Posts Tagged ‘Economy’

The Thinker

Betting on failure

I regularly look to see what’s trending on my blog. Given the relatively little traffic that it gets discerning trends is kind of hard. My Craigslist posts frequently get hit, which is why I decided to encourage the trend with a monthly review of local Craigslist casual encounter posts. Also, no one else seemed to be doing as a form of entertainment. Over the last few months I’ve watched my Porter Stansberry tag trending upward. This probably means something too.

I wrote just one blog post in 2011 where I mentioned Mr. Stansberry and his dubious “research” firm. I mentioned him mostly in passing. His ads were following me all over the Internet so one day I gave in and spent forty-five minutes or so listening to his pitch. Of course he was trying to sell me something: a pricey subscription to his financial newsletter. He was looking for a certain kind of investor that I’m not, mainly the ultra paranoid “I’m ready for the zombie apocalypse” type.

Four years ago Mr. Stansberry was predicting the imminent collapse of the dollar but really all major currencies. He saw another Great Depression on the horizon and it was coming at us like a freight train. He had a plan to deal with an impending financial apocalypse that would let you survive it and ultimately prosper. When it hit you would presumably be sipping margaritas on your private island in Bermuda while the rest of the world went to hell. It was all pretty vague but his financial forecast was available in small segments via his pricey newsletters. They had to be pricey because not just everyone was good enough to afford his unique insights. Just the chosen, like you.

Four years later there has been no financial apocalypse. The stock market is higher than ever, even though incomes are not. Most of the income continues to go toward the top of the income scale, which explains why incomes still lag, our recovery feels somewhat tentative and why people are getting financially nervous again. China recently devalued its currency to make its products cheaper, basically to hold off a recession. Its stock market has lost roughly a third of its value the last time I looked, and might have lost more if China’s government hadn’t propped it up. Commodity prices are also falling as evidenced by the price of gasoline. Stocks while generally high are a bit off their peaks. So a lot of smart people are reading the financial tealeaves and trying to figure out if stocks are overvalued and whether they should be cashing those investments in for something safer. The bad news is that if you are chasing your financial fears you are probably going to take a financial haircut.

I won’t pretend to be an economist. However, I do feel my advice is at least as good as Porter Stansberry’s and most likely better. After all, I was not fined $1.5 million by a U.S. District court in 2007. Most of the fine was used to refund his investors who were urged to buy stock in a company based on fabricated insider information. Stansberry said it was sure to increase 100 percent. To find out the name of the company, you had to send him $1000. In any event, after the company’s announcement the company’s share prices fell after being artificially bid up by his investors. This led to the demise of his previous firm Pirate Investor and the creation of Stansberry Research and lots of videos hawking his presumably newly improved financial insight.

So even if you are a paranoid investor type, you should not trust Stansberry Research. Moreover, all the gold bullion in the world won’t save you in the event of a total financial collapse. The truth is that while there will certainly be future financial shocks and maybe even major widespread currency collapses, our financial system is too complex to go back to monetary sources based on perceived permanent value, like gold. Instead if there is uncertainty in the market, money will shift toward perceived safer forms of currency.

That’s happening right now with the collapse of the Yuan and slow slide of other currencies like the Euro. The dollar is perceived to be a safer currency, so its value is rising in comparison to most other currencies. This of course makes it harder for the United States to sell products and services priced in dollars. It’s the penalty for having a financial system less screwed up than everyone else’s. This has the ultimate effect of proving that we are all tied together. Investors running toward the dollar reduces economic growth in the United States, which makes it cheaper to buy commodities outside the United States, which hastens their recoveries at the expense of less economic activity in the United States. This cycle repeats endlessly but generally the United States is seen as having the most stable economic system, so generally cash is poured into dollars and U.S. treasury bills when economic uncertainty rises.

So when the value of the dollar rises significantly compared to an aggregate of all other currencies, this can be a warning sign that a financial correction is due. You don’t need Stansberry Research to tell you that. You can simply track currency valuations online and compare it with what happened in previous financial crises. What seems to be happening now is that the market understands that the recovery in the United States is much weaker than investors would like it to be, and that’s likely due to income inequality in the United States. When wage growth hardly moves upward that doesn’t give the majority of consumers a whole lot of money to buy more stuff. It stifles growth because as I pointed out before the top one percent will only choose to buy so much stuff. Hardly any economic growth ever trickles down from the top one percent’s personal spending.

Curiously, the best way to get economic growth on track again would be for voters to vote for a little socialism next year. Changing the rules so more income would go down toward the rest of us instead of the top would put more money in our pockets and start a virtuous cycle. Changing the rules to raise taxes on upper income people would have the same effect, since the government generally spends all it takes in and that feeds economic growth in the United States. Arguably the United States was never better than in the 1950s when top marginal tax rates were about ninety percent. That’s because taxes were put to use providing assets like our interstate highway system. Putting more money into the middle and lower classes gave people the means to spend it to increase their standard of living and keep the economy on a generally good footing. This is why there is more growth under Democratic administrations than Republican administrations.

It remains to be seen if voters will choose optimism or pessimism next year. The financial rumblings happening now and how we choose to react to them will probably influence voters in 2016. A downturn in 2015 would probably ensure a sustained downturn after the next U.S. president is sworn in, since the next president will have an austerity agenda.

None of this matters to Porter Stansberry because the fear of failure is the basis of his business model. It sells more of his pricey newsletters. As for me I will continue to play my financial cards the way I always have: keep a diversified portfolio and move toward more cash and bonds as I age. I’ll never win the game of timing the market, but no one actually does. Instead, investors sell themselves on the delusion that with the right financial guru they can outsmart it. The best thing we can do for our economy is simply talk to our neighbors and friends. We need to convince them to be cautious but rational, and to vote rationally in 2016.

President Obama famously campaigned on hope, which was derided by many Republicans. However, we’ve had seven years of economic growth and falling unemployment. Much of the growth went to investors and not to the rest of us, but it was growth nonetheless. We should hope for continued better times, but hedge our bets by electing politicians who will vote for some pragmatic democratic socialism again.

Paging Bernie Sanders.

The Thinker

Why trickle down only trickles

We have more than thirty years of evidence that giving more tax cuts to those that don’t need it has hurt the economy, not to mention hollowed out the middle class. Why do so many of us still believe that doing more of what hasn’t worked will make us richer? Are we that impressed by talking suits on Fox News or CNBC?

Let me see if I can clear your head on this. This way the next time you hear this bullshit you can call the person on it. Let’s go through a thought experiment. What would you do with an extra $100, $1000, $10,000, $100,000 and $1,000,000? My assumption is that you are likely of modest means, which is a good assumption because most of us are not in the top 1%. I certainly qualify although since I am nearing retirement and the end of my professional career, unsurprisingly, I am in my peak earning years. According to the New York Times, I am in the top 7%, except when I retire I’ll be demoted to the top 23%.

So if I had an extra $100, I probably would not even notice it. Most likely you would not either. But, if you are of very modest means, you live paycheck to paycheck, and you found yourself $100 richer you would probably spend it. Maybe you would go to Target and buy a few gizmos from their electronics department. If this happens to a lot of people of relatively modest income at the same time over a significant period of time, not only do you get stuff that you want, but more money flows into the economy. Target and Wal-Mart would likely to report higher sales. The extra money might give them confidence to build new stores, or expand existing ones, and perhaps some people will have jobs they might not have. This is one reason raising the minimum wage makes a lot of economic sense. Almost all this extra money by the lowly paid will get spent, which is good for the economy.

With an extra $1000 most people with modest means would probably spend it, or perhaps use it to pay off debt. If you are rich, you won’t notice $1000. It won’t have any more of an effect on your spending patterns than an extra dime would have to someone on food stamps. It goes into an account somewhere and gets forgotten about.

With an extra $10,000 you might do some serious purchasing. Perhaps it would be a substantial down payment on new car. The smart thing to do for those of modest means would be to save it. But most likely it would be spent. A rich person won’t notice it and thus won’t spend it.

With an extra $100,000 you might be able to pay off your mortgage, or all your credit cards plus take a couple of nice vacations. If you are wealthy, $100,000 won’t buy you a new house except maybe in a bad neighborhood of Detroit. In any event you don’t have a mortgage. The money could buy you a super fancy car, perhaps a Tesla. If you are that rich though, then you probably have a Tesla already. You’d likely have a hard time finding the motivation to buy another car, probably because you would drive it sporadically at best, as you have as many as you want already anyhow.

With an extra $1,000,000 most of us would think we would be living grand, but it doesn’t buy as much as you think. You can buy a nice house in a nice neighborhood for cash and maybe afford to pay the taxes and maintenance on it with what’s leftover if you invest the money carefully. You might even have a house built to your exact specifications. That would keep a lot of people gainfully employed for a while. They would take the extra money and spend it elsewhere and where they spent it, those merchants or service providers would see a modest bump in income perhaps. By itself, $1,000,000 won’t have a huge wealth effect on the larger community because it’s just you spending it, and it’s unlikely a hundred people in your area will be similarly fortunate.

That’s what you might do with the money. If you are rich, say Mitt Romney, $1,000,000 goes into your portfolio. Maybe his son Tagg gets a bit larger inheritance than he expected when Mitt passes on. You already have a bunch of houses across the United States. You probably won’t use it to buy another one. It’s not enough to buy a private jet, assuming you don’t have one already. Mostly though Mitt has everything he needs. So whether it’s $1,000,000 or $10,000,000 or even $100,000,000, about a third of his net worth, he’s much more likely to save the money rather than spend it. A lot of it might go into stocks and bonds, which hopefully will generate more wealth, and is essentially another form of saving.

Perhaps with so much money, a rich person would put it into venture capital funds. Venture capital funds exist to fund the next Facebook, because most of the money put into them will be bad bets. It’s that one in 100 that beats the odds that you are hoping to have invested in, so you can snag part of its meteoric growth. Venture capital money is useful to these start ups, and does stimulate some growth, although much of it is ultimately unproductive because most of these start ups fail. Rest assured though that while the really rich people may be investing in some venture capital, mostly their money is not being spent this way. Mostly it is sitting in vaults, often in offshore banks and in stocks and bonds. It’s unlikely to go to a venture capitalist in your neighborhood. It is money that will not trickle down to you or your neighbors.

The basic issue is that there are a relatively small number of very rich people. Mostly they already have everything they need. It’s not that they won’t spend money, but they don’t need to spend a whole lot more of it. They already have estate managers, the freedom to fly to Paris on a dime and stay at first class hotels. Their lavish spending will make life better for those providing these services, but only marginally so, because there are only so many rich people. It’s a safe bet though that Bill and Melinda Gates, for all their billions in net worth, have a hard time spending more than $100M a year for their own personal needs. Most of that will be to maintain the lifestyle they already have, not to make it a bigger lifestyle. After all, there are only twenty four hours in the day, so they can only enlarge their lives so much.

Money sitting in vaults of course just sits there. It doesn’t pay anyone’s salaries or stimulate the economy. It’s all about churning money to buy goods and services. That sort of stimulation is what drives growth. If it’s not spent, i.e. if someone doesn’t use their money over a finite period of time, it has no effect on the economy as a whole. (If a whole lot of people stop spending money, then we get recessions and depressions.) Whereas if you and people of modest means like you have some modest increase in income, you will most likely spend that money. It would drive a lot of growth.

So the “trickle-down” economic theory is actually well named. Just a trickle of the money the relatively few wealthy people have will get spent, which means lots of people competing for those relatively meager dollars. When the rest of us have to compete harder for a smaller slice of the economic pie, our incomes tend to decline. Our labor is cheaper to acquire. Which is exactly what has happened to most of us over the last thirty years if you look at median household income. Our standard of living has eroded because money that used to churn more frequently churns less frequently, often because it got acquired and held by the rich, who mostly don’t need to spend it.

The trickle-down theory was sold as prosperity flowing down to the masses from the rich because they acquire more money and know how to spend it more intelligently. But of course it really does trickle down, and worse most of their new wealth used to be our wealth. The bad news for the rich is that when our economic and social systems fail, they too are swept up in the change. Even the very rich only remain rich while there are systems in place that allow them to spend their money. In truth, the rich are utterly dependent on the system that made them rich, just like us. Just as we all need roads to get from place to place, we need our economic system to enable broad prosperity. And it works as long as prosperity is possible, i.e. all social classes have a realistic expectation that they can acquire more wealth.

Economies actually grow from stability, predictability and generally from the middle class out. Innovation does not come principally from the rich, but from the middle where talent, attention and drive are in abundance. Wise rich people don’t mind paying more taxes to help out the middle class because they realize that the prosperity of the middle will trickle up to them in time. Unfortunately, too many rich people are so caught up in their own puffed up egos that they cannot see this. They think that because a formula worked in their particular case, it will work for everyone.

The Thinker

The vice presidential debate

I don’t know whether to applaud or feel appalled. Maybe it’s okay to do both.

I spent much of this debate with my jaw agape as Vice President Joe Biden did everything to get attention but take off his shoe and bang it on his desk, a la Nikita Khrushchev. Whereas Barack Obama was unfailingly civil and understated in his first presidential debate, Biden went out of his way to be just the opposite with Mitt Romney’s vice presidential choice, Wisconsin congressman Paul Ryan. Because of Joe, the debate was more carnival than debate. Biden managed to speak more than Ryan and felt few constraints to let Ryan finish sentences. If Obama could have an evil alter ego, Biden emulated it. The result was that he dominated the debate and dominated the clock as well. He was often rude, frequently dismissive, interruptive and sneering, as well as often wide-eyed when Ryan spoke and chortling, always flashing his impressive set of pearly white teeth.

The contrast made Paul Ryan appear entirely reasonable, unless you tried to parse what he was saying, which rarely made a lot of sense. While Biden dominated the debate, I found Ryan far more telegenic. In particular a feature of his I had never noticed before struck me: his hair, particularly a part of his hairline that uncharacteristically falls down the center of his forehead in a point. It was mesmerizing, even more so that Biden’s antics. His pointy forehead hairstyle is bizarrely uncommon and curiously makes him look like Satan himself.

The Devil in Paul Ryan's hair

The Devil in Paul Ryan’s hair

Biden is known to be flamboyant, but clearly he pulled out all the stops during this debate. It’s unclear who “won” the debate although most polls give Biden a narrow win. No one will deny that Biden was not forceful. His tactics, strangely enough, came right out of the Republican playbook. Those of us following the many Republican debates saw it time and again as candidates tried to break out of the pack. Bizarre, rude and loud behavior usually worked, at least for a while, in getting attention. It did not succeed in producing a nominee with these qualities. In the end Republicans chose Mitt Romney, overall a milquetoast candidate. But that’s the point. Biden is the sideshow and he knows it. He is not being elected president; the choice is between Obama and Romney. His job was to shake up the dynamic moving against the president. His tactics may have made you want to put the kids to bed early, but they probably were rather effective.

Biden actually did something very unusual for a Democrat: he talked backed emotionally more than logically. This approach makes most Democrats uncomfortable. It certainly made me uncomfortable. But generally it works as a strategy. Biden was championing the strategies that made Democrats such as Molly Ivins and Ann Richards so effective, and which I argued in May that Democrats needed to adopt if they want to win elections. Most partisan Democrats were ecstatic with Biden’s performance. Finally here was a man unafraid to say to Republicans exactly why Republicans were so full of shit, and to do so in unambiguously emotional ways.

That’s how you break through the noise and change expectations, and breaking through the noise right now is essential. So in this sense Biden’s performance reflected genius. Take, for example, the so-called Romney-Ryan plan to balance the budget. There is no plan. They won’t articulate one that we can actually study. It’s just more of the same: cutting tax rates, assuming it will lead to huge economic growth, closing unspecified “loopholes”, pumping up the Defense Department’s already bloated budget, cutting the size and scope of the rest of government somehow without impacting Social Security and Medicare for anyone currently over 55, and somehow it will all magically work. It didn’t work in the 1980s under Reagan or in the 2000s under George W. Bush, but this is what they are promoting with almost no details about how it will work. It’s an entirely faith-based economic plan, based on a faith that has repeatedly proven misplaced.

Such an approach to governing should be dismissed; consequently Biden’s behavior certainly was merited based on Romney and Ryan’s faith-based economic plan. Romney recently castigated Obama for substituting hope for a strategy. Yet he is hoping that the magic of supply side economics will substitute for a real strategy and plan to reduce unemployment and grow the economy. No one running for president should be peddling this kind of crap and expect to be taken seriously.

Let’s see a Romney-Ryan detailed economic plan instead of a hope-filled campaign web page. Let economists weigh in on it. They won’t give us one. Until they do, they deserve all the contempt and scorn that Democrats can deliver. Joe Biden did voters a favor by making it clear that they are full of crap. The message was heard loud and clear because his body language told people unambiguously Republicans were full of crap. Message received. Perhaps it will motivate some voters still on the fence to take a look. If so they will realize that if any party is substituting hope for a strategy, it is the Republican Party. And any party that does this deserves the contempt that Biden unleashed on Thursday night.

The Thinker

Between an economic rock and a hard place

Truth seems to be a precious commodity these days. Truth is not always easy to handle, but it does has the virtue of being true. Given the truth, you at least have a chance of working your way out of a problem. Unfortunately, there are many vested interests out there willing to lie or give us only partial truths purely to advance their agendas at the expense of the nation as a whole.

The current presidential campaign needs a whole lot of truth from both President Obama and future Republican nominee Mitt Romney. Of the two, Obama at least is closer to telling us the truth, but he is shielding Americans from harder truths. I wish that Obama could simply dump his posturing and nuancing and simply tell us the truth. It would be especially welcome to hear some truth about the economy, particularly yesterday when our unemployment rate crept up from 8.1 percent to 8.2 percent, while we actually very modestly increased hiring.

Republicans are all over the report, of course, pointing it as more evidence of a failed presidency. No question about it, 8.2 percent unemployment is not great, particularly if you are unemployed and don’t wish to be unemployed. Is it Obama’s fault? Shouldn’t he be held accountable because he is president?

Obama at least has a net increase in jobs during his administration and twenty-seven months of consecutive job growth, which is more than you can say about the George W. Bush administration. I think Obama has done a remarkable job dealing with an economy that at the start of his term looked like it was heading into a new depression. At least we are heading in the right direction.

Yet the reality is that neither Obama nor a President Romney can work miracles on this economy by himself. This is because the president has limited powers. The alchemy of presidential power happens at the edges, if it happens at all. Mostly it occurs when the president is successful in persuading Congress. This was hard for Obama even when Democrats were in charge, and virtually impossible now. Moreover, there are systemic problems that are at work that are likely to cause relatively high unemployment rates for years to come. Some of these can be ameliorated; some cannot. There are some short-term strategies that will improve the situation, but fixing the long-term problems is tough and cannot be solved by doing more of the same.

Here are some truths about our economy I wish I would hear from anyone running for public office:

  • We are in a hell of an economic mess mostly of our own making. Yes, it is partially the result of lots of things outside of our control, such as the closely connected international economy. It is also due to our inability to come to a political consensus. This, more than anything else, is the root of our problem, and our problems will likely linger until broad consensus is reached.
  • Europe matters. It is going into another recession. It has and will continue to affect our economy, and is probably the reason our job growth is slowing. Austerity in Europe is leaving people there poorer, and thus they cannot buy as many of our products and services, plus it adds uncertainty to the whole world economy. To some extent, our economy will be impacted until Europe itself achieves political consensus and its economy rebounds. And that is something neither Obama nor a new president can fix.
  • The economy is not going to improve by cutting public spending. Doing so will only cause the economy in the short term to get worse. This is because, no matter how inefficiently, spending money employs people. And when people are employed they mostly spend the money, which stimulates the economy.
  • Sustainable growth happens when we make new products or services that other people broadly want. And that does not happen through inertia but through a lot of research, investment and through having a highly skilled work force. It happens to some extent through government investments. The Internet, the key to our modern economy, was not a result of entrepreneurial behavior, but a result of a government research product.
  • Wealth does not trickle down. It grows as a result of a burgeoning middle class. The one percent already have virtually all they need and are not going to spend enough of their capital to grow the economy for the rest of us.
  • Growth requires infrastructure. The surest way to cripple our economy in the long term is to neglect infrastructure spending. Austerity will do just this.
  • We are all going to have to pay more taxes. If we are stupid enough to delude ourselves that we don’t have to, we will move our country down the economic ladder, eventually moving us into a second world status. Governments don’t exist to redistribute all wealth, but do need to redistribute some wealth; otherwise you don’t have a government. If it doesn’t, bridges don’t get built, roads don’t get paved, power grids deteriorate, children don’t get educations, shoddy medicines end up on the market and unsafe food ends up on our shelves and in our bodies. Our economy, including our national defense, depends on having our infrastructure in place.
  • The education of our citizens is a critical, if not the most critical, of all the factors underpinning our long-term economy. The free market cannot solve this problem. If it were possible, there would have been no reason to create public schools in the first place. True sustainable growth comes from maximizing the educational potential of all our children and applying it to products and services the world needs. That means we want all children capable of it to go to college, if possible. We want to inculcate a curiosity in our children and provide an environment that rewards creative thinking. We must invest in our children’s education, if for no other reason so they can sustain us in our old age.

In short, we are in a huge economic mess and the choices we are making or not making are making it worse. We need a national strategy that fundamentally addresses these issues. Tax cuts won’t solve the problem. Corporate welfare won’t do it either. We can start with spending heavily on infrastructure, through deficit spending if necessary. Perhaps we need a national infrastructure bank. Such a bank would serve to depolarize the issue of spending money on infrastructure. And it would certainly stimulate job growth, as well as better position us in a competitive world.

The Thinker

Sucking it up for Herman Cain

Herman Cain is Tea Party America’s favorite presidential candidate of the moment. Recent polls show him leading among Republican voters. While recent history suggests that Cain fascination will be brief (Michele who? Rick who?), you can understand why conservatives would be gaga over him. Cain, when speaking about Occupy Wall Street protesters, had this retort:

Don’t blame Wall Street, don’t blame the big banks, if you don’t have a job and you’re not rich, blame yourself! […] It is not someone’s fault if they succeeded; it is someone’s fault if they failed.

Attention 99% America: this may not be obvious to you but anyone can succeed in America. The only reason we are all not millionaires is because only one percent found the moxie to become a success. The ability to achieve success includes everyone: including the crippled, the disease ridden, the mentally retarded and the homeless. You can all become independently rich if you try hard enough. And if you don’t, you are a failure. A complete looooser.

If you are still not getting it, consider the curve of standard deviation below. It seems in nature most of us fit somewhere in the middle of the curve, but some of us are must inevitably be on the low or the high end. There are very few in the top one percent of the curve. Herman Cain is one of them. You and me, we’re in the 99% and the reason that I infer this is true, channeling Herman Cain, is because we chose to go fat and be lazy:

If you are not in the top 1%, you are a looooser

In the world of Herman Cain and Tea Party America, here is where we could all be if we tried hard enough:

The possible American world according to Herman Cain

The possible American world according to Herman Cain

That’s right. We all can all be millionaires, just suck in it, suck it up, be clever, put your nose to the grindstone and inevitably you too, like Herman Cain, can rise from humble circumstances to become a millionaire. It’s that simple. When you have the right mental attitude, just like God, you can move mountains. End of story.

But some people just aren’t getting it. They apparently include Matt, a guy I hired to do some handyman work for me. The guy I tried to hire was too busy, so he referred me to Matt. Matt is a guy who lives somewhere off I-66 in Virginia’s Piedmont. Five days a week he works a full time job somewhere that obviously does not come close to covering his modest lifestyle. When not working, he is taking care of his four kids so his wife can work at her odd part time jobs. On some Friday and Saturday nights, if he is lucky, he gets gigs playing the guitar at local pubs, which contributes some spare change to household expenses, and is his one passion in life. On Thursdays and Saturdays he runs his other business: handyman for hire. He does about a third of the work himself, but he also hires other good ol’ white boys like him to put in a few hours here and there to handle customers like me who are not Tool Time Tims. All of them so far that I’ve met smoke and all appear to live hand to mouth. They are Joe Bageant’s poor working class. This week some of them made some spare change because Matt subcontracted some of my work to them.

The weather has not been a construction worker’s friend this week. We had torrential rain for a good part of yesterday. The guys tried to tack down the new screening on our deck between downpours; otherwise they were in our garage trying to put up a new garage ceiling. For some reason the morons who built our house back in the 1980s attached drywall to the ceiling of our garage. About a quarter of it fell out while I was cleaning it a few weeks back, fortunately not while I was directly under it. I’m having them replace it with sturdier particleboard, and directed that they actually use screws to attach the boards into the joists instead of the drywall nails used when the house was constructed. Anyhow, progress has been slow.

Matt apparently is not working hard enough to be a success. He was managing multiple other projects with other good ol’ boys, which meant frequent trips to Manassas and other places to make things right. He’s pissed that he’s behind on our job, and is apologetic. Fortunately I am in no hurry.

Matt is basically doing everything possible to make money in this economy with his natural talents, but even with three jobs and essentially working twelve or more hours a day seven days a week, it’s still not enough. What’s the problem here?

If you were thinking, “Well, the economy is not doing too great, and a handyman’s wages are pretty modest, and gosh, it takes a lot to feed a family of six” you are one of the 99% and hence a looooser. If you are the surreally out of touch Herman Cain, the solution is obvious: Matt is a failure. Moreover, he is simply not trying hard enough. Maybe if in addition to working seven days a week he gave up the guitar gigs and worked instead of sleep, he could finally achieve success. He basically should run himself into the ground even more than he is doing now, which is leaving him obese, tobacco addicted and with circles under his eyes.

I bet you can guess where I stand on this. It’s pretty simple. Herman Cain, you may be a success, but in many ways you are also a moron who cannot see one centimeter past the bridge of your nose. Only a moron or a conservative would actually believe this crap that you spewed out. And yet it seems part of our American character to believe your crap. The fault is never in our stars, or in the broader economy, or in life’s circumstances, or our genetics, or our abusive parents, or our substandard schools but only in ourselves. Just like original sin that the Catholics believe in, in your mind the original sin is the inability of everyone to replicate what you achieved. The rest of us are failures, basically dog poop.

Mr. Cain, please print this out and stick it up some orifice in your body where the sun don’t shine. Consider it a little thank you from one of the 99%. And Matt, I feel nothing but compassion for you and the good ol’ boys who work for you, even if I can’t get too close to you because I am a nonsmoker. You are doing extraordinary things and while it is still clearly not enough, you have my respect and heartfelt sympathy. You also have my sincere hope that the economy improves quickly so you don’t need to be someone’s handyman anymore and get the chance to breathe again. And I hope you get more gigs strumming out those songs that you love.

The Thinker

The Fed giveth and the Fed taketh

There are times when I tend to agree with Rep. Ron Paul (R-TX), the libertarian who argues that we should abolish the Federal Reserve. Granted, we created it to avoid banking crises in general (though it didn’t seem to stop the 2008 crash) and to even out the economic cycles for the American people. Of course, the big newsworthy thing that the Fed does is it sets interest rates. It has made interest rates so artificially low for so long that a lot of people are taking it on the chin. Others, principally well-capitalized debtors like me, stand to benefit from these artificially low interest rates.

Rates are low to stimulate the economy, or so Fed thinking goes. I have to wonder whether if rates were a few points higher the economy would really be that worse off, because our “recovery” is anemic at best. On the other hand, if interest rates were a few points higher, perhaps people would be more enthusiastic about putting money into savings, money market funds and CDs, spurred on by the higher rates of return for these relatively safe investments. Right now, due to inflation, savers are effectively losing money. While protected from large swings in the value of their capital, they are doing so at the cost of losing money on the deal or, at best, coming slightly above inflation.

Of course, the Fed is doing this deliberately. They want you to feel the pain of low interest rates so you will invest money in riskier endeavors instead, like stocks, bonds and mutual funds. This is based on the theory there that growth must come from the corporate world. Until recently many investors were happy to do so until, as I predicted, they finally woke up and realized their investments were way overvalued. This caused markets to decline precipitously and for investors to seek safety in U.S. Treasury Bills, now downgraded by Standard & Poors to AA+, but still good enough for Wall Street. Wisdom on Wall Street is now that it is better to lose a little bit of money by investing in Uncle Sam than a whole lot of money on a turbulent economy with few prospects of short-term gains.

In any economy there are going to be winners and losers. By deciding which cards it was going to play, the Fed has effectively picked winners and losers. In particular, it has disenfranchised savers. Specifically, senior citizens now are taking it on the chin, at least the smart ones. Those senior citizens who followed the typical strategy of selling stocks and mutual funds as they close in on retirement and using the proceeds to buy low risk CDs, Treasury Bills and the like have discovered their expectation of a reasonable income from interest on “safe” securities means essentially no interest on them, which means those investments really are not a good investment.

Many retired couples anticipated hundreds of dollars a month in interest income off these “safe” securities, figuring the interest would help pay some bills in their old age. Without the income, the Fed has essentially lowered their standard of living. Essentially they are paying the price so that five years ago brokerages could write shoddy homes loans. Effectively, we transferred wealth from prudent savers to reckless corporations in the shoddy mortgage writing business.

It is true that when these seniors sold their stocks and funds to buy these securities, they essentially locked in the gains for these investments made over many years. However, many seniors, particularly the well-capitalized ones, were hoping to live off the interest of these securities and keep the principle to pass it on to relatives. Instead, they are drawing down their savings to live, and at a greater rate than they anticipated. It’s a wonder they do not go down to the Fed en masse to protest, because arguably they are getting shafted. Long-standing economic rules were pulled like a rug from under their feet.

Americans in general are paying down debt and stuffing money in savings, but they too are getting shafted. Because of inflation, they are also losing money on their savings, and saving money is supposed to be a virtue. While it will be nice to have a stash of ready capital on hand when future unplanned expenses come up, they will be penalized for the privilege. This is their reward for paying down their credit card balances? This is the reward for being prudent?

Who is winning with interest rates so cheap? You would think it would be small businesses, but with the economy so fragile, they are finding it hard to get loans. If they get them at all, unless their credit is sterling, they are probably paying more than they should because of the risky economy. Of course, these days larger corporations often don’t need to borrow any money. Their bank accounts are stuffed, thank you very much, because they have become so efficient from laying off people or getting their labor at a discount. Even though business is down, thanks to these efficiencies coming at the expense of others, profits are up. Many companies are taking advantage of their hordes of cash and sagging stock prices to buy up shares of their own company at a discount. That’s good for them, but arguably it does nothing to stimulate the economy.

The winners are also people like me who are well capitalized, have an asset with plenty of equity and a steady job. My financial adviser wants me to refinance our mortgage. It seemed sort of pointless to go through the expense with the balance down to about $66K. Moreover, we already refinanced it once before. Thanks to his badgering, I called the credit union today to run the numbers. I found I could turn my 30-year loan into a 10-year loan, drop my interest rate four percent for about $2300 in closing costs. The effect would to drop my monthly payment $400. Duh! I should have done this months ago! It’s great for me to effectively have another $4800 a year in unearned income a year. But even someone who never studied finance like me knows that borrowing money at a 2.875% is crazy and artificially low. I have to wonder if home loan interest rates will ever be this low again. I figure someone will get shafted by refinancing our home loan.

One thing is for sure: I am not stimulating the economy, except for making business for mortgage processors. Maybe I am shafting senior citizens from getting decent interest rates. All I know is with money so artificially cheap that I’d be a fool not to grab it. So maybe I want the Federal Reserve to survive after all, at least as long as I can stay a financial winner.

The turmoil in the markets also means that those with capital and a long-term vision should be bargain hunting in the stock market. Alas, as my mortgage indicates I am still a debtor, but if I had spare cash lying around I’d be buying undervalued stocks. Maybe once my mortgage payment is reduced $400 a month, I should invest the difference in stocks. The future is always impossible to predict, but it’s not hard to predict that interest rates will stay at rock bottom rates for years to come. It’s a pretty good bet that we have at least a few more years of a sour economy as well.

The Thinker

Republicans rooting for more economic misery

For most Americans, particularly the unemployed ones, the 2012 elections cannot come too soon. Sadly, most Americans who could vote did not bother to vote in the 2010 midterms, particularly the unemployed ones who were having trouble keeping a fixed address. This allowed the crazies (a.k.a. Tea Party Republicans) to get control of one house of Congress. Many of those who did vote for the Tea Party though did so on the assumption that they would do something tangible to create jobs.

Silly voters. Of course everything Republicans say they are doing is to help facilitate job creation. Yet despite all the tax cuts, spending cuts, and regulatory changes our unemployment rate remains basically unchanged at 9.1 percent. In fact, the unemployment rate has gone up since January, when Republicans came into power in the House. (It was 9.0% in January 2011.) Cutting the deficit is somehow supposed to create jobs, but it has also added hundreds of thousands of public sector workers to the unemployment roles as governments everywhere pare spending. Other tactics to reign in spending, like the brouhaha over extending the federal debt ceiling, only served to make our creditors more nervous, adding more uncertainty into the economy, possibly triggering a double dip recession. The stimulus, which at least succeeded in priming the economy a bit and reducing the unemployment rate a percentage or so, is all gone. Meanwhile, businesses are sitting on record amounts of capital, but don’t want to use it to do any hiring because of all the uncertainty in the economy.

Next week President Obama plans to deliver a speech on unemployment to a joint session of Congress. He is expected to say Congress must act to create jobs, but the initiative is almost doomed to go nowhere. Which means if you are unemployed you have to hope against hope that despite all these negative signs employment will pick up, or saner heads will prevail after the 2012 election. If you are getting by on food stamps, you may want to start your own vegetable garden because so many Americans are on food stamps that the program is running out of money, so it is likely to get chopped back. And if you are one of the long-term unemployed that have depended on extended unemployment benefits for at least some income, those benefits will stop arriving soon. So the prognosis for an economic recovery before the election is not great, and made even worse by cutting food stamps and unemployment payments. That’s even less money that will go into the economy.

Republicans take as a matter of faith that if the government stops interfering with the private sector, then free from these constraints the private sector will pick up the slack by investing and hiring people. So far the evidence is just the opposite. The truth is of all the agents that can cause economic growth to occur, in the short term the government is the only that could truly change the dynamic. This is because through intelligent policy, government can inject money into the economy that buys goods and services, and helps employ more people. When people are employed, they have income that they spend, which puts more income in other people’s pockets, which causes growth and begins a virtuous cycle. Moreover, our ability to do so has arguably never been cheaper. Interest on U.S. treasury bills are less than inflation, which effectively means not only that we can borrow money interest free, but also that others are actually paying us money to give us money.

The evidence suggests that if the U.S. were to borrow money now and put it to use to grow the economy, through projects we already need like infrastructure improvements, we would stimulate the economy, effectively pay no interest to do so, and begin a virtuous cycle that would increase employment and growth. Moreover, as people acquire income again, they also contribute taxes again at all levels, which give governments more income than they would have otherwise. Intelligent short term deficit spending now seems very likely to reduce long term deficits through economic growth, which comes back to the treasury in the form of increased tax revenues.

It’s clear to me that Republicans really have no desire to grow the economy or bring down unemployment, at least not until Obama is out of office. And they are willing to keep Americans unemployed to be faithful to an ideology that is proving not to work. Indeed, they seem intent to throw sand into the engine of our economy. The hope seems to be that Americans will blame Obama instead of their party in 2012, although polls suggest Republicans and Tea Party Republicans in particular will shoulder most of the blame.

The only thing we can say for sure is that there is at least a year more of misery ahead, and it will be borne principally by the unemployed and the disenfranchised because Republicans will put ideology ahead of the needs of the American people.

The Thinker

Not so smart on Wall Street

I had a feeling that our cruise would occur during an auspicious time. A last minute debt deal at least assured me that I would not be on furlough when I returned home. On the day our cruise set sail for Bermuda, the stock market plunged over six hundred points, the sixth worst point fall on record. Since then the trend has been mostly down, with the Dow Jones Industrial Average down some four hundred points for the day as I write this (August 10, 2011). It feels a like 2008 all over again. Markets are especially nervous about national debts and obligations. The United States is hardly alone. Greece, Spain, France and Great Britain are among those countries that make their creditors nervous. The trigger this time was the downgrade of U.S. treasury bills by Standard and Poors, which last Friday cut our rating from AAA to AA+ status, the first downgrade in our history.

The market is desperately searching for safe harbors for capital, but is finding few of them. Our financial world is riskier than it was. Doubtless with these stock market declines my portfolio has been badly hit. Doubtless I lost my illusory millionaire status. I have no idea if we are plunging into a double dip recession or worse, but the tealeaves that our economy was having difficulty have not exactly been hard to read. Over the last few years, Wall Street has exhibited irrational enthusiasm and drove up stock prices to artificially high levels. It did this largely on hope, probably because recessions typically don’t last too long.

Wall Street obviously discounted the signs that this recovery, at least here in the United States, would be largely an illusion. Yet the signs were clear and unambiguous: an unemployment rate that would budge only grudgingly, a fearful middle class with no extra income, relatively high inflation and political intransigence that ensured that common sense would take a holiday. Standard and Poors finally acknowledged the obvious by lowering our bond rating. It did so not because our ability to pay bondholders was really in doubt, but because our country refuses to find a sensible financial path forward. With the debt ceiling deal, as usual, we pushed problems into the future and did not really fundamentally address any of them. We created a dubiously legal entity called a Super Congress which appears doomed to be dysfunctional. Everyone knows what would really calm the markets: some measure of tax increases to accompany expenditure reductions. This, of course, is exactly where Republicans in Congress will not go. While I am hopeful plunging markets may force Congress to exercise some common sense, it is mostly a fool’s hope. Perhaps the 2012 election will bring clarity, but if I were a betting person I would not bet on that either. So expect the stock market to remain in turmoil for some time.

I remain not too worried for myself as long as I have a decent job. I leave it to my financial advisor to keep me on a sound long-term financial strategy. But I can pretend to be scared like mostly everyone on CNBC, one of the few channels available to us here on the cruise ship. I once opined that capitalism is our true religion. Watching CNBC certainly reinforced this opinion. From watching CNBC, it is hard not to conclude that the financial class is largely a nattering bore, obsessed with the minutia of the moment and largely tuned out to the facts in front of them. There are only a few things that really matter about investing in a company, but you would never know it from listening to these CNBC talking heads. What matters is a company’s track record, how leveraged it is by debt, the opinions of their customers and their ability to innovate products that people want.

Look at the companies that are truly prospering, like Apple Computers. You know that money invested in Apple will probably return growth and dividends over the long run. I have no idea whether their share prices are overvalued or not, but I do know owning shares of Apple means your money is probably not invested down some rat hole. Whereas when you look at other companies, say Bank of America, whose balance sheet is rife with risky subprime mortgages, you can reasonably infer it’s a risky stock in the long term, because it was being managed by short-term profit-obsessed bozos in the mid 2000s when clearer heads were needed. I know I would need a lot of convincing to invest in Bank of America. Fool me twice, shame on me.

Instead, I simply refuse to become obsessed about short term trends in the stock market. To the talking heads on CNBC, that seems to be all that matters. In my opinion, short term investors are basically gamblers. I put no more faith in them than I would on some guy on a winning streak in a Las Vegas casino. Short term investing is a dangerous game. If you have the nerve for that sort of financial life, like many investors tuned into CNBC, go for it, but you are likely to end up losing a lot of money. Instead, us non-financial wizards can save ourselves a lot of angst by investing in companies with the attributes I mentioned above, holding on to them for the long term, balancing our portfolios yearly to meet our financial goals and cashing them in selectively during retirement. These short term market changes always disappear over the long term. The only short term decisions I would make would be to buy solid companies whose stock price is artificially discounted as a result of irrational and wholly short-term fears on Wall Street, but only if I had some spare cash. Presumably my other assets would remain solid for the long term, and I’d want to hold onto them.

I am not a stock analyst. However, I do know a fool’s errand when I see one. Despite the endless blather on CNBC, it’s obvious that even the wizards on Wall Street cannot accurately predict short term trends. In fact, no one can since by definition the future is always unknown. So if you are listening to CNBC analysts thinking they see things you don’t, disabuse yourself of the idea.  Instead, when judging the economy, judge it by the economy you see and experience, which is the one that matters.

The short term market is driven principally by fear and greed, which depend on each other. It’s like an endless game of tug of war and like a Las Vegas casino, the odds are stacked against you by default. Rumors that are widely believed can be as good as gold for a short while, even if they are wholly fallacious. All sorts of short term fools will follow analysts on CNBC and elsewhere and dump perfectly good stocks for potentially risky ones elsewhere. You are likely a better predictor of market trends than they are. After all, these wizards built up stock prices on the hope for a recovery that never really materialized. Once again they have been proven catastrophically incorrect. And yet the economy will truly recover in time. It always has. When it does you want your portfolio to be full of solid and meaningful assets.

Instead, I recommend that you do your best to tune out the daily stock market ups and downs and keep investing in the long term. If you are not someone who wants to waste your time getting into the minutia of stock market analysis like me, then get a trusted financial advisor with the long view who will allocate your investments into funds that are well managed and include companies that have the attributes I mentioned.

The Thinker

Greater national dysfunction dead ahead

In about two months, citizens will go to their polling station and choose their elected officials. God help us, because no matter which way we are likely to vote nationally, we’re going to be screwing ourselves and our nation.

If the election were held today, it looks likely that Republicans would retake the House, but the outcome is much less certain in the Senate. There is some possibility that Democrats will retain both houses of Congress, but even in that event Democrats will be trying to govern with much smaller majorities. Regardless of who wins, Barack Obama will still be our president. This means the only possible outcome is more dysfunction between branches of government, exacerbating the sorts of tactics that Americans are already sick of.

Polls show that voters don’t like either Democrats or Republicans and pine for this idealistic notion that both parties will somehow put nation above party. As if. Instead, they have to vote from the slate of candidates they got. The dynamics suggest that in about ten percent of the House races (a remarkably high number) voters will vote their local bum out and vote in the bum from the other party.

Sweeping your current bum or bums out of office may give the illusion of changing the dynamics, but it will not. Partisanship will only increase, if that is possible. So if you think you are already frustrated with government now, just wait until you vote your passions and elect a newer even more highly partisan set of into office. I’m afraid Extra Strength Tylenol won’t cure this headache.

Only one part of the Republican agenda is clear: they will spend most of their time until the 2012 elections investigating the Obama Administration at length for alleged malfeasance. It will definitely take some digging because so far, the Obama Administration has been remarkably scandal free. At least Republicans will know what scandal looks like, because they are experts at it. Whether malfeasance actually exists or not is beside the point. One of the few powers Congress can wield in this environment will be the power of investigation so all that is needed is the possibility of malfeasance. So instead of just bottling up appointees and judicial nominations, Republicans will likely bollix up the rest of government as well, ensuring little actual governing is done. This will, of course, give them something to run on in 2012: can’t you see how little Democrats accomplished?

The other power Congress holds is, of course, the power of the purse. With an expected influx of Tea Party activists, expect that a sizeable minority of Republicans simply won’t vote for anything that resembles spending. If you want a preview, simply look to California where its dysfunctional system requires two thirds of both houses to pass a budget. While that is not true in Congress, in the Senate either party can effectively hold the other party hostage unless one side can cobble together sixty votes. The House though may start to envy the Senate. Pity orange-skinned speaker-in-waiting John Boehner. He will have the impossible task of trying to govern House Republicans, a sizable minority of whom won’t allow themselves to be swayed on any issue. After all, they will have gotten into Congress on a platform of no compromises anytime, anywhere.

Yet spending bills must be passed at some point, right? In California, the answer is “no” as long as Republicans stayed united. The ensuing mess led to massive cuts and layoffs, leaving California a largely dysfunctional state and, not coincidentally, with one of the highest unemployment rates in the country. I suspect that we will see a repeat of the budget showdown of 1995, which furloughed millions of federal workers and left most agencies, except the few that had an appropriation, mothballed. This time though, emboldened with fresh Tea Party members, it is likely that House Republicans simply won’t give in at all. The Senate is likely to be more reasonable, but it’s unlikely an acceptable spending bill will emerge from conference that either the House or the Senate will endorse.

Even if one emerges, can it sustain a presidential veto since in all likelihood such a budget will extend or expand tax cuts for the rich while decimating social spending? The answer is already clear (no), but if dealing with the budget were not enough, there are other recent laws, such as the health care reform law, that Republicans are chomping at the bit to repeal. They ultimately won’t go anywhere either during this presidency, but it will engender a lot of negative energy and hot air.

I expect that unstoppable force is going to meet immovable object. The result will not be pretty and will sour voters even more on government. Congress may look at its current dismal approval ratings as the good old days.

Is there good news in all this? Yes. The good news is that the issues animating voters to the polls this year, our less than stellar economy, is likely to finally recede in voters mind in 2011 and 2012 as our slow recovery is actually felt by the working class, albeit in fits and starts. The economy won’t be quite what it was, but we are likely to see the unemployment rate recede to more politically acceptable levels. Both sides will of course claim credit for it while castigating the other side that the economy isn’t doing better. Voters will get to sort it all out again in 2012.

The surest path to returning a Republican to the Oval Office in 2012 is of course to bet against our recovery, which is why disingenuous Republicans will be doing just that. They will secretly welcome high unemployment and exploding deficits, because it undermines the Obama Administration. In short, there is little upside for Republicans to improve the economy, deficits and the employment picture, particularly if it vindicates the unpopular but necessary long-term strategies Democrats and the Obama Administration have been fostering to achieve long-term growth.

I wish there was an island I could go somewhere until it all blows over in 2012. Meanwhile, I fear for our republic. Governing requires compromise and there will be none of it until 2013 at the earliest. My only question is who will ultimately be held responsible for the ensuing mess? The Republicans of course hope it will be Democrats and the Obama Administration, but if 1995 is any guide having the ability to govern but refusing to do so sours voters’ opinions of you, particularly when social security checks don’t arrive on time. In short, obstinacy is an effective short-term strategy, but a poor long-term strategy for staying in power. Say what you like about the Democrats, but at least they governed, despite near unanimous Republican opposition.

Consequently, any electoral gains Republicans make in this year’s election are likely to recede in 2012.

The Thinker

Haiti is our harbinger

Perhaps it is just winter, always a dark time of year. Or perhaps I have spent too much time reading Joe Bageant who lives life without the rose colored glasses on so well he makes my head groan. Republicans winning a special election for Ted Kennedy’s seat didn’t help either. I am finding it hard to escape the feeling that our species is toast. We are rearranging the deck chairs on our Titanic. The ship is going down but conventional wisdom is it is good somehow. “You know, we are ten feet deeper in the water than we were an hour ago. But it’s good. It gives us more ballast. Gives the crew something to do pumping out all that bilge water. Another margarita anyone?”

Then terrible tragedies like the Haitian earthquake occur that reinforce that not only are bad things happening all around us but also that they are getting worse. The human toll from the earthquake is but a wild estimate at this point, but 200,000 deaths seem to be the current working number. For many Americans, or at least some Americans like that usual jackass Rush Limbaugh, it’s like who cares about the freakin’ Haitians? Oh, and by the way, Obama is using this for his political advantage. But what else would you expect from Rush? This same guy checked into a hospital in Hawaii recently complaining of chest pains. Of course, he used it as an opportunity to gush about how we have the most wonderful health care system in the world, at least for self insured multimillionaires. As for the rest of us, well since we are not multimillionaires I guess we don’t count. In Rush’s mind, we’re just Haitians. If a 7.0 magnitude earthquake struck downtown Washington D.C., Rush would doubtless be calling for us to do no more than bulldoze the whole city under. God bless his compassionate soul.

Our world is rapidly devolving into the dystopia Neal Stephenson chronicled back in 1992 in his prophetic novel Snow Crash. Unable to afford to live in our own homes, or even an apartment, how long will it be before we, like Hiro Protagonist, call a room in a U Store It home. In fact, newspapers periodically chronicle people in my area doing just that. Ask any homeless Haitian and they would be thrilled to call a room in a U Store It a home. At least it is clean and in many cases heated. Those Haitians who are still alive are fleeing the capital Port-au-Prince. Tent cities full of refugees are emerging, but international aid can address just a tiny portion of the overwhelming need. Those who survived for the most part cannot find clean water and food. If the earthquake didn’t kill them, perhaps the cholera and dysentery which will soon be rampant will do the trick. It sounds like it would make Rush Limbaugh happy.

Meanwhile, Pat Robertson believes Haitians made a pact with the devil. That’s why they died in such large numbers. Seriously. This is what religion can do otherwise sensible people. And this guy somehow runs his own university. I guess that long established fault line running though Haiti had nothing to do with the earthquake. Or God told all the sinners to build houses right above it. Any illiterate and starving Haitian has more sense than this Robertson fool, including those who believe in Voodoo.

The sad reality is that hardly anyone without relatives in Haiti gives a shit about Haiti. We do our best to keep Haitians out of the country so their impoverished relatives won’t join us in the states and lower our property values. To the extent that we have cared over the years, we have used Haiti as an experiment in our capitalist values. Organizations like the International Monetary Fund loaned money to Haiti then turned the screws, making repayment virtually impossible.

It’s not like in the best of times their lives were not already miserable. They have the lowest standard of living and life spans in the Americas. They also sit in the middle of hurricane alley. When hurricanes arrive, like earthquakes, they tend to collapse an already fragile infrastructure. Now this: half of the buildings in and around the capital are destroyed or unusable. Of course, they could be rebuilt to modern building codes. Think that is going to happen? In your dreams! Building codes take money you can’t afford living on a dollar a day or less, and Rush Limbaugh certainly doesn’t want to give the ingrates any more. As for Robertson, it would be the same as giving money to the devil. After a year or so, we will have largely forgotten all about their plight, but they will still be as miserable and hopeless as always. Incredibly, when there seems no possible way to make their lives any more miserable, a subsequent disaster proves us wrong.

No, we will soon go back to ignoring Haiti, as will most of the world, because we will need to become xenophobic. As the health care debate has demonstrated, in America we believe in every man for himself, come hell our high water. We are not far from a time when we will leave the uninsured bleeding to death outside our emergency rooms because we won’t want to shoulder even their emergency room costs. With our national wealth quickly moving overseas to countries like China, America continues to be one big fire sale. Soon we are going to emerge from our collective hangover to discover that we are no longer a first world power. This is what happens when you neglect your infrastructure and human capital costs long enough because you are intoxicated by ever lower taxes. The whole neighborhood just goes to hell. We will realize that we can no longer afford our military, our international commitments, or even Social Security and Medicare because our creditor China says we can’t. And that means when we have no more means to beg or borrow, we move toward second-class status, which is sort of like Mexico. America will become a harder, meaner, more intolerant, more polluted place that will border on anarchy. The gated communities will go up just like in Snow Crash, but this time there will be armed guards patrolling the fence and manning the gates.

What we can do, like almost every country in the world, is keep adding recklessly to our population, which today guarantees a lower standard of living. More natural wilderness is transformed into ugly sprawl. With more mouths to feed, we have more reasons to punt issues like global warming because trying to maintain our standard of living will always trump over serious action on the environment. We are already there. The social contract is fraying. Living on social security alone means you are living in wretched poverty. At best, so long as you do not get sick you can afford to inhabit that trailer somewhere. However, there won’t be enough left over to fix that hole in the rusted trailer roof, let alone buy your heart medicine.

I see it in my own in-laws. To the extent they have a middle class lifestyle, it is thanks to a reverse mortgage on their house in a burb outside of Phoenix. It was not worth that much to begin with and is worth even less now. Most likely their equity is gone. When their air conditioner broke down, they were looking under the sofa cushions for money to get it fixed. About the only thing they can count on is Medicare and getting that monthly social security check. They allow them to exist, but certainly not to live. It’s been more than a decade since they took a real vacation. Instead, you eat light and watch a lot of Fox News.

A chain always breaks at its weakest point. In the western hemisphere, that has traditionally been Haiti. The conditions that caused Haiti are leaching all over the hemisphere. This includes here in the good old United States of America. As is well documented, in the 2000s when we had the bliss of Republican rule, our wages stayed flat, our net worth declined, our stocks lost value and we added no more jobs to the economy. Naturally, upper class Republicans did well. Their plan worked great, for them, as it always does because they are experts at screwing those who make less than they do and getting applause for doing so. Those jobs that we did add were at Wal-mart instead of IBM. However, our waists expanded. Perhaps that’s progress. All that extra eating and lack of exercise though helped cause health costs to explode.

No wonder that these days we prefer to escape reality, if not in traditional vices like booze and drugs, then, like Hiro Protagonist, in our virtual worlds in cyberspace. There we make our own pretend reality. We kill demons online in multi-user role-playing games while our first world status crumbles around us. It’s true in the U.S.A. but is also worldwide: collectively we have exceeded our resources which means we are all driven to figure out how to get a bigger share of a smaller pie. We already sense the truth. There is no magic technological fix. Anyone whiz bang new technology invariably brings with it other hidden costs. Nuclear power begat vast quantities of nuclear waste and tragic nuclear accidents. More recently, our new compact fluorescent lights carry the burden of all their mercury vapors, most of which leaches back into our already toxic atmosphere.

We are doomed and we are in denial, but in Haiti, denial is not an option. Eventually we too will have to acknowledge the truth. If we ever reach that point, it’s unlikely that we will be able to summon the nerve to actually change our situation for the better. Instead, we’ll be eyeing our neighbor trying to figure out how to make his life more miserable so we can profit from his misery. This is the new American way: ask not what you can do for your country; ask how you can profit at your neighbor’s expense.

We should weep not just for the Haitians, but also for ourselves for Haiti is our destiny too. The more we deny our connection to Haiti, the worse it will be for us and the sooner we will share their misery. We have already laid out that path in front of us.
Read the rest of this entry »


Switch to our mobile site