This is in response to and in support of David Ellis' thoughtful April 29 letter in the Statesman Journal "Population growth might be bad". I couldn't agree more, and I'd like to take it a step further, "Economic growth might be bad". I think in both cases it depends on where you're at in the spectrum of the physical limits of your environment. For the population issue experts concluded in the 1970's that we were nearing our planet's population limit, based on the fact that there are decades of lag time between an attempt to stop population growth and the realization of this goal. Here is the first conclusion of an abstract to "The Limits to Growth", a report to the Club of Rome (1972), "If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years. The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity."
The idea that economic growth might not be desirable is really just an extension of the population growth discussion. If you think about it, continual economic growth depends on a growing population both to supply more labor and to supply more consumers. Likewise, a continually growing population depends on economic growth to provide jobs. Since the population limit is upon us, it follows that we are also at the point where economic growth is no longer good. This is a generalization, as there are still some parts of the world that desperately need this growth, but the developed world does not.
So if we can't have an economy based on continual growth, what should we do? Bill McKibben explores this idea very responsibly in his recent "Deep Economy", and it is discussed in great detail in the classic "For the Common Good" by Daly and Cobb. I suggest that we think about a system where we only manufacture what we need. This means an end to marketing ploys aimed at getting people to buy new gadgets or more stuff. It really means the end of the economy as we have known it, and a totally different way of life. I don't think this can be accomplished solely by the free market.
Wednesday, April 29, 2009
Monday, April 27, 2009
A promising hidden agenda?
Charles Hugh Smith raises an intriguing possibility in an essay entitled "Obama's Secret Plan"
http://www.oftwominds.com/blogapr09
I quote:
"In which we speculate that perhaps Obama has a secret plan to discredit the investment banker cabal and thus undermine their vast political power and reach.
Many observers, partisans non-partisans alike, have been mystified by President Obama's continuation of the Bush/bankers/Treasury's "privatize bonuses, socialize risks" campaign of taxpayer-funded bank bailouts, phony slight-of-hand "transparency" and political support for blatantly bogus accounting of banks' profits, assets and losses."
My comment here: I count myself among those so mystified.
Mr. Smith goes on,
"Is there any strategy would might actually work? How about "give them enough rope to hang themselves"? President Dwight Eisenhower has long been dismissed as a do-nothing who "got lucky" in his two terms. Perhaps--but he was also a canny politico who didn't say much because he preferred to give his opponents plenty of stout rope. And sure enough, most of the time they promptly hanged themselves with their own excesses."
My further comment: I certainly believe President Obama capable of this level of subtlety, and I only hope it's true. Smith goes on to suggest that we should watch Paul Volcker as an indicator of whether or not there is more to this than meets the eye. He says that if Volcker resigns, then Obama actually believes in his current policy and has nothing up his sleeve. But if Volcker stays on, even in deep background as he is now, then we may be in for a big surprise.
More from Smith,
"What better way to discredit the bankers than to give them plenty of rope to complete their tarnished, fraudulent "plan to save Capitalism from itself"? How can they complain when their own bankrupt policies have been supported? ...
Make like you're doing the banker/Plutocracy's bidding in every possible way. And what will be the result?
A complete repudiation of the entire Bush/Treasury/banker bailout and "free pass" to further plundering. And when the public rises up in righteous fury, then you appear to bend, almost reluctantly, to "the public will."
http://www.oftwominds.com/blogapr09
I quote:
"In which we speculate that perhaps Obama has a secret plan to discredit the investment banker cabal and thus undermine their vast political power and reach.
Many observers, partisans non-partisans alike, have been mystified by President Obama's continuation of the Bush/bankers/Treasury's "privatize bonuses, socialize risks" campaign of taxpayer-funded bank bailouts, phony slight-of-hand "transparency" and political support for blatantly bogus accounting of banks' profits, assets and losses."
My comment here: I count myself among those so mystified.
Mr. Smith goes on,
"Is there any strategy would might actually work? How about "give them enough rope to hang themselves"? President Dwight Eisenhower has long been dismissed as a do-nothing who "got lucky" in his two terms. Perhaps--but he was also a canny politico who didn't say much because he preferred to give his opponents plenty of stout rope. And sure enough, most of the time they promptly hanged themselves with their own excesses."
My further comment: I certainly believe President Obama capable of this level of subtlety, and I only hope it's true. Smith goes on to suggest that we should watch Paul Volcker as an indicator of whether or not there is more to this than meets the eye. He says that if Volcker resigns, then Obama actually believes in his current policy and has nothing up his sleeve. But if Volcker stays on, even in deep background as he is now, then we may be in for a big surprise.
More from Smith,
"What better way to discredit the bankers than to give them plenty of rope to complete their tarnished, fraudulent "plan to save Capitalism from itself"? How can they complain when their own bankrupt policies have been supported? ...
Make like you're doing the banker/Plutocracy's bidding in every possible way. And what will be the result?
A complete repudiation of the entire Bush/Treasury/banker bailout and "free pass" to further plundering. And when the public rises up in righteous fury, then you appear to bend, almost reluctantly, to "the public will."
Let's not forget the recent past
Try to remember, if you can, the first several years after 9/11/2001 and the political climate at that time. There were very few voices raised against things like the Bush doctrine of preemption, the plan to invade Iraq, and the use of torture. Anyone in the media daring to be critical of the Bush administration (and there weren't very many) was putting their career at risk. Paul Krugman was one of those few critics. I think what he says below is true - we failed a test of national character.
From Paul Krugman's blog, 4/24/2009:
"One addendum to today’s column: the truth, which I think everyone in the political/media establishments knows in their hearts, is that the nine months or so between the summer of 2002 and the beginning of the Iraq insurgency were a great national moral test — a test that most people in influential positions failed.
The Bush administration was obviously — yes, obviously — telling tall tales in order to promote the war it wanted: the constant insinuations of an Iraq-9/11 link, the hyping of discredited claims about a nuclear program, etc.. And the question was, should you stand up against that? Not many did — and those who did were treated as if they were crazy.
For me and many others that was a radicalizing experience; I’ll never trust “sensible” opinion again. But for those who stayed “sensible” through the test, it’s a moment they’d like to see forgotten. That, I believe, is the real reason so many want to let torture and everything else go down the memory hole.
Let’s hope that doesn’t happen."
From Paul Krugman's blog, 4/24/2009:
"One addendum to today’s column: the truth, which I think everyone in the political/media establishments knows in their hearts, is that the nine months or so between the summer of 2002 and the beginning of the Iraq insurgency were a great national moral test — a test that most people in influential positions failed.
The Bush administration was obviously — yes, obviously — telling tall tales in order to promote the war it wanted: the constant insinuations of an Iraq-9/11 link, the hyping of discredited claims about a nuclear program, etc.. And the question was, should you stand up against that? Not many did — and those who did were treated as if they were crazy.
For me and many others that was a radicalizing experience; I’ll never trust “sensible” opinion again. But for those who stayed “sensible” through the test, it’s a moment they’d like to see forgotten. That, I believe, is the real reason so many want to let torture and everything else go down the memory hole.
Let’s hope that doesn’t happen."
Thursday, April 23, 2009
High Marks for Obama So Far - Except on Economy
I don't mean this sarcastically, I sincerely believe that President Obama has done a very good job making important decisions and representing our country to the world. He has been everything I had hoped for, except in his handling of the economic crisis. I especially liked how he said that CIA agents who committed the legalized torture of waterboarding would not be prosecuted, but that the officials who decided this was legal might be. This should make future justice department lawyers and national security advisors think twice about returning to these practices.
If these were ordinary times, President Obama would be off to a great start. Unfortunately he has the privilege of dealing with an economic catastrophe that has been years in the making and that is different from anything we have seen before. His approach has been to try to restore the system; but this is not possible, as we have pointed out in previous posts. He has continued the bailout strategy begun by the Bush administration, when a clear-eyed reading of the situation should tell him and his economic advisors that this is just pouring money into a bottomless pit. It is clear that the economy as we knew it will fall apart without such bailouts, but it would be better to take it apart in a controlled manner instead of trying to prop it up. That economy is gone and bailouts only postpone the inevitable, and not for very long.
In fairness to Mr. Obama, he is a politician who has been elected President. You do not get a radical person elected to this office; instead they are a product of the general public will, which is not inclined to think very far outside the box. We should be glad that he does show some bold and revolutionary tendencies; his health care agenda, for example.
I believe Barack Obama does have the capacity to meet this extraordinary challenge, but it may take him a while to realize that something truly different and historic is called for. We need him to come to this place while he still has political capital and the public's trust.
If these were ordinary times, President Obama would be off to a great start. Unfortunately he has the privilege of dealing with an economic catastrophe that has been years in the making and that is different from anything we have seen before. His approach has been to try to restore the system; but this is not possible, as we have pointed out in previous posts. He has continued the bailout strategy begun by the Bush administration, when a clear-eyed reading of the situation should tell him and his economic advisors that this is just pouring money into a bottomless pit. It is clear that the economy as we knew it will fall apart without such bailouts, but it would be better to take it apart in a controlled manner instead of trying to prop it up. That economy is gone and bailouts only postpone the inevitable, and not for very long.
In fairness to Mr. Obama, he is a politician who has been elected President. You do not get a radical person elected to this office; instead they are a product of the general public will, which is not inclined to think very far outside the box. We should be glad that he does show some bold and revolutionary tendencies; his health care agenda, for example.
I believe Barack Obama does have the capacity to meet this extraordinary challenge, but it may take him a while to realize that something truly different and historic is called for. We need him to come to this place while he still has political capital and the public's trust.
Tuesday, April 14, 2009
Suggestion: controlled demolition of the financial system
Note: below goes against what George Ure is predicting, but Ure is saying what he thinks will actually happen based on the government policies chosen so far, while Ringoen is arguing for a different course of action. I agree with Ringoen's idea, but I would not be surprised if Ure's prediction turns out to be true. Ringoen's plan would be a drastic (and I think needed) change in government policy, a policy that extends back to the Bush administration and is being continued by the Obama administration.
This article by Gordon Ringoen
http://www.prudentbear.com/index.php/commentary/
makes some good points about the problem with the financial system being insolvency rather than lack of liquidity. Lack of liquidity would mean that all would be well if we could get financial activity back the way it was before things fell apart, but we know that isn't true because, as the article points out, for the last several years banks were operating a ponzi-based business model by making loans that they had no intention of keeping on their books. People were buying houses with borrowed money in order to to quickly resell them at profit, etc. But this business model is over, and we do not really want to return to it. As he puts it,
" If, in the unlikely scenario, they (the bailouts) do reflate the financial system, the bubble would still exist and huge amounts of additional credit would be needed to get the economy expanding again. The bubble would just be bigger for the next bust. The amount of credit required to perform this would surely bankrupt the country by making the U.S. dollar worthless and would chase away foreign investors and central banks who own 60% of our Treasurys. The total amount of bailouts necessary to reflate is unknowable but it is more that we can withstand."
Instead he says that the market needs to deflate to bring assets back into agreement with the real economy. I think this definitely means house prices and some other things as well.
Ringoen says that the choice is not between bailouts or systemic collapse, but suggests controlled system demolition as the right alternative. This is the difference between his argument and the mindless Limbaugh-Republican fake-populist tea party anti-bailout, anti-stimulus rhetoric. He at least acknowledges that there is no return to business as usual.
He suggests,
"Instead of giving non-discriminating bailouts, the government could let these insolvent financial institutions fail and then make direct grants or loans, where necessary, to avert total collapse. It could be considered a controlled demolition. Though painful, it would reduce the total cost to the government, and most importantly, would destroy uneconomic claims necessary to bring the real economy and the financial system back to balance."
Ringoen is also in favor of stimulus spending to put people back to work in value-creating jobs. I think we have to take the unemployed into account whatever we do. Unemployment is likely to increase, and the first duty of government and community is to take care of those who are not able to take care of themselves.
This article by Gordon Ringoen
http://www.prudentbear.com/index.php/commentary/
makes some good points about the problem with the financial system being insolvency rather than lack of liquidity. Lack of liquidity would mean that all would be well if we could get financial activity back the way it was before things fell apart, but we know that isn't true because, as the article points out, for the last several years banks were operating a ponzi-based business model by making loans that they had no intention of keeping on their books. People were buying houses with borrowed money in order to to quickly resell them at profit, etc. But this business model is over, and we do not really want to return to it. As he puts it,
" If, in the unlikely scenario, they (the bailouts) do reflate the financial system, the bubble would still exist and huge amounts of additional credit would be needed to get the economy expanding again. The bubble would just be bigger for the next bust. The amount of credit required to perform this would surely bankrupt the country by making the U.S. dollar worthless and would chase away foreign investors and central banks who own 60% of our Treasurys. The total amount of bailouts necessary to reflate is unknowable but it is more that we can withstand."
Instead he says that the market needs to deflate to bring assets back into agreement with the real economy. I think this definitely means house prices and some other things as well.
Ringoen says that the choice is not between bailouts or systemic collapse, but suggests controlled system demolition as the right alternative. This is the difference between his argument and the mindless Limbaugh-Republican fake-populist tea party anti-bailout, anti-stimulus rhetoric. He at least acknowledges that there is no return to business as usual.
He suggests,
"Instead of giving non-discriminating bailouts, the government could let these insolvent financial institutions fail and then make direct grants or loans, where necessary, to avert total collapse. It could be considered a controlled demolition. Though painful, it would reduce the total cost to the government, and most importantly, would destroy uneconomic claims necessary to bring the real economy and the financial system back to balance."
Ringoen is also in favor of stimulus spending to put people back to work in value-creating jobs. I think we have to take the unemployed into account whatever we do. Unemployment is likely to increase, and the first duty of government and community is to take care of those who are not able to take care of themselves.
George Ure shows why a policy of inflation should be expected
From his blog today: http://www.urbansurvival.com/week.htm
"Now, here's what absolutely must happen at a policy level in order to kick the country out of deflation - and this window won't be open too long: A policy decision will be made at the highest levels - and you may not even hear about it being made - that what America needs to survive is a good dose of inflation. Look at the PPI data trend - the last line in the table and it should scare the hell out of you:
(table follows)
March finished goods dropping 1.2% means an annualized rate of deflation of 15.4%.
Pop Quiz Time!
Name one large country whose government has just bet several trillion dollars of future taxpayer generated revenue (and ask what a 15.4% collapse in revenues will do to financial stability/viability of said country): ____________
See how inflation is now the only option?"
"Now, here's what absolutely must happen at a policy level in order to kick the country out of deflation - and this window won't be open too long: A policy decision will be made at the highest levels - and you may not even hear about it being made - that what America needs to survive is a good dose of inflation. Look at the PPI data trend - the last line in the table and it should scare the hell out of you:
(table follows)
March finished goods dropping 1.2% means an annualized rate of deflation of 15.4%.
Pop Quiz Time!
Name one large country whose government has just bet several trillion dollars of future taxpayer generated revenue (and ask what a 15.4% collapse in revenues will do to financial stability/viability of said country): ____________
See how inflation is now the only option?"
Monday, April 13, 2009
They are prepared for sustainable self-sufficiency, but for all the wrong reasons
And now to what I really wanted to talk about today: the Amish! I have frequently been intrigued by the fact that living right among us are communities of people who still know how to do everything for themselves and if necessary could get by quite nicely without modern infrastructure and technology. Although they are not totally detached from our economy (they use the gas/diesel engines sparingly and take advantage of modern medicine and sell things to non-Amish consumers), I believe that they would have no problem adapting if these things went away. I use the term "Amish" as a label for all sorts of religiously motivated simple-living farm communities; there are different varieties of these with differing religious beliefs and rules for living. But as a whole they represent an extreme contrast to the world most of us live in.
I was especially impressed by M.I.T. grad student Eric Brende's book, "Better Off: Flipping the Switch on Technology". Brende lives among this sort of community for 18 months, without electricity and many other things I take for granted. He comes away convinced that his life was not lacking during this period and may have been qualitatively better. He also describes the physical effort involved in a positive way and is surprised that it's not back-breaking bone-weary work. After learning more about these people he observes that about half of their crop is dedicated to providing feed for their horses, yet horses are not absolutely necessary to this lifestyle. Farming could be done by hand without that much more effort (and the total land farmed would be reduced if not providing for the horses). He concludes that a person could live like this by working only half the time, and would have the other half free for study, reflection, or other interests. It seems that the horse is the Amish equivalent of our car - they just like to have them so they can drive that buggy to church on Sunday!
This brings me to the "for all the wrong reasons" part: I did some more reading and discovered that the driving force behind the Amish lifestyle is not a desire for sustainability or even complete self-sufficiency. Instead it is the determination to keep their community intact and to keep their faith pure. This is accomplished through strict religious control and peer pressure, and by minimizing influence from the outside world. As a Christian you might think that I would agree with the idea of maintain purity in faith. My answer is that I don't wish to be someone who thinks they have all the answers and won't listen to other ideas, and I think this is wrong and unhealthy for a Christian community. We should not be afraid of the truth and we should not believe that we understand it perfectly.
Back to the Amish: cars, for instance, are prohibited because they would lead to working outside the community, would become status symbols disrupting the social order, and easy travel would bring more outside influence. Motorized tractors with rubber tires are not allowed because they could be driven into town, which would eventually lead to cars. However, horse drawn motors used to power farming operations are okay.
I am interested in these people because I think they can show us a way to a simple yet rewarding life. But can we accomplish this without their rigid social and religious control? Probably not, but when it comes to living this way because we have no other choice, they will be a great resource to learn from.
One thing that we need to learn from them is to think about long term outcomes. They give great thought and debate to making any changes that would possibly result in a change to their way of life. If there's a chance for this outcome, they simply don't do it.
I know you and I don't want someone making all our decisions for us, this is the standard argument against central planning and I think there is a lot of truth in it. But if we have no planning and restrictions at all, we end up where we are today.
I was especially impressed by M.I.T. grad student Eric Brende's book, "Better Off: Flipping the Switch on Technology". Brende lives among this sort of community for 18 months, without electricity and many other things I take for granted. He comes away convinced that his life was not lacking during this period and may have been qualitatively better. He also describes the physical effort involved in a positive way and is surprised that it's not back-breaking bone-weary work. After learning more about these people he observes that about half of their crop is dedicated to providing feed for their horses, yet horses are not absolutely necessary to this lifestyle. Farming could be done by hand without that much more effort (and the total land farmed would be reduced if not providing for the horses). He concludes that a person could live like this by working only half the time, and would have the other half free for study, reflection, or other interests. It seems that the horse is the Amish equivalent of our car - they just like to have them so they can drive that buggy to church on Sunday!
This brings me to the "for all the wrong reasons" part: I did some more reading and discovered that the driving force behind the Amish lifestyle is not a desire for sustainability or even complete self-sufficiency. Instead it is the determination to keep their community intact and to keep their faith pure. This is accomplished through strict religious control and peer pressure, and by minimizing influence from the outside world. As a Christian you might think that I would agree with the idea of maintain purity in faith. My answer is that I don't wish to be someone who thinks they have all the answers and won't listen to other ideas, and I think this is wrong and unhealthy for a Christian community. We should not be afraid of the truth and we should not believe that we understand it perfectly.
Back to the Amish: cars, for instance, are prohibited because they would lead to working outside the community, would become status symbols disrupting the social order, and easy travel would bring more outside influence. Motorized tractors with rubber tires are not allowed because they could be driven into town, which would eventually lead to cars. However, horse drawn motors used to power farming operations are okay.
I am interested in these people because I think they can show us a way to a simple yet rewarding life. But can we accomplish this without their rigid social and religious control? Probably not, but when it comes to living this way because we have no other choice, they will be a great resource to learn from.
One thing that we need to learn from them is to think about long term outcomes. They give great thought and debate to making any changes that would possibly result in a change to their way of life. If there's a chance for this outcome, they simply don't do it.
I know you and I don't want someone making all our decisions for us, this is the standard argument against central planning and I think there is a lot of truth in it. But if we have no planning and restrictions at all, we end up where we are today.
Kunstler says it well
Below from Jim Kunstler's post this morning, I couldn't agree more. What really surprises me is that President Obama seems to have fallen for this idea of a recovery. Obviously if it were true this would be very helpful for what he is trying to accomplish; but this is really magical and wishful thinking. You can only believe this by closing your eyes to our economic status today and to how we got here.
http://www.kunstler.com/
"It's a curious symptom of the consensus trance zombifying the American public and its auditors in the media that something like a "recovery" is now deemed to be underway. And, as events compel me to repeat in this space, it begs the question: recovery to what? To Wall Street booking stupendous profits by laundering "risk" out of bad loans with new issues of tranche-o-matic securitized paper? This I doubt, since there isn't a pension fund left from San Jose to Bratislava that would touch this stuff with a stick, even if it could be turned out in collector's editions of boxed sets. Does it mean that American "consumers" (so-called) are awaited momentarily in the flat-screen TV sales parlors with their credit cards fanned-out like poker hands, ready for "action?" Not too likely with massive non-performance out in cardholder-land, and half the nation's electronics inventory wending its way onto Craig's List. Are we expecting more asteroid belts of new suburbs carved in the loamy outlands of Dallas and Minneapolis, complete with new highway strips of Big Box shopping and Chuck E. Cheeses? Go to banking's intensive care unit and inquire (if you can) among the flat-lining production home-builders and the real estate investment trusts on life support when they expect to rev up the heavy equipment."
http://www.kunstler.com/
"It's a curious symptom of the consensus trance zombifying the American public and its auditors in the media that something like a "recovery" is now deemed to be underway. And, as events compel me to repeat in this space, it begs the question: recovery to what? To Wall Street booking stupendous profits by laundering "risk" out of bad loans with new issues of tranche-o-matic securitized paper? This I doubt, since there isn't a pension fund left from San Jose to Bratislava that would touch this stuff with a stick, even if it could be turned out in collector's editions of boxed sets. Does it mean that American "consumers" (so-called) are awaited momentarily in the flat-screen TV sales parlors with their credit cards fanned-out like poker hands, ready for "action?" Not too likely with massive non-performance out in cardholder-land, and half the nation's electronics inventory wending its way onto Craig's List. Are we expecting more asteroid belts of new suburbs carved in the loamy outlands of Dallas and Minneapolis, complete with new highway strips of Big Box shopping and Chuck E. Cheeses? Go to banking's intensive care unit and inquire (if you can) among the flat-lining production home-builders and the real estate investment trusts on life support when they expect to rev up the heavy equipment."
Friday, April 10, 2009
Note on yesterdays sports store bankruptcy
I didn't make the connection yesterday because the name has changed a little, but the sporting goods store that's going bankrupt is G.I. Joe's - a fixture in the northwest since I can remember.
Thursday, April 9, 2009
Local sporting goods chain goes bankrupt
In todays Salem Statesman Journal, a front page story announcing that a local northwest chain, Joe's Sports, Outdoor, and More, is likely to go bankrupt. Joe's had been in business for 57 years and employs around 1,500 people who will presumably lose their jobs. One store advised holders of gift cards to redeem them today since after that they would not be honored.
Wednesday, April 8, 2009
Soros on the dollar
CNBC, reporting on a recent George Soros talk
http://www.cnbc.com/id/30069223/
"Soros also said the U.S. dollar is under selling pressure and may eventually be replaced as a world reserve currency, possibly by the IMF's Special Drawing Rights, a synthetic currency basket comprised of dollars, euros, yen and sterling.
"I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992. "Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end."
China recently proposed greater use of Special Drawing Rights, possibly as an eventual global reserve currency. "In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge—you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said."
http://www.cnbc.com/id/30069223/
"Soros also said the U.S. dollar is under selling pressure and may eventually be replaced as a world reserve currency, possibly by the IMF's Special Drawing Rights, a synthetic currency basket comprised of dollars, euros, yen and sterling.
"I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992. "Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end."
China recently proposed greater use of Special Drawing Rights, possibly as an eventual global reserve currency. "In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge—you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said."
Tuesday, April 7, 2009
Who takes the housing hit?
This is the central question; the answer will directly affect the lives of many and will shape our society far into the future. As I suggested yesterday, we can help each other, but when someone loses their job and can't make their house payment helping them come up with the cash is beyond the ability of most of us. It could be done by taking up a collection if there were small numbers of these cases, but what if this happens to 25 percent of the population? At this point there are several alternatives:
1. the homeowner loses the house (the homeowner takes the hit, this is what normally happens.)
2. the government helps the homeowner make the payments in some way, either through some sort of loan or by giving the homeowner a job (the government/taxpayer takes the hit.)
3. the homeowner is allowed to stay in their house even though they can't make the payments, maybe with some provision that they resume payments when they are employed (the bank takes the hit).
The first possibility creates great problems if it happens to very many people at once. If a large number of people suddenly have no place to live, we must immediately find somewhere for them to stay. The most efficient way would be to just keep them where they are, which choices 2 and 3 accomplish.
The second alternative solves the homeless homeowner problem but will fairly quickly cause the U.S. to default on it's national debt because of the large sums borrowed for this purpose.
The third choice is the most direct, simply let the homeowner keep their house. This will destroy our banking and lending systems, probably requiring a permanent nationalization of these, and will create the immediate perverse incentive for people to stop making their house payments while having long term destructive effects on any economy because it casts doubt on the validity of all future contracts and transactions.
From a political standpoint, I think the second choice is the only possibility.
I would argue for the third choice, in spite of the economic fallout. I think it has the benefit of transparency since you directly do what you intend to accomplish. I also think the economic consequences could be mitigated in a future society that emphasized fairness and opportunity for everyone. I believe people have a much greater capacity to cooperate for the common good than we give them credit for.
1. the homeowner loses the house (the homeowner takes the hit, this is what normally happens.)
2. the government helps the homeowner make the payments in some way, either through some sort of loan or by giving the homeowner a job (the government/taxpayer takes the hit.)
3. the homeowner is allowed to stay in their house even though they can't make the payments, maybe with some provision that they resume payments when they are employed (the bank takes the hit).
The first possibility creates great problems if it happens to very many people at once. If a large number of people suddenly have no place to live, we must immediately find somewhere for them to stay. The most efficient way would be to just keep them where they are, which choices 2 and 3 accomplish.
The second alternative solves the homeless homeowner problem but will fairly quickly cause the U.S. to default on it's national debt because of the large sums borrowed for this purpose.
The third choice is the most direct, simply let the homeowner keep their house. This will destroy our banking and lending systems, probably requiring a permanent nationalization of these, and will create the immediate perverse incentive for people to stop making their house payments while having long term destructive effects on any economy because it casts doubt on the validity of all future contracts and transactions.
From a political standpoint, I think the second choice is the only possibility.
I would argue for the third choice, in spite of the economic fallout. I think it has the benefit of transparency since you directly do what you intend to accomplish. I also think the economic consequences could be mitigated in a future society that emphasized fairness and opportunity for everyone. I believe people have a much greater capacity to cooperate for the common good than we give them credit for.
Monday, April 6, 2009
Who is my neighbor?
Okay, the title refers to a trick question the religious leaders asked Jesus related to the command to "love your neighbor"; he answered with the parable of the Good Samaritan.
There are some other things I was thinking about posting today (did you know that if you got together with your neighbors and figured out how to live more efficiently by pooling resources and buying less stuff that this would be bad for the economy? What kind of a system is that?) but I think in view of the troubles ahead this is more important.
Over the next year, perhaps as early as this summer many of our neighbors are going to be in trouble because they have lost their jobs. Or maybe you will lose your job. I don't expect this to happen to me this year because I work for the state and so it takes a little longer for this sort of thing to occur, but it could happen to me next year.
Those of us who still have jobs need to take care of our neighbors who don't. There is enough food and shelter in this country for everyone, we just need to share it. The government will try to help people out but I think the size of the problem will overwhelm their efforts, so everyone of us needs to look around us and see what we can do to help.
There are some other things I was thinking about posting today (did you know that if you got together with your neighbors and figured out how to live more efficiently by pooling resources and buying less stuff that this would be bad for the economy? What kind of a system is that?) but I think in view of the troubles ahead this is more important.
Over the next year, perhaps as early as this summer many of our neighbors are going to be in trouble because they have lost their jobs. Or maybe you will lose your job. I don't expect this to happen to me this year because I work for the state and so it takes a little longer for this sort of thing to occur, but it could happen to me next year.
Those of us who still have jobs need to take care of our neighbors who don't. There is enough food and shelter in this country for everyone, we just need to share it. The government will try to help people out but I think the size of the problem will overwhelm their efforts, so everyone of us needs to look around us and see what we can do to help.
Friday, April 3, 2009
Why a global currency?
This was the first thing that Europe2020 called for in their open letter to the G20 participants. Paul Krugman's latest column shows one of the reasons why this is necessary.
http://www.nytimes.com/2009/04/03/opinion/03krugman.html
Krugman doesn't actually think it is needed, he describes why China wants it, and then concludes that China shouldn't expect the world to bail it out of its investment mistakes. The investment mistake he refers to is China's massive buying of U.S. treasuries (T-Bills). Now China fears a sudden drop in the dollar (likely because of the greatly increasing U.S. debt), yet it can't sell it's dollar holdings because this would also cause that sudden drop before it could sell very much of this asset. What Krugman doesn't mention here (although he's talked about it before) is that the U.S. needs China to not only keep holding these treasuries but also to keep buying them. This is how we are expecting to finance things like the stimulus plan and various bailouts that keep coming up. (I'm not saying we should be doing this, I'm just pointing out what has been official policy in the Bush administration and now the Obama administration).
It may be true that China shouldn't expect to be bailed out of this predicament, except we're now trying to bail out others to prevent a system collapse. I think China's situation qualifies as having great systemic risk. Think about this: maybe they can't sell the treasuries without getting virtually nothing for them, but if the dollar drops significantly than they won't be worth much anyway. With this in mind, they have value as economic leverage at the bargaining table, since if China sold them or merely stopped buying them the dollar would plunge. Also, I think you know that the U.S. depends on China for a lot of goods and food. So I'm saying I don't think we can ignore their problem, because it's our problem too.
A side note: Jeff Vail talks about how China is currently dealing with this problem by using its US Treasuries to buy hard U.S. assets, and suggests this is a good work-around for as long as it lasts.
http://www.jeffvail.net/
March 30,2009 post
The G20 Summit did not implement a basket of currencies as a global currency; Europe2020 then says that we should expect a decade or more of global economic depression and political turmoil. Krugman agrees about the economic part, he ends his column:
"The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.
And that failure to face up to new realities is the main reason that, despite some glimmers of good news — the G-20 summit accomplished more than I thought it would — this crisis probably still has years to run."
http://www.nytimes.com/2009/04/03/opinion/03krugman.html
Krugman doesn't actually think it is needed, he describes why China wants it, and then concludes that China shouldn't expect the world to bail it out of its investment mistakes. The investment mistake he refers to is China's massive buying of U.S. treasuries (T-Bills). Now China fears a sudden drop in the dollar (likely because of the greatly increasing U.S. debt), yet it can't sell it's dollar holdings because this would also cause that sudden drop before it could sell very much of this asset. What Krugman doesn't mention here (although he's talked about it before) is that the U.S. needs China to not only keep holding these treasuries but also to keep buying them. This is how we are expecting to finance things like the stimulus plan and various bailouts that keep coming up. (I'm not saying we should be doing this, I'm just pointing out what has been official policy in the Bush administration and now the Obama administration).
It may be true that China shouldn't expect to be bailed out of this predicament, except we're now trying to bail out others to prevent a system collapse. I think China's situation qualifies as having great systemic risk. Think about this: maybe they can't sell the treasuries without getting virtually nothing for them, but if the dollar drops significantly than they won't be worth much anyway. With this in mind, they have value as economic leverage at the bargaining table, since if China sold them or merely stopped buying them the dollar would plunge. Also, I think you know that the U.S. depends on China for a lot of goods and food. So I'm saying I don't think we can ignore their problem, because it's our problem too.
A side note: Jeff Vail talks about how China is currently dealing with this problem by using its US Treasuries to buy hard U.S. assets, and suggests this is a good work-around for as long as it lasts.
http://www.jeffvail.net/
March 30,2009 post
The G20 Summit did not implement a basket of currencies as a global currency; Europe2020 then says that we should expect a decade or more of global economic depression and political turmoil. Krugman agrees about the economic part, he ends his column:
"The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.
And that failure to face up to new realities is the main reason that, despite some glimmers of good news — the G-20 summit accomplished more than I thought it would — this crisis probably still has years to run."
Thursday, April 2, 2009
G20 Summit Results
Below from Paul Krugman's blog:
"Credit where credit (line) is due: the G20 outcome was better than I expected, with something substantive and important emerging — namely, much bigger funding for international financial institutions (IFIs), plus expanded trade credit. This will help smaller, currency-crisis countries a lot.
A turning point? No. But realistically, most big-time international meetings produce nothing; this did something significant."
----
My own opinion: unfortunately I think we needed a turning point.
"Credit where credit (line) is due: the G20 outcome was better than I expected, with something substantive and important emerging — namely, much bigger funding for international financial institutions (IFIs), plus expanded trade credit. This will help smaller, currency-crisis countries a lot.
A turning point? No. But realistically, most big-time international meetings produce nothing; this did something significant."
----
My own opinion: unfortunately I think we needed a turning point.
You be the expert!
That noted economist Penn Jillette (the talking half of the Penn and Teller magic show) has some interesting thoughts about Obama's approach to the economic crisis:
http://www.cnn.com/2009/POLITICS/04/01/jillette.skid/index.html
Penn describes many counter-intuitive actions that produce unexpectedly good results, and then raises the question about the benefits of the counter-intuitive act of spending your way out of debt. He concludes with the reminder that while counter-intuitive phenomena exist, the general rule is that the intuitive action is the correct one.
While I would argue that by Keynesian analysis deficit spending is not counter-intuitive in a recession because it replaces the demand that has been lost from the economy (this is intuitive) and assumes that a recovered economy will pay back the debt, I applaud Mr. Jillette's weighing in on this important issue and support his right to do so. I also add that I don't think we're in a classic Keynesian stimulus situation because that approach depends on having a sound economy before the recession, which is not true now.
But the important thing to notice is that we are in uncharted economic territory here and in many ways Penn Jillette's opinion is just as valuable as the next guy's.
http://www.cnn.com/2009/POLITICS/04/01/jillette.skid/index.html
Penn describes many counter-intuitive actions that produce unexpectedly good results, and then raises the question about the benefits of the counter-intuitive act of spending your way out of debt. He concludes with the reminder that while counter-intuitive phenomena exist, the general rule is that the intuitive action is the correct one.
While I would argue that by Keynesian analysis deficit spending is not counter-intuitive in a recession because it replaces the demand that has been lost from the economy (this is intuitive) and assumes that a recovered economy will pay back the debt, I applaud Mr. Jillette's weighing in on this important issue and support his right to do so. I also add that I don't think we're in a classic Keynesian stimulus situation because that approach depends on having a sound economy before the recession, which is not true now.
But the important thing to notice is that we are in uncharted economic territory here and in many ways Penn Jillette's opinion is just as valuable as the next guy's.
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