Tuesday, May 5, 2009

You may need to lie down after this...


Steve Steve Steve Steve Steve... oh my! Your's is the veritable Ponderosa of posts. So big I almost expected Hoss and Little Joe to come riding back from town in the last paragraph. But before I accede to your last request, I think I need to cut this flank steak up into bite size pieces first.

First off, just so we understand each other, I couldn't agree with you more that free enterprise is the engine which drives our society forward. In this connection, you have the Conservative's traditional distrust of government's capacity to add or improve. I sympathize. Entrepreneurs slug it out in the real world, where victory or defeat is swift and certain, whereas government bureaucrats operate in a sort of Looking Glass World, where results are measured in size rather than effect. What sane person could assert that Government can run General Motors or General Electric at a profit, when private citizens who rose to power by merit in those industries, could not? If I may summarize your argument, I would say that government bail-outs are having the effect of ignoring this simple axiom.

On a related issue, a man standing at the top of the tower could easily see that the massive government borrowing down there on the ground is merely a sophisticated way of transfering this year's problems to the next - with interest. Now I don't really have a problem with extending unemployment benefits to those in need. I don't think you do either. But at all times we need to be conscious of the fact that absent an effective strategy, all we are doing is asking our grandchildren to pay those benefits. No caring father would ever consider doing that, yet by the magic of deficit spending this is exactly what is happening. What kind of cowards are we, as a nation, who are so afraid of failure that we expect our grandchildren, who cannot even vote, to pay our bills?

I can just see you smirking right now - and nobody smirks as effectively as you do. To paraphrase P.G. Wodehouse, I can "read the contents of your thoughts as if you had confided them to my own, personal ear..". You are thinking how easy it is for a politician to be compassionate when he is paying for that compassion with someone else's money. Oh dear!

See, that wasn't so hard, was it? Beneath all the bluster and baloney, you and I connect on a pretty basic level ideologically. But before this turns into a disgusting love-fest, I remind you that the devil himself is in the details. So:

I submit that your approach to the problem is as with a butter knife, when what one needs is a scalpel. Ideology doesn't solve problems, not any more than wistful thinking is going to plug the hole in the life boat. This country is in the middle of a recession and we should expect government to act swiftly and responsibly. And whatever action government takes has got to be based on a useful understanding of how we got to this point. Without this understanding, all we are doing is expecting government to pay the people which private industry laid off - which as you know makes no sense. People getting paid by government for make-work jobs merely exacerbates the problem. So let's get started...

America is the epicenter of a truly global recession. In my post I offered the simplest of reasons why. For at least three decades we have been spending more and more to buy things from overseas and financing it with increasing debt, both public and private. Now I'm going to ask you to stretch your mind a bit and consider the elementary nature of this debt. It is of two kinds: that which is supported by tangible collateral and that which is supported by an intangible promise. Largely, government debt is of the latter kind, backed as it is by bonds, which are nothing more than promissory notes. The increase in private debt has on the other hand been accompanied by an increase in the value of its primary collateral, which is real estate. Now here is where I ask for your patient attention:

The steep and precipitous decline in real estate values has had the effect of converting trillions of debt backed by actual collateral into signature drafts. Almost overnight, banks in this country found themselves in possession of huge amounts of signature backed debt - which cannot be converted into currency for new loans. Like a snake eating its own tail, this giant ponzi scheme was bound to fall apart. Now you can rail all you want against politicians - you and I had a dust up over the Community Reinvestment Act (which I won by the way) - but the truth is, government's contribution to this crisis has been both passive and peripheral.

In fact, if you are looking for someone to blame, unless you are willing to say that American consumers are just plain stupid (hummm...), all you are left with is that foreign competitors are beating the crap out of us. This leads to massive trade deficits, which leads to a devaluation of the dollar, which leads to a devaluation of the dollar's collateral, which is real estate. And then you are back to square one.

So how do we break out of this cycle? Well, one sure fire way would be for government to back off and let private enterprise sort it all out. I will admit, this option has an almost poetic esprit de charme. Banks in this country will fail, businesses will go under and all of us will abruptly share in the suffering. And why shouldn't we? It is we who made the choices so it is we who should pay the piper. And isn't it better, really, that we bequeath to our grandkids an empty bucket rather than one filled with our own debts?

A better alternative I think would be for us to just grow up and start acting like adults. Commie pinko liberal that I am, I still haven't lost faith in the capacity of Americans to come together, work hard, innovate and overcome. In this respect, maybe we should take a page or two from the competition's playbook.

I think you will find that the foreign competitors who have been cleaning our clock for so many years are the ones who have managed to make government an effective partner rather than a nagging wife (or husband - sorry ladies). Now since this post is long enough as it is, I'm not going to dive into the specifics of where and how Obama's budget proposals aim at backing up and augmenting private enterprise rather than leading it around by the nose. All I will say now is that before you blast them with your righteous wrath - at least take a little time to review them.

To begin with, I think you are confusing TARP with Obama's Stimulus Plan and 2010 budget. Sure, TARP is a mess but it was born of necessity during the Bush administration and cannot be conflated with Obama's proposals. The stimulus plan, as well as the 2010 budget, includes major investments in education, infrastructure, scientific research, alternative energy and health care - to name a few. I'm not asking you now to agree that the amounts of these investments are appropriate, especially since we are indeed in a recession. But just as one example, no one can deny that private industry in this country benefits in the long term from an effective educational system. The same principle holds true for many endeavors, such as scientific research, which government may finance without the requirement (common to private enterprise) of immediate profit.

Steve, I'M NOT KNOCKING PRIVATE ENTERPRISE here! If government researchers find a cure for colon cancer and some guy in the private sector makes a million dollars on it - I say bully for him!

So let's review. You and I are in perfect agreement that deficit spending on the part of government to maintain an artificial standard of living is nothing more that an unsophisticated attempt to redistribute wealth, is counterproductive and idiotic. Where we depart is the where, when and hows that government may invest in tools which benefit private industry to the extent that it is able to accumulate greater genuine wealth, which in the end benefits all citizens. I'm going to add an expository (and possibly irritating) PS.


PS: In your enumeration of: "What can be done? (regardless of WHO is in the Oval Office)… Here’s some EASY ones...", I was literally blown away by your circumvention of the "hugest" hole in the bucket - that being our bloated defense budget. You cite possible savings in expenses which are far less than peanuts compared to an across the board, and supportable, 50% decrease in defense spending. For example, do you know that the United States maintains 11 nuclear powered aircraft carriers - each one of which equals the rest of the world's total aircraft carriers in terms of capacity? I could go on, but I think at least in this one example your neocon slip is showing...

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