the only decent man left. I don't think our political culture will listen to decent men or women. They hate people better than themselves.
This is a good news, bad news story. The good news is that the big boys in finance, insurance, real estate ("FIRE" Industries) plus automotive and airlines will emerge from this crisis dramatically smaller, if at all because of their unwise and unsustainable business models. The bad news is that taxpayer money is being dumped into this losing proposition. There are tectonic forces at work here and there is no stopping it. We should be preparing for and embracing a new landscape, not fighting a losing battle.
Oliversnit, You are entirely too simplistic. Do you think the autoworker on the line asked to make gas guzzling trucks? I suspect that he/she could care less whether they are making fuel efficient cars or something else. It is the LEADERSHIP or lack of it at GM, Ford and within the government and major corporations who were guiding this ship. Your average union worker was along for the ride. The worker is the Indian that all the Chiefs need in order to have any value of their own. Please save the inane union bashing rhetoric for people who don't know better. It is the rich, the powerful and the leadership in the United STates who are to blame for this disaster. Since they won't throw themselves under the bus, it is time the rest of us should...
The US needs to do what it did in the earlier part of the 20th century and break up monopolies. There's a reason ABC and NBC aren't the same channel. Maybe it would've helped avert, or at least postpone this crisis.
I heard today from my Professor that it's reported up to 230 million people around the world could lose their jobs b/c of this global financial crisis. That's an insane amount.
Hopefully something can be done.
http://islamoblog.blogspot.com
A good article
A company that defies market principals, that makes an inferior product, that operates on anything but profit must eventually succumb. Not only is it simple math, its an integral part of the business process. I look at it as a redistribution of wealth, smaller companies that do business better get a shot at market share and the economy gets invigorated.
To the person who feels upset about his or her retirement, I feel for you. I really do feel for you. However, the companies should still fail regardless of your feelings about your retirement funding. I am not saying its fair, because it isn't. However, life isn't fair, and sometimes things happen.
With that said, I have been sending numerous letters to my representatives asking them, why they did not take the initiative to back up the baby boomers and let the companies fail. I have yet to receive a single reply or anything that shows any interest in this idea. Mind you, these are the people who we trusted to lead our country, and I am sure they are so extremely busy. However, it doesn't surprise me that our government will not take accountability for its own actions or let our companies either. To this day, I still do not understand for the life of me why the people were not backed up, or why we couldn't just simply let these morons get what the deserved. Regardless, the bailout has already been passed and now we are going to face an even bigger crisis coming soon to a town near you!
Anyone want to make a political party that actually cares about the entire population of the USA, not just the execs and the people that vote them into power? I am ranting, but I am extremely frustrated and agitated with what has happened.
Just a short time ago pensions were of the defined benefit variety whereby the employee was guaranteed a certain monthly amount for life, and the employer took all the risk in the investment of funds to provide that pension. Then thanks to Reaganomics and the "Ownership Society" almost everyone (with their acquiescence) was converted to 401ks for which the individual employee has the great pleasure of assuming all the risk of his or her pension themselves.
Now we all get to succeed or fail with our pensions as the stock market crests or tanks. Individual anxiety has replaced peace of mind. But a secure retirement as a reward for working 30 years is not based on free market principles. Instead of corporations taking the risk for its retirees, it's a far better solution (for the corporations) for individual employees to take all the risks. And we've all fallen for the ploy that the stock market is our friend and will net us a far heftier retirement than we would have had with a stodgy old defined benefit plan. Now we have a defined contribution plan that guarantees us absolutely nothing in retirement if it's invested in the stock market.
If we are all to take responsibility for our own retirements, then we shouldn't be invested in high risk environments. Anyone invested in the stock market these days who is not a "player," should realize that the extreme volatility makes it unlikely that the plodding investor will ever get anything out of it. The player makes money off the volatility. He makes money when the market goes up; he makes money when the market goes down. And if you're a 401k investor, he's playing with your money.
The first thing to realize is that we've been sold a bill of goods by going along with the conversion from defined benefit pension plans to 401ks. (By the way our good Congress persons and most people in the military-industrial complex still have defined benefit plans.) The second thing to realize is that we've been sold a bill of goods that we should invest our retirement savings in the stock market. It has just been a bonanza for financial product purveyors and those with seats on the trading floor because now they have your money to play with.
Instead, put your money in CDs and rent producing real estate. I hear there are some great bargains out there (foreclosures? immediate postive cash flows from Day 1anyone?). Although real estate can fluctuate up and down, if you have a positive cash flow from rent, fluctuation of the underlying asset doesn't really matter. Rents have remained remarkably stable throughout the latest financial crisis. And in fact when the "Ownership Society" was in full swing, when people were going for the American Dream of home ownership, you could have had the same house for a far less monthly outlay as a renter than as an owner. So home ownership wasn't all it was cracked up to be. And now rents are only going up as more former homeowners become renters.
Also see Will Blog For Food.
Mr. Lawrence,
Can you define a bit more clearly what a 'defined pension benefit plan is'? Haven't heard of such a thing for a long while.
To Ms. Placido,
Unions demanded wages and benefits that far exceeded the value of their labor. They got away with it. They will get away with it again. And I did not say they were responsible for the whole mess, but they were a part of the problem. They will be again. When they unionize Nissan and drive up wages, those plants will close too. Sorry, but screwing on a lug nut is not worth what GM pays their lug screwers. They make more than a school teacher. Nonsense! But unions are pretty much nonsense. All about power, not the worker.
"Quite frankly, it is a very attractively priced alternative,"
It doesn't get much clearer than this that our credit stimulus plan without a stimulus was negotiated by the government with far too generous a deal. From the Washington Post:
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/21/AR2008102102520.html?hpid=topnews
"When the Treasury's program was announced last week, some bank executives said they didn't need the money and resented the federal intrusion. But in a number of earnings calls and interviews in recent days, several bank executives were more receptive.
The federal deal is relatively sweet in financial terms -- it requires banks to pay 5 percent interest annually on the investment over the first five years -- and some bankers said they would not pass it up.
A number of local banks are strongly considering applying for the Treasury program.
Virginia Commerce Bank, which has 26 branches and $2.2 billion in deposits, said it is looking to add $25 million to its capital base by the end of the year. In the past, the company said it was considering issuing stock to raise that capital, but the bank said yesterday that it may apply to the Treasury's program.
"Quite frankly, it is a very attractively priced alternative," chief executive Peter A. Converse told analysts."
How about this, from the NY Times:
http://dealbook.blogs.nytimes.com/2008/10/21/gmacs-hope-lies-in-future-as-a-bank-hedge-fund-says/#comment-382536
"Only a week after the government announced $250 billion in capital for banks, some investors are getting creative in their suggestions on who should qualify.
David Bullock, managing director of Advent Capital Management, wrote a letter to the chief financial officer of GMAC on Tuesday, suggesting that the former General Motors financing arm turn itself into a bank holding company so that it can grab some of the cash.
In Europe, Mr. Bullock pointed out, parts of the auto industry are benefiting from bank rescue.plans. So why not in the United States?."
I'm not making this up. Here's my comment:
“Only a week after the government announced $250 billion in capital for banks, some investors are getting creative in their suggestions on who should qualify.
David Bullock, a hedge fund manager in New York, wrote a letter to the chief financial officer of GMAC on Tuesday, suggesting that the former General Motors financing arm turn itself into a bank holding company so that it can grab some of the cash.”
Come on ! How onerous can the terms of TARP be that people who don’t need it are starting to line up to receive it? What more proof do we need that the government negotiated a terrible deal for the taxpayer?
The next thing we know, Google and Apple will be turning themselves into banks. Can I have myself declared to be a bank?
— Posted by Don the libertarian Democrat
Oliversnit, those are wonderful strawman arguments you are making.
I think though that you've wandered over to the wrong blog.
Here we discuss how you and your friends have trashed the economy and are now wasting trillions of dollars on plans that don't solve the problem.
Now scapegoating other people for your own screw ups and crimes is a tried and true strategy, but I think we can see through that here.
Oliversnit, those 'high paying' union jobs disappeared in the 1970s.
Where have you been since then?
What upper limits would you put on wages? If you could pass a law that prevented Americans from earning over a certain amount of money, how much would it be?
To all readers:
Recommend going to following site for background character and stability check on McCain by the Roling Stone Magazine which is a pretty reputable outfit. It's a long report but worth reading.
http//www.rollingstone.com/news/ story/23316912/makebelieve maverick/print
Doc:
Good thinking. I've been sitting here everyday watching a few banks gobbling up many others and keep seeing visions of an eventual private sector Central Bank wielding much more power than the Fed. I also frequently see visions of sugar-plums dancing in my head.
Though I agree that we bailed on antitrust laws a number of years ago there is validity to what Frank says. Markets for all products are now worldwide and to serve those markets requires logisitics experts, marketing experts, tax attorneys and accountants familiar with a plethora of laws, worldwide real estate experts, currency exchange rate experts and then an infrastructure of managers to manage it all. This requires a big organization with massive resources. These worldwide markets encompass varied cultures and governmental influences. What sells in the US may not find a market in Europe or China and vice-versa.
Smaller companies cannot compete worldwide in the face of these kinds of resource requirements. Granted some can serve niche markets profitably with a modicum of the above but if those niche markets begin to show signs of real profits the big boys will jump in. Further if those niche markets turn out to be larger than expected, small firms will not have the resources to continue to serve them, enter the big boys or the locals.
You, and many others here, and I accept the pleasant nostalgia, harken back to a simpler time when we were pretty much a self contained economy; a time where it was possible for large companies to layoff significant numbers of workers and those workers had other job options; not true today. In the past 8 years we have barely kept up with jobs for new entrants into the job market.
Many of the old paradigms have changed and we need to do some serious rethinking if we are to survive. Simply referring back to what we did then is not necessarily sound intellectual reasoning. We need new thinking and you, and others of your ilk, can provide wise counsel to that new thinking but it will require some loosening of ties to history and more openness to wild ideas. Brainstorming is not an exercise in rehashing history.
In the interim, as much as it suits our Christian ideals, little is gained and much is lost in promoting the idea of letting failing companies fail if it will seriously affect our overall economy. God says that sinners should be punished but God doesn't have to shop at the local grocery store to eat. The free market tenets allow that an organization which mismanages resources should disappear and let more efficient managers pick up the slack. Fine if those picker-uppers are contained in the US and net economic changes stay within our GDP. Otherwise our loss is the world's gain.
Letting a GM fail will create massive unemployment and there are no options for many of those folks. Toyota and Mercedes Benz will take advantage of some of the excess plant and labor capacity because there will be some increase in their markets but the market increases will not be sufficient to absorb all the abandoned capacity. As the multiplier effect, it does work both ways, kicks in, many industries supporting GM will fail and as the crescendo intensifies there will be many Toyota buyers unemployed as well. Throwing all those execs onto the unemployed rolls will make a dent in Mercedes sales.
For the union bashers out there: Unions have tended to do things that may not have been in the best interest of our entire economy, especially for those industries directly affected, but most of the improvements that unions secured for the work place, including pay scales, benefitted all of us. Most of us have fringe benefits we would never have had were it not for unions. For years unions were the driving force in keeping executive salaries in line with worker wages. Our work places are safer greatly due to the efforts of unions. No doubt they were guilty of overreaching at times but we are now seeing that that is a common bigness problem. All in all unions have been much more a part of the solution than a part of the problem.
John Lawrence, your diatribe on 401Ks is interesting but it overlooks a few things. First, it is not necessary that you put your 401K contributions into the stock market. Most companies offer options for far safer, albeit lower returning, investments. Most companies offer some degree of matching and often that return alone far exceeds the rate of return available to employees in any investments they would make on their own. 401Ks have also allowed smaller firms to offer a retirement program where they never would have entertained a pension plan of any kind. Even if smaller companies don't offer matching the tax free nature of the employee contribution provides a decent return.
There are instances of companies dropping pension plans and offering 401Ks instead but many have offered 401Ks and converted defined benefit plans to defined contribution plans. They still have pension plans and most argue that for younger workers the defined contribution plans are better. Don't know that I buy that argument but I've never analyzed it since when it started happening I was already not one of the younger workers.
I am not a business apologist, I am often a harsh critic of the business world, but I do understand that pension contributions, defined benefit or contribution, are expensive and the sufficiency of the eventual retirement payments is predicated on the availability of investments that yield rates of return that will achieve the promises made. I believe current law makes pension funds available to pay creditors in a bankruptcy event. Creditors deserve a reasonable degree of security but they were willing risk takers. Employees were not. We have the government guarantor of pension funds but we have seen what that facility does to pension payouts. 401Ks are not subject to getting locked up in a bankrutpcy proceeding. I believe they are isolated funds, administered by an outside vendor, hired by the company, in the name of each individual owner of those funds.
As pleasurable as it feels to suggest the greedy bastards go down with the ship, we will be taking down all the innocent seamen as well and that will not be pleasurable for any of us. Now is not the time to invoke free market ideals or religious doctrines about condemnation of the wayward. We are in a car wreck and the emergency crews have been summoned. The first priority is to tend to wounds and save lives. The analysis of cause and effect, while valid, does nothing to care for the injured at this time. If we don't salvage the lives of the victims then cause and effect analysis will be nothing more than a history lesson for future generations to read in their caves.
Finally, good Dr., you and all economists, while seeking the varied reasons for our decline, accompanied with solutions, fail to mention productivity gains. Now we all know that productivity gains add to profits and move us to that hallowed goal of maximum efficiency. But at what cost? I know economic theory suggests that productivity gains benefit workers, perhaps in the same way impecac antidotes poisoning, but I see that as fallacy. Even when industries were more labor intensive, if you get more output from the same number of workers then you do not need to hire more workers. In recent years, productivity gains have been achieved through the use of technology, eliminating jobs. Efficiency and profits are worthy goals but if increased productivity tends us to a robot workforce where do the financial resources come from to buy the products? Do we work the robots and pay the idle workers anyway? Is there a productivity gain in that scenario? Antitrust laws should be revisited but so too should our axiom about the benefit of productivity gains.
Dr. Reich,
Palin's latest interview remark is that she's more experienced than Obama. She's means her executive experience in a tiny, tiny town of 8000 and 20 months as Governor of a tiny, tiny State of 650,000 is her exceptionally superior qualification to possibly be President of the U.S., and to rescue us from our coming mini-1929Depression. In other words, she's "Too Big (in Experience) to Fail."
She presumes the majority of Americans gulp with adoration this babbling nonsense without thinking. As if we simpleminded voters have all lost our senses! The only thing she's more experienced in is colorfully playing the brainless game of class warfare with a fictitious Joe Plumber and constantly lying about the opposition -- like Obama wants to raise middle class taxes and small business taxes. How deep and distortive can the crap get?
She's a flashy, behind-your-back, devisive, fear-darting, unknowledgeable, lightweight that the unpredictable McCain brought into the limelight to spout out cliche one-liners to the hopelessly gullible older women, macho men, and the truly patriotic among us. A delight for the soapy, sound bite media entertainment geniuses. They revel in sensationalizing a TV woman John Wayne personality, hyping her Joe Sixpack friends and moose hunting frontiersmanship as legitimate qualities to be VP of the US.
Great media news story about Alaskan hockey Mom who eats up Socialists as well as Moose meat and makes it in the leaderless world of Me First, Country Last politics. Yea, sure. What a joke, possibly on all of us!
Hey Weaseldog,
Sorry, u have to do better. I am blaming both parties and their corruption and greed as well as their handlers on Wall Street and the AFL-CIO, UAW etc. This is an "I got mine and screw you" culture. It needs to fail to recover. It cannot be patched up. I listen to my Medicare and SS "friends". They don't understand or don't care that they are part of the problem and are destroying their children's and grandchildren's future. They only want to suck out all the medical care that they can and damn the budget. It matters not what Paulson and his cronies do, the entitlements are still there and they will crush us no matter what.
Oh, on the high paying union jobs. Check out the Chicago schoolteachers. Check out the pensions for retired GM workers and their medical benefits which have been dragging that corporation down for years. I know, GM has been "fighting" back, but YOUR bailout money is going to a corporation that is bled dry by unions.
Wrong blog? hahahahahaahaha.....this is entertainment at its best.
Scuse me? Did Gov. Palin plagerize and steal Neil Kinnock's identity? Which VP candidate did that? HMMMmMMM.......character????
Oh, and isn't it Joe Biden who is the senator from the CORPORATION STATE OF DELAWARE where corporations live so they can screw American consumers routinely on credit card rates etc? YES! YES! YES!
You have Biden from that screw'em state and Obama from Chicago, the most corrupt politics in America. hahahahahaha.....
Palin is the only lucid one in the bunch. McCain is certifiable.
Hypocrits make the world interesting.
Oliversnit, we need to be paying all of our teachers more. We keep hearing that we're throwing ever more money at education and it's doing no good. for most teachers though, they've seen their salaries effectively decline over the decades.
As the saying goes, "Go into teaching for the love of it, and get married for financial security."
This sort of attitude is not going to give us a first world educaiton system. We can do better. If teaching paid a living wage or better, then more people would choose to become teachers and there would be competition in this market.
On your comments about GM, It's management does more to destroy this corporation than the unions ever did.
If they sold cars that competed head to head with foreign cars, they wouldn't be laying off so many workers, making their plan so top heavy.
Toyota and Honda in the USA pay their workers better and have better benefits, and they are kicking GM's butt. So it's not the unions, it's the crappy incompetent executives running GM.
OliverSnit - "Wrong blog? hahahahahaahaha.....this is entertainment at its best."
My voter Registration Card still says Republican, though that party went extreme fiscal liberal.
Both parties are so confused that they almost defy categorization. Fascist might be the best descriptor for them now.
The Republican Party used to pretend to be conservative. Now the definition of that word has morphed into something sinister.
A liberal used to mean, someone who enjoys freedom. An early definition refers to a newly freed slave. Then it morphed into someone who freely gives. A bit a Jesus style definition. And the Republicans freely give. They give away trillions of dollars to corporate welfare whores. The Democrats applaud.
When you were bashing both parties, you kept using the word liberal. These days, that's a euphemism for Democrat. So I guess you were writing one thing, but you meant something else entirely. A nice way to describe this, is that your were writing fiction. why don't you just write what you mean? If you're going to bash both parties, name them.
If you go beyond party worship, or clinging to colors, you can find that different isms, and different organizations can serve a conservative or liberal agenda. It's all in the application.
You seem to enjoy vilifying unions. If they had never existed though, you wouldn't be posting here. You'd more likely be digging potatoes with a wooden stick, for your King and Master.
The early guilds, that morphed into unions made it possible to protect the rights of a man to own his own labors as they are. If these institutions hadn't survived, your labors would not belong to you at all. you would be a slave to a feudal lord.
Oliversnit,
Yes, I agree Palin is lucidly unqualified and McCain is certifiably erratic. Great qualities for these dangerous
times! You deserve an award for original, objective thinking.
It's quite disappointing when one's programmed ideological level has shortcircuited the brain's reality and rationality cells. No need to be so afraid to step outside your ideological comfort zone when it clearly makes sense or when other ideas are plausible. You'll enjoy the freedom of really thinking occassionally. With your ha ha ha haing everyone else's reasoned judgments here, you're beginning to simulate Jack Nickelson's tragic fade-away in "One Flew Over the Cookoo's Nest."
Hey Weaseldog,
It is all about power including Unions.
I have often asked how throwing more money at "education" will resolve our education crisis. I have yet to have anyone even attempt to explain how that might work given the hundreds of billions we already put into "education". A joke!
Teacher's unions are all about an agenda that has nothing to do with education, but power and protecting education administrators which is where the money is. The classroom teacher gets nothing.
And yes, the Chicago teachers are militant and useless as evidenced by having one of the sorriest school systems in the nation.
I surely do put blame on unions. I also dish it out to corporate nazis.
"If it were not for unions I would be digging potatoes with a stick?" Really? C'mon comrade, surely you don't believe that. Unions morphed into elements that had nothing to do with the welfare of labor, but of power and corruption.
Would YOU have fired the air traffic controllers who were willing to bring the nation to its knees? Wait until the demorepubcommies are in power and let unions do just that.
This mess is about a culture of greed and corruption at all levels and all corners of our society. How do you clean that up?
anonymous re: Palin:
Gotcha covered. My good friend Frank would love your exposition.
Have I mentioned I have a very analytical mind?
OliverSnit - "If it were not for unions I would be digging potatoes with a stick?" Really? C'mon comrade, surely you don't believe that. Unions morphed into elements that had nothing to do with the welfare of labor, but of power and corruption.
Yes really. In Europe the first steps out of perpetual slavery into a system with a middle class, came from the power of guilds to negotiate with power.
As to education, you ignored my point about teacher's pay in order to expand on a talking point. Then you tell a lie about no one suggesting alternatives. Are you writing so loudly that you can't read?
We have allowed companies to consolidate into bigger and bigger conglomerates.
Auto companies, media companies (the FCC relaxed the rules so now we have fewer, bigger media companies reporting similar views), banks, investment firms, insurance, the list goes.
The need-to-be-bigger-to-compete-globally card has been used quite often, but maybe smaller, more agile companies would compete better through innovation and cost reductions.
Art, I still don't see the bailouts fixing the problems.
We rushed them, so the problems we're seeing would be immediately resolved. Now like Bush's Tax stimulus plan needs more time to fix the economy, we to give the quick fix plan, more time?
I know what the bailout has been advertised to accomplish. I don't see how it will do it.
Now you've made the argument to me that if you don't understand something, then I'm probably wrong. I don't think that form argumentation is valid. So I won't use it. I believe that there are things that people know and understand that I don't. That doesn't make them wrong.
Perhaps you could describe in moderately technical terms exactly how the bailouts will fix the economy. The explanations I keep hearing from pundits, are missing many details. They are missing so many details, that I can tell they don't have a clue what they are saying. They are just repeating things that other people say. Their brains are not engaged.
Now as I understand it, and I know I'm repeating myself...
Paulson and Bernanke are both on record saying that the purpose of this bailout is to feed the growth of the banking system. The banking system has more debt than can be satisfied by scores of planet Earths.
I would call this a bubble. In fact the crisis that lead to this, is characterized by both men as a bubble. Greenspan called it a froth.
So the purpose of bailout is to blow a new and bigger bubble. Isn't this point very clear?
Now if they can blow a bubble and create a new severely distorted and unstable financial arrangement, isn't just going to crash and burn also? Will we just be engaging in a much bigger bailout in a few short years?
Is this the plan?
And how long can we keep GM building cars that nobody buys? Will we start running the new cars through a crusher, so they can be recycled back as raw materials to build into new cars all over again?
From watching Paulson, Bernanke and Bush gyrate over the plan of the day, only to scrap it and propose something new, over and over, it's clear they don't what they are doing. They don't how this will work.
How is it that you can speak authoritatively on an unknown plan that the people in charge don't believe in? Do you have inside information that Paulson is not privy to?
weaseldog:
I do agree with many of your views on education and teacher pay. I do question, however, that teacher pay scales are a sticky wicket.
I agree that most teachers do enter the profession from love not money but raising teacher pay beyond some threshhold, and I don't know where that threshhold is, could lead to many more entering the profession for money and not love. Even though teacher evaluations are faulty, likely we would eventually weed out the poor performers only looking for a good paycheck, but in the interim we may have damaged an awful lot of students.
The real 300lb gorilla in the room is parents. I am a strong proponent of smaller classrooms as a key answer but if we had the best teachers and even one on one teacher/student ratios, without a change in parent's attitudes we will not slip the surly bonds.
Weaseldog,
Please go to Youtube and search Danny Devitos speech to the stockholders. Substitute today's situation for his points in the right places. "If the yen does this and the dollar does that....we are still dead."
There is NO place in this country where high teacher's salaries have made an iota of difference in performance and student outcome. Does it occur to you that perhaps it might actually be the whole philosophy of education? Perhaps it might be the quality of parenting and the children from our "have everything" families?
You could be right though, we might all be wishing for some potatoes to dig and that all too soon.
weaseldog:
We are a long way from "fixing" the problem. I strongly disagree with your assertion that this 'fix" was going to be effective immediately, I don't know of anyone who ever suggested that.
The bailout attempt was to stop the bleeding. That doesn't cure anything it merely addresses the immediate problem and allows for the curing therapy to begin. To put it in your current vernacular, if the loading dock is full and shipments can't be received you don't sit there and try and figure out all the reasons the dock is full. You move the loads out of the way so operations can continue and then you assess the determinates that caused the problem. In you previous vernacular, when debugging a program you generally have to stop and fix the first bug you find because you can't progress to further problems until you solve each successive one.
There is no doubt that Paulson and Bernanke are doing a lot of pulling from their heinie's. Crises are like business start-ups, you don't have the time to analyze and establish a one time systematic fix, you put out the fire and go on to the next and at each point you catalog the variables of the immediate problem to incorporate into a better system fix going forward.
As I stated, in agreement with Dr. Reich, we are dealing with a "trust" issue here and while it's necessary to do something no solution will erase doubt and suspicion all at once. We've got plenty of serious economic issues but it's a waste of time to try and address those until we get the machinery working again. Troubleshooting is much easier if the line is moving, even if intermittently. If we don't get past the credit crunch we won't need further economic fixes, there will be no economy to fix.
I don't have any more info than you. What I do have is the knowledge that leaving the problem alone will only create worse problems. My experience also suggests to me that one of the things we do best is solve problems. Because we thrive on crisis management we often don't stay involved long enough to find optimal solutions but we usually overcome immediate problems and get things rolling again.
Until we can smooth out our economic hiccup, hopefully avoiding a depression, GM, nor any other company in dire straits, will be able to do much to dig themselves out. In the meantime cars are still selling, albeit at an anemic pace. Home sales are still going on. Shipments are still moving across the seas, unfettered by heavy traffic. My friends at my previous employer are still going to work and getting paid. As we speak credit is loosening up, very slowly. The world has not stopped it has merely slowed, almost to a standstill.
There will be more layoffs and more bankruptcies but freeing up credit will allow those things that are working to begin working again and then we can look for solutions to the economic downturn.
Now you can draw all the inferences you like from my words but I generally don't suggest people are wrong because I don't understand. It may be predicated on the fact that they can't clearly explain what they mean, but often it's because they make hallucinogenic prognostications based on a limited world view.
Call me an optimistic fool but I know that you don't solve problems by screaming to the world there are no solutions. There are no Valhallas out there. There are no maximum efficiencies. There are opportunities for improving and moving closer to out of reach goals. It has always been the foundation of man's forward progress.
Anonymous:
A defined benefit pension plan is one where your employer pays you $X per month for the rest of your life upon retirement. The $X is the "defined" benefit. In other words it doesn't fluctuate. With a defined contribution plan, you dedicate $Y dollars every month out of your paycheck, but the amount you will actually receive in retirement will fluctuate depending on how you invest the money. In other words the risk is on you and not on your employer with the defined contribution plan and vice versa for the defined benefit plan.
Art the Layman:
To be sure you can usually invest in a CD or a money market within a 401k, but you are usually encouraged to invest in a mutual (stock) fund. There's no reason that you shouldn't be able also to invest in real estate within a 401k except for the fact that most employers only allow a limited number of very structured investment opportunities in whatever plan they present to their employees. Still a 401k plan is to a defined benefit plan what privatized social security is to the social security we have now.
As far as competing in the global markets requiring global size corporations, I tend to agree with you. However, at the same time the US should do everything to secure its interests in the trade environment meaning the interests of the middle class and not just the interests of corporations. We should compete in the world market in such a way as to gain a favorable trade balance and to not lose jobs to foreign labor markets. In other words fair trade rather than free trade with the interests of US workers in mind.
Prof. Reich -
Thanks so much for delivering this message this morning (early!) at the SSPA conference in Vegas! Having heard you on Marketplace so many times, it was great to see you in person and to get a full hour plus Q&A. Saying "you're a bright guy" is kind of like saying "Tiger knows how to play golf." It's true, but doesn't do the subject justice.
Best,
David
(Another Dartmouth guy who didn't play football.)
David,
Dr. Reich was in the The Netherlands a few weeks ago. I'm very sorry I missed him as I was on vacation. Would have loved to have had the chance to exchange a few thoughts with him as you did. Frank (also a Dartmouth graduate who didn't play foorball)
Yes, now the government is financing virtual monopolies! Dah!
Nice post.I'm enjoy to read it.
Great article..
Art,
Another mind-relaxing, mind-opening article -- about elitists (you and I); honest and respectable simple thinking types, and incompetents (like your Dumbaya)-- by Garrison Keillor in today's IHT, entitled: "Looking Out for Abilene."
Maureen Dowd in IHT article "Moved by a Crescent" exposes the poisonious and prejudicial ethnic innuendos spouted by Sarah Palin.
How would "trustbusting" work in the 21st Century?
How would "trustbusting" work in the 21st Century?
Art, that's a good point on teachers.
But we're doing harm to students now. We're doing a lot harm to America and our future.
There is a saying that an old carpenter once passed on to me, "If you're not making mistakes, then you're not getting anything done."
Can we make mistakes fixing our education system? Sure we can. But if that fear is stopping us from fixing the system, then we should just shut it all down, because we're making serious mistakes now.
The only way to stop making mistakes in how we implement our education system, is to quit educating altogether.
Art A Layman said... "weaseldog:
We are a long way from "fixing" the problem. I strongly disagree with your assertion that this 'fix" was going to be effective immediately, I don't know of anyone who ever suggested that."
Ben Bernanke and George Bush argued that this would be a quick fix.
You said, "It may be predicated on the fact that they can't clearly explain what they mean, but often it's because they make hallucinogenic prognostications based on a limited world view."
On that point, earlier you blew me off arguing that you don't understand the points I made and that my simple models are probably wrong, because other people have created complicated models that were wrong.
If you're right, and High School math, based on addition and percentages is wrong, then our education is really bad. The exponential curve is successful applied to many disciplines and it yields very accurate predictions. It is very good for pointing out where limits are in resource extraction.
I've linked a class lecture from Professor Emeritus, Department of Physics, Albert A. Bartlett of the University of Colorado-Boulder.
He gives an overview of the exponential function, then as you put it, begins to hallucinate about the Laws of Thermodynamics and scientific principles and what they mean to society. I hope that you can find time to watch it.
Agree to Disagree
As to fixing problems, I'm with you there. But I don't saw wood with a hammer, and I don't pound nails with a saw. The bailout plan to me doesn't appear to be designed to address the problem at all. It is a solution looking for a problem. You admit that you don't understand exactly how this plan will work, but you believe in it.
I really do want to know how exactly it is going to work. The banks need to cover $trillions in losses and rebuild their assets before they'll start loaning again. They say so. They are telling us that they won't open lending based on this, because trust is gone. They can see how screwed up their own books are and they know they won't loan to themselves, so why loan to other troubled banks?
Other banks are taking the money, even they say they don't need it. They just like the terms.
You used a loading dock analogy. I think that is far too simplistic, as we really need a complete supply chain analogy.
This is like treating a cancerous melanoma by applying skin cream. It may or may not alleviate the symptoms, but it won't cure the problem. You can use other analogies like treating a sick tree with a foliar spray without addressing soil conditions, etc...
Our leaders in finance are dead set against a bottom up solution. The only solution they want is giveaways to the banks. They really don't want to address the problem, only the symptom that bothers the bankers.
Right the plan as far as I can see is to give welfare payments to banks, that tell us they intend to just stuff the money in their mattresses and keep it. This solution fixes only one thing, it keeps the banks solvent. But it doesn't go any further than that.
Do you trust Henry Paulson, Ben Bernanke and George Bush? Do you believe everything they tell you?
The text on that link should have read:
Arithmetic, Population and Energy
It still points to the same place.
Right on Robert! I have a good buddy who used to be a UAW International Rep at GM who would agree and that having to face real failure may be what it takes for a former biggie and wannabee even bigger before they crash GM to see reality and change before they fall.
I think we Americans are hooked on the adrenaline of crisis management. All of the bailout stuff is just a long list of putting out one brush fire, then the next, then the next etc. We never get around to solving the structural problems because when the economy is humming along, there's no need to. There's no interest. If it ain't broke, why fix it ... until it's broke again.
As far as structural reform, if not now, when?? Since politicians believe the economy is fundamentally sound, it just needs a little patching up from time to time. This time it needs major patching up, but when we get through this crisis, it'll go on humming along again. Au contraire, I am of the opinion that the economy is fundamentally unsound and that no end of crisis management will solve the problem.
What is needed is a fundamental restructuring of major institutions. Other countries of the world are leaving us in their dust. While they accumulate wealth, we accumulate debt. Some fundamental restructuring is needed here. The Bush administration has become the biggest socialist of all time by socializing the entire banking system except the Federal Reserve. Just the opposite should have occurred. They should have nationalized the Federal Reserve while leaving the rest of the banking system in private hands. The result is a mishmash of socialized and privatized institutions; in all too typical fashion, they've created another hodgepodge.
The current situation reminds me of Dante's Inferno. It's like limbo for Bernanke, Paulson and other government officials. They're just flailing around being flogged by the vagaries of whatever bad news hits the fan today. Put out a brush fire here. Oh, one springs up over there. Put that one out and sink deeper in the mire. Now they're stuck in quicksand and they can't get out to put out a brushfire over there.
I hope an Obama administration has the cool and calm it takes to take the time, sit down, not be rushed by current events and to make bold moves to fundamentally restructure this country. I know he is on the right track because he has said he'll take the $10 billion being spent monthly in Iraq and repatriate that sucker of a cash flow and spend it right here at home. This is what the American people want. The military-industrial complex is a gargantuan parasite consuming more and more of the Federal budget in a giant welfare program for corporations and middle class technocrats. That jobs program needs to be transferred to the energy field.
The US economy has to be structured in such a way as to create not debt but wealth. I know Obama is on the right track when he says he will give favorable tax status to corporations who create jobs here instead of abroad. The whole free trade thing needs to be reassessed. We need a cabinet level Departmment of Trade and Industry whose job it is to promote the growth of American industry with jobs here and not offshore. Trade has to be brought into balance. We can'yt be running current account deficits every month.
You know, fiscal conservatism along with serving the American worker's interests by promoting job creation is really a new paradigm. The old labels of liberal and conservative are no longer useful. A conservative without fiscal responsibility and prudence is nothing but a jingoist, and a liberal who wants to balance the budget as well as look out for the interests of the middle class is no longer a liberal as it has come to be defined in the Zeitgeist.
Reaganomics and all that it implies is dead. I hope Obamanomics replaces it.
Also posted on Will Blog For Food
I agree as usual. State funded cartels, more often than not, lead to some frightening evolutionary tangents. I haven't seen any indication that either candidate is willing to attack this problem openly and honestly, so I'm more than a little concerned. I hope I'm proven wrong.
It's interesting that our leaders are telling us to forget about pointing fingers and doing something about the people who created, enabled and continue to create this mess.
If we applied this paradigm to the street it might play out like this
1. Four men rob a local bank, killing two employees.
2. The police arrive a few weeks later. They say, "This is not the time to point fingers. We need to refill the stolen cash."
3. The police print money using a confiscated counterfeiting machine and give the money to the banks.
4. Four men walk into another bank and rob it...
John Lawrence:
Realizing that all 401K plans may be different but the one I was in offered options for Fixed Income mutuals and I think there was even a Real Estate mutual fund available. It makes some sense that all investment options should be available to an employee but there is a need to control administrative costs, which in my case were paid by my emloyer. My employer offered a 50% match so even if I put it in a CD I was getting one helluva return on my money. Though many may not need it there is wisdom in placing limitations on investment options. No sense providing tax free investing if many will just fritter it away.
On your difference between a defined benefit and a defined contribution; again, I'm sure plans vary but in my case I contributed nothing to the plan, all contributions came from my employer. They shifted from benefit to contribution and the difference was under benefit they contributed each year an amount determined to provide my defined benefit payout at retirement. When they changed over they put a specific percentage of my earnings in the plan each month. When I retired I had options regarding how I wanted my funds, lump sum or a variety of annuities, but while I was employed I had no control and no investment in the fund.
No argument with your trade position. I was merely laying out the difficulty by suggesting that big may be difficult to avoid. I don't like it and I'm sure there are machinations that can be effected to align our system with your stated goals but I just don't see them at this point. We may very well be heading toward a global business system but I doubt that will work to the benefit of US citizens.
What we do need is a business culture change along the lines of Frank's idea but getting there will take time and I'm not sure that can ever happen. Obama's tax proposals for rewarding firms that create jobs here is a start but my thinking is that would work better if corporate taxes were raised, to no less than 50%, and then provide large tax credits for job creation. The age old problem is that the government legislates and the corporate world manipulates.
Art the government might legislate, but the corporations employ teams of lawyers to write the legislation.
That old Schoolyard Rock cartoon that explains how a bill is created and becomes a law isn't representing the norm anymore, if it ever did.
John,
The new cultural-economic paradigm for the next decade or two might comprise the following core values:
--Financially Conservative
--Commercially Innovative
--Internally Focused on Jobs
--Socially Progressive
The challenge is how to harmonize these values and how to realize them in a step-for-step series of specific actions leading to a stable path of social-economic progression.
Above all, this means getting away from the destructive cultural thinking that Big and Fast growing is always better. For example, current and past history has shown us that large Tax Cuts are not an immediate panacea for prosperity and the same applies to extensive social spending. Big and inefficient cars are another example of grossly misplaced cultural values causing a waste of scarce resources and job insecurities. Automation, mergers and acquisitions, and outsourcing jobs -- all causing rampant job destruction -- is undermining the precise purchasing power base that makes our economy work.
The key to reinventing ourselves around the new troublesome realities of fierce global connectedness and competition, is to find the right balance between government and market forces to structurally serve the general welfare of ALL citizens.
This means throwing out the window the self-limiting, hardened liberal and conservative dogmas of the past to open the door to fresh ideas for achieving some pragmatic variation of the new values paradigm noted above.
It implies a 180 degree change in business priorities from:
Shareholders
Customers
Employees
to Warren Buffett´s ideal of:
Employees
Customers
Shareholders
It means recognizing our Social Net system is 20th century archaic for a 21st century where job change and disruption will be the order of the day. This means treating people as dispensible commodities must come to an end. It means being proud as the Canadians are of providing basically good health care and unemployment benefits for all citizens. Is this Socialism? No, I call it Government and Capitalism working together to close the huge gaps between the Haves and the Have nots that is creating insidious divdes in our society ... in effect, it's Enterprising Capitalism with a responsible and financially sound Social Conscience.
It means providing strong incentives for industry to redirect its energies, and innovative talents to the new 21st century job generation sectors that will lead to more household and national financial independence from the fossil fuel "cocaine fix" supplied so willingly by our Arab friends.
It means gradually resurrecting the old traditions of "living within our means." For example, many economists, including Dr. Reich, get nervous when someone like me says we need to cut Consumption down from 72% of GDP to 64-65% of GDP while simultaneously increasing Savings from Zero to at least a 6% of GDP and increasing Investments from 4% of GDP 8% of GDP. What better timing to start moving towards this new balance then a time when we must Invest Internally to modernize and regenerate our economy?
This more structurally stable balance in our Economic model will get us away from the recurring cycles of consuming ourselves into excessive debt, thereby compounding problem of personal and system illiquidity ... and hence our inability to finance critical, long-term internal Investments necessary to spur job growth and energy independence without exponentially driving up our national Debt the next 10 years.
Is this new paradigm of values and many other related actions necessary to reinforce it -- which John Lawrence, Art Layman, and many others have been highlighting at great length -- easy to achieve? Certainly not. It requires exceptionally creative, flexible bipartisan leadership ... something we have been disgustingly horrible at the past 28 years. We are destined to sink further in the quicksand of financial collapse until we come to terms with this simple fact.
As Francis Fukuyama has said so well recently:
"Inequality in the U.S. rose throughout the past decade because the gains from economic growth went disproportionately to wealthier and better-educated Americans, while the incomes of working-class people stagnated."
"The Reagan Revolution broke the 50year dominance of liberals and Democrats in American politics and opened up room for different approaches to the problems of the time. But as the years have passed, what were once fresh ideas have hardened into HOARY DOGMAS."
"The quality of political debate has been coarsened by partisans who question not just ideas but the motives of their opponents. All this makes it harder to adjust to the new and difficult reality we face. American democracy has its work cut out for it."
Lastly, I would add the new paradigm of values means no one party has a monopoly on issues of proper religious and family values; on patriotism and protection of nation's security interests; on the perfect balance of economic policies that will fairly bring about fundamentally better economic stability for ALL Americans.
weaseldog:
All over the charts a little?
You argue that in education we need to try something, that any action is better than no action. Then on the credit/economy issue you argue exactly the opposite. Tis a puzzlement.
I don't disagree, totally, on the education issue but I believe the best start is in infrastructure enhancement. Fund the building of more schools to minimize class sizes, we have reams of evidence supporting that as a solution that yields favorable results. Rather than rush to increase teacher salaries, who knows what the levels should be, we could focus on easing teacher certification requirements, allowing well educated, experienced individuals to add to the teacher supply based on their credentials and less on whether they know how to wipe Jenny's nose. In the primary and even secondary schools we are not usually talking about teaching deep, involved theoretical aspects of the subject matter. For the most part we are dealing with teaching facts and building foundations for the theoretical discussions coming in the higher education venues.
If you were to read my response on the previous post you might better understand my point but let me try and summarize (haven't had time to watch your link yet). If you are modeling things with hard and fast rules or relationships or the results of mathematical calculations then models can be excellent forecasting tools. When compiling nothing more than historical data and then establishing algorithms that mirror the historic relationships, models can be effective, providing all the variables continue to respond in the same manner.
When you model issues with significant behavioral aspects you have little choice but to assume that historic behaviors will remain unchanged, this is often faulty and is a big part of the problem that lead to our current dilemma. Now a great deal of the time this will yield reasonable forecasts but when there is a change to behavior or historic relationships mathematical models can get blown out of the water. To a great extent, using exponential or many other smoothing techniques merely simplifies trend analysis, the input data are the data and applying exponentiality does not change the output, it merely tends to smooth it.
As I told you, I have created models, rudimentary by your standards, and I have used models and they are beneficial but I would never stake my life on their outputs. Mathematical algorithms are unforgiving, they act on input facts(?) and through an array of assumptions, on the part of the model builder, and they make calculations on those facts and produce results. If the facts or the assumptions are faulty the results are totally unreliable. There is a reason for the GIGO adage in the world of automation.
It is not that I don't understand your models, I know nothing about them. Lack of knowledge and lack of understanding are not the same thing. You make assertions and you tell me they are based on your models and are valid forecasts and I'm supposed to take that to the bank? I had a guy tell me about a bridge he had for sale and he applied that same logic.
You may be a mathematical genius and an economic genius and a scientific genius but I don't know that. All I know is that you predict doom and that generally is prima facie evidence for someone who doesn't see the forest or the trees. When applying modeling to auras made of fixed laws results are much more reliable. When modeling events that are much less fixed the results are more questionable. I once worked with a very astute IT guy, we called it DP back then, and he had a model, on paper, PCs weren't around yet, that predicted point spreads for the football pool at work. He had a 60 to 70% success ratio. Not bad but each week there were many, doing nothing more than eyeballing, who came up with similar success ratios.
I believe in the bailout plan, limitedly, because I understand the need to present strong balance sheets to a lender when seeking to borrow funds. It is integral to an approval process. A great deal of faith is required no matter how good the balance sheet is, and that's the "trust" part. If you can't start with a presentation that suggest you have some degree of verifiable solidity you fail to pass the smell test and you are doomed, often no matter how good your reputation is. Given that the current bailout approach attempts to solve that part of the equation it is a viable approach. It is risky and it may not work, at least optimally, but it seems to be starting at the crux of the issue.
Ironically, you are the one stating that you don't understand how it will work and therefore it's the wrong approach. Et tu Brute?
Much is made of the trillons at risk. This mostly comes from the CDS exposures, but the net risk is likely far less. For the most part the CDS's are backing up CDO's and the vast majority of the CDO's are sound. The problem is that their makeup is not transparent. There is know way, currently to see which of the mortgages in the CDO's are solid and which are at risk. Admittedly there does not seem to be a big push on breaking these down to better evaluate them, an approach that was built into Treasury buying the exotic assets but scrapped or at least lowered in priority in the capital infusion decision. That issue should be addressed sooner rather than later.
Meantime, banks make money by lending money. In the near term they may sit on cash, waiting, but at some point they will realize that sitting on cash, yielding minimal returns, is a fool's quest and they will begin taking risks again. Loans and lines of credit may be full of many more restrictions than was the norm eight months ago but they will begin lending again. The government and the Fed may have to get nastier if they dawdle too long but there are no signs that the current bailout is taking place and everyone, Paulson and Bernanke, are sitting on their thumbs and waiting. In fact I don't know that any bailout transactions have taken place yet.
I doubt that many banks like the terms, they could be a whole lot more restrictive, for my money, but they ain't exactly a free ride as they stand. The financial world doesn't function well treading water and eventually they will go back to seeking outlandish profits to buy back the preferred stock and get back to them fantastic executive bonuses.
Analogies are cute and I am as guilty as the next at using them but many of them are apt. You can't stitch the wound until you stop the bleeding. That is what is going on now. We sorely need long term fixes and I agree a bottoms up approach is best. Long term fixes, up down or sideways, take time, if we're going to do them right. To focus on long term solutions right now at the expense of trying to jump start the financial world would leave many in the dire straits you are predicting. Is your disagreement predicated on wanting to be right?
I have great degree of trust in Bernanke. I have limited trust in Paulson but he is bright and he probably understands the root mechanisms better than most. If I had to rely on trusting Dumbya I would have committed Hara-Kiri weeks ago. Damn near everything we do is based on trust of one thing or another. You start your car engine every morning trusting that it won't explode. Last time I looked, we humans don't function well in cocoons.
Mr. Reich,
I very much appreciated your commentary on Marketplace yesterday regarding concentration of private power.
In the matter of the Google-Doubleclick merger review, EPIC argued last year to the FTC that the Commission must consider the privacy implications of the proposed merger because the two firms gather such extensive information on Internet users.
When the Commission approved the merger without privacy safeguards, I went back and reviewed the history of antitrust authority and realized, as you noted yesterday, that market concentration is an insufficient way to understand the problem of monopoly control. (My statement on the FTC's failure to apply the appropriate antitrust standard is available here:
http://epic.org/privacy/ftc/google/EPIC_statement122007.pdf)
In a final ironic note, I am reluctant to register with your blog to express this opinion because it is operated by Blogger, a Google company, and would require me to create a Google account.
Regards,
Marc Rotenberg.
Art says "You argue that in education we need to try something, that any action is better than no action. Then on the credit/economy issue you argue exactly the opposite. Tis a puzzlement."
No, I'm saying that doing harm is worse than doing nothing. I believe that our current bailout policies will cause harm and no good will come from it.
You said, "Ironically, you are the one stating that you don't understand how it will work and therefore it's the wrong approach. Et tu Brute?"
Right. I see how it can cause harm, but there seems to be nothing about our plan that can solve the problem. There is a strong belief that it will work. but it doesn't address the fundamentals that got us into this mess. It;s nothing but voodoo.
As you you haven't watched the video, there's nothing for me to say about modeling. You haven't told me anything new on that front. I sent you the link, because until we need to have some common ground to discuss.
The exponential function is critical to understanding resource consumption limits. Once you understand it, whether you agree on it or not, we'll at least have some common ground.
I've seen no reason to trust Bernanke. I don't need faith to trust that my car won't explode. I have a rough idea of what it takes to make a car explode. It would have to be an intentional act of murder. We might as well have faith that someone won't just walk up and shoot us in the head, ala John Lennon. This isn't the same in my view as trusting Bernanke, when he says trying to grow a new bubble. I think that I can trust him to do the wrong thing.
The whole point of the bailout is to blow a new bubble into a system that is still too bloated to function. The fundamentals if repaired still can't support our financial network at it's current size and debt levels without sever hyperinflation.
Now the Bernanke Brand Salve and Ointment Creme might actually staunch the bleeding and blow a bigger bubble. so for a year, you might well look like you've proven your point. But then it will bust and we'll be talking about $100 Trillion bailouts next time around.
I'll go on a limb and predict that the finance sector may improve, but you won't see significant improvement in the industrial sector. You won't see job creation from this fix. The only way I see the unemployment figures turning around is if our next President creates a make work job program. An infrastructure rebuilding program will be plagued by rapidly rising costs and materials shortages.
I look forward to your comments on the videos.
The FCC should force TV satellite companies to standardize on equipment to allow customers to switch between providers. These companies are oligopolies sanctioned by government to operate in our American wave lengths.
These guys are getting too big to fail. They are also price fixing. Their rates and packages are unfairly priced.
I only watch 10 stations, but I’m forced to pay for 150. I should have options on stations and providers.
Where is the antitrust regulation and oversight. Americans are getting gouged. It’s just another out-of-control inflationary, non-capitalistic utility cost that needs to be redefined for out times.
These expenses contribute to the inflationary pressures of all Americans. Commerce that uses American taxpayer airwaves needs to operate with controlled profit limits.
Alan Greenspan admitted to a House panel today that his "ideology was flawed." You mean there was a flaw in the unfettered capitalism-Ayn Rand Objectivism-Milton Friedman Capitalism and Freedom-Reaganomics that Greenspan has espoused his entire life and acted on as Fed chairman for 20 years? Really?? I can't believe it. And this led to the recent economic meltdown, an event, Greenspan assured us, would only happen once every 100 years. Wow, how reassuring! And what was that minor flaw in your ideology?
You can find out here.
Check out the New York Times.
Dr. Reich,
My belief for some time that our Economic Model was and is fundamentally out-of-balance started during my years as an independent general management consultant to Dutch international firms in the late 60s and 70s.
Traveling constantly in Europe and between Holland and US, I became interested in observing closely how other economies worked. In the process, I have consistently witnessed over the years relatively less severe and less frequent cyclical downturns in Holland and selected other mature European countries... while recoveries have been generally slower than the US.
I've concluded the Dutch decades-long year-in and year-out disciplined balanced budget policies have contributed to a culture of Prudence and Savings that has been a stabilizing constant for the Dutch economy. Strengthening this is a culture that believes we are "all all on this earth together" to share its scarce treasures.And so there is general acceptability here of a progressive tax system now at 50% for high incomes and 35% on most other incomes ... but people get concrete valuable social and infrastructure services for their money without excessive abuse or unemployment in the better managed countries.
In addition, Dutch and European banks have always had regulations requiring much higher bank reserves than in America.Banks have not adopted our securitization and exotic pyramid financial product casino. If they had, the world financial system today would without a doubt be in a state of absolute total collapse.
US conservative dogmatists would quickly label this Socialism. The Dutch would call it Balanced Capitalism with proven economic and cultural benefits. For example, Holland's GDP per Capita beats the UK, Germany and France. It has a rather stable employment history in the 5% range and no extreme private or public Debt balances ... and here's the important part ... all this with a per Capita Consumption much lower than the US combined with a high 6%of GDP Savings rate and a high 6-8%of GDP Investment rate as strong supporting drivers of GDP growth. This model has resulted in respectably stable GDP growth of 3%to 4% annually over last decade.
To show how lower per Capita Consumption rates do not necessarily mean stagnant GDP growth when combined with high Savings and high Investment, I offer the following very interesting OECD country Consumption and GDP per Capita data expressed as a percentage of average performance of all OECD countries.
___________________________________TABLE 26: ACTUAL INDIVIDUAL CONSUMPTION (AIC) and GDP Per CAPITA as a % of OECD AVERAGE (Real Per Capita Data)
___________________________________
......................AIC %...GDP %
DENMARK..............102%....105%
FRANCE...............106%....102%
GERMANY..............103%....105%
ITALY.................93%.....96%
NETHERLANDS..(a).....107%....120%
NORWAY.......(a).....117%....164%
SPAIN.................91%.....94%
SWEDEN.......(a).....104%....110%
SWITZERLAND..(a).....109%....122%
UK...........(b).....119%....109%
CANADA.......(a).....112%....121%
U.S..........(b).....152%....144%
(a)= Lower AIC with Higher GDP
(b)= Higher AIC with Lower GDP
Source: OECD Publication, Nov. 21, 2007
___________________________________
COMMENTS:
The U.S. beats Europe by far in Actual Individual Consumption (AIC) Per Capita as a percentage of average OECD results. BUT, there's something really peculiar in the results above: the GDP Per Capita for the Netherlands, Norway (with oil/gas exports and Soverign Wealth Fund), Sweden, and Switzerland all come out well-ABOVE the OECD average with much LOWER Consumption Per Capita than the U.S.
In another peculiar contrast, the UK's GDP Per Capita is about 9% above the OECD average whereas its Actual Individual Consumption Per Capita is far HIGHER at 19% above the OECD average. The study concludes this UK result reflects a volume of Investment Per Capita that is far BELOW the OECD average.
On the other hand, in the Netherlands the situation is reversed with GDP Per Capita, at 17%above the OECD average, being relatively much HIGHER than Consumption Per Capita, at 7% above the OECD average ... all indicating the volume of Investment driving Hollnd's GDP is well ABOVE the OECD average.
CONCLUSION:
An Economic Model emphasizing a relatively high dependence on a high level of Consumption as a driver of GDP is NOT necessarily the onlyMagical way to have a stable, growing economy offering a fair playing field for all. Canada and Holland show that a relatively lower Consumption level combined wuth a relatively high Investment level can result in a very attractive Per Capita GDP growth ... while the U.S. with its very high Consumption level Per Capita shows a LOWER GDP per Capita.
America's economy has been driven mainly by growth in Consumption with weak Savings and Investment as GDP drivers. The faster the Consumption growth, the better was the GDP growth. This worked for a period through the 60s and 70s when all incomes were growing with strong economic growth.
But commencing in the 80s, cracks in our Economic Model started to subtley appear, e.g., in 1989 we were no longer a CREDITOR nation to other nations. We started to become in a relatively short period of 20 years the world's greatest DEBTOR nation with a national Debt rising from 1950 to $10.0 trillion in 2008 -- $7.4 trillion of which occurred during Reagan/Bush Sr./Bush Jr.'s Presidential terms.
In brief, the overemphasis on Consumption at 72% of GDP brought Savings down from +8% of GDP in the mid 80s to ZERO today. THis combined with two decades of stagnant middle working class wages and sub-prime irresponsible lending practices cause the Debt explosion and resultant financial breakdown.
In contrast, mature European countries with higher Savings and Investments combined with relatively lower Consumption levels have still also relatively had stable financial times and GDP growth ... up to being infected by now by the US sub-prime/exotic financial product disaster.
weaseldog:
Right. I see how it can cause harm, but there seems to be nothing about our plan that can solve the problem. There is a strong belief that it will work. but it doesn't address the fundamentals that got us into this mess. It;s nothing but voodoo.
Try as I might I can't seem to get you off your myopic view. Now is not the time to try and fix the fundamentals of what got us here. The credit crunch, right now, is much more critical than the economic crunch, simply because the economy cannot function without credit availability. Congress is already starting hearings to try and sort out the causes of the current financial mess. They would be the ones to frame solutions to the bigger problems anyway. It is not up to Bernanke or Paulson to attempt to solve the fundamental problems.
You mention your certainty of harm but you don't clearly define what that harm is. Surely it's adding to the debt but I don't know that that is your focus.
Your Lennon analogy is another example of "trust". You refer to it as faith but we go out and about in this world "trusting" that no one will shoot us.
We have well educated, experienced people put into positions of managing and solving problems. Bernanke, as well as Paulson, have earned their respective positions. We put those types into those positions primarily because we "trust" them to guide us through perils. It is always possible, given human nature, that they will make errors but would you rather have Dumbya in charge?
Our whole financial system, including the stock market, is a bubble. It operates with some regulation, granted not enough, and a whole lot of faith that all parties will do what they say. Are we to presume that those in charge have learned nothing from the experience. Greenspan was a bright man and certainly worthy of the role he was given. Unfortunately his ideologies got in the way of his good sense. Much is made of his allowing easy money due to his lowering of interest rates but he was trying to stem a recession and turn around growth, especially unemployment, which is part of the Fed charter. He largely failed because he didn't connect all the dots of the worldview he was looking at. Bernanke/Paulson would appear to be connecting dots right and left. They have gathered together financial leaders from around the world and while they may not have complete concurrence with their plan, similar models are popping up around the globe.
It is your prerogative to not "trust" them but that and a dime won't buy you another chicken. You don't have any choices. I "trust" Obama, not just because of his proposals but because of my sense of his intellect and problem-solving skills. It is the nature of the democratic system that we "trust" those whom we elect.
Most of our bubbles take much longer than a year to peak and tumble. A managed bubble is less worrisome than an unmanaged one. Chances are to turn our situation around, credit and the economy, we need a new bubble. The testy issue will be in putting on the brakes before the new bubble gets out of control.
This "fix" is a first step. It is not intended to create jobs or solve the industrial sector problems, other than those associated with obtaining credit. Much more work needs to be done to address those problems.
Will there be cost problems with an infrastructure program? You don't need a model to predict that, but the dollars, wasteful or not, will be cycling through our economy and will serve to drive growth. That action will also be just an initial fix. The long term remedy to jobs and employment is yet to be worked on.
You are becoming the antithesis of sbvor.
We don't elect Paulson, Bernanke or Greenspan. We don't choose them. they have been appointed by President Bush and approved by the Same Congress and Senate that have passed dozens of unconstitutional laws and promoted a war under false pretenses.
These people don't know you, they don't love and they don't care about you.
In my view, they have proven that they are smart enough to get through college, but that doesn't mean that they highly intelligent or wise. The same traits that give a man a greed and the drive to rise to the top of the financial industry does not necessarily have to translate being a sound fiscal manager.
History is replete with people who made it to the top levels in governments without being highly intelligent, wise or caring. My grandmother used to tell me the same thing, that people at the top are kind and wise. we only have to take a cursory glance at past leaders to see that this is a false assumption.
For a time, I did brokerage programming at a major bank. I met some of the most selfish and unsavory characters there that you could ever meet. They had no other ambition but to pump money into their own pockets and didn't care at all what damage they did to the bank or customers, so long as they didn't have to take the heat for it. They made trades, just to get the commissions, not because there were any fundamentals behind the moves. Customers never knew, so long as they weren't out line with the competition. They used to move mutual funds to manipulate the markets, so that customers giving them kickbacks got profitable trades. They were busted and fined along with other players in the industry. But it didn't matter. They just found other ways to cheat for the folks that tipped well. Just because they were in charge very large accounts didn't make them wise or kind, or ethical.
You still haven't watched that video have you? At least watch it before you start accusing me of being another version of SBvor. I don't see that you're even making the smallest effort to understand where I am coming from.
Though it's somewhat addicting to keep arguing in circles, I'd like to restart our discussion at the level of the fundamentals. Let's restart the discussion from provable math and science concepts.
I've been saying this for months. We're only making the situation worse, as the next failure will be of a magnitude far beyond what we're seeing today. Consolidation is NOT the answer.
"To Big to Fail" is an excuse for the wealthy to pick the pocket's of the ordinary Taxpayer.
The U.S. dollar is being debased right before our very eye's. Fiat money is being printed and used to nationalize corporations, inject liquidity into the financial system and bail out banks. The crooks have to be able to escape with their loot.
Everyone is afraid of having their taxes raised by the future administration, but it's already happening. Our currency is worth less and less as it's printed and injected into the failing financial system.
Are you proposing a global anti-trust agreement? or simply wanting US industries to get crushed by our international competitors? This area is not one in which the US can "lead by example" without dire consequences.
Does anyone believe in equal outcomes? Does history ever demonstrate economic equality among the masses? The closest is in Western democracies and those are now failing economically. We are destined to be more like Latin American countries with great wealth disparities and shrinking middle classes.
We believe that public education will lift people but many, if not most of them, are not capable of higher levels of education. Yet there is no place for these people to work for good wages. We get angry at people who do go higher and earn more. We grouse about doctors being paid so well and yet are not bothered by thuggish athletes making millions. Our priorities are warped. We believe that we should be free from failure, from bad things happening and we can achieve this with just the right amount of governance.
There simply has never been a time when some group, small, did not own most of the wealth and others tagged along or died. The poor have always been and always will be despite the fantasyland efforts to pretend otherwise.
There are those who believe somehow in the innate goodness of men and those who believe the "fix is in" and nothing will change it. I am with the latter.
Funny how derivatives that were created to spread risk ended up creating this situation where we are now trying to mitigate risk by concentrating!
We've gone from a system where 2/3rd of credit was issued by banks and 1/3 by the debt markets to one that has 2/3rd of credit being issued by the debt markets and 1/3 from banks... well at least until a couple of months ago...
I think we move back to a system where it is again banks that issue most of the credit in our economy... but then again, everyone's a bank now-a-days.
Roubini continue to paint a very bleak picture, foreclosures are spiking, and emerging markets are just starting to feel the heat. This isn't going to end anytime soon.
SpeciousRiches
http://speciousriches.wordpress.com
John,
In my article about a new paradigm of values, I mentioned this includes "living within our means." By this I meant not only less trivial Consumption, smaller cars, refrigerators, freezers, homes, for example, but also Government living within its means referring specifically, for example, to cutting sharply back on massive Defense expenditures we can no longer afford ... something you are also a strong advocate of in your Reform Mantra for our nation:
Definancializating Deconsumerising Demilitarizing Over time, we will get far more job generation and societal productivity benefits for each dollar of excessive Defense expenditures for troops, bases and missiles that is reallocated to infrastructure, alternate fuels, health care, etc.
John,
correction:
...your Reform Mantra for our nation:
Definancializing
Deconsumerizing
Demilitarizing
Over time, we will get much more job generation and societal productivity benefits ...
John,
Along with suggested "Paradigm Values" noted above, I come back to our Reform and Reconstruction Mantras as being not a bad starting point for thinking about how to reinvent and update our society's Social-Economic model with new policies and programs:
REFORM MANTRA:
Definancializing
Deconsumerizing
Demilitarizing
RECONSTRUCTION MANTRA:
Innovating
Industrializing
Invigorating Investment
"Too big to fail" is an obvious lie. There is nothing in the Universe that is "too big to fail". The bigger they are, the harder they fall. That is the truth of it.
The comment that this is not the time for the USA to try to lead, seems a bit ironic.
In many ways, under Bush we've been trying to lead as we blaze new trails. Now we're almost all alone, with alone the Phillipines and Samoa to keep us company.
Can you be a leader if no one follows you?
"Do you want Freedom Fries with that?"
The word verification reads, "mingusas". Reminds me of Flash Gordon.
This entire cycle validates the Austrian theory of the business cycle. More regulation isn't the answer - letting every business succeed or fail entirely on its own is the way to prevent these disasters. No one is too big to fail.
Dr. Reich,
The morally and humanly bankrupt Republican Party is out-of-touch with its traditional common sense, its proud fiscal conservatism, its pragmatism, prudence and preference for "balanced budgets rather than unbalanced attacks," its unacceptance of rabble-rousing dumbness and questioning people's patriotism. An industrious, down-to-earth honesty has given way to trash talk, slanderous inuendos, fearmongering, and an ideological with-us-or-against-us hodgepodge, pandering to the working class but serving the money class.
If you asked me the question, "Is the Republican Party Too Big to Fail?" The answer is clearly, No! Give me back civility and concern for community ... the sooner, the better.
Well said Anonymous...
I don't believe that people are voting for Obama as just democrats... they are voting for democracy... republicans need to re-examine that definition... they have been pushing for plutocracy and not democracy... any nation will have the poor, the weak, the mentally ill, but some nations manage that side of society with a balance towards compassion and providing an environment where the disadvantaged have opportunities to lift themselves up.
I know persons that cannot make enough money to pay for childcare and work. The gas, clothing, daycare, etc does not make economic sense for them to struggle in minimum wage job.
I don’t define Obama as a democrat… I define him as a new politician for our time. Someone that can represent the better side of America.
Art, did you see Greenspan yesterday?!!!
He told congress that what he learned from all this, is that for 40 years, he misunderstood how the world works! He didn't know that any of these things we're seeing now could happen!
I thought he'd use his economic gobbledy speak to worm his way out of the testimony. I never expected him to just come right and explain that he just never knew what he was doing!
Thanks for coming out and saying this. It's the obvious truth that no one else will say.
Weaseldog,
A quick comment about Greenspan: he said in so many words he never thought the banking industry would become so pervasively wild in its lending practices. How forgetful he was about the greed excesses in 1992 with the Savings and Loan fiasco. Also, how forgetful were the people asking him questions that -- in the midst of the 2002-07 bubble spurred by Fed's cheap money policy under his chairmanship -- Greenspan himself said more than once especially bearing in mind the exotic financial derivatives, Ït's an accident waiting to happen." But he did NOTHING because of his naive assumption that the market would and could self-correct itself.
He showed poor judgment all the way around here. An equally egregious mistake was and is the accepted norm that the Fed chairmanship appointment apparently has no tenure Limits. The term should have a fixed limit of say, 6 years. Otherwise, risks of people losing the touch or becoming carried away or blinded with their own infallibility will inevitably occur.
Frank, a coworker of mine learned something from Greenspan.
Greenspan argued that he didn't have enough data to make the right decisions.
The so the new excuse for screwing up will be, "I really needed more data." And in, "Honey, I didn't take out the trash, because I needed more data."
I heard this essay on NPR a couple of days ago and thought to myself, "Yes! Someone else is thinking the same thing I've been pondering lately." Luckily, that someone is Robert Reich, a person of considerable reputation, whose opinions carry much more weight than my own.
There may be a good and legitimate reason for allowing (even encouraging) companies to reach TBTF status. However, if that is the case, our representatives must devise a regulatory system that ensures that failure can not occur, or that if it does occur, it is fail-safe. Perhaps TBTF companies, whether they be car manufacturers or financial services firms, should be regulated like banks and pay into an insurance fund. If so, that insurance fund has to be big enough to handle the simultaneous collapse of multiple TBTFs.
Maybe this global financial crisis is related to a larger perspective rather then at the level related to the SIZE of a corporation.
Maybe this historic event is exactly what is needed to force governments and markets to fall in line with the natural evolution of mankind’s financial and commercial interactions across diverse borders has become evermore intertwined .
Globalization has set historical records for “accelerated rates of change” across societies.
No one government would have the foresight or power to convince everyone that a new financial game must be defined for the world.
Maybe the natural phenomenon of chaos theory is at play and the entire system is resetting itself.
Maybe everything is happening because at this point in history, it needs to happen.
Maybe the attitudes of average Americans have seen enough dysfunctional politics and they are now looking for a new type of leader that can bring order and common sense to complex decisions that equate to what would be best for a new world order.
I am inspired and I have new hope. Dr. Reich is an example of voice that can help guide a better opportunity for a new American life.
Thank you for saying this! This has been on my mind for weeks. And why is it that we don't here more of this kind of discussion?
From Warren Brussee's blog. He's discussed a Second Great Depression:
http://wbrussee.wordpress.com/
By the way! The person picked to handle the $700 billion bailout money is 35-year-old Neel Kashiri. He has a Bachelor’s and Master’s degree in engineering and worked as an engineer for some period of time. He then got his MBA and went to work for Goldman Sachs. In his relatively few years on-the-job, he apparently learned/practiced all the methodology that got us into this financial mess. He describes himself as a “free-market Republican.” I think that Sarah was their first choice to handle the bailout money, but McCain beat them to her!
I have seen Neel's last name spelled Kashkari.
http://wormseyevieweconomics.blogspot.com/
Frank:
The key to reinventing ourselves around the new troublesome realities of fierce global connectedness and competition, is to find the right balance between government and market forces to structurally serve the general welfare of ALL citizens.
This means throwing out the window the self-limiting, hardened liberal and conservative dogmas of the past to open the door to fresh ideas for achieving some pragmatic variation of the new values paradigm noted above.
I couldn't agree more! Europeans have not been stymied, as Americans have, by the "either it's socialism or it's capitalism" debate. They've long synthsized the two to come up with what you call "balanced capitalism." This is precisely what Americans need to do. Somebody has to change the terms of the debate ... maybe, Obama?
If government can do capital injections in banks in return for an equity stake as the precedent is being set now, why not capital injections in industries in return for an equity stake? Why did the government not take an equity stake in GM in return for the recent $25 billion capital injection? They just gave them the money! Again they're giving away taxpayer money. Taxpayers should insist on an equity stake. And there's no reason why government can't originate industries such as the alternative energy industry with seed money, venture capital if you will, creating a public-private partnership.
Since government has set the precedent of being the capitalist of last resort, this same principle could be applied in the industrial and not just in the banking sector. Government has assumed the prerogative of picking and choosing which banks it wants to succeed and which it wants to fail, that is to say it is picking winners and losers, the same principle could be applied in the general economy - not with regard to every industry - that would be totalitarian - but with regard to certain vital industries that can't either function or get started without guidance and support that is not being provided by the private sphere. Government needs to take a more proactive role in both sunrising and sunseting certain industries.
As you say, automation is decreasing the number of jobs. Any mature industry has been automated so job destruction is part and parcel of the industrial process. Therefore, it is important that new jobs be created in new industries to replace those destroyed by automation - let alone off-shoring. Ultimately, there will be fewer jobs to go around so in order to survive as a society we will literally need to "spread the wealth around" as Obama has said. Sorry Joe the Plumber!
Norway has "spread the wealth around" and has made every citizen a member of its "ownership society" by creating a sovereign wealth fund that quite literally spreads the wealth to every citizen and makes every citizen an owner without requiring much from each citizen in return . Well, isn't this the meaning of wealth? Isn't this what wealthy parents do for their children? Trust funds anyone? Wealth is such that one can demand goods and services without providing labor in return. This is not to say that Norwegians don't work in their private sector, have jobs, don't also create private wealth. It's just to say that one component of their well-being is their share of publicly held (as opposed to [privately held) wealth. They profit from that wealth in addition to the wealth they profit from by virtue of private effort and participation in the labor market.
To sum up, what is needed in America is an understanding that we've fallen behind the rest of the world because we're still debating an either-or dichotomy: either it's socialism or it's capitalism - when the rest of the world has long since passed us by and combined the two in various flavors from the European flavor to the Asian flavor. Europe and Asia have created public wealth while the US has amassed huge public debt. The US needs to get beyond this silly debate and a President Obama will have the bully pulpit. Hopefully, he will use it effectively as well as implementing necessaary structural reforms.
One of the most glaring instances of hypocrisy we've been treated to in the McCain-Palin campaign is Sarah Palin's mocking referral to Obama's comment about "spreading the wealth around." As Governor of Alaska, Palin has presided over spreading the wealth around to each citizen of Alaska to the tune of $3269.00 just this year from Alaska's sovereign wealth fund whose monies are generated from royalties paid by oil companies drilling in Alaska. If this is not socialism, I don't know what is! But the clueless Palin is totally capable of shamefacedly calling black, white and up, down, a trait all good Republicans seem to have developed.
John,
Yes, John, it's downright mind-boggling to hear McCain and Palin's outright LIES to their audiences that Obama is going to increase their taxes and taxes on small businesses.
I believe Obama has said many, many times that there will be a tax CUT for those earning below $200,000 (who represent 95% of US households) and a modest tax INCREASE for those earning above $250,000.
The lying charade is that the very people the one-liner McCain and Palin are rousing, concerning taxes under Obama, are the very people who will receive a TAX CUT from Obama! That applies also to small businesses since most of them are going to receive tax incentives from Obama. And the thousands of small businesses earning less than $250,000 a year will receive tax breaks.
But both McCain and Palin pump people with the "White is Black" dogma, you refer to John, and his desperate audiences submit to the unthinking herd effect screaming their ageement to the very LIES that will undermine their welfare negatively ... as 95% of McCain's crowds earn less than $250,000!
Reagan and Bush Jr. gave big tax cuts that went primarily to the top 10%... thus disproportionately benefiting from prior Republican tax policies. And McCain wants to make Bush's tax cuts for the top 10% permanent. Obama is wisely saying it's time to balance past income tax cut inequities. At the same time, this will help reduce already significant Debt funds needed to finance critical job generating Investments in our internal economy over the next decade.
When is conservatism, as I've always valued it, going to get back its honest Common Sense and Concern for the general welfare of ALL citizens and "chil out" with its obsession of serving first the exponential wealth accumulation of Wall Street and the top 10% of society? ... and recognize it's time to bury the so-called the destructive TRICKLE DOWN demagoguery?
For the best conservative values of fostering both Individual and Community progress and quality of life, so impressively embodied in Presdident Dwight Eisenhower's eight-years of office, have descended to a "survival of the fittest" ideology over the last 28 years. This everyone-for-himself culture is creating dangerous class divisions in our democracy. It's also enfranchising a GREED factor that has nearly brought our economy to the brink of total collapse. We need to wake up fast and confront head-on our systemic ideological excesses ... for I feel this may be a last chance to get Market and Government impulses structurally in better balance for the future generations.
Frank:
A couple of clarifications:
(1) The Fed Chairman is appointed for only 4 years at a time but can be reappointed. I believe the max limit is 14 years plus any time remaining on his predecessor's term.
(2) I would bet that 100% of McCain's crowds earn less than $250,000, not counting the dignitaries on the stage with him. I've known a number of people at that earnings level and few of them would have been given to going to a campaign rally full of screaming half-wits. They are happy to go to a fund raising dinner at $5,000 a plate since the entry price assures them there will be no rabble there.
Haven't read the latest news today but Olberman pointed out last night Palin's latest idiotic gaffe - does this women have any IQ at all? In her "policy" speech yesterday she suggests that McCain/Palin will make sure that famlilies with special needs children will have the funding to aid them with their dilemmas. No longer will the government be wasting money on fruit fly research but will give that money to families in need. Now apparently fruit flies are used as a genetic model for much research regarding humans and at the University of North Carolina they are doing research on Autism using, you got it, fruit flies.
Not wanting to appear sexist or discriminatory but Palin may be the only woman in the world who is a "true blond" and dyes her hair dark.
Art,
Wasn't aware of exact Fed term for Chairmanship, but my meaning was that 6 years should be the maximum term (or perhaps 8 years given the cuurent 4 year renewable term rule). Must admit, though, a possible 8 year maximum reign doesn't make me feel very comfortable. Greenspan was definitely far too long in charge and met his Peter Principle.
Yes, I saw Palin's speech. My first reaction was that of course our society should provide special care for down-syndrome children. That's just simple basics that's covered over here for down-syndrome. I mean welcome to civilization, Sarah.
But she conviently pays small lip service to equally basic social net support most Americans are in need of in a number of critical areas, e.g., decent health care for all, human unemployment compensation for thousands of Americans without jobs ... some of whom may also have children with down syndrome.
Art, I don't think her remarks were making many Americans in all kinds of deep trouble today see hre competence to be VP of the US differently ... rather most saw it as her ploy to show she has a genuine motherly concern for down-syndrome children. But, this does not translate into an equally obvious concern for the many down and out in our nation presently.
She long ago came across to me as a kind of political imposter ... who will say most anything that fits the occasion ... who knows "a little about some things and a lot about nothing."
That's perhaps my rare judgemental cyncism at work, Art! Ironically, I can have this opinion in Holland without attomatically being labeled Sexist or Elitist.
weaseldog:
Never would I suggest that those elected to office are intelligent or bright or wise. I would generally argue to the contrary.
Being appointed to high office, also too (to use Palin speak), is not an automatic indicator of intelligence or wisdom. It took Dumbya three tries to make a reasonable choice for Treasury Secretary. He's on his third Attorney General and I'm not sure he's got that one right yet.
My point was that generally those appointed to high office are intelligent and wise or, at worst, are experts in the sphere of their influence. Most of Dumbya's picks were anamolies. His problem was that he didn't want to appoint anyone who was brighter than he was and that left him with no one to choose.
Now listening to Paulson, one might get a picture of a bumbling idiot, but word on the street has it that he was a very effective, successful executive in a financial world full of very bright people. His strengths were in his knowledge of the bits and pieces, not so much in the creative leadership arena. To attempt to unravel this spider web it seems reasonable that we should have someone who understands what it's made up of. Under his tutelage, Goldman was smart enough to be shorting the investment vehicles that have created the problem. Arguably unethical and definitely disingenuous, but smart, nonetheless. He is considerd a pretty bright guy by many who are in a much better situation to judge than you and I.
Bernanke, also too (could we be creating a new syntax?), is considered by almost everyone to be not only bright but very knowledgable about Economics with a special concentration in the causes of the Great Depression. Doesn't make him infallible but suggests he is a good fit to attack our current problems. Biggest problem is his tools are limited.
Greenspan, as hapless as he now appears, is also very bright. All in all, during his tenure he did a decent job. As I see it his failing was in being too ideological. His strong beliefs in Rand and Friedman operated as blinders. Not that he didn't see what was happening and certainly he was advised by compatriots but his faith in markets and their ability to wash things out, staying ever true to their own best interests, forced him, in his own view, to a laissez-faire approach. This was stupid but no thinking person ever suggests that the best and brightest are incapable of making stupid mistakes.
I wouldn't disgree with your view of a college degree. I have never been of the opinion that you had to be bright to get an undergraduate degree, hell I have a BSBA. It helps but it's not a prerequisite. As you travel upstream in academic endeavors, intellect becomes more important and a PhD is fair prima facie evidence that your intellect is a cut above. I have worked with a few PhDs who, outside their own knowledge specialty, couldn't boil water but that is not the norm. Masters degrees and especially PhDs generally suggest that in their specialties these guys are far from the common man. Oh and, sorry Dr. Reich, JDs as well.
Like all things, nothing is perfect, so your only options are to "trust" in the wisest and those are usually the better educated or more experienced.
I would proffer that criminals, beyond the mugger, armed robbery type, are often quite wise and intelligent. No doubt their intellect is warped and misdirected but the successful ones, usually short term, are pretty bright folks. Would you suggest that Milken was not bright? They often fail inspite of their intellect because their egos overcome their wisdom and they believe that they can forever beat the system.
weaseldog:
Watched the videos; interesting but not revelatory. No one argues that everything can continue infinitely. All of us in the accounting/finance world are well schooled in compound interest and though we may not define it as an exponential function we do know the results from compounding growth.
The coal example was an eye opener simply because I have seen, over the years, articles similar to what he pointed out, but never gave them much thought, one way or the other. I tended to discount coal usage because of its environmental impacts.
Population growth has always been considered a concern and the issue is addressed at times. When he starts to condemn the civilized world for overconsumption of resources he does drift away from math and science into ethics and morals and thus changes the discussion from what is to what should be. Fair enough, but he is expressing opinions at that point not facts. I have stated before, the real irony is that as we approach catastrophe, the have-nots of the underdeveloped world will be better equipped to deal with the new reality.
The interesting thing is that as the growth rate declines, which has been happening in population growth and is projected to continue to happen, the time window before critical mass also tends to expand exponentially.
Was a little confused by his bacteria in a bottle example. When he talks about some bacteria seeking other bottles he doesn't make it clear how many bacteria set up shop in the new bottles and his time conclusion seems to be predicated on all the bacteria from the first bottle inhabiting the second bottle and the third bottle. One could argue a degree of mutual exclusivity. I gather that he is postulating that the bacteria will act as a community and the new bottles will be shared by all, which then validates his calculation. Is it not possible that even as the first bottle begins to fill up the bacteria may seek to destroy each other and extend the inevitable?
In his closing he readily admits that his oil examples are not hard fact. Most are based on Hubbert's models which use best estimates of undiscovered oil. Dr. Barlett asserts that we now have tools to accurately estimate undiscovered oil. That does seem to argue that the tools cannot be improved to better estimate undiscovered oil. Is the delimiter undiscovered oil deposits or the tools?
In Hubbert's time, and even today, much reliance is put on the "fossil" origin of oil. That is a hypothesis which has been accepted but has never been proven, as I understand it. The Russians, operating on a different hypothesis which is not fully explained to the rest of the world, suggest that "fossil" origin theories are foolish. The amount of consummed and undiscovered oil supplies, to date, do tend to make "fossil" theory implausible. I don't know that they believe that oil is a renewable resource but they do have a different view of origins and believe that drilling much deeper will result in discovering deposits than no one else has any idea exist. Their success rate in avoiding dry holes does argue in their favor. Just recently China discovered new oil deposits somewhere under the sea.
None of the recent discoveries appear to be of the volumes of historic discoveries, but additional discoveries along with alternative fuel methods will increase supply and decrease the demand for oil and will tend to skew outward Hubbert's Peak Oil points.
Dr. Bartlett does allude to the biggest delimiter of all, currently. That being economically recoverable. At some point on the downward slope economics may have to take a backseat to needs. This would likely lead to nationalization of oil industries, but we're about the only ones who don't do that now. If survival requires more oil and there is more oil available, economic justifications become meaningless. In that scenario, it would behoove us to not Drill Here! Drill Now! and save our untapped reserves for a time when oil production will be directed to local needs rather than worldwide markets. I have harbored the suspicion that this has been our strategy since the oil embargos of the 70s.
I readily admit that I put my faith in science to avoid some of the calamities facing the world. Perhaps genetic research will come up with a way to again grow gills in humans and future generations can live in the sea. Of course if you thought Wall Street sharks were bad.
There are two basic outlooks; doom or optimism. Doom might be the more likely but it's depressing and tends to impede scientific advancement. Optimism, perhaps sillier, can be uplifting and free up minds to innovation. I'm not real keen on growing my own chickens or my own veggies. Faced with that I may opt for getting out of here. To hope or not to hope, that is the question.
Art and Weaseldog,
To sum up your long mutual discourse about doomsday inevitability or not, I can only recall an old expression:
" Pessimists most of the time have it right. Optimists have it most of the time wrong. But all the great changes in the world are the work of optimists."
Message: your different but observing intellects wax more meaningful when your direct them to how our country in the near and intermediate term might climb out of the threats to our economic system emanating from serious social-financial disfunctions undermining it.
Frank:
The debate between Obama and McCain regarding taxes is most interesting because for the first time in many years a politician has managed to defeat the Republican mantra of "I will lower your taxes; my opponent will raise them." Obama has repeated and repeated and pounded it home that he will raise taxes on the rich and lower them on the middle class. It seems obvious that a President could raise taxes on one segment of the population and lower them on another but this has never been part of the political discourse until now. More than anything I give Obama credit for breaking this Republican mindset which has been successfully foisted on the American people for 28 years.
Remember Bush Sr's campaign pledge, "Read my lips; no new taxes"? Then he was piunished when he did raise taxes. It seems that the American people until now were incapable of asking the question, - "exactly what taxes do you have in mind and exactly who will they affect?" The Republicans have successfully created the mindset that lowering taxes means that everbody's taxes will be lowered and that raising taxes means that everybody's taxes will be raised.
Obama has successfully broken this mindset, and, in my mind, it's his greatest achievement so far.
Hi! I'm an editor for Seeking Alpha. Please contact me at your earliest convenience at acarmel@seekingalpha.com. Abby
Dear Econobubleheads Populating this BLOG.
Did you finally get it?
Greenspan ( THE FED... HA FED again) said.
"only now, I realise, my model of free markets does not work"
Hellelujah.
This is the man we entrusted with worlds well being for 18 years. This is the man that Lies even now. He was made Knight by QUEEN of ENGLAND. He is the best picture of WHAT USA SOPITALISM is today.
You can committ collosal errors, even as very intelligent people for years said that you are doing so ( Jermey Grantham Robert Shiller, Boris Chikvashvili, etc... ) and later say. "I was naive" I belived in "free Markets"
ECONOBUBBLE heads on this board do not even want to recongnise that the we hava a falud system of FEDERAL RESEVER ( Money MAFIA) controlling our destiny , without any accountability.
They can just say. "my model did not work" , "I am shoked, and awed"
But, I Mr GREENSPAN can tell you now for sure ( for sure now) that this is the worst thing I could never foresee.
And we call this man MASETRO. We makde him the KNIGHT of England.
Proprietor of this blog never ever admitted that we have the flawed MONEY system.
Until it is totally scrapped. No amount of BS will solve problem.
Sorry Dear Robert. Your MODEL does not work either.
And anybody that comes here to listen to what you say. Will hear from you before long.
"I belived in wrong model"
The only working model for "free markets" is "free people" with "NO FIAT/PAPER/FUDGABLE/PRINTABLE MONEY"
Ron Paul knows that.
All ECONOBUBLEHEAD ON THIS BLOG no nothing.
They could never admit that FED/GOVernment is a problem.
Every solution they prpose is solution by government.
Get it trhough your think head.
GOVERHMEN needs to be constitutionally restricted to defence.
Leave everything else to the really "FREE MARKETS" based on real money that can not be printed.
I do not care if it GOLD or barter or any other thing. But not government and FED. FED GAVE SHADOWN banks ( GOLDMAN, MORGAN, BEAR money prtinging/debt printing capabilities). FED REFUSED to do even minimal supervision congress mandated.
PERIOD. ECONOBUBBLEHEADS
Good Trading
My concern is that the economy will stay bad until there is liquidity in the housing market.
Most of the proposals I see to address that try to help people keep prices at the last sale value
which is artificially inflating prices over the current market clearing amount. The Economist
had an article on this:
http://www.economist.com/finance/displaystory.cfm?story_id=12470547
which cites Luigi Zingales - Plan B paper.
http://faculty.chicagogsb.edu/luigi.zingales/research/PSpapers/plan_b.pdf
It not only has a proposal based on things that have been done before, to avoid foreclosures
while lowering house prices to the market rate, but also addresses the connectivity risk
between banks and other financial institutions.
Anyone interested in thinking carefully about future economic policy should read Zingales' plan B paper.
How miserable must be this man placing the 130 comment.
He is looking for another solution.
O(ther)P(eoples)M(oney) has a big attraction for all parasites including the one that placed this 130.
He , apparently can not rest either, until another experiment is conducted with OPM
Disgusting. Truely disgusting to see Americnas degenrated like this
Good Trading
Somewhere beneath all this is a failed legal system that has forgotten it's responsibility to enforce the truth. Or to put it another way, to punish liars.
We have a representative democracy where legislators make laws. And we have a support mechanism, the legal system, which is supposed to provide fair and affordable procedures to interpret and enforce the legislation's intent.
Both at the legislative, and at the corresponding judicial, levels, there is a breakdown when it comes to demanding that lies and liars be punished.
Business contracts become suicide pacts when one of the participants witholds or mis-represents information.
Political advertising, especially the negative type, is thinly veiled mis-representation at best, and outright lies at worst. If it's OK to do this type of thing when we elect our leadership, then how can one impose any standards elsewhere? We can't, of course. And we don't.
And the profit motive is totally in control of our judicial system as much as it is in control of the rest of our economy.
In short, it's a mess from bottom to top. But it is a mess that receives very little credit for how much it enabled the so-called "free market" to evolve into the cancer it's become. At bottom, lies have become acceptable. From political advertising, to investment brokers selling toxic waste, the truth has died and has no defenders.
Dear BEEZER,
Your are very smart and generous to call this failed.
No, not failed, pruposel failed and CORRUPT legal system
Good Trading
Dr. Reich: cc: John, Art
A political system that attempts to exploit and merge the best of all its parties is engaging in a REALISTIC POLITICS that shuns the use of double-talk utopian themes (e.g., small vs. big government, low taxes vs. high taxes, free markets first/government second, etc.) as justification for bad deeds or ideas.
In a political democracy such as ours, it's nearly impossible to mobilize voters WITHOUT a strongly UTOPIAN tinted story. This is illustrated by the difficult position that the "marverick" McCain finds himself in.
Shocked by the effects of his and Palin's rabble rousing crowd themes in encouraging hate, emotional pain and fear in some of his supporters (e.g., Sarah Palin's scurrilous suggestions Obama consorts with "terrorists" and plans to raise everyone's taxes), he was forced to speak up for the obvious "decency" of Obama and to assure supporters they have nothing to be afraid in Obama ... that he's an honorable, pragmatic, intelligent man.
But, the same McCain found it necessary to have the UTOPIAN (borderline radical) frontier-evengelical beliefs of Palin to mobilize his voters.
This is not "Realistic Politics" that separates personal morality and lifestyle convictions from the political collective. This is altruism confusing itself with Utopia and is exactly what our politics does not need but suffers from greatly. In the words of one Dutch philosopher, "Realism in politics means that only someone who recognizes the responsibilities as well as the abuses of power gives himself the possibilities of toning down that power (in the interests of everyone)."
Over last 28 years, our utopian excesses have migrated close to the Reagan era caraciture of individual self-interest, greed, societal neglect depicted by Michael Douglas as Gordon Gekko in the film Wall Street (1987). Here greed is good. Greed is right, greed works. Greed clarifies, cuts and captures the essence of the evolutionary spirit. Greed in all its forms ... for money, for life, for love, for the fast lane, for knowledge how to beat the system.
Most Americans want Realistic Politics and not the politics promising utopian dreams that play on the base emotions of greed, class divisions, political differences, and fears of the unknown. Enough is enough.
It's time to realize any utopian ideology, such as the naked extreme Capitalism from Reagan and Bush Jr., can descend into something very nasty and destructive as we are now experiencing. Roosevelt couldn't have said it better,
"We have always known that heedless self-interest was bad morals; we now know it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays."
"The true conservative seeks to protect the system of private property and free enterprise by correcting such injustices and inequalities as arise from it. The most serious threat to our institutions comes from those who refuse to face the need for CHANGE."
Dear frank
YOu should be call frankenstine...
YOu have no idea what you are talking about.
You carry everything in DEMS/REPS realm when it is not. YOu must be dumb or prtending because you want to continue confustion on peopld coming to this board.
WALL STREET greed knew/know no boundaries such as DEMS/REPS.
They all stink and are payed and bought by the shadow bankers on WALL STREET ( WELFARE STATE).
How dumb can you be to carry on with your stupid DEMS/REPS line, when it was under CLINTON that the collapse of AMERICAN manufacturing started to collapse.
Frankly, I prefered CLINTON over BUSH. Do not get me wrong.
But you are deceptive and you need to shut up or come up with something better than greed is good.
There is no lack of greed on either side of political devide of USA today.
I pitty this country this country with your "caliber" of intellect, trying to make sense of it
Good Trading
Good trading,
I've learned long ago one always goes nowhere in trying to reason with idiots. You didn't understand a word I said ... what is more sad and forgivable on my part is that you don't even realize that! Do some personal self-reflection, please. You are degrading this blog.
Idiot
You degrade AMERICA
PEOPLE over 120 counties respect me
Enter Boris chikvashvili in internet.
See who do they respect better you or me.
you are demagogue.
Always trying to blind peopole to reality.
Reality is that GREEDY worker is as bad as greedy banker.
You and your boss here, think DEMS can do something better.
BS.
Nothing
Ufortunately, actully, I love dems better.
You are idiot, who does not understand what I say.
Ok
Idiocy check.
1) Enter your name in internet
2) and then mine.
2)See who is idiot
You got that idiot
Good
I am glad
For all idiots
and econobubblheads on this blog
GREED comes from CENTRAL BANKERS distributing money withuot merit.
That is what FRANK idiot does not understand.
If he does, he does not want to go there.
Because then he would have nothing to write for next century.
CAPISH.
It is that simple. But idiots want to write and confuse. As if they do something.
They do not.
Simple as that.
Every subject Dr Reich raised is eventually leading to the CORRUPTION that comes from "free money" not "free capitalism"
It is "free money" Dr Reich so lasts for. He always comes up with ideas how to spend OPM ( other peoples money).
That is what you learn once you are part of
SOPITALISM( Socialism for rich only)
Where those with influence get the first dibs on "free money" and workers get the one after depreciation.
That what the itiod doe not understand. So he beats around "bushes" and "reagens" and "gecos" until he has totally confused everybody, himself included.
Good Trading
Dear true average Joe.
I spend hours to help people I do not know.
I do not confuse them. I teach them how fight the SOPITALISM ( SOCIALISM for RICH), which is what we have build in this country. Dr REICH, while brilliant man, is just part of it.
He does not teach you what the real problem is. He gives you so many problems, you head spins.
You see. In OLD USSR COMUNIST(SOPITALISTS, YEH!) gave us so little, we had to read between lines.
In USA form of SOPITALISM the method is exactly opposite. They GIVE YOU SO MUCH garbage information that you are confused. You do not know what, who the problem is.
So, As one versed in both methods. I am telling you. It is the SOPITALISTS ( BOth DEMS AND REPS) who allowed this country to degenerate inot SOCIALISM FOR CAPITAL ( SOPITALISM). WHERE the RISKS ARE SOCIALISED and profits are privatised.
So, simple. Yet you read blog after blog and get confused. Where am I. What these people talking about.
Confuse and ROBB. DEVIDE and CONCUR. SOPITALISTS ( DEMS/REPS, are boght sopitalists) have learned how to fight for your money, while pretending the are fighting "to give you more money".
You see , nobody can give you money.
That is fiction. There is no "free money", sorry there should not be any.
But FEDERAL RESEVE can create money, by giving loans to USA gov. Then it spends and WOW! there is a money, which is "free" to those who get it first. They they start bidding up prices and all get expensive and poor people end up with houses that are expensive, education that is expensive and debt that is expensive. They fall behind and fall apart. And SOPITALISTS find new ones. PT BARNUM said there always new sucker born, that USA system is fair to them.
OK, now you know all you need to know.
Just forget these lunatics, that think they know anything about economics or inteworkings of WORLDWIDE FIAT/MONEY SOPITALISTS, who controll everything in USA and world today.
Ok, My friend, I come here from time to time beacause I know you hosed by these people. I just want to them to be revealed in what they do.
Good Trading
euro27.India27
Frank:
Good proposition.
One must keep in mind, however, that there are two aspects to our governing process. The second phase, which is your focus, should be practiced with your "Realistic Politics". This part is the functional governing part. The part where cooperation and compromise comes into play to gain results.
Alas, the first phase, the heinous one, is the getting elected phase. In this phase the appeal to hard ideologies is necessary, or deemed so, to secure votes from the base of the each party. Spin and nuance, slander and obsequiousness, all manner of labelling opponents are then introduced to try and gather enough of the independent/crossover vote to guarantee victory.
Now you're much more of an historian than I, but my sense is that throughout most of the 20th century, the appeal in this phase was much less hard, broad political ideologies and was focused more on specific objectives within an ideological framework. Certainly Democrats promoted agendas that served the best interest of the common man and promoted achieving those interests through targeted legislation. To me this was much less a political ideology than a moral one.
Republicans didn't promote a "trickle down" philosophy but did propose that fiscal restraint and limited government should feed freedom for all. They knew that freedom inures to those with the means to best secure it but their intent was less predicated on an idea that those at the top would allow benefits to flow to the lower masses but rather that those benefits would spur actions from the lowers to strive to become one of the uppers. They tended to accept that where there is a will there is a way.
By denigrating the social advances, admittedly attained with some pitfalls, the era of Reagan conservatism entered the stage. Interestingly enough, Reagan conservatism was founded on Goldwater conservatism, but was an extreme aberration of it. Fed by, at best, a lame Carter administration and piggybacking on the distrust of the Great Society legislation, Reagan's team rose political ideology to preeminence.
Denouncing social programs as demotivating, both to ambition and to hard work, they proffered that tax cuts for the well off would "trickle down" to provide more opportunity for those desirous of the better life. They not only suggested that government is not the most efficient remedy for progress but that government is actually the enemy of progress. All those availing themselves of benefits from the Great Society were deadbeats and scumbags, procreating only because it provided bigger checks from the government. They took concerns about inequity, among the populace, and turned it into a weapon; not a new idea but they honed it to a fine edge.
This proved to be a successful election strategy and set the stage for future conservative campaigns. Nothing succeeds in politics like finding a feckless enemy, one which is incapable of mounting a collective response, and making that enemy the cause for all the woes of the general population.
Conservatives have maneuvered their arguments to the point that they have convinced many that elitists cannot possibly be a voice for the have-nots because they belong to the haves.
Perhaps the most seriously detrimental effect is that the conservative base began requiring an undying adherence to the ideologies espoused. Bush 41 was crucified, by his base, for violating his no new taxes pledge even though it was the right thing to do.
During the governing function, conservatives cling to their ideologies but the nature of getting things done, in a two party democracy, requires actions that might be starkly opposed to those same ideologies. Usually it is passed off as having to appease the "liberals" to further the conservative dream. To that extent we do, at times, practice "Realistic Politics", but the motivations are not altruistic.
McCain, himself, was forced to cast off his "maverick" tendencies to appeal to the base. One hopes we won't have to find out if he will revert back after getting elected but his actions were necessary to give him the best chances for winning the election. It is possible that his advanced age will allow him to be the compromiser par excellence if he should win but that will do little to solve the dilemma going forward with the next ambitious candidate.
The election part of the process now sets the stage for the governing part. I do believe that Obama offers us the best chance for breaking the continuum but it might end up being nothing more than a blip.
The true fault lies in the American public. They don't understand their history nor do they understand the functioning of their government. Worst of all, they have no idea what is the "general welfare".
Thank-you Dr Reich, for explaining the current economic issue in historic terms. Additional informative reading can be accessed from Bill Moyer's interview with Kevin Phillips and a google search on Brooksley Born to learn about her role for common sense regulation of derivatives.
Not too big to fail according to the executive leadership, and just got a massive injection of money to fund new acquisitions and get even bigger.
Joe Nocera (NYT) has written about this as he learned it direct from the mouths of the senior execs.
http://www.nytimes.com/2008/10/25/business/25nocera.html
Art,
Your point that with the onslaught of Reaganomics, the conservative base began requiring "an undying adherence to the ideologies espoused" under the distorted mantra "government is actually the enemy of progress" is precisely the point I was trying to make...
namely, that driven ideologies that may begin with a spark of genuine altruism behind them have a tendency to covert to unchallenged UTOPIAN IDEALISM.
Europeans are far ahead of us in realizing that no one ideology or absolute morality has the final answers to societal problems nor can possibly reflect the diverse needs of a society effectively ... therefore the typical European 3-4 party systems where elections and governance are far less based on pure ideology but far more on dispassionate compromise, on putting all ideas on the table, on the coalition that has the best programs to serve broad based public interests. Utopian idealism is a difficult implant here in contrast to our political swings for long periods from one ideological extreme to another with all the volatile repercussions therefrom.
And when I still hear McCain & Company repeat over and over Democrats are BIG Government and Big Spenders and Redistributors of Wealth (as if there's been no Redistribution of Wealth under Reagan and Bush Jr.), then this is, in my humble opinion, not just politics as usual but an idealism that has become accepted utopian demogoguery by large numbers of Americans.
My point is there is a very thin line between passionate idealism and utopian extremes that can cause people to resort to feverish anger, utter frustration, and even violence. Fortunately, we are not that far by any means, but the outbursts Europeans heard and saw on TV here at some of McCain's campaign gatherings came across as very shocking ... as if America has descended into a hopelessly polarized society that can't even come together or contemplate wise change in these so serious of times ... the my party at all costs syndrome, as you alluded to Art.
I have no doubts whatsoever that Obama will bring back that better side of Americans too long buried in HOARY DOGMAS, (in the words of Fukuyama)... Americans who want problems solved pragmatically, creatively and prudently in the interests of ALL.
Naive? Perhaps. But, you'll have to admit we've got no one to blame but ourselves for the current social and economic Mess we are in.
Pessimists see a problem in every opportunity. Optimists see an opportunity in every problem. The latter is our great heritage ... not inflexible ideologies or utopian idealism where Realism takes a back seat.
Art,
correction: 1st paragraph, next to last sentence:
covert should be 'convert'
Thanks for watching Art.
As he argued in the video, doubling the known oil reserves will only push the peak back 15 years or so. This is seems an impossible accomplishment so long as new discoveries keep trending downward in size.
To really push the peak back, we need ten or twenty new Saudi Arabias.
You have the argument on abiotic oil backwards. The fossil origin of oil is widely accepted by even the folks that believe in the abiotic theory. This is because crude oil contains bioligical decay products that allow us to identify to some degree what kind of organisms decomposed and cooked to to form the oil. Further these products tells us how old the oil is.
The abiotic oil theory itself posits that it may be unprovable, because every field may be contaminated by biotic oil. The conclusive proof of abiotic oil would come from finding a pool with no biological markers.
Even if abiotic oil is real, it still takes over a million years to cook up enough to power our civilization for one year. In fact because the era of biological oil production may not repeated, (so no new fossil oil), it may take many millions of years to produce one year's worth of consumption.
The population studies that predict that population growth will slow, are basing their analysis on resource depletion and famine. In other words, they expect that people will die at earlier ages and infant mortality will rise. These studies ignore Peak Oil and just look at declining soil fertility, habitat destruction and fish stock depletion.
Peak Oil also predicts a population decline over the next 50 years or so.
you haven't exactly presented a message of hope in the argument that population growth will slow, when a person takes time to read the reports.
Frank, optimism does seem to be a characteristic of growing civilizations. As it conquers new continents and finds new resources to feed on.
But a civilization in decline, with a declining resource base doesn't grow from optimism. It needs a bit more than that.
I Haiti now, the people are mixing dirt with cooking oil to bake and make cakes for food. Though optimism might make the m feel better, real food would likely do them more good.
Haiti's Poor Forced to Eat Dirt As Food
I would go so far as to make the argument that food or a dozen super giant oil discoveries could fuel optimism.
Frank Thomas said, "Message: your different but observing intellects wax more meaningful when your direct them to how our country in the near and intermediate term might climb out of the threats to our economic system emanating from serious social-financial disfunctions undermining it."
I wrote quite a bit about this in 1999-2001. The essence of my arguments is that because industry drives economics and energy drives industry, then our money supply should be based on an energy standard.
This argument is similar to arguments for a gold standard and helps to make sense of why the gold standard worked well in some period of history and not so well in others. Essentially, when we got our energy primarily from agriculture, we were constrained by sever limits. Likewise gold was limited by the amount of toil that man could devote to it's pursuit.
When the industrial revolution kicked off, a money supply that didn't grow with industry experienced shocks and didn't work well. So for over a century we've used the fiat system, to grow the money supply and keep it more or less inline with industry.
This has created the unfortunate side effect of giving us prize winning economics theories that pretend that money can operate outside the physical world and that theoretically, it can create matter and energy out of nothing. Though I engage in hyperbole, that isn't far from the argument that Friedman makes about the Flat Earth Theory that he pushed. It assumes that infinite quantities of energy is available in substitutable forms. With all the energy, I wonder why the Earth hasn't exploded and destroyed the universe.
Now if the money supply must grow to meet a growing industrial base, then it follows that it must shrink when the industrial base declines. Otherwise a growing money base during a time of industrial contraction, will lead to a devalued currency, and price inflation.
Our leadership believes in the Friedman doctrine that creating money, powers industry. It's a notion can lead one to argue that putting dollar bills in a gas tank works as a substitute for gasoline. Obviously this isn't true.
Likewise simply increasing the money supply will not increase industry, if industry is constrained by the availability of required resources.
Further, an increase in the money supply during resource declines will cause the money to seek safer havens. The smart investor will not invest industries that are being harmed rising costs and diminishing profits. They will look for the sector that produces the best return on their money.
In this modern time, Ponzi schemes of financial instruments, can yield better returns than investing in a sector that creates physical goods. Rather than invest in an automotive corporation, a smart investor will put his money in debt driven instruments that derive value from inflationary forces.
It seems clear that Bush, Paulson and Bernanke are aware of this. That's like why they don't want to put the money into systems that will help the middle class. They understand that the return on investment in those sectors are poor. They have been decoupling finance from the physical world. They appear to be determined to continue this course and make high finance an island that has not connection to the real world production and trade of goods and services. That sort of stuff makes a mess of Ivory Tower Economic Theories anyway.
In time like this a more stable system would reduce or eliminate usury and money supply growth.
I have no idea how to get from here to there. I don't believe that our leadership would willingly make the transition.
So in the mean time, the money supply will keep increasing at the top levels of finance. Investment in real world production will languish. Loans made will have to be repaid in a financial environment seeing a constrained money supply. This will force more defaults. The system we have depends on a growing money supply to cover interest repayment.
This can only be turn around if one of two conditions can be met.
1. Several new Saudi Arabias are found.
2. Laws and policies are dramatically altered to promote the investment in industry over finance.
I am pessimistic that either of these will occur.
Frank, I've picked up, 'The Federalist' as light reading for my daily train commute.
I find it fascinating that the first essay covers much of the same ground as your recent exchange with Art.
If it weren't for the sentence structure, one might think that those essays were about contemporary events.
Abby
Are you a complete idiot?
THINK!
Weaseldog,
No, it's the exponential cumulative effect of LITTLE as much as, if not more than, BIG breakthroughs/adaptations spurred by the optimists, adventurers, and risk takers at all levels of society that insure civilization's gradual progress and survival ... ignoring nuclear self-destruction for a moment.
I've been watching Haiti's deplorable, permanent state of decay and stagnation for 40 years! Some societies just don't make it and are replaced with a new species. Malthus was right in his general warning we are all vulnerable in some way, but some more than others, ... to the ravages of nature, food/water/energy shortages, corruption, pure evil deeds (institutionalized by the Stalins, Mussolinis, Maos, Hitlers of our generation, for example). His prediction of recurring population loss tragedies which likely becomes more probable with growing world population is a sad Reality.
But, like Art, I still have divine faith in Mankind's love of its visit to Mother Earth and to overstay the hospitality for so long as possible ... which requires the ingenuity of the risk takers and innovators and "slow-downers" to generate enough resources and sensible exploitation of nature's gifts to extend the stay, maybe adapting to 2nd or 3rd class comforts, if you know what I mean.
Like, Art also, I'm a rational optimist heart and soul ... only wish is that we could plunge ourselves as much into study of the Humanities as we are forced to do in the Natural Sciences. The two reinforce each and temper the excesses of humanity in so many subtle ways.
Most Europeans, exposed to many wars and different cultures over the ages, long ago adopted the ethic, "We are all on this earth together" for better or worse. This ethic is alive and well in Holland whose people are the 2nd most generous per capita donators in the world to the poor and other human causes.
We Americans are groping on how to reincorporate this binding principle of togetherness within a growing individualistic culture that sees itself as having few limits on its capacity to master the unknowns.
There's a good and bad side to this optimism which brings me back again to that qualifying phrase, BEING IN BALANCE and REALISTIC, with what we have, want to have, and cannot have to more equitably advance as a Collective.
Weaseldog,
Our Emails crossed. I'm curious about the Federalist article. Would love to read it. Can you
give me source details? Thanks.
Meanwhile, you have come up with another expansion on your pessimistic world views. I'm too preoccupied now on an article that addresses how to come out of our current Mess and pay for it to become engaged with doomsday themes, as thoughtful as yours are. Sorry.
You have got a great listener, critical and thoughtful debator in Art Layman.
You provided some good thoughts there Frank.
I think I'd be more optimistic if events over the years hadn't already been painting me as an optimist.
Strangely while on forums like these I've been continually labeled a pessimist, while events keep turning out a bit worse than I thought they would.
One observation that concerns me is that flapper generation had sufficient warnings of hard times ahead and they made all the wrong moves too. Only after the Great Depression did the citizens of the USA emerge with the kind of realistic optimism that I think that your are proposing.
You point out that we're going to have to learn to live with less. It's that kind of attitude that Art calls a doomer attitude. I believe that the same solutions that you propose are the correct ones. So I guess you're a doomer too.
But I will argue that we may have waited too long. We've done a lot of damage to the Earth's carrying capacity. Also, there's little in our history that shows that we'll make an effort to invest and sacrifice unless given overwhelmingly compelling proof that we need to.
The closest example I can think of was Y2K. But for that, we actually had crystal balls we could use to see into the future and prove what damage would be caused by inaction. All we had to do was set clocks ahead and show management how screwed up the data would become.
With resource depletion, there's a lot to learn to grasp a great deal of it. In the mean time we're entering an era where a large and growing segment of our population believes that science, is a faith based system with less validity than fundamentalist religions.
So I don't that most people will recognize that there is a problem. I expect that like in previous declines, scapegoating will replace preparation.
Frank, as someone promoting self sacrifice, self control and living with less as ways to cope with our circumstances, you're clearly a doom and gloomer.
I wish that I could use purely emotional thinking to be more optimistic. I'm not really wired that way. I'm to keep using math and the best data I can, in order to understand the times we live in. No matter what my feelings might be, the world will soldier on. If I were optimistic that my IRS debt would disappear from the records, do you think it will? Or should I remain a doomer and assume that I'll have to keep working with them to pay it off?
'The Federalist' is a collection of eighty-five articles that appeared in the New York Journal from 1787-1788. These articles were written by Alexander Hamilton, James Madison and John Jay, under the pen name, "Publious". They were arguments for the adoption of the Constitution of the United States of America.
The version I am reading is ISBN 0-7607-0225-X
Frank, I thought I was providing some grounding to describe were solutions could come from. you argued that I haven't tried to talk about solutions.
I believe that money and the real world have a strong relationship that is ignored in modern economic theory. Many people call this a doom and gloom attitude.
Do you honestly believe that economic operates in a sphere that is insulated from the physical world?
Weaseldog,
Oh, I'm aware of the Federalist Papers but I thought you were referring to some contemporary Federlist publication. Therefore, my electric interest. Thanks for reference.
No, I'm only interested in doom theories and doom perspectives in so much as they affect, integrated, systemic, creative solutions applicable over the next 40 years and over next 10 years. I enjoy, as a professional consultant and anmateur economist, the challenge of coming up with reasoned solutions to real macro-micro dilemmas as well as the down-to-earth financial breakdowns.
Those who follow the current problem resolving types start will in 2030 to come up with next paradigm change or adaptation to extend the soujourn on this Earth for another 50 years. So goes it... assuming the current problem solvers get it Right for the next 40 years. There's where your pessimism might well overlap my optimism.
Ultimately, I'm a pragmatist who hasn't given up on man's innovative nature to overcome structural adversities. But the best solutions come from both sides of the brain ... the scientific and the humanly intuitive.
Frank:
Good correction, there is a big difference between covert and convert. ;)
I have wrestled for years with the negative aspects of our two party system as opposed to a multi-party system. On the surface it does seem that more political philosophies in our government would generate better legislation. It would still leave us with a government of compromise but that compromise would be broader in scope, representing broader interests and though there may be less legislation, not necessarily a bad thing, it conceivably could be better legislation.
Ideologically we do have multiple viewpoints in Congress, akin to a multi-party system, but since "blue dog Democrats" and "moderate" Republicans are dependent on the two major parties for election funding and their political futures, it is not difficult to get the various factions to toe the party line, thus leaving us, net, with just two competing ideologies.
I am not familiar with the workings of the various democratic systems around the world but I often ponder that our mistake was in not establishing a parliamentary form of government. The Constitutional mandates for terms of office negate many of the benefits of a parliamentary approach. In these times of complete disdain with both the President and the Congress, the ability to disband the government and call for new elections could be a big plus. On the other hand, if practiced with abandon, a propensity of the American culture, you could lose continuity and in perilous times that could be catastrophic.
We give much lip service to the rights of the minority and have established rules in the House and Senate to that end. In the House they are minimal. The majority party in the House pretty much controls all legislation. The Senate, with its filibuster rules, among others, is more amenable to minority rights but in the two party structure filibustering often takes on the mantra of gridlock, frequently blocking legislation with no real desire to find common ground.
The Presidential veto power, also too (God I love Sarah), would add to Presidential power in a fragmented Congress. I am always fascinated with George Will and his staunch belief that the American public wants gridlock in government and thus votes to structure the government along those lines. A patently absurd premise even as the net result often appears that way.
The other huge irony, a term I overuse in the extreme, is the constant harangue of conservatives about class warfare when addressing issues of taxes or economic inequity. One only has to look back to Reagan to see the fruits of class warfare beginning to take root. I have often suggested that LBJ must be rolling over in his grave with the conservative reversal in meaning of his "War on Poverty".
I'm not sure that a quest for a Utopian ideal is necessarily a bad thing. Clearly it should be approached with the understanding that Utopia is unachievable but that striving for that goal will lead us to a more inclusive society provided the emphasis is always placed on the "general welfare" of the entire populace.
In theory, the idea that putting more money in the hands of the movers and shakers of our economy would lead to more investment and more jobs was not without some merit. The concept failed to understand the same lessons that Greenspan failed to understand. First, in America, "best interests", be it individuals or institutions, tend to be measured in money and wealth. Few of the wealthy set goals to better the "general welfare". In a time when the fastest track to more wealth was in starting and building a business this idea might have born fruit. In a time when investment options encompass a variety of seemingly less risky alternatives, of making money from money alone, seguing to making money from thin air, starting a new business becomes the less desirable option. Add to that the influence and opportunities available from globalization and the "general welfare" of US citizens is remanded to second fiddle status. The quest for more wealth will always follow the path of least resistance.
Noblisse oblige has never been an operative doctrine in the US of A.
The danger of propounding a new vision, especially in politics, is there is seldom an opportunity for changing the vision, let alone discarding it, if it clearly is not working. Ergo, McCain's problem. No reasonable, thinking, person can look back over the last 30 years and suggest that "trickle down" worked. What one can do is obscure the evidence, throwing out 9/11 or the Afghan/Iraq wars as aberrations that suppressed the vision. Missteps and misjudgments by Dumbya such as Medicare Part D - the cost of which could have greatly been allayed by a small increase in Medicare taxes - sucked all the oxygen out of the room and impaired the ultimate success of the vision. Now John will be able to correct all those missteps and set the vision back on course. A budget cut here and vetoing an earmark there will easily free up the wealth mongers to open the tap that will gush forth jobs. The conservative base, and many independents, bought the vision, as it turns out the lie, and the entrenchment is so deep that conservatives have no choice but to continue to sell it if they hope to get elected. To disavow it now would be tantamount to telling the American public they were stupid for believing it in the first place.
It gets back again to what must be said to get elected. One could easily suggest that McCain, given his history, doesn't really believe his economic plans are a good idea but he needs them for his base and as a method of differentiation from Obama. My opinion is that he doesn't understand them well enough to make a judgment one way or the other. As is often the case he listens to his advisers and buys the kool aid, not to drink it but to resell it.
He also knows that with the signs of a strong Democratic majority in both Houses he has little chance of getting any of his proposals passed. He may be able to be effective with vetos but those actions can wear thin with the public, sooner rather than later. Maybe the public likes gridlock but they're not wild about stonewalling.
I love the fact that he can't do anything about Dumbya's tax cuts expiring. The expiration was built into the orginal legislation and, to the best of my knowledge, no Congressional action is necessary to let them fade away. A veto pen with no target becomes nothing more than something to chew on.
Reiterating, every candidate needs something to sell to the voting public. Our cultural value of ME, makes many easy targets for slogans suggesting that YOU know best how to spend your money. We, as a people, don't seem to grasp that government spending on infrastructure will benefit all of us financially. We fail to understand that scientific progress is much less due to private sector innovation than to research funding by the government.
Finally, my guess is that, somehow enabling more parties to participate in the legislative process would do little more than create more division in the culture of ME. No doubt it works well in many places but that success is likely due more to cultural outlooks than to an intrinsic value in a multi-party political system. There is the additional risk that an extreme minority view could end up leading a majority coalition and the resulting legislative efforts could be catastophic. I'm not sure that this isn't what happened in weaseldog's Argentia.
Obama has a good chance at redirecting the actions of government over a four, or better, an eight year span, but altering the course of our culture will take much longer than that. He can make an impact but the zeal for power on the part of both parties, very probably will lead us right back to inane visions. The will of the American public, much like that of our business leaders and our politicians, is often only responsive to crises. A future crisis, and frequently the government has little control in preventing one, will be blamed on the party in power and new visions of solutions will be sold under the guise of the wealthy know better how to "provide for the general welfare" or that the answer lies in more trust in God. Political conservatives don't believe the latter but how do you argue against the aura.
Frank:
One other thing. A perfect example of our governmental/cultural futility. Our whole system of government was predicated on voting and yet, after 200+ years, we still can't get that right.
Thanks for the clarification Frank. It helped that you specifically pointed out that the timelines are our biggest point of divergence. You seem to agree with me on points and the simply told me you didn't agree. I was left having to guess where we disagree.
The EIA and many economists that publish papers and articles on energy do in fact publish timelines that probably lead to your view that the issues I discuss won't occur for thirty years.
The EIA has recently been forced to eat a lot of crow on this topic as the last eight years didn't come close to their predictions of steady 2-3% growth.
So what are arguing will take effect in 30 years, I believe began in 2001. The next few years will prove either way.
Still world energy production is flat and exports are in decline. Industry can't increase until this situation reverses. Do you agree or disagree with this point?
If you agree, do you have any ideas on how monetary policy might be adjusted for this? And if we fail to increase energy growth, do you have ideas on how economic policy should be structured to account for this?
The ACORN doesn't fall far from the tree.
Funny how only you libs can do a good job.
How many jobs went overseas under Reich/Klinton?
Typical.
A rich liberal whining about Capitalism.
Anonymous said... "Funny how only you libs can do a good job."
Seems both parties are dedicated to producing nothing but waste. both parties have the reverse Midas touch.
I take it from your comment, that you're not a 'Tax and Spend' Democrat but a "Borrow and Blow" Republican?
One thing Republicans can do, that's scapegoating. they might break everything they touch, but they are always ready to blame someone else for their screw ups.
GUNNY G said..., "A rich liberal whining about Capitalism."
I'll whine less if you can get some of that Republican Welfare Queen money funneled my way. I'm not greedy, I'll settle for what Sarah spends on clothes.
I'm not surprised that Republican Corporate Welfare Whores aren't whining. If Bush and Paulson wanted to give my industry $trillions in newly printed money, I wouldn't whine either.
There was a time when it was the Republicans whining that the government was giving away to much money. Now that they are recieving it, they call it the Free MArket System.
How come you want people's addresses and phone numbers for registration on you blog? Are you afraid the old School Republicans will get on it?
Weaseldog,
I'm working jointly on a paper that attempts, with no pretensions of final answers by any means, to put our situation in a HOLISTIC perspective and to outline a paradigm social-economic CHANGE that takes into consideration
Market and Government forces working together in the interests of ALL Americans. Similar and dissimilar inputs by others and critique of same are an essential part of reinventing our Democracy from the Bottom-Up.
The questions you have just raised to me will undoubtedely be addressed by many, many other people (who are engaged, like you, in the debate about our nation's long-term directions), including my humble participation in a joint position paper on Reform and Recovery of our Economic System ... which will be finalized after the election.
No big deal, just a genuine effort to contribute in a small but constructive, creative way, as ordinary concerned citizens, to the discussion of HOW to come out of our social-financial morass over the next 10 years ... that is also in the right direction for a 40 year step-by-step structural improvement in our nation's general welfare for future generations.
weaseldog:
You tend to read into things your perspective. A common problem and, admittedly, often the error of the communicator.
I have never maintained that we can live interminably following our current, insane, consumption patterns. As Frank suggests it is a matter of priorities and currently the issue is returning our capability to our recent history and then improving from there. Your resource issues are valid, long term, and need to be addressed but efforts at resolving them, if there is a resolution, will require financing and financing comes from a healthy economy.
I share your derision for Friedman's economic theories but I sense that you've swung the pendulum too far in the other direction. In the chicken and egg question of which comes first industry or money supply, my take is you favor industry while I would suggest money supply. There can be little doubt that money supply theory has worked fairly well in curbing inflation and maintaining low unemployment levels. It has also provided reasonable rates of economic growth. The hole in the dike began appearing during Dumbya's term and Greenspan failed to see it, along with a number of others. Greenspan lowered interest rates to attempt to stem recession after the tech bubble, encumbered further by 9/11. He was able, give or take a belief in using the money supply, to return to economic growth. The economic growth failed to deliver jobs, however, and he kept interest rates low, thinking it was merely a timing issue. Pumping economic growth higher would surely get job growth back to historic numbers. My estimation is, and it is shocking if true, that he relied too strongly on the published unemployment numbers, the normal tracking statistic, leading him to believe that while job growth was anemic, unemployment was under control. As simple focus on the complete unemployment picture, including those who dropped out or worked part-time for economic reasons, should have led him to a different conclusion. Historically this latter statistic may have been irrelevant but globalization impacts altered its importance. We now know that keeping interest rates low for an extended period caused leverage to grow like weeds.
Now if the money supply must grow to meet a growing industrial base, then it follows that it must shrink when the industrial base declines. Otherwise a growing money base during a time of industrial contraction, will lead to a devalued currency, and price inflation.
Not sure where you get that but as I understand it you are stating a complete opposite to reality. The money supply often shrinks in times of industrial growth maintaining a hedge against inflation while attempting to feed that growth where necessary. In times of economic contraction the money supply is increased to try to turn around the decline. Price inflation is much less of a risk during a contraction. Maybe I shouldn't have slept through Econ class.
You continue to include Bush in with Paulson and Bernanke. This is ridiculous. Dumbya is merely along for the ride here. He hasn't a clue what's going on. He gives his reassuring speeches which only amplify his ignorance. No doubt he's opposed to disturbing the "free market" but my concern is that he thinks that's a grocery store where they give away food for free. Bernanke really doesn't need Dumbya's agreement or approval for most of what he does. It makes sense for him to work in concert with the Treasury at this time but the Fed is a separate corporation, separated from the government.
I am not a conspiracy theorist. I cannot accept a theory that suggested that Paulson and Bernanke are operating on some grand scheme that will keep the markets operating as they have been. There are benefits to a free flowing financial industry that can create wealth and provide profits that can be reinvested. The fault lies in the expansion of employing those profits in more and more exotic methods to create more wealth, to the point that they are just flat out shooting craps. Paulson and Bernanke both have recognized that leads to a recipe for disaster. At the same time they do not want to entirely limit the financial industry from all innovation. Some of the profits and wealth created do find their way to supporting innovation and creating jobs. If there are no limitations the financial industry will continue to look for future success in additional financial instruments but a few new regulations can turn the whole paradigm around. Once again outlawing vehicles such as credit default swaps would alter the whole definition of risk.
Interesting your analogy of Y2K. To my mind that problem was greatly due to programmers lacking foresight and being a little lazy. If memory serves me employing a form of Julian dating, using a four digit year in critical dating applications would have significantly lowered the risk. It would have meant an algorithm or table look up to get back to standard dating and though short term more troubling, long term, much less so.
Now abiotic, biotic, symbiotic, etc., etc., is pushing the envelope way past the boiling water point, and I have told you that is the extent of my understanding of science. The article I read suggests, however, that the Russian theory is predicated on oil being produced during the period of the earth's cooling, maybe on the seventh day, and thus their hypothesis that much more oil exists deeper in the earth's crust. That's it, I know nothing else. I also don't know that we have discovered any DNA from oil deposits.
I believe I included a disclaimer that I, nor the Russians belief that oil is renewable. At least not in a time frame meaningful to mankind's existence.
Doc Bartlett also did a little political spinning, although it may have been the level of knowledge at the time of his lecture. ANWR is predicted to have 11.7 billion barrels of oil not the 3.2 billion he posited. I believe 7.2 billion of that is in the federally controlled reserve.
Whether the predictions are correct or not it is fact that the rate of world population growth has been declining since 1963. Not problem solving rates and certainly due to nature and catastrophic events but we can't always do much about those.
More than likely, as a species, we will keep dancing as long as the music's playing. When the music dies, we'll all fall down.
It is curious the logical extension of political arguments and generally the media never explores them.
Now we are told that businesses need tax cuts in order to create more jobs. Embedded in the message here is that job creation is not predicated on market growth or grabbing more market share with better service or more production. No, no! Job creation is totally dependent on lower taxes. Not mentioned is the fact that if a businessman wants to lower taxes and his sole purpose for those lower taxes will be job creation then why not hire more workers. More workers mean higher wage expenses which mean lower profits which mean lower taxes. The system has a built in tax lowering mechanism.
I could possibly support McCain's corporate tax reductions if he threw in an end to all accelerated depreciation. Eliminate oil depletion allowances. No more R&D tax credits, or any tax credits. No more deferred taxes. No providing deductions for executive company cars. No deductions for meals for employees. No such thing as entertainment expenses. Do away with all these and many others and we can cut corporate tax rates by 20% and still be ahead of the revenue game.
I have mentioned before that McCain's tax plans are just more "trickle down" but since he doesn't mention the term the media never connects the dots
Then we get to the $150,000 in clothes for poor Sarah. The media keeps beating this horse, generally with a disclaimer that it is not a governing issue but merely an anecdotal story. What?! I've got a campaign whose whole reason for being is controlling spending, lift those earmarks, tote that pork, get a little drunk and you land in clothes heaven. How in the hell are John and Sarah gonna control federal government spending if they can't sensibly manage their own party's spending. The absurdity, the contradiction, is so stark and the media glosses over it as a sideline issue.
The whole McCain campaign is full of these logical fallacies but the media ignores them. I guess becasue they might have to do a little work or they might make somebody mad and lose access later on. They won't lose access during the election because they offer free campaign time to all the candidates. On occasion the media asks good questions only to be buried with an avalanche of campaign slogans or my opponent did this or did that. The whole election process is a Kabuki Dance.
Frank Thomas, Weaseldog, Art a layman....
Your pseudo intellectual dribbles are boring.. get a chatroom and spare us.
Could it be that anonymous is Dr. Reich?
If not, anonymous can I send you lessons on the use of the scroll bar?
Art,
I was using the term Utopian Idealism not in a soft dreamland context you are speaking of Art ... but in much deeper psychological context of unbalanced thinking that can convert to violent level.
Observing the hatred and fear of McCain crowds as well as from some people interviewed about Obama makes many wonder here whether conservative ideology in America has gone way off the deep end of utopian frustration ... where people can´t put different ideas or change in perspective, feel threatened and can ultimately become dangerous to others.
The two teenage Nazi boys arrested with loads of guns with plans to kill school children and Obama reflect a deep concern here in question I receive often from most of my European acquaintances, `We are afraid someone kill Obama.´
Such madness is not beyond any deranged or psychotic someone who may or may not be suffering pains from the US economic breakdown. But when people see the scurrilous, populist, contemptable and ugly crowd rousing tones used by Sarah Palin everywhere (as if she´s running for President in 2012), some here fear for more violent outbursts and instability in America.
Now to a more pleasant subject and a few comments about your latest, as usual, alert remarks, Art.
The multi-party Parlimentary systems in Europe are unique to European cultures and are not going to work in America ... that's always been my judgment at least and for many reasons I won´t bore you now with.
BUT, this does not mean there are no serious structural faults and obsolesence with our governmental system.
First, the two-year terms for members of the US House of Representatives are an archiac disaster, and of course more so in these modern times. They not only cause short-term thinking, being bought by campaign contributors, and devoting more time getting reelected than legislating, but these two-year terms are also intensifing the crunching political gridlock and lobbyist interconnected corruption that has plagued our political system for decades. Given the global context, increasing complexity, and reach of many decisions in The House of Representatives -- as well as need for more and more professional local coordination of future Infrastructure Investments, new Health care initiatives, development of energy efficiency initiatives, etc. -- more time is desperately needed for careful debate, due diligence work, selling and overseeing effective implementation of new programs locally in each state.
I don´t believe we´ll see system marked improvements until office
terms for House Representatives are increased from 2 years to 4 years with a maximum service time of 12 years.
Same applies for the US Senate. Six years is also too short considering the US, State and Global reaching responsibilities of US Senators to reach wise dispassionate, objective decisions covering a broad range of issues, including upcoming critical reforms and recovery plans, for example.
US Senator terms of office should be increased from 6 years to 8 years with a maximum service time of 16 years.
There is an ipso facto Third Party of some significance developing in America, Art. That is the Independent Party of which I consider myself a member in principle. Independents, as do many members of other parties, generally eschew rigid ideologies or moral correctness tests set by any one group ... not that Independents don´t respect same but it is felt there should be a strict CHINA WALL between personal religious beliefs (or an overly pure adherence to any political ideology) and public governance where decisions are made affecting the General Welfare of ALL citizens. The focus for most Independents, as for many others, is on the best programs, regardless of ideology behind them, that will serve the interests of all Americans as opposed to programs bought by lobbyists operating as privileged `insiders.´ Independents, and others, place a high priority on pragmatism, compromise and imagination in solving the really serious problems affecting working middle class Americans.
Independents are neither
socialists nor rigid
conservatives. I would say most share the general values of being Financially Conservative and Socially Progressive, among others.
Independents appear to be playing a healthy role in balancing the `do-nothing´ divisiveness culture of the two-party system, immobilizing the policy-program-making effectiveness. Independents seem to be keeping the radicals, ideological purists, and unqualified (e.g., Palin) at bay.
So while, in my opinion, major reforms are necessary to our governmental system, all is not lost. I say this as a die-hard optimist being severely tried and tested about our courage to undertake the fundamental changes mentioned above.
Anonymous said..."Frank Thomas, Weaseldog, Art a layman....
Your pseudo intellectual dribbles are boring.. get a chatroom and spare us."
What did you come to a financial blog for? There are many exciting lowbrow sites on the internet. you could find exciting stories on Britney Spears, Football, Porn, all kinds of stuff that you'll find to be much more exciting and titillating than financial and economic topics.
Thanks Art.
The reason that I believe that an industry comes before money is that everything we do and can do in the physical realm relies on industry. Money is simply a means of exchange and not a direct means of manipulating matter and energy. If you lock up a man in a sealed room with only a million dollars and check back a month later, he'll be dead. Though the money has the potential to buy food, water and fresh air, there must be industry available to provide those resources. Without industry, money has no value.
We hit a crisis in 2001. Saudi Arabia's oil fields began to decline. This caused a sudden drop in world oil supplies. Gasoline rose quickly in price and we had a string of bankruptcies all over the world. Do you remember that shipping companies in the US were suddenly going belly up? The Saudis invested heavily and in a few years brought production back up. The world economy improved as oil supplies rose. But they peaked in 2007 and are flat or declining now. Now unemployment is up again. We are seeing bankruptcies again. Demand destruction is dropping the price of fuel again.
This isn't taught in econ 101. It's an older view that was abandoned as the industrial age brought as an era where the increasing consumption of energy has brought us a rising standard of wealth. See Nobel Prize winner Frederick Soddy as the originator of this view. Karl Marx and his arguments on the value of labor as an agricultural version of this view.
Bush, Paulson and Bernanke are horses backed by the same owners. You assume that their long term interests and goals, align with yours. After working with some true psychopathic personalities in banking, I tend to doubt this. You strike me as a good person that cares about the welfare of others. I don't know them as well as I know you. I can't make that judgment about them. I don't know that they have a grand scheme. They simply may just enjoy being in power, love money and have BS'd there way to the top. they may simply be greedy and incompetent. There's no reason to bring grand conspiracies into this. little conspiracies, IE: back door deals are enough to account for recent events.
Y2K wasn't about being lazy. It was the fact that memory and storage space was expensive. When you have 32k of RAM and a 5 gig hard drive, every byte matters. It was about squeezing every bit of memory and performance out very expensive mainframes.
On ANWAR... Oil estimates come in three flavors.
P10 - The highest number. A geologist gives the value a 10% chance of being correct. This is the marketing value when chasing investors or pumping up asset values.
P50 - The middle number. This number often get's reported on government statistics and for tax and valuation purposes. Geologists rate this as a 50% chance of being correct.
P90 - Usually the smallest number. Geologists rate this one as having a 90% chance of being correct. And history has proven that this is often closest value.
Politicians usually use the P10 number while Bartlett uses the P90. They are both accepted values in the industry, depending on what your purpose is. This is why you see figures for ANWAR vary so much.
Yes, world population growth has been declining since 1963. But the population is still growing at a dramatic rate.
"More than likely, as a species, we will keep dancing as long as the music's playing. When the music dies, we'll all fall down."
Yeah, I wish we could do better. I am very disappointed that we are not rational enough to take control of our own destiny.
Art said..., "How in the hell are John and Sarah gonna control federal government spending if they can't sensibly manage their own party's spending. The absurdity, the contradiction, is so stark and the media glosses over it as a sideline issue."
Exactly.
I'm sure Sarah will tell you that she earned this. She deserves it.
Further, she deserves the $21,000 per-diem for living in her own house, and her kids deserve $16,000 in new clothes. Granted they are stage props...
weaseldog:
Decent explanation on Doc Bartlett's use of statistical data but it still smacks of spin.
When selling something one employs data that most favorably represents their best interests. When educating, admittedly a form of selling, it is best to avoid extremes, even though they may be more precise. The problem arises is using data that can be easily found to be questionable. Explanations can be proffered that explain the differences, as you have done, but doubt and questionable motives still arise.
Many teachers use disclaimers at the outset, expressing that data is a worst case or best case scenario; sales folks seldom do. Was a minor point but you should be able to see how such an insignificant difference can overshadow the whole point.
weaseldog:
Sarah's answer might even be more telling. According to her the clothes showed up and she wore them. Apparently she didn't question who was paying or how much the clothes cost. If we believe that her normal clothes expenditures are as she states, then the difference in quality of those she received would have been noticeable, especially to a woman, which should have elicited questions.
Leadership talents are not displayed by blindly accepting what is offered, especially when it has to do with image which is what politics is all about. The lame excuse that they will be given to charity, begs the question of, all or only what you don't want to keep? Most folks don't contribute to political parties intending that their money should go to a charity. They usually prefer to choose their own charities.
There are many pundits beginning to suggest that she is setting herself up for a 2012 run at the Presidency. Now those guys are much brighter than I at political prognostications but I see no way.
She has had to rely on the McCain folks to do damage control and shield her from herself. Everytime she has opened her mouth, outside a scripted campaign event, she has put her foot in her mouth along with "first dudes".
We keep hearing she's bright but I've never seen evidence. She has some wily political skills but I believe on a national stage, especially seeking the highest office in the land, she would be chewed up and spit out by her opponents.
Of course they would point out her winning the governor's job in Alaska, but securing 115,000 votes is a far cry from having to win 60 million. My guess is she'll go back to Alaska and retire to obscurity. She's no match for a Romney or a Huckabee and she is certainly no Hillary Clinton.
Art, I guess I left out an important bit on the statistical data.
Yes, there is spin involved, but historically we can prove that the spin comes from the P10 data that is used by salesmen and politicians. I've never heard of a case where the P10 numbers turned out to be correct. We could call them P0 numbers I think.
Scientists, aka geologists and similar ilk, always use the P90 numbers. The numbers that they believe are 90% accurate. This is an assumption that I didn't explicitly write when I responded.
And yes, the industry uses this confusion for cheating. Just like in Texas, they got their oversight committee called the Texas Railway Commission, so people wouldn't know it was in charge of oil and gas.
If you read an official oil industry report on a field you'll find all three numbers listed. When they are marketing and chasing investors, they brag about P10 numbers. When they are in Washington looking for subsidies, they use the P10 numbers.
When the radio pundits brag about how much oil the US has, they use P10 numbers.
When they go out to actually drill for the oil, they use the P90 numbers.
This is intentionally confusing.
We can do a similar trick with a checkbook balance.
Take your calculated balance. That's your P90.
Multiply it by 2 to get your P50.
Multiply it by 5 to get your P10.
Now got to the bank and get a loan based on your P10... The oil industry get's away with it, why not you?
We have two essential and common sets of numbers for oil available to us. The ones the geologists come up with, and the ones that sales and marketing passes on to radio talk show hosts.
Is it any wonder that they are dramatically different?
Remmeber how, leading up to the Iraq war, the radio pundits were saying that Iraq probably had more oil than Saudi Arabia? But it turned out it didn't?
Art, I'm not so sure that Sarah won't be our unelected President in 2010.
My tin foil hat was several sizes too small for everything has happened in the last eight years already.
I don't know what to expect in politics for the next 4 years.
I can match trends with historical ones, but that's scarier than Halloween.
weaseldog:
Your explanations seem plausible but it was the USGS that estimated 7.7 billion barrels of oil in ANWR section 1002 alone, and depending on oil prices, economically recoverable oil from the entire area of as much as 10.4 billion barrels if prices are $30/barrel. My understanding is that USGS is geologists.
In your examples you don't mention whether your various Ps are technically recoverable or economically recoverable. Could be a big difference it we get to the point of survival trumping profits.
When are the citizens of this nation going to wake up?
Our "representatives" only truly represent those who fund political campaigns and feather politicians' nests (or was Ted Stevens the only one?). For decades those benefactors have primarily been the same bankers and corporate donors who will now be the beneficiaries of the bailout.
All arguments about the potential efficacy of this or that economic strategy aside, this bailout is the most deplorable example of taxation without representation since the Revolution.
Perhaps a complete economic and social collapse will have an upside if it serves to shake Americans out of their television induced, celebrity infused dream state long enough to take back their country. Voting a new group of the same ilk into office doesn't do the job. What this country really needs is a shakeout like we had in 1776, or perhaps like France had in 1789.
Dear Robert:
Be careful. If you keep stating the obvious you will start making the political powers that be look stupid.
NLC
I agree with you!
Repeal limited liability and let the lawsuits begin. Then we'll see how many companies can afford to be 'too big and impersonal', and what sorts of irresponsible risks CEOs aren't willing to take with our environmental or economic well-being anymore.
Anti-trust laws are only necessary to correct the blanket shelter given by limited liability. If we repealed limited liability, anti-trust laws would not be necessary because giant firms would be so vulnerable to lawsuits from the consequences of their actions (as vulnerable as a private citizen, imagine that), and thus they would not be able to afford to become large enough so that they can't realistically monitor the results of their actions, and thus we would achieve the same ends by less government rather than more.
Bailouts should simulate bankruptcy
If some companies are too big to fail, so be it. To avoid moral hazard though, bailouts should simulate what would happen to the company's stakeholders in a real bankruptcy:
Shareholders would most likely be wiped out (assuming the amount of the bailout exceeded the share value of the company).
The entire board must tender its resignation.
All employment contracts, union and non-union, should be voided.
Creditors at the time of the bailout would be paid some combination of cash and company stock.
And so on...
It would be a good thing to establish a commission, with members appointed by the Congress, to administer companies under government control, at "arms length", until they can be "floated off".
Another idea would be to codify the above principles into a "standard bailout law", that the Congress could vote on whenever the issue comes up, up or down, for any given company. That way the taxpayers would know that they are getting the best possible deal and that the company will get the full benefits of a "bankruptcy".
So, if the leaders of GM, who have always been rather more economical with the truth than their cars have been with gas mileage, still want a bailout under those conditions, okay.
The time to "save" GM was back in the '80's, when the domestic carmakers started losing a huge number of sales to the Japanese.
GM's response was not to become more efficient, but to retain its way-too-many brand labels and divisions, with separate factories and dealerships for each. (It even started a whole new brand, Saturn).
GM should have merged its divisions back in the 80's, it is much too late to do so now.
Dr. Reich,You seem to have a lot more insite into these situations than anyone currently running things. This was a letter (never printed) that I sent to a Chicago newspaper three years ago. I think the gist of it is now more pertinent than ever. Maybe it will inspire someone in power out there.
Do "bottom-line" companies ever consider how much cheaper they could get a Chinese or Indian (or any other third-world) CEO for? They could save millions instantly. According to television reports, these workers are as technically qualified as anybody in our country. If the out-sourcing of jobs struck that close to home, do you think that the corporate boardrooms would start looking for reasons other that cheap workers to keep jobs in this country?
I have been considering the economic problems of American workers and their disappearing jobs for some time now. I believe I have a solution, but it depends either upon some brave political moves or upon the unions of America (and any individual investors who share my concern). If you realize that the power of the unions no longer lies in strikes, but in their pension plans and investment funds. Corporate greed is not really the problem. No, rather it is the disconnect between corporate greed and the average worker. Here is the solution:
If we establish (and enforce) one simple rule of investment for any and all union funds (retirement, etc.): No CEO, President or any other board member shall be paid more than 100 times (or insert any multiple here)the annual salary of the lowest paid employee of their corporation or its subsidiaries—domestic or foreign! The annual corporate report would list the annual salary of that bottom employee. If that employee makes $10,000 then the CEO makes $1,000,000. If the company has many of its employees in Bangladesh making $100 a year, then the CEO and board would only make $10,000. If the board members want a raise (as corporate greed would suggest) they have to find a way to pay that employee more! Perhaps American workers would not seem so unreasonable an investment after a while. At the very least, it would pull up world salaries and make us all more competitive. I'd also insist that no one is allowed pull any of that part-time, full-time separation, either. If it’s a company's choice to keep people part-time, that would probably lead to lesser raises on top of the food chain. It’s always been a popular concept to say “we’re all in this together”—let’s make sure we all are.
How long would it take to get a raise to the bottom man, if a CEO saw that every extra $1000 a year could potentially earn him an extra $100,000 per annum. Do the math.
I’ve read that union funds are a major source of income on Wall Street. High-flying companies might have a problem maintaining their value if a large percentage of the market dumped their stock! The investment money could be redirected to smaller companies who followed these rules. These smaller companies could see their own stocks soar, thereby growing into the giants of tomorrow, but grounded with a new sense of connection to their employees. Wouldn’t that make some CEO’s nervous. What do you think, would it work? People with jobs and higher incomes pay higher taxes. Wouldn’t that help everybody? Please Political candidates, AFL-CIO, UAW, TEAMSTERS, SURS, Teachers’ Unions, Construction Unions—everyone who is worried about the average employee’s future, think about it!
One last thought. Why do unions ever invest their funds in non-union companies?
perfect reasoning.
So - how do we elect a "trust buster" aka Teddy Roosevelt?
Dr R
How about a break up of all the failed big ones, even the financials, as well as GE, GM, etc.
Dr B
The Fatal Flaw of Global Financial Regulation - Too Big to Fail
The first principal of sound risk management is to limit your exposure to what you can afford to lose.
While the financial industry appeared to embrace Risk Management (capital R, capital M) in the past decade, its members more often than not adopted the form, but not the substance. They invested heavily in, and relied blindly upon, quantitative models that were based on unsound historical assumptions and ignored exposures that did not easily lend themselves to quantification. Investments that seemed discrete were connected to common underlying forces. Worse, they invented new forms of leverage to multiply poorly understood risks.
Governments the world over made a different and even more fundamental mistake: they didn’t try to limit their financial risk exposures at all. On the contrary, by tacit acceptance of the too-big-to-fail (and the too complex to regulate) assumption, they encouraged a rush to scale. Moreover, they failed to recognize that, at the same time as more and more institutions joined the ‘too big’ club, the phenomenal growth of leverage and derivative instruments was creating markets that were both ill-constructed and also too big to fail.
Both governments and financial institutions were aware of these risks, but decided mutually to ignore them in a delusion of ‘self-regulation’: that the short-term oriented free market would reward long-term oriented sound risk management.
Experienced risk managers know that a crisis will always occur, and that it will be different than any before it, and that it will occur sooner than expected by managers paid to deliver, and governments elected to facilitate, profits ‘before the fall.’ The inevitable crisis did occur and governments briefly experimented with denying that some institutions were too big to fail, proving beyond doubt that, in fact, they were. So now governments worldwide are engaging in rescues of unprecedented scale at material risk to state finances. A major recession has resulted, with the prospect of a depression growing more likely.
The lesson is not lost on financial mangers that scale has been rewarded by government protection. Too Big to Fail is no longer tacit. It’s proven. The rush to scale will recover and accelerate and another crisis will inevitably ensue unless governments act together to limit their exposures. If rescue carries an unacceptable cost to governments and taxpayers, then governments have the right to either ensure that big institutions don’t fail (no doubt fertile ground for delusional regulation, self or otherwise), or more realistically that they are not allowed to become too big. Governments also have the right to limit excess leverage for the same reasons.
An appropriate limit to financial institution size needs serious study and debate. Size must be gauged relative to the kinds of risks taken, and to host country and global economies. Certainly the study should not be limited simply to regulated banks. A limit to, or restriction on, leverage already exists among banks, but work should be done to determine whether it’s feasible and effective to extend such limits to all financial institutions. How to limit leverage and what leverage to limit is also an open question. Clearly, leverage in some form is necessary. Witness the dramatic impact on economies of the drought of credit. Credit buys trucks, houses, dams, factories and inventory. It is the engine of wealth creation. However, it’s worth exploring whether any real wealth is created when institutions use leverage simply to buy other institutions’ leverage or to insure themselves against exposures they don’t have.
To manage government risk, can single-institution financial exposures be limited to a scale at which their failure poses no systemic threat? Can the much more complex task of limiting whole-market leverage and dependencies on common trigger events be accomplished such that single-institution failures are not simply replaced by broad failures of smaller institutions? Can the world act together to accomplish these things such that firms based in no one country gain unfair competitive advantage? What economies of financial scale truly create sustainable wealth for nations and not merely short-term gains for stockholders (those lucky enough to sell at the top) and financial managers?
None of these questions have simple answers. None can be addressed effectively and fairly without substantial, dedicated, international work. But if the world is to avoid a repeat performance, if it is to avoid impoverishing nations to benefit banks, executives and a small minority of investors, the answers to these questions must form the basis of sound international financial regulation. In October, some European finance ministers called for a second Bretton Woods conference. The idea appeared to lose energy in the absence of any appetite for fundamental change amid so much uncertainty. It should be revived. Limiting the risk to the world financial system presented by a growing population of institutions that are too big to fail and markets too big not to would be a worthy purpose to such a conference and a priceless legacy to future generations.
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I seem to remember something about..."Never put all of your eggs in one basket"...sounds like good advice. It appears as though Mr. Reich may be on to something here.
Perhaps there is a problem with our antitrust laws. For as Isabel Paterson the Canadian-American journalist once said, "As freak legislation, the antitrust laws stand alone. Nobody knows what it is they forbid."
Truly, this is spot on.
This situation has demonstrated how the system has become a direct challenge to Government Authority, and indeed remains just that: evidence the continuing "abnormal" profits and rents being drawn from the system by the companies and their managers. We should not blame them specifically, rather change our notion of what is anti-competitive. As all good managers know, a 20% market share can be as anti-competitive as 100%.
Time for government to dismantle this direct challenge to its authority, both the companies but also the system.
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