Cirque de Congress

One of the things that is odd about the current election, and only one of many, is the fact that the Democrats swept into power, so to speak, on a campaign of Change you can Believe In. Well they gave us change, and I think most Americans believe they did, but it seems a good number of them are angry about it.

Over the last two years, perhaps the biggest change was the Health Reform Bill. It seems like a historic bill that is going to increase care for millions of Americans, reduce cost, provide protections for all Americans related to losing coverage in a catastrophic illness or inability to find coverage due to a pre-existing condition, failed to please just about anyone. The Republicans and Tea Partiers are attacking the bill as a Government takeover of health care, it isn't, an expensive bill that will increase the deficit, it won't, and just a move to socialism. The liberals don't think the bill went far enough fast enough.

Now in the world of negotiation, it is commonly believed that if everyone leaves the table a little unhappy the deal that was struck was probably a good one for everybody. That is probably the case here, but unfortunately the debate has been controlled by the extremes on both sides. Generally, the Democrats are afraid their votes for the bill is going to end their political career have been afraid to tout its benefits.

In fact the thing that seems to upset Americans the most is that the congress actually did quite a bit over the last two years. An activist congress during a period of economic distress is not something Americans like. Most years Congress is assailed as a bunch of do-nothings. Not this year. They seem to be to blame for just about everything.

Now, the election is only a few days away and the results are probably pretty much determined. It seems like the Democrats will hold on to the Senate but probably lose control of the House. The Senate majority certainly won't be enough to overcome Republican opposition and I expect the House to become one gigantic press opportunity. Of course a certain number of Tea Party Candidates will be there to add some entertainment value, but they are in a no-lose situation, since they hate Government and the more they can hinder any progress the better for them.

I anticipate a budget impasse over all the spending bills for 2012 as the concept of compromise gets voted out next week. It may be OK, especially if the lame duck congress can get some things done before they go home. The best you can hope for is that Congress doesn't actually make things terribly worse at this point; the group coming in has no chance of making things better.

Misinformation and lies

One of the things we have to decide in this country is whether we want to make decisions about our future based on facts or based on misinformation and lies. Now, for most politicians, the only thing they care about is being elected. So, while most (not all but most) avoid actually lying, they are generally OK about misinformation that puts their opponent in a bad light. In fact, they can sometimes further parlay it by saying something like "I'm not going to discuss the rumor about my opponent" seeming to take the high road but not taking a stand that clearly ends the misinformation.

You may feel that all is fair in love, war and politics and as history is written by the victors, maybe winning isn't the most important thing, it truly is the only thing. Of course the only way to fix this would be for the voters to recognise the lies and misinformation and demand honesty for their votes.

Sadly, I don't see a lot of that. What I do see are rumors circulated by third parties, clearly affiliated with one side or the other, that take on a life of their own even when clearly wrong. For example, a recent article in the NY Times showed that 95% of Americans did not realize that the stimulus package included a tax cut in the form of a tax credit. Even sadder was the fact that commenter's to that article assumed it was a liberal lie and accused the writer of trying to deceive them. Now, however you feel about the NY Times, this article presented something that was easily verified to be true, yet at least half the readers refused to accept a verifiable fact.

I see more and more of this and don't know if it is simply the short attention spans Americans seem to have or the fact that we have purported news stations that gain viewers by being confrontational and outrageous. Recently some one sent me a video where a women on the fox network was attacking a representative from CAIRN about their reaction to the NPR person who was fired. She was strident and offensive and responded to a question posed by the CAIRN representative by saying as the anchor she got to ask the questions, not him. Really? And this person passes as a news person? Not being a regular viewer I don't know who she is but I'm familiar with her style of false outrage and misinformation. Sadly, it sells and appeals to people who are angry over the state of the economy.

Of course the fact that the policies that pushed the economy to where it is today are more the result of Republicans than of Democrats, although bought share the blame, is mostly ignored. We have allowed open borders, a Republican ideal that will lead to jobs being exported and products being imported. That path leads to unbalanced trade, a huge deficit and high unemployment. We have succeeded.

I almost never see this discussed because neither party wants to address these issues. The America I grew up in was wealthier than most of the rest of the world. If we equalize trade and open our borders, the inevitable result is a decline in the American standard of living as this situation corrects itself. The best one could hope for would be the rate of change being slow enough that the world catching up doesn't lead to major disruption here. This is not what is happening.

There are things we need to do to fix this, but the policies that would correct it are closer to Democratic policies than they are to Republican policies. We can give big corporations large tax breaks and those who have the requisite skills will see better opportunities for employment, higher stock prices and a continuation of the growing inequality between the rich and poor in this country. For most of the unemployed Americans who are so angry, manufacturing is not going to return, but they may be able to find low paying service jobs.

Yet it is these very people whose anger is going to elect the people who really don't care about them at all.

Ironic, isn't it?

Stimulus, success or failure

We are now almost two years into the stimulus program that passed shortly after President Obama was inaugurated. As we approach the mid-term elections, we are faced with a constant chorus about how the stimulus didn't work. Of course, those claims seem valid enough looking at the current level of unemployment and certainly considering certain expectations at the time the package was passed. However looking at the stimulus and whether it worked or not depends on certain assumptions. For example, one stated goal of the stimulus was to save 900,000 to 2.3 million jobs. I believe the data shows that it did achieve that result. However, it was believed at the time that saving that many jobs would reduce the unemployment rate. Unfortunately, between the time the package was proposed and the start of spending, a tremendous number of additional job losses took place. So instead of stabilizing the unemployment rate in the 7-8% range, the stimulus ended up stabilizing it in the 9-10% range. Success in the goal was not enough to achieve the hoped for result.

Certainly, in the early days of 2009, there was a real threat of a depression similar to that of the 1930s, and consumers stopped spending and industry shed jobs at an unprecedented pace. The Government was face with a moving target, and the conditions in January were bad, but by March they seemed almost like the good old days. There were other problems impacting the stimulus that turned it into more than a stimulus package. If you consider many of the provisions, such as some of the subsidies provided to states to help them overcome reduced tax revenue, they had more of a social agenda than a jobs agenda. If you simply took the 787 billion ten year program, and used 78.7 billion a year to fund payrolls, assuming a cost of $50,000 per employee, you would have created over 1.5 million jobs for ten years. If programs were targeted to things like providing entry level jobs for recent graduates you could probably have created even more jobs.

Of course that is not what happened and many of the other provisions of the program did help mitigate the impact of the downturn, but ultimately, it did not target job creation enough. It is probably a safe statement to say that at the time of the Stimulus the full extent of the economic crisis wasn't understood.

The other factor that wasn't fully considered was the loss of wealth that led many Americans to start saving any money they could. Providing money to people who lost significant wealth in housing or their investment portfolio, and who therefore are forced to realize that goals such as retirement are much more remote, or debt they felt comfortable with is now onerous, will lead to pay down of that debt or increased savings. We wanted them to spend the money and they turned frugal on us. Without spending, production is not going to be robust. In fact, Corporations who restored profitability via cost cutting (i.e. layoffs) didn't see any reason to spend their profits since the future continued to be uncertain.

Was this a failure of the Stimulus package or a failure to understand the new reality that, in hindsight, is now obvious? I think it is the latter. Consumer confidence has been jolted and the easy credit of the past, is largely gone. No stimulus package can undo the history of 2008-2009 and it will take years to overcome the change in behavior.

Who benefits?

When you consider the human condition and the progress we have made in technology and labor saving devices, the question that has to be asked is who benefits? I believe we all do to some extent, but some benefit much more than others.

In the 1950s, the great fear was that communism was trying to take over the world, at least in some western countries. Now, it wasn't just communism the economic systems that spurred this fear but also the Government that existed in the Soviet Union and China. The economic system was scary enough, but of course much scarier to those who had the most wealth. The idea that "international" communism would triumph and destroy our American way of life led to the red scare and ultimately the equations of communism to evil.

Then the Soviet Union collapsed and China went to a market economy, although still maintaining a communist Government. Suddenly internationalism was good, not bad, and by promoting free trade and expanding business markets, the world as a whole would enjoy the benefits of free enterprise.

Now what does free enterprise accomplish? Well it allows production to move to cheaper locals, thereby reducing the cost of goods. It increases competition, driving down prices further. These lower prices allow greater access to the good things in life. One aspect though is that over time, the world will tend to level out economically. If you have a large population of people living in poverty, willing to work long hours for subsistence pay, someone will find a way to utilize those people.

Now, there is an obvious fallout from this. The people, who used to do that work, lose their jobs. In order to avoid this, consumption would have to increase so much that demand could only be met by employing everybody to produce product. But how can it? The goods being created are not affordable to those workers barely making enough to survive. Now over time, salaries will increase and consumption will follow. But in the immediate future, the consumption is not going to increase enough and the people who used to be the consumer's are losing their high paying jobs.

So overall fewer goods are needed, at least for high end profitable goods, and we have overcapacity in production capability including labor. This keeps labor costs down and companies start to realize that they can produce less and be as profitable, if they get rid of excess assets and use technology and outsourcing to reduce their costs of production. This is a paradigm shift. The road to profitability used to require growth. Now, profits are being squeezed out of productivity.

Of course, there is still growth in some areas, and most always knew that productivity could help profitability, but if you don't see market growth, you can capture market share by being cheaper and better (or at least the same).

So when are we going to see job growth in this country? Not until we create jobs in the domestic and renewable energy fields, level the playing field so business is not encouraged to export jobs and use the stimulus to create meaningful jobs rebuilding infrastructure.

So going back to the opening of this blog, who benefits. If you have money the things you want are getting cheaper. If you are employed you are part of the haves but if that is the only source of your income, you may be living on borrowed time. If you are one of the wealthy, clipping coupons or collecting dividends, things really couldn't be better, cheaper goods, less crowds filled with those wannabes, and, while your assets had a decline, they have recovered pretty nicely.

So we export jobs to make life better for the rich.

Disappearing Middle Class

One of the questions that we should consider is whether the American situation we think of as normal can continue. From the very early days of this country, the immigrants were able to aspire to a standard of living that was significantly better than they could have achieved in the world they left behind. This concept, often referred to as the American Dream, while certainly not true in all cases did permeate the society.

Does the dream survive? For most of history and to some extent even in America, the natural progression of things is that wealth accumulates in fewer and fewer hands while the vast majority of people struggle. In America, the formula was different, we had our rich people but because of the great wealth available we developed a large Middle Class.

This Middle Class was in many ways the defining characteristic of our society. Especially in the middle of the 20^th century following World War 2, whether fully accurate or not, most Americans considered themselves as Middle Class. This definition had certain characteristics that defined that status, home ownership, one or more cars, annual vacations, health care, etc. etc. If you had these things you felt that you "belonged". Of course we had rebels and members of the counter culture who rejected these tokens, but mostly when you scratched the surface they were in fact fully entrenched in the Middle Class ideology and most, after a rebellious period returned to the fold.

The question facing America today is whether this model of America can survive. As we see more and more of the national wealth consolidated in fewer and fewer hands or sent overseas, the middle class is shrinking. We have more poor and richer rich. Jobs that used to enable workers to maintain a middle class lifestyle are going overseas and being replaced partially by jobs that simply will not support that standard of living.

This trend is clear and if it continues we will see the end of the American Dream of a country inhabited by Middle Class citizens. Unfortunately I seldom hear our policy makers addressing this problem.

Assuming good intentions

One thing that history should have taught us is that many people do not act in good faith. Any number of incidents that are well documented, show that many agreements have been signed where one of the parties felt absolutely no moral obligation to honor it. Consider Hitler at Munich in 1938, he promised to behave in a certain manner in the future in order to get what he wanted then. The promise meant nothing to him. More recently you can consider Bernie Madoff, not to compare him to Hitler in scope of destruction, who lied to people who trusted him because he was "one of them".

Perhaps a better example is to consider how many people violate their wedding vows. They rationalize their behavior in any number of ways, if you believe a vow can simply be violated because you think it can. I would argue that if the old adage about history repeating itself has any meaning it is in the fact that agreements will be broken and betrayal is a fundamental human characteristic.

It may not be a universal one. The problem of the magic ring that Plato posited is still out there for moralists to struggle with. If you possessed a ring that could make you invisible (read immune to prosecution) would there be any reason to be honest? If there is no earthly or spiritual consequence to anything you do, would you just take anything your heart desires even if it meant others would suffer?

The question has no meaning if it doesn't hurt someone else. Are we our brother's keeper? In nature the fit survive and the most fit are usually rather brutal if you think about it. When a predator kills and eats prey, it feels no remorse and has no sense that it has done something wrong. Their survival is what matters to them. Now, in nature, we do have altruism, primarily towards offspring since that trait is genetically important for a species to survive. Those offspring simply abandoned at birth generally have a reduced chance of survival.

So it is probably safe to suppose that humans share this fundamental trait with the rest of the animal kingdom. What we have developed to a greater degree than most if not all animals is the ability to deceive and betray. Now betrayal does accompany predation. Predators need to fool their prey if they want to improve their chances. Nature provides many examples, but there is no creature better skilled at betrayal than humans.