Archive for the ‘The Economy’ Category

Societal Myopia

Why is it that we’re always focusing on the wrong things?  There is a clear human tendency to only see that which is directly in front of us, as opposed to envisioning the bigger HD picture.  We love easy answers.  I’ll take “Copernicus Was a Moron” for $500, Alex.

This myopia is universally pervasive.  In algebra we were often told to find “X.”  Perhaps it’s time to leverage those skills to find “why” (or in shorthand, “Y”).  Let’s look at a couple of sample problems:

1) We accept religious dogma blindly – Find Y (the 72 virgins qualifies as one of the answers)

2) You caught a cold – Find Y (I’ve always felt that, when you catch a cold, it is more important to identify who gave it to you than it is to concentrate on getting better)

3) The Romans thought-up crucifixion – Find Y (wasn’t it one particular individual who raised his/her hand in the back of the room and articulated this idea?  Who exactly was that?)

It’s all about cause and effect.  But, the cause is usually a couple of generations removed from the effect, and therefore obfuscated by the most recent and/or easily visible precipitating factor(s).  Example: It was an earthquake that caused an electrical outage and subsequent nuclear meltdown in Japan.  Really?  How about the cerebrally-challenged original plan to build a nuclear plant on a major tectonic fault?   You get the idea.  So let’s apply this more insightful analytical approach a little closer to home.

Times have been getting tough for Americans. The price of oil/gas is way up again, consumer staples are painfully more expensive and we have 9% unemployment (arguably closer to 17% in most major cities, especially if you consider the number of underemployed and those who gave up looking for jobs).  Most recently, the insolvent local and national government authorities have been instituting enormous global spending cuts.  Prisoners are being released, government workers and teachers are getting laid-off, Social Security and Medicare are being eviscerated, taxes and healthcare costs are inexorably rising and employee benefits are being thrown in the food processor.  And the debt!  Doesn’t anyone out there understand the meaning of the word trillion?

O.K., so why is all of this happening?  Clearly because the economy is bad.  But, why (Y) is that?  Because of poor Presidential leadership?  Because of OPEC?  Because of global political unrest or a Japanese tsunami?

Hello McFly!  Maybe it’s . . . I don’t know . . . Wall Street. Remember those guys? The banks, the hedge funds (still unregulated), the broker dealers, the mutual funds, the day traders.  You know . . . the “unfairly criticized and demonized” folks still making a killing while the rest of us are bleeding in the streets.  My deepest apologies to my very many close friends who toil daily in the volatile finance field, but have we all become infected with amnesia?  Is 2008 that far away that we can no longer recognize the original cause of the problems that have only just recently erupted?  It was never about the stock market declining.  It was and is about the destruction of the American economy – and that happened 2 years ago.  Your money, your benefits, your jobs have been stolen by the very people who bankrupted you for their own benefit. And what has their punishment been for putting us all on the unemployment line?  Record bonuses.  The average Goldman Sachs employee made $430,000 in 2010.

It’s usually not healthy to engage the process of assigning blame.  But in this case, the exercise might yield three positive results:

1) Removing the obscene leverage, guaranteed by the taxpayer, that caused this problem in the first place (the gasoline for the fire)

2) Hyper-taxing the throngs of people who gamble with our money and who have reaped inconceivable fortunes while taking no risk (except possibly losing their job), thereby supporting the society that made it all possible in direct proportion to the level of their lottery win

3) Requiring that 80% of the zero-interest government loans to the banks be lent to businesses and individuals

Just a thought.  We could continue to be intoxicated by the flowery prose and intellectual spin of those in control of our plutocracy, or we could finally make the effort to elevate ourselves above the trees and start repairing the fire-ravaged forest.  I would argue that the emerging crumbs of sporadic new (and arguably less substantive) job creation and decrease in the VIX are largely inconsequential to the big picture.  Can someone please get us a pair of those progressive glasses!

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So . . . it’s been a year and a half since all of us were scrambling to protect our savings accounts from a possible collapse of the banking system.  In our panic we first redistributed everything over $100k to separate institutions, then we considered stuffing the mattresses when we heard the FDIC might not have the reserves to cover our insured assets.  Geithner, Paulson and company stepped-in and took extraordinary measures to fight the raging inferno, as new viral emergencies of increasing magnitude relentlessly surfaced on a daily basis.  The fire was mostly extinguished with TARP, and then the government went on a spending spree to begin to repair the extensive damage which had gone airborne and spread to the rest of the world.  And so here we are 18 months later, unemployed, economy beginning to recover, with the luxury of playing Monday morning quarterback to the firefighting team.  And our collective conclusion?  Our government did a crappy job.  What a great country.  It took us a while, but we’re now a serious threat to France’s dominance in the short-term memory competition.

Let’s review the corrective actions taken so far.  We bailed out the “too big to fail” institutions with TARP money ($700 billion).  Some of these loans made us money (Goldman, Bank of America), some made us road pizza (AIG, most likely GM, Citi and Chrysler), but none led to consumer lending by the banks or any new jobs (so far).  And just one year after the nuclear ashes settled, Wall Street gave out all-time record bonuses in the middle of the worst economic collapse since the Great Depression (glad to see things have changed).  Next, there’s the Public-Private Investment Program ($500+ billion) to buy, and ostensibly overpay for, toxic assets from banks.  But the centerpiece is the American Recovery and Reinvestment Act ($780+ billion) which funds everything from college tax credits, energy and unemployment benefits to healthcare, education and construction projects.  Remember when a billion dollars was a lot of money?

Apparently this plan has not released any endorphins for the American public.  Maybe that’s because of the lack of jobs.  Perhaps it’s because the Republicans pollute everything that comes out of the White House in order to position themselves for the next election (self-serving politicians and their demonization of the opposing party is a subject for another day).  So I ask you, what would YOU have done to address the financial Armageddon?  Give out cash?  Give big tax credits to corporations so that they can hire and manufacture in the U.S. for the same cost as outsourcing to China?  Sell more of our worst NBA teams to Russian billionaires?  I know what I would have done.

I would have declared a new Manhattan Project to develop alternative energy.  And I would have put a trillion dollars into it.  That’s right — A TRILLION.  Why?  Because it is a time-honored fact that when there’s a lot of money at stake, technological developments miraculously occur in record time. It’s the Gordon Gecko “greed is good” phenomenon.  Suddenly, corporations pour huge money and resources into developing solutions in order to capture the big prize.  In 1961 when when Jack Kennedy announced we were going to the moon, 400,000 jobs were created in one year, and the resulting technology explosion led to everything from computers and MRI machines to satellite systems and smoke detectors.  It would be impossible to calculate the incredible value of the benefits gained from that initiative.  Next to Viagra and Google stock, it may have been the greatest investment of all time.

Why energy?  Because it would generate a ton of jobs, facilitate worker retraining, make the U.S. the sole supplier of an essential commodity to every country ($$$$), and improve the environment.  But most importantly (and this alone should be sufficient reason to pursue this course), we would be energy independent.  The value of oil would go to zero, and every Arab country would be marginalized.  They would be abandoned by China, Russia, and us, and would no longer enjoy the longstanding tacit sovereign support for their terrorist activities.  Problem solved.  Party over.  Without a world war.

There is no question that this is achievable.  My brother is fond of saying, “if the world ran out of oil tomorrow, how long do you think we’d be sitting in the dark?”  When you create that level of urgency, things happen very quickly.  Seems like a better investment to me than giving billions to car manufacturers who have proven, over and over, they can’t (or won’t) compete with other countries.  How nice would it be to turn-on CNBC in the morning and not care about the fluctuating price of oil and how it will affect us?  That would be something to celebrate.  And this time, the party would be ours.

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