Tuesday, September 30, 2008

Doom and Gloom, how bad could it get?

Reading around things at the moment there is a ton of doom and gloom. I have read multiple reports of the end of America as we know it, an ongoing depression that will end society as we know it. The party is supposed to be over, we will never be this wealthy again. This is alarming to me, so I went and found out what is the truth.
It is generally accepted that the Great Depression of the 1930's is as bad an economic time as we have had in modern times. The combination of debt, iliquid assets, a drought, government incompetence, a worldwide plague less than a decade before produced a worldwide economic downturn that lasted a decade. It seems to me that this is the worst possible scenario, and unlikely to occur as the world's wealth is more equally distributed, less concentrated in one area, much more technologically advanced, and economic theory and practice is greatly improved. But let us take The Great Depression as our worst case scenario.
Gross Domestic Product, what we were producing as wealth in the USA declined from a peak in 1930 of $800 billion in adjusted 1999 dollars to a low of $600 billion in 1934. A quarter of the economy went away, an absolute disaster. However, this catastrophic low simply put the economy back to producing the same amount as in 1922, basically putting production back to levels of a decade before. By 1936 the GDP of the USA was back up to the same production levels as it was in 1929, when everything was hunky-dory.
Now, since 1950 the USA GNP per capita has just about tripled. The USA produces three times as much wealth per person as it did in the golden age of the american culture. By my calculations, if the worst possible scenario of the Great Depression happens, and a quarter of our economic production is lost in the next three years, we'll be producing wealth on average at about the same rate as we did in 1990. The worst case scenario is that on average we'll be forced into a position as horrendous as 1990.
Now, clearly things are not that simple, but the great doom and gloom fear should not be about whether the USA will collapse as a nation in terms of wealth production. We all managed quite readily to live in the conditions of 1990, and we could certainly manage to do so for the single year that things would be that bad in terms of wealth production. There will not be a shortage of wealth in the USA, even under the worst conditions.
Does this mean that I am blase about the situation? Certainly not, but it does mean that I think the doom and gloom, end of civilization stuff is just out of whack. What is the problem here is not whether there is going to be enough money, it's how that money is distributed. The top 1% of americans in terms of wealth own the same amount of stuff as the bottom 95%. The problem is the divide in wealth, the inequality of its distribution. A billionaire losing his job, his income and a quarter of his wealth is fabulously wealthy and never needs to work again in his life. Someone with half a million in assets who loses their job and a quarter of their income will struggle to keep what they have, will have to be less fabulously wealthy for a while Those struggling to make their payments right now might face bankruptcy, homelessness, hunger.
But this problem is not new. The gap between the poor and the rich has been growing for twenty years now. We have known that tens of thousands of americans die every year because they don't have health insurance or the care they need. I've seen them die myself. Americans have done sweet FA about this for fear of socialism or fear for their pocketbook. There is little to no help for the homeless, which is why we see them walking around our cities. We worry more about unscrupulous thieves getting government money than about whether making the process of getting disability money is too hard for ill people (if I told you how hard it was to get disability money, you wouldn't believe me, you simply wouldn't). The actual problems that this financial crisis will cause are not new problms, they are not insoluble problems, they are the same problems that progressive people have been talking about for years. We need to clothe, shelter, educate, protect and heal everyone in this culture, everyone. We don't just need to do it when it might be someone we know.

If we have another Great Depression we as a country will still be three times as wealthy per person as Costa Rica is right now, but Costa Rica has a higher literacy rate, a higher life expectancy, a lower infant mortality rate than the USA. In other words, it isn't a question of money, it's a question of whether you care about the poor or not, because it is possible to care about the poor more than we do, even if the worst possible situation happens in the USA.

If you are worried about yourself, and what might happen to you I'll point out one thing. At some point in your life you almost certainly lived on half the amount of money you have right now. As a college student I lived on a tenth of my present income. I did it before, I even lived a life with fun and excitement in it, I can do it again. Seriously, billions of people in the world would swap their best chances of financial gain with your worst possible scenario. Buck up people, show a little gumption.

Monday, September 29, 2008

Economic Crisis Analysed by an Ignorant Buffoon.

I have never taken a class in economics. I have never studied economics on my own. I have no public qualifications in economics, finance, banking or punditry. Clearly, I am completely unqualified to comment on the present financial "Crisis". However, my wife and my debt is in a low, fixed rate mortgage that probably amounts to about one third the amount of our assets, we are saving money and everything we have is insured. This is not a financial crisis for us, and the reason is that we appear to have made extremely sensible, responsible decisions that have resulted with us perhaps being poorer than an expert might have been, but also has meant that we have been free of risk. If you compare that to the experts on Wall Street, maybe I am qualified to comment after all.

There's lots of talk about what caused the crisis. It seems pretty simple to me, those who took the initial risks were, on the side of consumers, stupid and ignorant in that they took out loans that they could only afford when things went well. On the side of lenders, the original lenders were unconnected to the consequences of the risk (they sold on the mortgages to big banks), and the purchasers of these bad loans were relying on a stable economy (foreclosures and defaulters to be spread out evenly) and large scale to enable them to have enough money to keep up their monthly commitments. What happened was that there was an increase in the rate of defaulters and foreclosures (most often because there is no complete health care) and at the same time house prices shrank. So temporarily these loans were not worth much money, they had been gathered together in vast institutions rather than small institutions and so the failures were to major insttutions rather than small, badly-run institutions. So, over the next twenty years the owner of these mortgages are going to make money, it's just that this year these loans are not-sellable, and therefore almost worthless.

What should have happened is that there should have been universal health care to avoid 60% of the foreclosures. What should have happened is that mortgages should have remained with the lenders so that the risk of risky mortgages is shared between borrower AND lender (I think if you sell mortgages, they way you should make money is from the return from those mortgages, if you don't have the capitol to do ths, you don't have enough capitol to sell mortgages). This meant that even unscrupulous people selling mortgages would be less inclined to sell bad mortgages. What should have happened is that some basic education on how to manage money should be part of the basic education in the United States. It should be a simple, basic part of understanding of buying a house that you need to be able to make your payments ALWAYS, and that things go wrong!

But what should have happened isn't really the question at the moment. The question right now is whether there should be a massive bailout of huge companies that made dumb decisions. Regulation MUST follow (but it always does), but right now the question is whether a substantial portion of the financial sector that has failed should be allowed to receive the results of that failure. The knee-jerk reaction (and therefore the one held by the american public) is "Yes! Screw those guys, they're the ones who failed through greed and who wouldn't blink an eyelid if I lost everything I own." This is why today the vote in Congress failed. The standard Washington reaction is "Of course we need a bailout, we can't be the guys who let a depression happen." The problem seems to be that without the bailout there simply won't be enough capital to lend companies the money they need to grow. You might have a restaurant that is doing well, and a whole plan for a new location that would create wealth, jobs, revitalize a neighborhood etc.. That restaurant might have an almost fullproof plan to make money, but doesn't have the capital to start up the new restaurant, so the credit crunch slows the entire economy, people lose jobs, pay less taxes, spend less money, etc.. Other companies might need a short term loan to fix equipment, update equipment, compete in the global marketplace. So, it might be that $700 billion injected into the economy by the government might generate $700 billion or more as a result. It's also quite possible that the purchase of these junk mortgages might pay for itself as if their value increases over time, and the USA is willing to sell them in the manner of a private institution for profit, more money might actually come back to the government (it has happened before). So the bailout might well work out for the economy if done correctly.

But what this comes down to is that it will work if done by sober, capable professionals with a high moral code and without anything in it for themselves. But we know that rich people steal more than poor people. We know that generally when decisions are made in high finance and government that the rich get richer and the poor get screwed. When the rich commit crimes to get richer they receive less punishment than the poor committing crimes to be able to eat or get shelter. This is essentially a trust decision, if there was someone we could trust to do the best for working people and not for the financiers, then we would support that guy. But we don't trust anyone. The culture wars of the nineties are being replaced by the class wars in the USA, and I, for one, am quite pleased. The future is in Europe, with a free-market as the engine, but with the government as a regulator on that engine so it meets the needs of the driver of the car rather than simply producing the most amount of power it can. The future is in a society that measures things in terms of health and happiness rather than dollars. A free-market produces the most amount of wealth because of the greed inherent in humans. But a government provides for the needs of citizens far better than a free market because it cares about all the citizens.

This is a time in which the essential nature of the culture of the USA will change. The twentieth century was the century that fought about which was the better system, communism or capitalism. The answer has been found to be something of both, in the right amounts. Communism died first, but pure, free-market capitalism is not far behind it. Just like a sensible home-owner tries to make money but ensures that they will always have access to health-care and has enough in savings to get through a crisis, a sensible government makes sure its citizens have shelter, health-care, education and some protection from the extremes of a free market. But what do I know? I'm just an ignorant buffoon.

Friday, September 26, 2008

Presidential Debate Drinking Game

For those in foreign countries this topic may seem somewhat bizarre, but it has been a mainstay of american politics for at least as long as I can remember, so for certain since 2004. The reason for this is that presidential debates are very important and so should be watched, but the actions of those debating are so predictable that at times you feel like clawing your own eyes out. Add in the almost certainty that you have picked your guy, and the other guy is going to sound like a moron (yes, you liberal tree huggers, Obama sounds like a moron to right wingers) one needs some form of tranquilizing entertainment to enable you to perform your democratic duty. Hence the Presidential Debate Drinking Game.
On-line one can find many suggested rules, but these seem brutal to the point of actually being life-threatening. http://brainyjane22.wordpress.com/2008/09/25/the-presidential-debate-drinking-game/ for example has the insanely dangerous "10. If at any point, you find that you are replying to the debate (this includes yelling at the candidates) and are awaiting a rebuttal, slam back a martini. Then congratulate yourself for slamming back a drink that’s not often slammed." If I followed this rule I would die.
So, I'm suggesting a simpler method. Gather your alcohol in two forms, maintenance and brutal, with me it will be beer and quality bourbon whiskey. During each commercial each person in the room picks a word that if stated results in a drink of maintenance product. This allows for decisions about how quickly you wish to drink. If you feel like pounding beer then simply pick the words "Change, friends, look," and "I". The bourbon is for special situations when one of the candidates says something so outrageous that all of those watching in the room exclaim in disbelief/horror/outrage. Let us say that McCain says that the Iraq war has been a resounding success, for example, my wife and I will certainly scream obscenities at the television, thus requiring a shot of Knob Creek. If you are a republican you may have a similar reaction when Obama says he can deliver all his social programs without raising taxes.
If only we could actually have two people who talked like humans, rather than exchanging pre-polled talking points, we might not have to invent such methods to withstand our future leaders.

Follow-up from my last blog. McCain is now taking part in the debate, breaking his promise from before. This is entirely unsurprising since everyone could tell what he was up to. His presence on Capitol Hill did exactly nothing and the negotiations are still following essentially the points that Obama outlined early in the week and President Bush essentially followed word-for-word in his speech in mid-week. Meanwhile in the media, Harmad Karzai, the president of a country in which we are fighting a war, has been in the country this week. I have seen multiple reports of americans talking to Karzai but literally nothing about what he has to say about how the war is going. CNN literally cut him off at the start of what he was saying after Bush had stopped gibbering incoherently. Apparently it is vitally important to not hear the opinions of people anywhere else in the world, no matter whether we have troops fighting and dying in their country or not.

Wednesday, September 24, 2008

Bullshit vs. Bullshit?

There's just a ton of steaming piles to look at today, but which one will win? John McCain; who has just had his polling go from a neck-and-neck outcome to a historic drubbing based on the US public discovering that Sarah Palin is nuts AND incompetent, and an economic situation based on lack of regulation which McCain has been a proponent of for years, has ordered a suspension of his campaign and asked to postpone the debate on Friday.
The proposed reason for this is to get back to Washington and to hash out a bill to bail out the financial sector. Since John McCain and Barack Obama have never really been the big gurus in economics in the senate, and basically agree on what to do in this circumstances,their presence seems almost entirely superfluous to the circumstances, I think this is bullshit.
This is a power-play, a desperate attempt to suspend the losing campaign in order to get an issue that is horrible for McCain settled. It's an attempt to stop McCain getting hammered by an economic issue, while at the very same time it is an attempt to literally give $700 billion to rich people, no strings attached. I can understand a bailout to keep credit available in an emergency, but the plan of the Treasury Department is to literally give $700 billion for this plan and to have that money be unreviewable, and to have zero restrictions. Putting pressure on the democrats to agree to this absolutely ridiculous plan (dealing with a lack of regulation by simply giving money with no regulations to the people that screwed it up in the first place is simply nuts) by attempting to stop Obama's winning campaign until it gets done is the most disgusting piece of power politics since a war was started to help out McCain's polls about six weeks ago.

During a discussion on the Georgia nastiness I reminded people that Saddam Hssein was acually the most honest guy involved in the build up to the Iraq war. Last night Iran's President Ahmadinejad gave a speech to the UN General Assembly. Now, there was a fair amount of bullshit in his speech, stuff that looks crazy to many people, here's an example: "The Islamic Republic of Iran is the manifestation of true democracy in the region. The discourse of the Iranian nation is focused on respect for the rights of human beings and a quest for tranquillity, peace, justice and development for all through monotheism." This is bullshit, you can't respect the rights of all human beings and require monotheism, that's just obvious to sane people. However, this nutcase also outlined an understanding of foreign policy that was eloquent, rational, moral and true:

"How can we influence the future of the world? When and how will peace, tranquility and well-being for all come about? These are the fundamental questions before us.

"We believe that a sustainable order, nurturing and flourishing peace and tranquility, can only be realized on the two pillars of justice and spirituality. The more human society departs from justice and spirituality, the greater insecurity it will face, so much so that a relatively small crisis, such as a natural disaster, leads to various abnormalities and inhuman behavior.

"Unfortunately, the world is rife with discrimination and poverty.

Discrimination produces hatred, war and terrorism. They all share the common root of lack of spirituality coupled with injustice. Justice is about equal rights, the correct distribution of resources in the territories of different states, the equality of all before the law and respect for international agreements.

"Justice recognizes the right of every one to tranquility, peace and a dignified life. Justice rejects intimidation and double standards. As the eminent daughter of the Prophet of Islam has said, "justice brings tranquility and harmony to our hearts."
"Today, the world is longing for the establishment of such justice. If humanity heeds the call of its primordial nature with firm resolve, justice will emerge. This is what the Almighty has promised and all people of good will from all religions are waiting for. If the prevailing discourse of global relations becomes one of justice and spirituality, then durable peace will be guaranteed.

"Conversely, if international relations are defined without justice and spirituality and void of moral considerations, then the mechanisms for promoting confidence and peace will remain insufficient and ineffective.

"If some, relying on their superior military and economic might, attempt to expand their rights and privileges, they will be performing a great disservice to the cause of peace and in fact will fuel the arms race and spread insecurity, fear and deception. If global trends continue to serve the interests of small influential groups, even the interests of the citizens of powerful countries will be jeopardized, as was seen in the recent crises and the even natural disaster such as the recent tragic hurricane.

"Today, my nation calls on other nations and governments to "move forward to a durable tranquility and peace based on justice and spirituality."

If only all countries could say that and not be bullshitting us.

Friday, September 19, 2008

Emotional Economics in Dogs and People

The recent economic cafuffle with the Bush administration acting as more of a socialist government than I would like turned my thoughts to economic issues. One of these is the variation in the value of things based on the situation. A great illustration is a dog's thought of value. Dogs have values for things, put down a stick, a tennis ball or a bone, and the dog will go to the bone first, and probably the tennis ball next. But these values aren't stable. A tennis ball dramatically increases in value if it is in the mouth of another dog. In fact everything increases in value in the mouth of another dog. This is because to a large extent the value of an object to a dog is how much it illustrates the dog's power in comparison to another dog. The most valued object is an object taken from another dog that is then used to taunt the dog it was taken from. This is, of course, exactly the same reason why Hummers were actually sold to people despite being extremely impracticle vehicles.
I am not immune to variation in valuation. Christina got her bonus in May. Before that point I valued a dollar in our accounts emotionally much more than after receiving the bonus, simply because there was less money in our accounts, and I despise debt. Debt makes me feel basically as though I am (or more accurately now, Christina is) a slave for the amount of time until that debt is paid off. Therefore the risk of being in debt, even for a short time, gives me stress. Now, that bonus money was earmarked for the hot tub, it wasn't going to be used for anything else, so effectively we had no more money to live on than before. We didn't actually spend much more money to live during that process. But I felt much less stress, simply because the number in the account was so much larger. Recently we paid upfront for the hot tub and construction, and the number went down (and because the payment wasn't finalized until yesterday it was uncertain) and my stress about money went up. The overall plan had not changed at all, the dollars were still going to be used for the same things, could buy the same amount of stuff, but I felt differently about things. And finally, the hot tub was completed, the payments made and a concrete number remains in the bank account, and I feel better as a result. Financially nothing had changed from the plan that was made, and yet my valuation of the basic unit of economic exchange had gone up and down based on the path along that plan. Completely irrational behavior.
The valuation of things also changes based on experience. I remember the first house that I rented with three other students when I was twenty years old. It was a rather crappy house that I shared with several people who cleaned even less than I (which was quite a feat, my father still talks about the horros residing within that house). But I loved living in that house because it was freedom, it wasn't living under the rules of another, it was my house. Now that I live in a house I own with a lovely wife my valuation of living in a crappy, filthy house with several twenty year old males has dropped dramatically. It now seems like something to avoid like the plague. But there's no inherent reason why my valuation should have changed. Ideally I would be in seventh heaven at my present situation, and should I ever have to share a house with college students I should simply return to loving that situation. But habituation to luxury actually reduces the emotional value of luxury. This is why being actively grateful for what we have is so tightly linked to happiness. Something I try to work on is to try to value things as I did when I first had them, rather than as I am prone to do now. It's not easy.

Friday, September 12, 2008

Land of Wonder


Each day when I go out to a park with TFOE I see a snow capped mountain standing alone, towering in the distance. At one park it is the famous Mt. St. Helens, which was so impressed with my tenth birthday that it exploded, showering debris on Portland about 75 miles away. The very concept of being able to see a geological feature from 75 miles away is a magical thing for me. In Butterfurlong Farmhouse in England, where I spent my teenage years, you could look out on the biggest geological feature for miles, the chalk downs of Dean Hill and Pepperbox Hill, which I could walk up in twenty minutes. The shear size of things in the Pacific Northwest still astonishes me. I live in a place with mountains!



But the real wonder in this land of wonders is Mt. Hood. My fondest memory of my early childhood is of my father tucking me into bed at night and reading Tolkien's The Hobbit to me before I fell asleep (complete with voices). The quest of The Hobbit is to reach The Lonely Mountain and steal the dragon's hoard from under his nose. This story has bewitched me for my entire life, and I live in a place from which I can see the real Lonely Mountain. I've lived here for eleven years, and still regularly stop in awe to see a fantasy story from my childhood in undeniable, real existence. Something I will never cease to treasure.