The negatives of negative interest rates

The Thinker by Rodin

Donald Trump wants the Federal Reserve to drop interest rates to zero or to even allow them to go negative. It’s pretty obvious why: so he can avoid being at the wheel if a recession inconveniently hits before Election Day. He’s clearly freaking out about the election still more than a year away, as also evidenced by his decision to suspend some tariffs on Chinese goods.

Why should negative interest rates matter to you? It’s not like you can set up a Federal Reserve bank account. The Fed Funds Rate is currently 2.25%. This is the interest rate the Fed requires that one bank charges another bank to park its funds in their bank. It usually parked there only overnight. Any excess reserve a bank has on hand is money they cannot earn interest on. So parking it overnight at another bank allows them to make some money on it.

So what does this mean if the reserve rate is set to 0%? It effectively means there is no reason for a bank to park its excess reserves because it will not earn the bank any money. They might as well lend it. What happens if it’s a negative number, say -1%? Then effectively a bank takes a hit to park its money elsewhere. It would be stupid not to lend it.

A bank could pass its lower profitability from these lower rates onto its depositors. This happens routinely when the Fed Funds Rate changes. We bank at Ally Bank. When the Fed cut its rate by .25%, my savings and money market interest rates were cut by this amount too. Anticipating a rate cut, we at least did one thing smart: we took out a certificate of deposit for one year, which locked in our rate. We’ll earn 2.47% on it after one year, but not before. In general though most people don’t like to tie up their cash like this, so when the Fed Funds Rate drops, they will lose interest income. Better to take that money and risk it on investments is the hope.

Banks could in theory charge depositors’ negative interest rates, i.e. charge them for holding their money. (Considering all the bank fees we pay, some of us in effect already are!) They probably won’t, but accounts that effectively draw little to no interest at least one advantage: safety. Or do they?

Most accounts are fully insured because they don’t pass the threshold of $250,000 per depositor per bank. So yes, if a bank goes under you are likely to get your money back. But since the Glass-Steagall law (passed as a result of the Great Depression) was repealed in 1999, things have loosened. Banks can now invest in speculative investment with depositors’ money. This resulted in the Great Recession when banks loaded up on toxic assets to chase their bottom line. For them, the worst thing that can happen is they declare bankruptcy, which is what happened to so many banks in the Great Recession. The government got to clean up the mess and shoulder any financial losses, i.e. you and me assumed the risk.

Now, as the economy improved and Republicans controlled government again, these financial rules were loosened even further. In 2018, Trump signed into law new regulations that eased oversight on the largest banks, by raising the criteria for what comprises a very large bank. This results in less regulator oversight.

Add in low or negative interest rates though and we add a lot more risk to our financial system. Trump of course is hoping these low rates will incentivize banks to loan money, pumping up the economy. (It might also save him boatloads of money, if he can renegotiate interest rates on his loans.) But by incentivizing banks, we are in effect incentivizing risky loans. In short, we risk another Great Recession, or possibly another Great Depression by doing this.

Some countries are trying negative interest rates to stem deflation or deflation fears. Deflation occurs when money you have today is worth more tomorrow. In that case, there is no incentive to invest the money. Rather, you want to hold onto it, which means it’s not available for others to use. By making savers pay negative interest, it encourages them to loan out the money to stimulate the economy instead.

As a tactic for stopping deflation, maybe it has some merit. It’s working marginally in Japan, which has experienced years of deflation. But the United States is not in a deflationary environment. Hopefully though the Fed is instead trying to prevent deflation from happening in the first place.

Negative interest rates don’t have to lead to financial calamity, at least if they are properly overseen and regulated. But in this country it would be a very nervy thing to do at present. The Fed’s toolset though is very limited and well tried. The Fed’s policy of quantitative easing (imitated by lots of central banks) was one tactic of desperation after the Great Recession when the economy was still a mess even after virtually zero interest rates. Quantitative easing is essentially the Fed buying up investments others don’t want to buy with money the Fed creates out of thin air. They control the money supply, and can create money willy-nilly. That and low interest rates are about all the tools they have left.

A negative interest rate policy looks like the next and more desperate step to keep an economy from sinking into depression. It is basically a tool to use for deflation, which is what happened in the Great Depression. It’s like a fire extinguisher alarm: break glass only in case of emergency.

If investors though figure deflation is going to happen, they have an option: take the money out of the banking system and figuratively put it in the mattress. That way no one can use it but at least it’s safe, unless someone looks in the mattress. It’s more likely though they will move it to currencies and economies that are not deflating.

So hopefully the Fed will take a pass on Trump’s idea. In reality, the problems of our economy are structural and these tactics of the last ten years are basically stopgap measures. The Fed should have been doing more modest increasing of interest rates instead, as our economy, at least if it’s not in a recession, should be able to handle it. Mostly our economy is showing every sign of being over-leveraged and fragile again. If your economy is truly strong, you don’t need to even think about using these tools.

If this house of cards collapses again, it will be felt the way it was last time: soaring unemployment, wiped out savings. A lot of it will be due to risky investments, just like the Great Recession. If you are looking for a true revolution, another Great Recession or Great Depression is a good way to start one.

No bottom for the Republican Party

The Thinker by Rodin

It looks like I have been giving Republicans too much credit. I assumed there was some core group of Republicans who could agree, “This time Trump has gone too far” and bring him down. Apparently, there is no bottom for the Republican Party.

That’s because I assumed that there were some sane Republicans out there. But it looks like when push comes to shove, sanity takes a back seat to subservience and fealty. Republicans apparently love to take orders. They love authoritarians. I’m guessing it gives them some feeling of comfort that somewhere a Big Daddy is taking care of things. Having decided to get on the Trump train, they can’t seem to find a reason to get off, no matter how surreal and ridiculous it gets.

Signs are pointing to a huge train wreck for Republicans in the 2020 election. Some years back I pointed out that Trump would kill the Republican Party. To severely maim the party, Republicans have to lose both the presidency and the Senate. Barring some massive election fraud, Trump is destined to be defeated in 2020. He’s never polled over 50% and most of the time his approval ratings have been mired in the low 40s or lower. Winning with these sorts of negatives is possible only with massive voter fraud or a third-party candidate that siphons off a lot of Democratic votes. Both the 2000 and the 2016 elections likely would have elected Democratic presidents had it not been for the third-party spoiler effect. It’s not Trump’s base that will win him reelection, but Democratic fragmentation.

Winning the Senate requires flipping three Republican seats, which is a bit of a long shot but not impossible in a wave election. Aside from his base, Trump has managed to piss pretty much everyone off. But even among his base, he is bleeding supporters. White men support him, but according to polling he’s recently lost white women without a college education. Trump is losing farmers from his trade wars, and truckers are seeing major layoffs plus the latest tax law raised their taxes by doing away with a lot of their deductions. Meanwhile, Senate Majority Leader Mitch McConnell is deeply loathed in his home state, with only 33% approval. He can’t even be bothered to pump up a pension fund for coal miners. Yes, in deep red Kentucky, McConnell may lose reelection next year.

Rather than face criticism, Trump does the only thing he knows how to do: reshuffle the deck. This means changing the subject, generally by saying things or posting comments on his Twitter feed that are increasingly outrageous. This is effective but it doesn’t actually fix the issues that got him in trouble in the first place.

Moreover, his pattern never varies. When he decided not to put those 25% tariffs on Chinese goods so people could enjoy nice presents under their Christmas tree mostly made in China, then of course when China added new tariffs on U.S. products as they promised it all went out the window. New tariffs were back on and markets plunged about three percent yesterday. They were doing fine until his announcement.

But just when you thought Trump couldn’t possibly get any wackier, he doubles down on the stupid. Just this week Trump:

  • Said he was the Chosen One, implying he was the King of the Jews
  • Said any Jew voting for Democrats was disloyal and un-American because they should put Israel first … uh, what? And how is putting Israel before the United States showing you are an American patriot? Oh wait, because Trump says so. Gotcha.
  • Ordered U.S. companies to leave China, even though he can’t
  • Decided he could issue an executive order to end birth right citizenship, as if he could unilaterally override the 14th Amendment
  • Blamed the chairman of the Federal Reserve for his economic woes because he wouldn’t cut interest rates fast enough, while apparently absolving himself of the blame of nominating Jerome Powell in the first place
  • Said he wanted to buy Greenland and canceled a summit with Denmark, which manages the island, in a huff because they wouldn’t consider it. Actually, Denmark couldn’t even if it wanted to. Residents of Greenland would have to decide. Oh, and he called their female prime minister “nasty”, his word of choice when acting like the obvious misogynist that he is.

We have a president that is, quite frankly, totally nuts and bonkers. Just one of these by a Democratic candidate like Joe Biden would sink their candidacy. But Republicans so far show nothing but increased fealty to a president who by any objective standard is mentally ill and could not be trusted to even competently manage a child’s savings account.

Moreover, a recession is clearly on the way and every action Trump takes seems to be designed to make it worse. It was tariffs that brought us the Great Depression. Doubling down on tariffs simply increases the odds that a recession will turn into a depression. And if there is a recession, there’s not a single adviser to the president who has either the smarts or the wherewithal to help lead the US out of a recession. The closest we have is Jerome Powell, and only because the Fed is independent of the executive and he can’t be fired. When you surround yourself by incompetent sycophants, well, you get incompetent sycophants. Hell of a way to run a “government” … don’t bother to actually govern!

I was thinking yesterday that the tanking stock market might finally be the straw that broke the Republicans’ back. Moneyed capitalists ultimately hold up Republican power. Yesterday, three percent of their wealth vanished because Trump’s ego was hurt. Likely a lot more of it will vanish soon.

The obvious remedy is the 25th Amendment and twisting Vice President Pence’s arms to get a majority of the cabinet to declare our president is too mentally ill to serve. I’ve been waiting more than two years for this intervention, assuming cooler heads in the Republican Party could prevail. While I still hope for it, increasingly it looks like I misjudged the nerve and sobriety of the Republican leadership. They are wholly captured by their captain, and appear ready to go down with his ship.

Here’s why the improved economy means so little

The Thinker by Rodin

The stock market is reaching record highs again, which make us moneyed people woozy. I’m modestly including myself here although I’m not that well moneyed. But I am retired on a nice pension with plenty of assets to draw on should things go south. The Dow Jones Industrial Average passed 27,000 yesterday and closed for the week at 27,322. Not bad for an index that dropped to 6547 on March 6, 2009, a little over ten years ago.

Happy days are here again? It might help to wonder why the market indexes are so high. The most recent surges are almost surely due to the Fed’s strong hinting that it’s going to reduce interest rates soon. Maybe Donald Trump’s bullying is getting to the Fed, but much more likely the Fed has read the tealeaves and suspects a recession is getting started and is trying to prevent one. And it’s enough to calm Wall Street and make them think happy days will keep on coming.

You don’t have to look hard though to find worrying signs: tariffs are slowing trade, commodity prices are dropping, and the percentage of people in the workforce keeps dropping. This is artificially keeping the unemployment statistics low. Consumers are taking on the same levels of record debt they took on before the Great Recession and Republicans have managed to repeal many of the key safeguards put in place to keep it from happening again. Student loans passed the $1T mark, sucking money from these former students’ wallets that they can’t spend on actual goods and services like houses. Perhaps in response, mortgage rates are dropping again, which is actually not a good sign. Banks are trying to entice people to buy houses, so the lower the rates go the harder time they are having finding people who can afford to take out a mortgage.

Still, many of us including me have been expecting calamity and have been wondering why we have been proven wrong. There are a few positive signs. With unemployment low, workers can bargain for higher wages and it’s working, sort of. They are beating the cost of living by .5 to 1% annually. That doesn’t translate into a whole lot of money, but it beats the decades of wage stagnation we’ve been experiencing. This is hardly the end of wage stagnation, but it is at least a hopeful sign.

Donald Trump is wondering why he isn’t getting more traction on the economy. That’s actually his one bright spot, with a slim majority approving of his handling of it, while his overall approval ratings seem mired in the low 40s. 40% of Americans still cannot find $500 to draw from in an emergency. It could be they are all inept at financial management, which is what Republicans would like you to believe.

The real reasons are much simpler. Much of today’s work requires people with fewer valuable skills, which mean they can’t command as much in wages. That’s why they are working two or three jobs to pay the bills. Even this is not enough, which is the real reason they can’t find $500 and are living paycheck to paycheck.

But there’s one other important factor that is often overlooked. Certain things cost a lot more than they used to (housing is a prime example) and there are other things that cost dramatically more than they used to. The most likely reason you will get thrown into poverty is if you need more medical care than you can afford. The Affordable Care Act was a good first step, but it wasn’t nearly affordable enough, despite the subsidies. You still needed enough income to pay for the bronze plans. And since they came with high deductibles, they mostly only bought catastrophic protection. All those deductibles, copayments and coinsurance payments cost a heap of money and all of it needs to be in the form of disposable cash, which for the most part these people don’t have. They still can’t afford to be sick. Of course, a lot of states won’t offer health care under Medicaid to these people, which they probably could afford if it were offered because copays are minimal when they exist at all. Medical price inflation is still insane and there are fewer mechanisms to check it. The magic of the free market has proven largely illusory with health care costs.

It’s no wonder then that surveys show that for most voters it’s not how well the economy is doing that matters, but how well their economy is doing — and it’s not going that great. The good news is that there is work out there for pretty much anyone who wants it. The bad news is that without a lot of high-paying skills, at best you can barely get by on the wages you are earning. Voters have figured out that health insurance really matters, and it’s their number one concern now. Those who had Obamacare realized that at least for a while it cushioned financial shocks. But they also need health care because they can get sick and simply can’t afford to get well. There are people driving hundreds of miles to Canada regularly just to buy insulin at affordable prices.

While it’s true that Donald Trump is widely seen as unlikeable and unpresidential, what voters are really understanding is that government needs to actually govern, and so little of it is happening. A president can be thrown out after four years, which is likely to happen to Trump. But we need a Congress that compromises in the public interest and tackles real problems like immigration reform and the lack of affordable health insurance ten years after Obamacare.

It may be a long wait. The Supreme Court recently decided states were perfectly free to gerrymander based on political party. In short, it’s allowing states to stay in the business of incumbent protection, making it harder and harder for people to actually have a true republican form of government. With our courts now largely in conservative hands, it’s hard to see how this can change.

Which is why Bernie Sanders’ call for a political revolution makes a whole lot of sense. Achieving it without wholesale insurrection though looks incredibly improbable.

The stock buyback warning: stormy economic times are likely ahead

The Thinker by Rodin

Remember when Trump’s tax cuts were going to put money back into the pockets of working class Americans and create more jobs for them too? Unsurprisingly, this turned out to be a load of peanut butter. With gas now around $3 a gallon, whatever new modest tax cuts trickled down to working America are probably being eaten up in higher transportation costs. As for businesses reinvesting their tax cuts in their businesses and bumping up wage rates for employees, well, there’s not much evidence of that. According to this March report from the Roosevelt Institute, just six percent of these corporate tax cuts are going to wage increases and bonuses for employees. Just twenty percent of this money is going toward capital investments that will result in more jobs.

So what are companies doing with the extra money from this enormous windfall? There is little reason for CEOs to spend most of it investing on the long-term futures of their companies. That’s because CEO compensation tends to be based on making short-term profits. These days many CEOs make far more compensation from exercising stock options than they do from a salary.

So we should not be surprised that CEOs are trying to make money the easy way instead. And the easy way is to take these windfall corporate tax cuts and buy back shares of their company’s stock. It’s good for them and it’s good for shareholders. Or so it seems. Experts are questioning if these buybacks are just artificially inflating the price of corporate stocks. One traditional measure is a stock’s price to earning’s (P/E) ratio. The higher the ratio, the longer it takes for earning from owning the stock to be used to buy a new share of company stock. High P/E ratios are a sign that stocks are overvalued and due for a correction. We are now at a P/E ratio about where we were before the Great Recession.

If it were just a handful of companies, this would not be particularly worrisome, but it’s part of a large and broad general trend among American corporations. Bloomberg reports a record $800B in stock buybacks are expected in 2018. So how are these buybacks inflating the value of a company artificially? It’s quite simple. When a company buys back its own stock, the supply of the stock for purchase diminishes. Of course as supply diminishes, price increases for any shares that are traded. If a CEO has $5 million in his company’s stock, by channeling these tax cuts and profits to buybacks, all other factors being equal the price of the stock will go up. So his $5M might easily turn into $6M. And what work had to be done? Simply redirecting these tax cuts and profits to create “buy” orders for his company’s stock.

That’s a whole lot easier than creating new products, expanding into new markets or figuring out how to run the business more efficiently. Shareholders probably aren’t going to complain when they see the value of their investments rise. Smarter CEOs will be systematically selling their stock when its price goes up, so they can capture its inflated wealth. This gives them money in the bank that can’t be taken away and shifts the risks of owning this stock to other stockholders.

Which is why these record stock buybacks really worry me. They do nothing to actually make a company more profitable in the long run and actually add to a company’s vulnerability. They allow more agile competitors (if there are any) to get a leg up on their market. That adds risks to a company’s value. Companies are essentially betting on the profitability of corporate inertia. Traditionally, this has not worked well for companies in the long run.

Stock corrections are inevitable. There was evidence earlier this year that we had reached correction territory, but markets have recovered much of these losses. For now though these tax cuts seem to be juicing the markets instead of your pocketbooks. I get the feeling that a true correction will happen sooner rather than later, in part because of the volatility of the market so far this year. This suggests there is a general nervousness among investors.

Stock buybacks though are a clear symptom of corporate greed. Greed is simply the lust for more wealth, and the truly greedy will want to increase their riches now rather than wait for improbable future profits. Congress is aiding and abetting this greed through these tax cuts in the first place, but also by removing regulations that were put in place after the Great Recession to prevent these things from happening in the future. You can see this through Trump’s attack on the Consumer Financial Protection Bureau. You can see it in recently passed legislation that will remove more higher reserve requirements on midsize banks. And you can see it in record consumer debt levels, bigger even than before the Great Recession. I believe that these large stock buybacks are another sign that this financial house of cards is moving toward another correction.

This time we can hope that it won’t be as bad as 2008. It shouldn’t, but who can say? The Trump Administration is being both being reckless and shortsighted, and Congress is fine with this. Their insatiable greed means they simply don’t care about fulfilling their primary function. The primary function of government is to be fiduciaries for the nation, making sure it is properly managed for both the short and long term. To the extent they are interested, it is to convince them that their timeworn strategies that just do the opposite will somehow work in the long term this time.

You would be wise not to take their bet. Rather than practicing greed, you might want to practice prudence instead. My take: this is a good time for less market exposure. I’m not alone. When the Treasury bill rate made it above 3% for the first time in years, it pushed up other interest rates. Many investors saw this as a sign and began moving more money into bonds for the surety of a return.

I don’t think Republican governance is going to change any fundamentals of the economy. Needless to say, I’m limiting my market exposure now and putting more money into bond funds. Maybe you should too.

Repost: Hug an illegal immigrant today! (August 2007)

The Thinker by Rodin

What’s old is new! What’s old in this case is the following post, first posted nearly ten years ago in August 2007. Given Trump’s desire to deport pretty much anyone, it’s as topical now as it was then. And it’s one of my better posts. So time for a repeat. Enjoy!

Here is a basic truth about American history that you are unlikely to find revealed in our history books: our success as a country is due to immigration. Most likely, our country’s decline will start when immigrants decide to go elsewhere.

Immigrants have always been crucial to our country’s success. When we could not get enough immigrants, we captured slaves and brought them over here instead. Yet through much of our history, whether here legally or illegally, immigrants have been scorned. In truth, immigrants are the gasoline that fuels our economy. We say we do not want them in our country, at least the ones who are not here legally. Yet if they were to go, our standard of living would decline precipitously. Inflation would go through the roof. Immigrants make it possible for the rest of us to live the American Dream. My vaunted six-figure salary is directly due to the guy making $15,000 working for Goodwill who doesn’t seem to speak English and who hauls away the trash from my office everyday.

Thankfully, there is little chance that people will stop coming into our country, no matter how impressively we build our barriers. It does not matter how low on the totem pole immigrants will be when they get into this country. Invariably they will be better off than where they came from. Cleaning out toilets in airports may not be your idea of a great job. It is probably not their idea of a great job either, but it beats starvation, or regular dysentery drinking the polluted water back home, or raising an uneducated child in a tarpaper shack.

Thank goodness, we have people willing to clean toilets at any price. How long do you think your local airport would be able to stay in business if they had no one willing to do this disagreeable task? How many restaurants would be in business at all if all the illegal dishwashers and potato peelers in this country suddenly disappeared?

The argument I hear is that, “Well, if they all went tomorrow, businesses would have to raise salaries. Good Americans would fill those jobs. And what’s wrong with that?” As a liberal Democrat, I like the idea of our citizens making more money. I just hope it will actually improve their standard of living. I do suspect though that if there are 200 jobs needing to be filled and only 100 people willing to work for wages businesses can afford to pay, there are going to be some economic adjustments and they will not be for the better. Of course, businesses would do their best to cope. They would try to become more efficient and resourceful. At some point, we would end up with an effective unemployment rate of zero. Then the excrement would hit the fan. I am not sure which businesses would be the first to go under, but I bet people who are asked to do the most disagreeable jobs would be the first to bolt. Dishwashers would become very hot commodities. Those restaurants profitable enough to employ them at higher wages would thrive. Those which cannot, and restaurants tend to survive on tiny profit margins, would close shop. I can even see a new version of the draft, not to fight our wars overseas, but to make sure restaurants have enough people to serve meals, sweep floors and do the dishes.

Perhaps with higher wages more of us who are already employed would be willing to work a second job (if we are not already, trying to keep pace with the cost of living). At some point, that market would exhaust itself too. The likely result would be a phenomenon we remember from the 1970s: stagflation. Stagflation is rapid inflation during a period of recession. We would be lucky though if this were the worst of it. The short-term result would be that as unemployment up the food chain increased from the fallout, more and more people would be willing to work in these relatively low wage jobs. The effect though would be to push down standards of living for all of us. These jobs, while necessary, are simply not as productive as those that generally pay more money. Decreased productivity is one of the major drivers of stagflation.

A workforce of course is the fuel of any economy. We may think we can automate everything using computers, but even if that were possible, someone has to keep those computers going. Goods do not magically get from points A to B. It is our willingness to be employed, and in effect be the lubricant that keeps our complex society functioning, that makes our advanced society possible.

In effect, our economy, much like our social security system, is a great Ponzi scheme. Growth, as is always the case, comes from the bottom up. If we cannot convince lots of poor people to start at the bottom and engage in economic Darwinism to try to ascend the economic ladder, the system eventually collapses. I see signs of it already. My daughter, though she has never held a full time job and just recently graduated high school, refuses to work just anywhere. She has her standards. She has decided that she can work at a Barnes and Noble or a Vie de France, but not at a Bloom supermarket, nor at a McDonalds, nor at a Subway … in fact, her list of places she is not willing to work is much larger than her list of places she would work. Fortunately for her the labor market is pretty tight here in Fairfax County, Virginia so she has the luxury of being somewhat choosy.

Of course, she has to survive. If her choice were between starving and working at a McDonalds, I am sure she would choose working at McDonalds. However, why should she do what she considers demeaning work in a business that she does not like? For example, why work at a Wendy’s when she would likely be the only Caucasian woman working there and she cannot speak more than a dozen words of Spanish? Why get hot and sweaty trying to keep up with jangling timers continually going off on the French fries machines when she can work behind the counter in a nice, cool and air-conditioned Vie de France restaurant instead? Others, who came from a harder school of knocks, are supposed to work at Wendy’s. For them a Wendy’s job probably really is opportunity. She perceives it as a low-grade horror.

Arguably, if all the Wendy’s in America went out of business we would probably be a lot healthier. Still, Wendy’s alone pumps a huge amount of money into the economy. The parent company Wendy’s International had sales of $2.45 billion dollars in 2006, owned 12.7% of the burger market and employed 57,000 people. If it closed because it could not profitably stay in business, more than 57,000 people would be affected. Its suppliers would be laying off people. Cattle ranchers would reduce herds. Grain prices would fall. Perhaps other businesses would pick up its market. However, if we did not have enough people willing to work at the bottom of the labor scale the effect on the labor market would quickly spread across the economy, likely causing a chain reaction.

If there were no more immigrants I would end up mowing my lawn again, which might not be a bad thing either. It would cost me more to get my roof replaced, if I could find anyone willing to do it at all. Either my six-figure income would feel a lot more like a five figure income, or I would be a lot busier incompetently trying to do the things I pay people to do for me. I would have to hope that I would die in my bed. It is unlikely I could afford a nursing home at any price. It would be a luxury only for the richest among us. Perhaps the poor house would make a comeback.

While I do not particularly like the idea of immigrants streaming across our borders illegally, I also understand why it has been in our economic interest to look the other way for so long. That our standard of living is rising at all is largely due to our glorious cognitive dissonance on this issue. If we could actually fully enforce our immigration laws then within a year we would be protesting en-masse on the Mall in Washington demanding the immediate repeal of these laws. The last thing we will give up is our slice of the American dream. Immigrants serve us that slice.

The good news is the immigrants who come to our country choose to come here, often at the cost of enormous peril. They understand the tradeoff. They will do our scut work for us, gambling that in time given their perseverance, luck and circumstance they will be in our shoes someday. They might aspire to be Bill Gates, but even if they only get up half the ladder, they are better off than they were. So are the rest of us.

Therefore, instead of railing against immigrants and protesting at local day laborer sites, as some want to do here in Herndon, Virginia, perhaps, if you speak their language, you should be thanking them for coming instead.

Betting on failure

The Thinker by Rodin

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.

Why trickle down only trickles

The Thinker by Rodin

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 vice presidential debate

The Thinker by Rodin

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.

Between an economic rock and a hard place

The Thinker by Rodin

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.

Sucking it up for Herman Cain

The Thinker by Rodin

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.