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Holding My Breath

The anxiety symptoms are back, including nightmares so vivid I can't get back to sleep. I recognize this: it's a panic attack. Something is pushing my phobia buttons. For those of you who don't know, my particular phobia, going back to when I was 13, is of having some bureaucrat in a suit holding my life in his hands, screwing me over, and having no way to placate or persuade them otherwise. Most of my outbreaks have been job-related. This one isn't.

President Obama inherited a whole heck of a lot of messes from his anti-government governmental predecessors, but three of them rise to the level of genuine existential crisis. To stave off Great Depression 2.0 not just here at home but world-wide, he has to do three things, and do them fast. He must keep unemployment from rising to the point where the American people withdraw their consent to be governed altogether, from the historical point where we risk descent into anarchy and totalitarianism. He must keep our financial system from cratering so hard it wrecks the whole global economy, plunging much of the rest of the world into anarchy and totalitarianism. And he has to address the underlying cause of both of the above, by doing something about the mortgage industry mess that started kicking off these problems about 9 months ago.

How's he done so far? Well, we have a local news story about his nearly $800 billion attempt to solve the unemployment problem. It turns out Missouri's Democratic governor, future presidential hopeful Jay Nixon, wanted to be able to make the propaganda claim that the very first stimulus dollars were spent right here in Missouri, so his state department of transportation had lined up a series of four road expansion and repair projects that he knew would qualify, and assigned the contracts subject to the stimulus bill being signed and with the requirement work begin the second the signature was complete. You can see the press release here: MoDOT, "Missouri Has First-in-Nation Economic Recovery Project," 2/17/09. What's missing from that press release? Any mention of any actual hiring. It went to an existing contractor, who's working the project with his existing employees. You can argue that maybe this contractor might not have had another contract lined up and might have been about to lay people off, but the press release doesn't allege that, either. In short, the very first economic stimulus project to begin created zero jobs, and may not have even saved any. I'm not saying we didn't need to fix those roads and bridges. And I'm not saying that Missouri could afford to do so. And I'm not coming out against infrastructure spending. But right this second, we have bigger problems. If it wasn't going to put currently unemployed people to work, right away, we had more urgent needs for that money. Road repair could have waited. So, score so far: 0 for 1.

Then there's the Geithner Plan, which still exists only in the form of a vague outline that Geithner himself didn't even write, half of which contradicts the other half. And it violates important laws of physics, by implying (contrary to fact) that we have as much time as we want to "stress test" the banks that are hovering on the brink of failure, and that somewhere out there is a mythical swarm of investment pixies who are urgently eager to pay full price for all those currently valueless collateralized debt obligation shares if the government will just offer to also sell them insurance on them. Nobody, not even Geithner himself as far as I can tell, is defending the claim that the Geithner Plan will actually save a single bank, save a single brokerage, save a single pension, save a single 401k, or save the FDIC from running out of money any day now. Hurray again. Score so far: 0 for 2.

Needless to say, I am holding my breath, desperately hoping that the President doesn't go 0 for 3. He has one last chance to get this right, this (Wednesday) morning at 10:15 am Mountain Standard Time at a high school in Phoenix. If he gets this one right, it will barely matter that he screwed up the first two, because he will have successfully addressed the underlying cause of the first two problems. If he gets this one wrong, he might as well legally change his name to Barack Hoover Obama, and we're going back to the Great Depression. In particular, if he even says the phrase "public-private partnership" (creating yet another fraudulent corporation that will pay itself a fortune, stiff the taxpayers, and leave the work undone, like every other public-private partnership of the last 30 years) or if he even suggests that it's possible to "attract private investment" to solve the problem (from where?), take a good look at yourself and your three closest friends who still have jobs: by this fall, one of the four of you will be unemployed, and will take at least 18 months to two years to find comparable work. And it might well be you. For the next four to eight years, three of you at a time will continue to draw roughly the same salary, but for most of that time things will cost twice as much. Plan accordingly.

What would a real solution look like? There are some promising hints that have leaked out of the White House policy shop, or at least supposed leaks. An AP wire story had some of them earlier, but before I could clip them out, the version on the web changed and dropped that paragraph. Alyssa Katz at Slate's sister site TheBigMoney.com has a (frankly skeptical) article with some hints, too ("The Loan Ranger," 2/17/09). One is that the administration will try to push through Congress an existing bill to give bankruptcy judges the right to reduce loan amounts on mortgages, even if they've been sold into mortgage pools with "no modification" clauses in the contracts. If this passes, expect financial sector stocks to drop like a brick, almost to the point where if you open a new checking account with a $100 balance, they'll give you majority ownership in a bank. But in a twisted sense, that'll be the good news, because once those "cram downs" begin, it will force a fast and accurate accounting of what the CDO shares are actually worth, and then we'll have the result of Geithner's "stress test" without setting up a dangerously lobby-able government agency to assess them. A similar (supplementary? competing? we'll know today, I hope) proposal would be for the government to step in and guarantee a weird form of debtor-in-possession financing for everybody with a mortgage on a house that was fraudulently assessed or who was stuck with an ARM that reset on them through no fault of their own. The trial balloon we've heard is that as long as there's at least one person on the mortgage with a job, the homeowners will pay 31% of their take-home pay for 30 years, and own the home outright; if a 30 year loan at 31% of their monthly income per month doesn't pay for the house, the government will pay off the rest.

Do they do this via direct subsidy? My guess is no. Considering that just about everybody in this mess was promised, by everybody, that it didn't matter that these loans couldn't be renegotiated because (as long as the homeowner made their payments up until the interest reset date) they were certain to be able to refinance, the fairest way to do it would be for the government to force a cram-down onto the current loan servicer, and then finance a mortgage through Freddy or Fannie that keeps the homeowner in the house at their current salary. I don't know if they do this by having the taxpayers put up a down payment in exchange for equity in the house when it sells, or via balloon payment down the line to cover the difference between what the homeowner paid and what the house was worth, or something altogether different. It would be sheer brilliance if it works, though. Right now, there are a ton of people, millions of them, who're stuck in loans that reset to rates they can only pay by stopping spending on everything else. There are also roughly as many people looking up towards the reset date that hasn't hit them yet, but they know it will, and they've stopped spending anything because they know that when it does they'll need every penny they can scrounge between now and then to save the house. Lower that first group's payments back to what they can afford, and free the second group from fear, and you just about single-handedly jump start the retail and automotive and durable goods sectors of the entire world economy.

But we're not guaranteed anything nearly so smart. Obama is famously a smart guy, one who learns from his mistakes, but he's also most famous as a guy who learns from the people around him if he doesn't go into a situation with an opinion of his own. And I'm not even vaguely happy about the people he's gathered around him, the literally hundreds of held-over Bush appointees and warmed-over right-wing Democrat Clinton-era appointees that David Sirota at the Campaign for America's Future has taken to calling "the Team of Zombies." If he listens to them, he'll reject bold action on the mortgage crisis in favor of a nice, (politically) safe plan to "attract private investment" in order to "harness the energy of the free market" to solve this problem via "a public-private partnership." Or, just as bad, he may have learned now not to trust the Team of Zombies, only to find out that after letting Pelosi and Reid (and House and Senate Republicans, to whom he gave far too many concessions) turn his stimulus bill into a legislative Christmas tree, and after giving Geithner a blank check and no deadline, there's no money left in the treasuries market for him to use to do the right thing. In either case, we're screwed. And I've been losing sleep for days now waiting to find out which it'll be.

The Geithner Plan

Want to buy: Any Democrat, anywhere near the White House, with the guts to say "no."

I slept through Tim Geithner's press conference, but that's probably the good news. It meant I could skip the sales pitch and go straight to the paperwork: Anonymous (given in the document properties as Gene Sperling), "Fact Sheet: Financial Stability Plan" (PDF), FinancialStability.gov, 2/10/09. I hate it. It's the Bush (the Younger) administration plan, almost line for line. It spends roughly another trillion dollars. It's got far too many moving parts, because instead of picking one or two of the proposed solutions to the problem, it includes very nearly all of them. And it doesn't solve the problem, because none of the solutions that made it into the plan include the only one that would actually work.

Here, let me lay it out for you. You may first want to review, if you haven't seen it already, my previous essay, "The Stimulus Bill is a Crock, Again," 2/8/09, which reviews how we got into this problem and the status of the negotiations over the solution as of when Tim Geithner took over negotiating for the government. Now, here is the Geithner plan, as it was laid out on a Treasury Department-run website this morning:

Step One: Do Nothing about the Biggest Banks for at Least the Next Year or Two. Think I'm being unfair? Let's look at what the plan actually says. For banks that (allegedly) have over $100 billion in assets on the book, the government isn't going to buy the "troubled" assets, it's not going to issue loan-guarantees, it's not going to infuse capital into the bank right away based on the difference between the current market valuation of those assets (which is, I remind you, zero), and what the banks would need them to be to be technically solvent. No, first we're going to assemble a whole new government department nearly the size of, and at least as complex as, the Department of Homeland Security, combining all of the auditors from just about every government regulatory agency into one temporary (?) super-agency. Then, once that's done, their job is to go through the balance sheets of every major bank in America and compile a list of all the shares in mortgage-based collateralized debt obligations (CDOs) they own. Then they're supposed to go through the records of every single one of those CDOs to figure out which loans were fraudulent, or otherwise unlikely to pay off. That way they can calculate the actual, per-the-formula honest value of those CDOs. Then, and only then, will those banks be eligible for federal funds, via partial or complete nationalization. Let me remind you that this is what Warren Buffett tried to do when Berkshire Hathaway more or less accidentally acquired a ton of these mortgage-based CDOs because they were on the books of another company that they'd bought, Sun Re. After six months of slaving over it, the best accountants in the world told Buffett: can't be done. And that was for one company. No, really: if the big money-center banks have to wait until the CDOs are completely unraveled before getting recapitalized, we will still be working on this when the next election rolls along. If we're still having elections by then, because in all likelihood, the economy will have totally collapsed. No wonder the DJIA dropped 300 points at the end of Geithner's speech; this one provision all by itself guarantees that the Geithner plan can not possibly work, because it commits the government to achieving the physically impossible before we even start on addressing the most important part of the problem.

Step Two: Auction Off the Smaller Banks' CDOs for "Fair Market Value." Which is, zero. No, the plan document doesn't say zero, because it is deeply out of touch with reality. What it says is that it will create a new public-private partnership, an entirely new private corporation backed by government money (oh, yay), to buy any of the mortgage-backed CDOs that are on the smaller banks' balance sheets via "private sector pricing of assets." I don't know how a supposedly bright guy like Tim Geithner missed this, but the private sector price of those assets is zero. Nobody in their right mind would buy them. I don't care how much money you make available to buy them, any individual one of them is worth zero dollars and zero cents until we figure out which ones are completely worthless, which ones are partially worthless, and which ones are honest.

Step Three: Create a Whole 'Nother Trillion Dollars worth of Fraudulent CDOs. No, really. "In order to jump start consumer lending," the government will put up the up-front capital and issue guarantees against loss for a trillion dollars' worth of new lending, packaged into CDOs and resold, with the loan portfolios underlying those CDOs rated by the exact same ratings agencies that told us the previous CDOs were "AAA." And with the reminder that only the ones the ratings companies call "AAA" will be eligible for government funding, and with pressure on the ratings agencies to quickly find and approve a trillion dollars' worth of them. In other words, even more toxic CDOs than the last batch. Much more so, really: a big chunk of it is supposed to be for completely uncollateralized lending, credit card debt.

Step Four: Improved Accounting and Reporting Standards, for Any Big Banks that Survive Step One. Why this got moved all the way down to step four, I have no idea, because it belongs under step one. Any big bank that survives step one and ends up qualified for partial nationalization will be required to stay completely out of acquisitions, to pay no more than 1 cent per share in dividends, agree to government instructions on how to work out any non-performing mortgage loans that they're servicing, report monthly to the government on what they're doing with the money the government invested in them, and, yeah, cap CEO salaries.

Step Five: Solve the Mortgage Crisis. The only actually palatable part of the plan, and ironically, we were told last night that it wouldn't be in this plan, we were told this was going to be a separate bill. The Federal Reserve will buy another $600 billion worth of brand-new mortgage-backed CDOs from Fannie Mae and Freddy Mac. We're missing important details on how these mortgages will be different, but the plan says some very hopeful sounding things about lowering the interest rates on people who are currently getting screwed by their teaser-rate loans. And, if I'm reading one of the sub-points right, if the original loan was issued based on a completely fraudulent assessment of what the house was worth, the government will commit up to $50 billion to cover the write-downs on the previous loans. (This is one of the vaguest and least detailed sentences in a very vague document, though, so I could be understanding it wrong.) Sounds pretty good. Has almost nothing to do with the banking crisis.

Step Six: Expand the Small Business Administration. Sounds good, but how? They'll tell us "over the next several days," but probably by doubling or tripling the amount of money Congress puts up for it. Are there really two or three times as many qualifying small businesses, with AAA credit ratings, trying to get SBA loans as there is money in the program? If so, good idea. If this is about trying to find or make new small businesses that have no real business plan or credit record and therefore shouldn't be rated AAA and pressuring the ratings agencies to up-rate them, by putting the government on the hook for up to 90% of the loan value if they fail, all it turns into is workfare with no supervisors; not the dumbest idea I've ever heard, but probably not all that helpful. Probably utterly fraudulent, too, since those new "business plans" will probably let the "loan recipients" set their own salaries, too? On the other hand, the reason it's all the way down here at step six is that it's also the single smallest part of the plan, probably only in here because somebody in Congress insisted.

And that's the fundamental problem with this plan: "somebody insisted." This isn't a plan. This is a laundry list of every half-cocked idea that anybody in Congress, anybody in the banking sector, and any think tank came up with to solve the problem, all of them at once, even the ones that contradict each other. It's not a plan, it's a clipping service set to "bank rescue idea." There are ill-informed populists out there who insist that the government not give banks any money without first making sure we don't overpay for even one asset; okay, they get that, even though it's physically impossible. There are Republicans from the Chicago School of economics who think that there is some gigantic market out there of people desperately hungry to buy the toxic CDOs because surely they must be worth money, really, right? They got their way. There are financial firms and right-wing Democrats who insist that the real problem isn't that there are toxic CDOs, the real problem is that we stopped believing in the fairy dust that was propping them up, so what we need is to inflate another artificial bubble in CDOs; this plan does that, too. There are a few older Congressmen who remember previous TARP-like bailouts and want to give them time to work, who think that all it would take to give the voters the confidence it can work is better reporting and accounting standards; they don't get just TARP, but they do get their accounting and reporting standards. There are mortgage industry experts, some of whom I even respect, who insist that the toxic CDO problem would go away altogether if we could find some way to do what was originally intended to be done, namely refinance those teaser-rate loans via new CDOs; this plan attempts that, too. And there are country-club Republicans who still insist that there is no financial industry crisis, that we just need more government loans to businesses, so this plan gives them that, too.

Seriously, Mr. Geithner? GROW A PAIR. Tell somebody no. Frankly, tell most of them no, because big parts of this plan (steps one and four, in particular) flatly contradict each other. Pick a plan, or at most two. Ideally, one that can be implemented in a whole heck of a lot shorter time than your main plan, step one above, since it's the kind of thing that I would expect out of Cheops Second Law, "No job is impossible to the person who doesn't have to do it himself." Except that you are going to have to do it yourself, or your employees will; do you actually think that what you asked here is even possible? Because nobody else does.

I'd like to think that this plan is DOA. And, frankly, based on this performance, I'd like to think that so is Treasury Secretary Geithner's career in government. Yep. I'd like to think both of those things. Because it would beat the alternative, which would be to believe that we're going to go ahead and try to pass legislation based on this mess, or worse, pass legislation based on this mess and actually try to implement it. Because if it comes to that? Welcome to Weimar America.

Addendum: It's Not Just Me. Hot off of the Associated Press wire, via Yahoo News: Tim Paradis, "Stocks tumble after gov't unveils financial plan" and Dirk Lammers, "Oil prices tumble after US rescue plan unveiled." Implication: Broad consensus among both financial analysts and commodities brokers that demand will drop further. In other words, if we go forward with this plan, it's Great Depression 2.0, thanks to Barack Hoover Obama. I wonder if Bill Richardson is starting to regret his endorsement?
Holy cats. I'm prone to losing track of time, so I didn't realize that it's been over a year since I wrote, "The Stimulus Bill is a Crock. Don't Worry, Though. Much." (1/25/08) George Bush's plan (if you choose to dignify it as a "plan") to fix the whole national economy by giving everybody $300 to $1200, borrowed against the national debt, to go out and spend did not, in fact, solve the whole national economic problem that we were already in last January. Which surprised nobody who was actually involved in the plan, as I wrote at the time, because it wasn't meant to solve the problem. It was meant to reduce the heat and pressure on the people who were negotiating the actual solution to the problem. What I predicted at the time was that once voters were in "wait and see" mode and thinking about something other than the imminent collapse of the banking system, financial industry negotiators and government negotiators would quietly go back to the bargaining table and close the gap between what the government said it could afford and what the banks said they needed (and were entitled to). So I wasn't terribly worried. Until along about fall of last year, when not only had the negotiations not moved an inch, but banks and brokerages and investment funds were starting to collapse world-wide.

Barack Obama was elected President on a promise to do something about this, something that would actually work. But watching him and his people these last couple of weeks has got me asking, plaintively, "wait, did we elect the smart guy, or the senile one?" Obama did serve in the US Senate, right? For more than one year? Then how in the expletive-deleted did he not learn what an extraordinarily bad idea it is to label any piece of legislation "must pass"? There's a word for "must pass" bills in the the political lexicon, and the term is "Christmas tree bill." See, you and I, if we were told that the whole country's in danger if a certain bill doesn't pass and pass soon, and we believed it, we'd remove every obstacle we could, because it's that important, right? Sadly, that's not how US Representatives and US Senators (from either party) think. When they hear that a bill "must pass," their reflex is to say, "well, then, since the country will collapse if this bill doesn't pass, and you need my vote to pass it, you have to give me and my constituents whatever else we ask for in exchange for my vote." So all "must pass" bills get loaded up with every home-district pork barrel project and every bit of ideological baggage that every single legislator brought with them at the beginning of the session, like ornaments on a Christmas tree, until you can't even see the original bill through the cruft. Only this was even worse, we find out. Barack Obama didn't even send over a "must pass" bill. He sent over a one-sentence guideline that could be stretched to cover anything in the world, and then told Senate Democratic leaders that whatever they came up with, that'd be a "must pass" bill. The stupidity, it burns.

And the resulting bill is, as all Christmas tree bills are, a total nuclear whale abortion, a mutant abomination of a bill that deserves to die a sudden, ugly, and ignoble death. But having been larded up with enough pork, and enough partisan BS, from both parties to scrape together a majority in the House and a filibuster-proof super-majority in the Senate, it won't, and there goes $800 billion out the window. Not one single dollar in the entire bill is addressed at our immediate short-term problems. Not one. Which means that once we drain this pool of toxic waste off of the legislative calendar, either by death or by Presidential signature, then we start all over again on solving the problem. Gods help us all if we turn out to actually need that $800 billion to do so. The US Treasury Department said the other day that we can blow that $0.8 trillion and still borrow as much additional money as we could possibly want. But to paraphrase something that solarbird said the other day, that's the sort of thing that you only say if people are openly doubting it, the kind of assurance you only give when even you know you might be lying.

I'm still not panicked. Quite. Because there is one good sign, off to one side of the whole bullcrap "stimulus" debate. You have to put together two clues to spot it, but it does mean that serious negotiations are, finally, after a year and a half of the US financial services industry just flatly refusing to negotiate in good faith, starting to happen. But before I explain how I know that, let me review the problem, not least of which because it'll give me a perfectly good excuse to use a metaphor for the crisis that I've been itching to use. I originally heard this as an ethnic joke, as a kid, but it works just fine without the ethnic markers, so let me tell it my way:

Back during the Great Depression, a certain farmer noticed that the unemployed people who lived around him were stealing melons out of his field because they were starving. The problem he had with that was that he had loans due, too; he needed all of those melons, come harvest time, or he was going to be just as broke and unemployed as them. But asking the neighbors didn't help. Putting up signs asking people not to steal didn't help. Putting up fences didn't help. And he had to sleep, some time. So finally he hit upon a solution. One evening, he put a sign in the field that said, "Attention: ONE of the watermelons in this field has been poisoned." Now, since only he knew which watermelons were safe to eat, nobody could steal any watermelons. And this lasted for a day or two. And then, when he woke up in the morning and went out to his field, the sign had been vandalized. Now it read, "Attention: TWO of the watermelons in this field have been poisoned."

If nobody knows which watermelons are actually safe to eat? If nobody can come forward and admit to having poisoned watermelons? If nobody can trust each other, after threatening to kill each other? That whole field of watermelons just dropped in value to zero. And that, my friends, is exactly what happened to everybody's mortgage loans. We now know that some of the mortgage loans that were pooled in with perfectly ordinary mortgage loans were "poisoned" -- issued to people that the lender knew flat-out wouldn't be able make the payments once the teaser interest rate reset, hoping that either people would be able to refinance to fixed rate off of the appreciation, or failing that that they would be somebody else's problem by then. But nobody knows yet which "watermelons" have been "poisoned." Nobody even knows how many "watermelons" have been "poisoned." And so the banks, brokerage firms, pension funds, and other investors who own those "watermelons" are stuck, having spent all the money they had on these things that they now can't sell, because nobody in their right mind would buy one without first testing it to see if it's poisonous. And the testing will take longer than the banks have; by law, they have to have enough assets on the books, and the loans they've issued against assets have to be backed up by assets that are worth enough, that the bank is technically solvent. And almost none of them are, way more of them aren't than the FDIC can afford to pay off. And this isn't the first time in history this has happened.

When this happens, there are only two possible solutions. One is nationalization, or what a Chinese economist called in an interview the other day, "socialism with American characteristics." The government just flat-out gives the insolvent banks and pension funds and so forth however much money it takes to get them solvent by buying preferred stock in the company, up to 79.9% ownership, making them nominally solvent (hopefully) in exchange for getting to dictate their corporate policies and, if the Treasury secretary or the President so desires, replacing up to 4/5ths of their board of directors with government appointees. We've done it before, during national crises, but never to banks until this crisis; the idea freaked people out. In fact, nobody actually likes the idea. But the only alternative is for the government to buy all of the "poisoned watermelons," all of the assets that can't be accurately valued in time to save the banks' balance sheets, and then assign a government agency to go through and sort out the whole mess. Forensic accountants look for evidence of criminal conduct, and refer it to the Justice Department. Any just blatantly stupid investments get written off. The remainder get repackaged and auctioned off for what they were actually worth (but nobody knew it) at the time, and every time the government has done this, it's come within a hair's breadth of breaking even. And what has bogged down the negotiations for a year and a half now is one question: "for how much?"

The financial services industry, unsurprisingly, started from a negotiating position of "100%." They wanted the taxpayers to buy those assets at face value. Their arguments aren't even all that hard to understand. The fundamental math behind these securities was (supposedly) sound, so they really should be worth that much, which means that the government can pay 100% and barely lose money, if at all. And the last time the banking industry needed to be bailed out, after the junk bond fiasco, the government paid 100% and broke even, more or less, so why isn't it fair to pay that much this time? And, frankly, if the government pays less than 100%, then the stock value of those companies will drop like a meteor and stay down, and half the pension funds and 401Ks in America are invested in those stocks. And a year and a half ago, the government's counter-offer was "20%," 1/5th of face value. Why? Because that's how much we can afford, so it had better be enough. Because there was a lot of bad faith in the valuation of those securities, and that shouldn't be rewarded. And because it's not the government's responsibility to manage the stock market, not the government's responsibility to guard those companies' profit margins, only to keep them from collapsing altogether and not one penny more.

And for a year and a half, there was nothing, but that was okay with me, as long as negotiations were still going on. But the longer it took (I really, really expected a deal by last September) the more worried I got that something had gone deranged in the financial industry's CEO's minds, that they were bound together in a suicide pact to hold out for 100% or else all go down into the darkness together and drag us down with them. It wasn't the most likely outcome, but it was getting harder and harder to rule it out. And then, in the last week or two, two separate news stories came out. One was just a throwaway line in an opinion piece, I'm sure you missed it. I'm sure you saw the other piece, but I'm equally sure that you misunderstood it, because as best as I can tell, everybody misunderstood the significance of it. The first was in an AP opinion summary, a backgrounder on the financial industry meltdown. And when it got to this point in the summary, it quoted an anonymous source close to the negotiations as saying that the assets could be bought by the government for a price "between 22% and 50%." Do you get the significance, now? The government's position moved by 2%. The financial services industry gave in by 50%. We know now who needs the deal more. Just from that one factoid, you can see the probable end-game: negotiators for the Treasury department and the financial industry will announce a settlement, sooner or later, in the 25% to 30% range, and we're probably fine. Banks can go back to lending then, businesses can stop laying people off, the Treasury will own all of those fraudulent teaser-rate loans and can stop the foreclosures, people thinking of buying houses can stop worrying about another wave of foreclosed houses being dumped on the market and hurting the value of a house they just bought, the people fighting to avoid foreclosure can go back to something like normal consumption patterns, and the whole bloody economy can start to recover. If the remaining gap gets closed. And that brings us to the second story, the one I'm sure you did see.

The other day, Barack Obama announced that if the US government nationalizes any more banks or funds, the CEO salaries at those funds will be capped at $500,000 per year. If any bonuses at all are given, they can only be given in options that cannot be exercised until the taxpayers get every single dime they put into those companies back first. And there was much rejoicing, because there is a lot of (in my opinion, entirely reasonable) anger in this country about CEO salaries.

I hope you didn't think that any CEO salaries were actually going to be cut. If so, I apologize for being the one to break it to you: no actual CEO salaries or bonuses will be impaired by that announcement in any way. If you were cynical enough to guess that, you were probably still wrong, because you were probably wrong about why not. That wasn't a serious proposal. That was a "poison pill," a negotiating tactic. No CEO is going to let his company's negotiators accept that deal. Which is presumably what President Obama wanted. My informed guess is that having given 50%, the industry was feeling a mite weak in their bargaining position, so they tried their own poison pill: if you don't give us at least 50%, we might as well give in and let you nationalize us. With an undercurrent of, "go ahead, we dare you to nationalize us. We have enough lobbyists to make sure that the government overseers will be toothless." I think President Obama announced that CEO salary and bonus cap so that they'd see just how popular it was with the voters, so they'd see just how powerless their army of lobbyists would be at preserving their autonomy and their perqs. I think it was done to take nationalization off of the table. And if I'm right, expect an announcement very soon as to the final price the taxpayers will pay when the Troubled Asset Recovery Program gets resuscitated. Maybe we did elect the smart guy, after all.

We still have short-term problems, but they're almost entirely related to unemployment. A truly honest stimulus bill would have just extended unemployment benefits, moved people whose COBRA had run out into Medicare, frozen foreclosures, and maybe given Fanny and Freddie enough money to refinance everybody in America with a toxic teaser-rate loan at 1/3rd of their current take-home pay for 30 years; if somebody thought that a loan with payments of that much was a good idea, maybe we should just have to hope that it is. In any case, it would have been a much cheaper bill than the Christmas tree that's about to pass, and a lot simpler, and a lot easier to defend to the voters, and a lot harder for legislators from either side to vote against without making themselves look like total putzes. I'm disgusted that the administration chose this stupid Christmas tree bill as their diversion, as yet another way to buy time for TARP negotiators. But I'm still not panicked. There may still be enough money the Treasury can borrow to buy those assets, when the price gets agreed to, and the signs are promising that a deal might finally be near.

On the other hand, I thought that a year ago, too, and I was wrong. I better not be wrong this time, or we're all going to get hungry sooner rather than later.

"CWA: 6,000 Men and a Scenic Boulevard"
The American way of life depends, in part, on a specific illusion. It's a lie that we tell ourselves, and tell our children. What we just did last Tuesday, an orderly, peaceful, even civil transition of power from one generation to the next, from one ethnic group to another, from one political party to another political party with a different political agenda? We lie to ourselves, and lie even harder to our children, that that is something we can count on, something we have always been able to count on, that any alternative is so unthinkable and unnatural for Americans that we need have no fear whatsoever of any alternative.

Historians know that that's a lie. Even if one accepts the incredible claim that every US President who has ever been assassinated was killed by a deranged lone gunman, acting out of personal motives, with no political motive, and with no encouragement or assistance by anyone else, the fact remains: historians know that it can get so bad in the United States, economically, that the American people will withdraw their consent to be governed. We call one particular financial industry collapse that rippled outward around the globe (among other things, ultimately bringing the Nazis to power in Germany) not just any recession or depression, but the Great Depression, because the number of people needing work in the US rose to about 3.5 million, or about 20% of all working-age heads of households. In the hardest-hit parts of the country, it reached 50%. And it's not a coincidence that the next several years saw three credible attempts to topple the United States government: a half-million man general strike called by Soviet-influenced CIO labor unions aimed at sparking a general uprising and Communist revolution that couldn't quite hold out long enough to get their revolution before it collapsed, Huey Long's astronomically-growing Poor People's Army that aimed at overthrowing the Constitution which was only thwarted via its leader's assassination, and an attempt by the 1930s equivalent of the Democratic Leadership Council, then called the American Liberty League, to use corporate money to bribe US military generals into placing them in power via coup d'etat. No, we know as a matter of objective fact: somewhere in the near vicinity of 20% prolonged unemployment, the USA starts running a serious risk of anarchy followed by totalitarianism.

We also know that by the same measure of unemployment that was in use at the time, as of this month the US unemployment rate is somewhere in the near vicinity of 15%. And rising. Fast. As in perhaps as much as 1% per month. No, really, trust me on this: everybody in both political parties now understands what everybody in both political parties understood as of 1933, when centrist (and wealthy) Democratic former New York governor Frank Roosevelt was sworn in as President: they were doomed if they didn't find some way to lower unemployment. And trust me on this, both Republicans and Democrats in our own time understand that the clock is ticking on this now, too. What remains is the question: how do we do that? Nor are today's Republican and Democratic leaders the first politicians to be faced with this question, it is the exact same question that was asked in 1933. And the political elites and the professional economists of our time agree 100% with the political elites and the professional economists of 1933. Our ruling class, just like the ruling class of 1933, believes that government by definition screws up everything it touches. That all government intervention in the economy is inherently bad, that the best it can possibly be is a short-term necessary evil. That the reason that big corporations are big is that they are lead by people who know how to make the best use of money and how to get the best work out of employees. Therefore the political elites and professional economists of our time 100% agree with Frank Roosevelt of early 1933 and with the American Liberty League of the 1930s that what we need is something like the Public Works Administration. What we need, they are 100% sure, is a public-private partnership: government identifies legitimate government needs that aren't currently being met, and bids that work out to private contractors, and audits those programs and those contractors to make sure that not one thin dime of taxpayer money is wasted on any project that's unnecessary or on any expense that can't be justified. And in a sign of bipartisanship, Franklin Roosevelt appointed left-wing Republican Harold Ickes to do just that.

As Timothy Noah pointed out yesterday in a lovely pair of articles on Slate.com, "Wrong Harry: Four million jobs in two years? FDR did it in two months" (with Charles Peters) and an almost immediate follow-up piece when a news item proved his point for him even better, "CBO, Meet CWA: More evidence that Obama's stimulus falls short," FDR, congressional Republicans lead by Harold Ickes, and right-wing Democrats lead by Al Smith were wrong in exactly the same way that Barack Obama, congressional Republicans, and the Democratic Leadership Council are wrong right now. The Public Works Administration did its job. It did it under budget. It wasted not a single dollar. It attracted not a single critic. And it created almost no jobs. In 1933, it turned out that there just plain weren't that many legitimate government jobs that weren't being funded already. As Ickes took his sweet time coming up with more, lest he be criticized for wasting taxpayer money, he found out that there also weren't a whole lot of companies out there begging for the chance to bid on PWA contracts. They weren't crazy about the contract stipulations, and they weren't all that interested in retooling and reorganizing their entire corporate structures to service contracts there were guaranteed to end as soon as the Great Depression ended. As an anti-poverty, anti-violent-revolution government program, the Public Works Administration was an unvarnished, absolute, indefensible disaster. Period. End of story. Nobody even tries to defend it any more; its supporters just pretend it never happened, so they can recommend the same thing the next time without anybody knowing it's been tried before, because by their politics, it's the right thing to do whether it works or not.

And along about the time that Roosevelt was about to lose his temper over this, the First Lady talked him into talking to a very successful social worker named Harry Hopkins, who only wanted a few minutes of the President's time so he could ask one question. He showed the President figures (that he later showed Congress) showing that there were about 3.5 million Americans in 1933 who were heads of households between the ages of 18 and 64 that no employer was going to hire, no way, no how, not for any amount of money, and he asked: "Can you give one legal reason why we can't just hire those people ourselves?" The thing is, he got that estimate of 3.5 million people by going through the state-by-state lists of people who were already on the dole, people who were already receiving some kind of charitable or government cash hand-out because they weren't working. And what Hopkins realized was that not only did the American people deeply resent those people for taking money and doing nothing all day, the recipients weren't any happier about it, either: they wanted to work. So FDR shoe-horned a program through Congress, first as pilot program called the Civil Works Administration, to raise about $1200 (1933 US dollars) per year per unemployed head of household: $1000 per worker per year for wages, $24 per worker per year for administrative costs, the rest for hand tools and raw materials for whatever projects he could make up. To get CWA funding, a job had to be something that no corporation was interested in providing, and that no government agency was interested in funding, and it had to be as labor-intensive as possible (see photograph above right).

Conservatives in both parties hated it. And still do. And campaigned hard against it in the 1934 congressional primaries. Al Smith's right-wing Democrats convinced FDR that if he kept the CWA, it would cost him his majority in Congress, so he shut it down after only four months. In that four months, CWA workers had already built 1,000 rural airports, built 40,000 school buildings, built or resurfaced a quarter-million miles of roads, and laid twelve million miles of sanitary sewer lines, some of the first sewer lines laid in most counties. In four months. Right-wing Democrats and anti-tax pro-corporate Republicans screamed bloody murder about all the money that the CWA was "wasting," but (and this is a point I'll come back to again) we're still using almost all of that stuff today. 75 years later, those "worthless" "make-work" projects are turning out to be some of the most valuable stuff the government had done in its first 150 years of existence. So contrary to what the right-wing Democrats in Congress were telling FDR he "needed" to do to "save" the 1934 congressional elections, terminating the CWA turned out to be the least popular thing he did as President, and as soon as the elections were over, on voter mandate, FDR brought it right back again, rammed it through Congress again as the Works Progress Administration (WPA).

Only this time it had full funding, and a Congressional and Presidential mandate to try to hire every single one of the roughly 3.5 million unemployed, non-disabled, work-aged heads of household in America. And in almost no time at all, they came as close as makes no difference, getting to 3.3 million, on one simple philosophy: you tell us whatever it is you "do," and we'll find you a job doing it. Those jobs paid very nearly jack squat; nearly all WPA workers ended up living with their whole families in roughly 8" x 10" or so rooms in improvised "boarding houses," spare rooms leased out by people who were house-rich but cash poor, trying to save their homes, tenants with no control over the menu of the meal plan it came with and shared use of a single bathroom (or maybe just an outhouse and an outdoor water pump) with 3 to 8 other families. Nobody lived well on the WPA, but nobody starved either. On the other hand, nobody worked terribly hard, either, and I know this one from a very personal source: my paternal grandfather was a WPA veteran.

Grampa Hicks was himself a right-wing anti-tax anti-communist Democrat of the American Liberty League school, and he hated the WPA with a fiery passion for the entire rest of his life. It was from him I first heard the joke: "How many people does it take to do one WPA job? Three. One on his way to the bathroom, one on his way back from the bathroom, and one leaning on the shovel pretending to work." But here's the funny thing. You know what Grampa Hicks was before the Great Depression? He was a bum. A mostly-unemployed unskilled laborer on the rare occasions he had a job, a street brawler and small-time crook, a chronic alcoholic and wife-beater who spent most of the 1920s in jail. So when he showed up in one of Harry Hopkins' branch offices and they asked him, "What do you do?" all he could answer was, "Nothing." So they stuck him on one of the WPA's archetypal projects: a National Guard armory. Under the thin pretense of "military preparedness," Harry Hopkins made up this total BS scenario whereby some day, in some foreign invasion of the US, we might end up having to retreat all the way back to any random tiny little town in America, so every tiny little road-crossing town and every suburb and every city neighborhood in America should have a solidly built, concrete-block or raw stone building that the state militia can store their weapons in until that day, and can use as a fort when we get nearly conquered. Nobody was fooled. Everybody knew it was a lie: it was building buildings just for the sake of building pointless buildings. Furthermore, the whole "fort" thing was just an excuse to make the job take longer, to build out of improbably heavy materials and as slowly and carefully as possible, so those mostly unskilled laborers didn't run out of something to do before Hopkins and his few staff could come up with something else to do. Grampa Hicks went to his grave still mocking the work he'd done.

But you know what? There's a funny thing about that, something I'm pretty sure Grampa Hicks never thought about. First of all, if it weren't for the WPA, we Hickses would still be bums. Grampa Hicks was desperate to get out from behind that wheel barrow and that shovel, but was too drunk to do plumbing. So he took to hanging around when the electricians were running wire, and managed to get himself a totally useless job as a sort of human Vice-Grip. "Here," says the skilled electrician who was himself out of work, yelling over to my grandpa because the WPA wouldn't spring for proper tools, "you there -- hold these two wires together while I tape them together." By following that guy around and watching over that guy's shoulder, Grampa Hicks taught himself basic electrical wiring. And when the WPA was over, he was able to lie with a straight face to employers that he was a skilled electrician, and that got him his first real job, one his son learned from him, and that I learned from my dad that paid my way through college: electrical sign erector, IBEW local 1.

But never mind how much difference those "pointless" National Guard armories made to my family, there's something even bigger that Grampa Hicks didn't know. We're still using almost every single one of those buildings. I saw an article a while back (citation lost, sorry) by an architecture student who'd gotten curious about what ever happened to all those National Guard armories, so he got some grant money and went on a national tour. And what he found was that in almost every single rural town in America and even in most suburbs, those "ridiculously over-built" armories were the first truly solid building ever built there. And because they were "ridiculously over-built," they're still in use. A few are grocery stores or other businesses. Some are schools or community centers. Most are police stations or city halls. Almost all of them double as emergency shelters for the town during natural disasters. So the student did some math to figure out, using standard construction techniques and assuming standard maintenance costs, and assuming that we would have built something to do those jobs some time between then and now, what it would have cost some of those counties to have done without those buildings. And compared that to what it cost them and their descendants in federal tax money to support the WPA and to pay off its debts. The WPA actually made money on its most "useless" projects.

You can take almost any WPA project from the 1930s that was widely mocked as a pointless waste of money; nearly all of them paid every penny back in long-term savings to the taxpayers, in taxes paid by people who learned their trade on those projects who would have otherwise stayed on the dole, or both. In the 1936 elections, Roosevelt's political enemies handed out campaign buttons mocking the stupidest-sounding idea the WPA ever had. See, in even the smallest towns, the WPA built the first sewage treatment plants those counties ever saw, and laid sewer pipe for them. But lots of Americans still lived in areas too rural for even that. So the WPA paid teams of laborers to ride from farm to farm, shack to shack, shanty to shanty all over America looking for private outhouses that were rickety, or worse were too close to water supplies or food preparation. Those teams were given a standardized design with a water-tight roof, solid construction that would require almost no maintenance for decades, and most importantly: clean concrete floors and toilet hole lids that could close nearly air-tight, plus ventilation stacks that were designed to be insect resistant, in order to reduce both ground-water contamination by and insect-born transmission of fecal bacteria. Many areas turned the WPA down, especially suburbs around cities, and people all over America relentlessly mocked the WPA workers who thought that the US had "nothing better to do" than to waste $17 per rural house building massively over-engineered fancy outhouses. But you know what? Over the course of the 1930s and 1940s, almost every area that turned the WPA down on the outhouse project and other sanitation projects suffered major cholera outbreaks. Areas where the WPA built sewage treatment and sanitary outhouses escaped, saving tens of thousands of children's lives, and probably millions of dollars in hospital costs and lost wages.

Some people were really determined to not even do anything as useful as pretend to dig ditches. So they claimed, when the WPA asked them "what do you do?" to be writers or actors or artists. Some of them were even sincere, and had actually studied those subjects in high school; others just made it up. When asked about it, Harry Hopkins famously shrugged and said, "Why not? Those people have to eat, too." So the government made up make-work programs for them, too, all of which were relentlessly mocked all through the 1930s. You're an actor? Here. You've got no budget for props, sets, costumes, or stage rights for plays. We'll let you use an empty storefront and call it a "theater," especially if you'll bring in some WPA laborers to build a stage and some seats for you. No, wait, you can have some costumes, but not many; we have some households headed by widows who could stand to do some sewing for you at WPA wages. And you can have any public domain script you want. Now, put on plays. We don't care what plays, or how many you do, but you will come in 20 to 30 hours a week and work on them, and put them on when you're done ... including you, Mr. Orson Welles. Whose acting, then directing, careers are still bringing in taxpayer dollars every year; all by himself he's probably paid back the entire cost of the WPA's program for actors.

You say you're a journalist or a historian or a writer? Hmm. Tell you what. During westward expansion, an awful lot of tiny little towns got founded, and the people who founded those towns are getting old; go ask them who founded the town, and why, and what it was like, and write it up as a history of the county. Take all the time you want. Nuts, we're out of tiny little towns, and still have writers left over. Think of something. I know, go interview former slaves; we'll give them some time off from their WPA jobs so you can write down what they say their lives were like. What, we're still overstocked on people who say they're writers? Fine, here, we'll hand 'em to the state tourism boards; we'll send teams of 'em to just walk around every state in the Union, get drunk in the local bars, describe the local sights, and make tourist guides. And, oh, by the way, who knew? That'll turn out to include an entire generation of America's most famous writers, including America's third and fifth ever Nobel prizes for literature. Just the taxes on the movie rights to John Steinbeck's novels have probably paid for that entire program all by itself, and are still paying taxes. Not to mention that we still have all of those books, and most of their notes towards the unfinished books, and guess what? Generations of grad students in history are extremely grateful to the WPA; they wish every generation of Americans had been as well documented.

I don't think you can come up with a single dollar of WPA spending that actually counts as wasted, not a single WPA "make-work" project so pointless and stupid that we didn't get our money's worth out of it, especially if you count all the on-the-job job skills training it gave the 8 or 9 million people who went through the program. And that's even if you don't factor in the analysis of very serious historians who question whether or not American "G.I.s" would have fought so hard or so well to save the world from 1941 to 1945 if they had been as resentful, and as starving, as they were in 1930. But no, the blunt fact of history is that if the truth were ever told about the WPA, if the truth hadn't been being smothered in lies by the same political factions that opposed it at the time all the way up to this very day, everybody would know what the WPA proved as inescapable facts. No dollar of government spending is wasted, if it does a job that nobody else was going to do and it builds something that lasts. Almost nobody is so greedy and lazy that they actually would prefer to be paid to stay home and watch TV or get drunk or stoned all day; there are untold tens of millions of us now that no employer would touch for any of a long list of bad reasons who would rather be working. And no matter how lazy you think they are, boredom is a powerful motivator, and so is a desire not to let down your team, and so is a desire not to look bad in front of others: bring 'em to work, leave 'em alone, and nearly all of them actually will work, will actually build things that are built well, built for the ages, built to last. Paradoxically, the really wasted money is the money that gets spent on government overseers determined to make sure that none of the workers waste any money: point people at jobs, give 'em simple hand tools, and tell them to take their time and build something solid and it's almost impossible for us to not get that money back in long-term savings.

Nor is this even all that "liberal" an idea. Ronald freaking Reagan himself briefly campaigned on it, calling it "Workfare:" if you can't find a job, we'll make you one, whether you like it or not. But he didn't even get sworn in before the same pro-corporate Republicans and right-wing Democrats convinced him to drop it, to instead concentrate on cutting taxes for corporations as his only unemployment-fighting measure. No, there is now, just as there was in Franklin Roosevelt's time, a bipartisan consensus of the elites in this country that the way to put Americans back to work is that taxes must be cut on investors and corporations. We are, apparently, supposed to ignore the last thirty years of history, which teaches us that every tax cut we pass and every subsidy we grant to big corporations will be used to hire robots or to move jobs overseas. No, this time we're supposed to believe it will be different and this time they really will use that money to make more jobs. Trust them on this, they say. And just as in Roosevelt's day, the exact same political coalition of big-corporation Republicans and big-corporation Democrats insist that if that won't do the job fast enough, then what we need are even more public-private partnerships. And ironically, even Barack Obama, who very nearly lost his political career early on because he was caught on the fringes of Tony Rezko's financially corrupt public-private partnership, one that Barack Obama had gotten for him, somehow hasn't learned that it's public-private partnerships and tax cuts for corporations and the wealthy, not government make-work programs or benefits for the unemployed, that are the real welfare cheats. Being a Harvard graduate who grew up under the steady drumbeat of pro-corporate propaganda about how evil the WPA was, he's still talking up the need for more public-private partnerships like Harold Ickes' old Public Works Administration.

So I figure the odds at roughly 4 to 1 that he's going to screw up the unemployment situation in America, at the very least doing nothing to help it, and quite possibly making it worse by funding the elimination of yet more American jobs, because that's exactly what the new President and his cabinet officers are talking about doing, lately. Sadly, these are even better odds than we would have had under either Clinton or McCain, neither of whom would have even considered anything but public-private partnerships. Obama will, I think, at least think about it. But I don't think he'll do anything but try to set up another PWA. Which is a damned shame. Because what we really need is another WPA.
About a week, week and a half ago I sat down to knock out a quick comment about the fact that Ford, Chrysler, and General Motors went to Congress to argue that they needed, and were entitled to, a $25 billion slice of the federal bailout pie. I figured it would just take a couple of minutes, once I double-checked some numbers and some history. Which ended up casting enough doubt on my thoughts about it that I decided to do some more research. I've put about another 30 or 40 hours of reading and research into it since then, because everything I read raised more questions. But it's gone to good use, because I did come to one absolutely firm conclusion about the hypothetical federal government bailout of "the Big Three" automakers:

If you have a firm opinion about whether or not there should be a bailout, you don't know enough to be entitled to an opinion.

No, really, there's a reason why it's the dumbest and shallowest of pundits who rushed to have opinions on this, they and the people who have knee-jerk political philosophies that could fit comfortably inside a walnut, so they always know what they think should be done: the same thing they always recommend, no matter what the problem is. Very few people who actually know anything about the auto industry have spoken up, and there's a reason for that. Heck, when the Detroit execs were sent packing by Congress with an invite to come back and explain how, exactly, a bailout would even work? You'll notice they haven't exactly rushed to answer.

Here, let's start with some history, just to confuse things beyond all recognition. (Yeah, I know, that's not what history is supposed to do. This time it does, though.) Starting with the World War II temporary wage and price freezes, the American auto industry got into the habit of competing for the best workers by persuading them to accept deferred compensation. They voluntarily signed contracts that said, "instead of drawing x+y salary now, we'll pay you x now, and invest y in something nice and safe, and when you retire, we'll pay your salary and your health care benefits out of what we earned on y." Lots of industries did. Then they got stuck writing those contracts for year after year, because they faced open revolt if new workers didn't get the same offer that their prior co-workers got. But it was okay, because at the time, retirees lived for only a couple of years, and by then, they were dying of things that we really couldn't do anything about. It's not like it cost all that much to provide those benefits.

And then something completely unexpected happened: modern medicine. Average lifespan went up 10 years. Worse, we suddenly had something more than rudimentary surgery, splints, crude painkillers, a few cheap vaccines and antibiotics, and a lot of colored sugar-water placebos. Because of the revolution in molecular biochemistry, the cost of health care went from just the cost of the doctors' and nurses' labor plus a few bucks up into "the sky's the limit." Company after company went through this, and company after company found legal or illegal ways to break those contracts 20 years ago or more, because it was that or go completely under. So far, because of the strength of its political connections to both parties and because of its central place in 20th century American cultural mythology, only one industry has managed to keep that old tradition alive, and that's the auto industry. But it's been killing them. And everybody knows it.

Worse, when Honda, Nissan, Toyota, and Hyundai came to America, they found that workers all over the (then depressed) Sun Belt were in fact perfectly happy to sign contracts for hourly wages that were pretty similar to Detroit's with no pension to speak of and no retiree health benefits. Basically every worker born since 1960 or so has known that when they retired, what they were going to have was whatever their own private investment accounts had in them (if anything) plus Social Security and Medicare. If even that, say the cynics. And it's not particularly scandalous, unless you're a Baby Boomer or before. And what that meant for the "foreign" auto makers making cars in America is a cost per car difference in the several thousands of dollars per car. Everybody picks on Detroit for "sticking with SUVs when everybody knew that they weren't sustainable." You think they're stupid? Never mind that, of course you do, everybody does. Now explain this to me, if you're so much smarter than them: where were they going to find a market for millions of subcompacts that would still have to sell for at least $30,000 to be profitable? They've known for years that the SUV market was going to collapse some day; they rode that ride as long as they could because those were the only cars left that GM, Ford, or Chrysler could make that had enough profit margin to cover the cost of retiree labor.

So they're screwed, right? Not so fast. They actually solved this problem. Do what I did, spend some time with the most recent GM annual report, and cross check its numbers with the presentation on the 2007 contracts of the Big Three at the Center for Automotive Research website. GM says that they got enough concessions out of that round of contracts that even with the retiree costs, they would have been actually profitable in 2007 if they'd had that contract the year before. They show numbers that (if it weren't for the huge drop-off in demand due to the financial industry crisis, which the annual report failed to forecast) that if they could just hang on until 2010, enough of the retirees would finally have died that even those costs would be gone. They actually have, or at least had, a plan that would have let them squeak by on selling overpriced SUVs to cover the costs just long enough, they hoped, to be competitive with the other four semi-American automakers in all product lines.

So we should save them, right? After all, there is one thing that none of the semi-American automakers can offer, if nothing else: upward mobility. Somewhere in America right now there's a future hotshot auto designer, auto engineer. A century of tradition, both US and non-US, says that where he should be (and probably is) right now is working in an auto plant, working his way up. Can an American work his way up to being a lead designer for Toyota, Nissan, Hyundai, Mitsubishi, etc? Not unless he speaks fluent Japanese (or Korean). And given the famously virulent racism of most Japanese towards non-Japanese, probably not even then. And if we can just keep them afloat until a few thousand more retired autoworkers die of old age, we can save those jobs, right?

Maybe not. Because there's one other pair of numbers staring us in the face, and they're not going away. Fact number one: auto manufacturing plants in the United States produced slightly more than ten million new automobiles in 2007. Fact number two: the American people bought about seven and a half million new automobiles in 2007. (That's more than my back of an envelope estimate was, I'm actually kind of surprised. I guess the pre-collapse economy was pretty good.) That's not counting exports, or imports, but we're not going to export our way out of that almost three million car per year surplus (and more than that, this year). There just aren't that many people around the world who can afford $30,000, or $40,000, or whatever SUVs. Or American cars at all, really. We thought we were going to export our way out of this by selling half a billion cars to China, but the Chinese people can't afford to buy cars made by people making American wages, so they buy cars made by (for example) GM's China subsidiary. We thought we were going to export our way out of this by selling hundreds of millions of cars to India, but they buy $2000 econo-boxes from local Tata Motors instead, and one heck of a lot of cheap third-world knockoffs of Japanese scooters, because that's what they can afford. And this isn't exactly news, either. The Big Three have been renting every flat surface within a hundred miles of Detroit, practically, to park unsold cars on, for at least two years. Starting this year, the non-Big-Three companies have been doing the same thing on and around the Port of San Diego, and maybe elsewhere.

The fact of the matter is, unless wages somehow magically go up for a billion people right now, go up so far they can afford American-made cars, pretty soon we're not going to have any alternative but to shut down 1/3rd of the automobile factory jobs in America. And that's perhaps an optimistic scenario, that's assuming that Americans don't start buying cheap econo-boxes from Tata Motors, too, if that becomes all that they can afford. And Ford, GM, and Chrysler have known that, for years, too. They don't say, but it's pretty obvious what they were hoping to do: delay the inevitable long enough that they were actually economically competitive with the newer companies' factories, hoping that all seven of the big manufacturers in America would each have to shut down 1/3rd of their production, instead of losing 1/3rd of the companies. But at least two of those companies run out of money to make the payroll with in at most a couple of months, so they don't have three years any more.

If you think you know for sure what we should do about that? I suspect you're wrong.

Out of Bounds

Thanks to a link from Arthur "supergee" Hlavety, I just found out something about myself. I've been holding my breath, and didn't know it. There was something I was waiting breathlessly for, something I just couldn't move on without. And I hadn't consciously noticed that I was doing so, even though I guess I've probably been doing so for over a month now, until it finally arrived: Michael Lewis has written a short sequel to Liar's Poker, for the latest Conde Naste Portfolio (dated 11/11/08), entitled "The End."

There was a lot of scandal, a lot of exposure of bad people behaving badly, in Michael Lewis' 1990 book about his years at Solomon Brothers in the mid 1980s, but very little of that stuck with me. No, the part of Liar's Poker that has stuck with me for almost twenty years since I first read it, the reason I still occasionally recommend it to people, is what Lewis' former bosses on Wall Street taught him about one of the oldest, and thorniest, and still hardest problems in economics, and that's what's called "the question of value." I was well primed for it when I saw it in Liar's Poker. I had a far, far better teacher of economics in high school than almost anybody ever got; not only had most American high schools ceased teaching economics long before I got to that age, but of all the people teaching economics in America in the 1970s at any level, he was one of the only ones who kept correctly demonstrating his economic abilities by making money at them. (Teaching at a Christian fundamentalist college-prep private school was just a hobby for him, part of his contribution to the takeover of the Republican Party by the Christian anti-communist caucus that I've written about before. Fascinating man.) But even before that, I saw it where many of you probably saw it for the first time, in Robert Heinlein's award winning (and still controversial) science fiction novel Starship Troopers, where Heinlein's knee-jerk anti-Marxism resulted in his authorial-stand-in character taking what I think is the wrong side of the question of value. It stuck with me, it was one of the very few notes in that book that rung false to me, so the question has fascinated me ever since I was a fairly small child:

Does a thing have an actual value that can be measured or computed, a correct price that actually exists in the real world that can be determined as a matter of objective fact? Or, is it true, as the opposite side of the question says, that "the value of a thing is the price it will bring"?

When Michael Lewis was first hired, right out of college, as a salesman at Solomon Brothers, his instinctive belief that things have an actual value was something that got relentlessly mocked by his coworkers. In his early days on Wall Street, they explained to him that there is a pecking order in the financial services industry. For a variety of cultural and regulatory reasons, investment firms are required to have people working for them who are experts at calculating the actual value of an investment based on current mathematical models and best available data. Their department is called "Quantitative Analysis," and the people who work there are derisively called "quants." Quants have the lowest prestige jobs in the entire industry, draw remarkably low salaries considering the level of education you have to have to get those jobs and the long hours and the awful working conditions, and Lewis says that they are routinely and cruelly and ruthlessly snubbed by the other half of the business. Those are the people whose specialty is sales. And at the absolute top of the pecking order, Lewis taught us, are the people who were called the Big Swinging Dicks, people who demonstrated the superiority of their manhood by being able to sell anything, however worthless the quants said it was, for however much the company needed it to sell for.

How does a BSD make his money? First, he starts by asking, "what do I have available to me to sell?" How much of it is there? Now divide that into his assigned sales goal. Add in the cost to sell it. That tells him what the thing he has to sell has to be worth; for it not to be worth that is flatly unacceptable. Which leads to the next, and last, and hardest part: what lies does he have to tell to himself to convince himself that it really is worth what he needs to sell it for, and how does he fool himself into believing his own lies? That's the only use that any BSD has for a quant: once in a very, very rare while a quant says something to him that, if he ignores the caveats and footnotes and fine details, he can twist into a justification. The quant doesn't have to have been right. Even if the quant was right, the salesman doesn't even have to accurately remember, let alone accurately pass on to others, what the quant said. He just needs to be able to believe that he is honestly representing what the quant told him when he quotes some bit of (what is to him) quant bullcrap about what the investment is "really worth" when he's on the phone to the client. And he really, really has to believe it, himself, even if he used to know that he was lying, even if he used to know that he was making this stuff up out of whole cloth. Humans kid themselves that they're good at detecting it when people tell them things that aren't true. They aren't. But to the limited extent that they are, they're really only good at detecting one thing: whether or not the other person believes what they're saying. So the ultimate BSD is the guy with the greatest talent for figuring out what he needs to believe in order to get you to give him money, and then making himself believe that, and believe it really hard.

After the savings and loan crisis. After the dot-com meltdown. After the mortgage bubble. People who trust me to follow these stories, friends of mine who were only vaguely following the news but still knew enough not to buy into earth-shatteringly dumb investments have always asked me, "how did anybody not know?" How in the hell does a lie, a lie that says that an investment that's actually worth zero dollars and zero cents is actually worth tens or hundreds of thousands of dollars, get believed? And once I explain the above to them, they admit that okay, J. R. "Bob" Dobbs was right: as dumb as the average person is, half of 'em are even dumber than that. And that means that as long as there are con men, there will be marks. But when I explain to them how the BSDs first have to lie to themselves about what the quants said, once I explain to them that the lies originate (in a twisted way) with quantitative analysts with some of the best mathematical and scientific minds in the country, the question then becomes how did people as smart as the quants ever give such bad advice to the BSDs? And then I tell them the story of one of the above three crashes, and what the quants actually said, and how the BSDs got it wrong.

The single most entertaining person I've ever told one of these stories to is phierma, a master-class costumer and genuinely talented artist whose day job is working on advanced medical imaging software. Like me, his degree isn't a completely worthless rag like a company's product certification, or a mostly worthless scrap of paper like a degree in "information technology," or even merely a degree in something vaguely skilled like "computer programming." No, Phierma has the same degree I do, even if I don't put mine to any use any more, in the much harder and rarer discipline of computer science. (That people who boast of those other three credentials are ever allowed to touch a compiler is why none of the software on your computer works right.) And I cherish the moment when I get to the point in the story where I explain where the breakdown occurred, because the look of horror (and, being Phierma, barely throttled rage) is priceless: it's something that computer scientists are taught, in their first freshman class at the age of 18, never to do.

You see, every computer program that does any calculation at all is, at its heart, a mathematical model of part of the world. And like any compact mathematical model of the world, it has what are called "boundary conditions." That is to say, we know that for a certain range of inputs, this set of calculations will produce honest and reasonably accurate and useful results. But we also know, if we understand the math at all, or understand the limits of the computer hardware we're running it on, that there are inputs that just should never be put into that model, because the results will be wrong. Maybe we know the math will create errors, like divide by zero errors. In today's world, more often it's that we know that the model was statistically derived, and we know the range of inputs in our statistical model, and we know that we haven't studied what happens when the numbers are outside that range. If your degree was in "information technology," this is probably the first time you've ever heard of this. If your degree was in "computer programming," this got hand-waved, or so they tell me, and you were told that it was enough to just put a note in the documentation with the code, to be put into the user manual by the tech writers, telling people to never input a value there that is out of bounds. Computer scientists, on the other hand, are told early in their training, by brutal instructors who will not brook disagreement or even argument on this subject on pain of flunking you out of any reputable program, that they have a moral obligation as computer scientists to test every input to their programs, and if a number gets entered that the program can not reliably produce a useful result from, to "error out" right there: to stop the program, and refuse to go any further, unless the user puts in a valid number. "Wait a minute!" he shrieks in that tone of outrage his friends all know so well, "Are you telling me that they lost all those billions of dollars on something as simple as an 'out of bounds' error?" Yes, Phierma (and the rest of you). That's what I'm telling you. Not only that, but they've done it three times in the last thirty years. The best minds on Wall Street have trashed the entire US economy three times in thirty years because of boundary errors.

1980s: A quantitative analyst named Ivan Boesky takes up, almost as a hobby, the job of calculating what the "risk premium" should be for every class of common investment on Wall Street. To a quantitative analyst, one of the fundamental laws of physics is that if you estimate what the inflation rate will be over the length of an investment, and you can estimate what the percentage chance of not getting your money back is, you can plug those two numbers into a simple equation and calculate what interest rate you have to charge to break even; the difference between the inflation rate and that number is called the "risk premium." So given the better database and spreadsheet tools we started putting on every desk in the early 1980s, he crunched the numbers to determine just what the default rate was on all kinds of investments and calculated actual risk premiums for each of them, and then compared them to the risk premiums that had been set on them the old fashioned pre-computer way, by trial and error, by glorified guesswork. And he discovered one really glaring error: junk bonds. They were a class of investment that was designed specifically for small, startup businesses, almost all of them family-owned, just starting to expand, who'd never had access to "commercial paper" loans before. Since they'd never borrowed that kind of money before, nobody knew how to tell if this particular business was going to pay back its loans, so the risk premium they got charged was plenty high. What Boesky found, when he went out and talked to some people to confirm the results from his spreadsheets, was that these loans mostly went to people who understood that not just their business, but their entire personal future right to ever borrow money ever again, depended on them making these payments, even if they had to sell their kids into sex slavery in Thailand to do it (figuratively speaking), that there was nothing they wouldn't do and no hours they wouldn't work and no effort they would spare to make those payments. And he happened to mention this at a conference to a bunch of sales guys, most famously Michael Milken, who just happened to be sitting on a bunch of junk bonds that (in order to make their numbers) they had to sell for way, way more than junk bonds had ever sold for. And if that had been where the story stopped, it would have been "how capitalism is supposed to work" in perfect form. But the problem is that they did make good money doing it, at a time when almost everybody was losing money, which created huge demand for junk bonds to resell. So the people writing junk bonds started floating junk bonds to the kind of people that weren't in Boesky's original statistical model, and the biggest demand was from "corporate raiders" who wanted to borrow the money to buy up a majority of a company's stock so they could run it (or more specifically loot it) however they wanted. Obviously those two groups are going to have dramatically different default rates. Didn't matter to the BSDs, though; all they heard, out of everything quants like Boesky said, was "junk bonds always make money and lots of it."

I could tell you a similar story about the dot-com bubble of the 1990s, about the difference between actual e-commerce websites with plausible business models, even if only a few of them were going to make it, and (once the demand for e-commerce shares outstripped supply, because no other class of investment was offering the same returns or making the same cheery promises) the proverbial three guys who knew nothing about the business and had nothing to show but a 6-slide PowerPoint presentation and a logo some friend of theirs drew on the back of a napkin. But I don't have to go into as much detail, because most of you remember those days. Just remember this: as fuzzy as the models were, even the most optimistic of the venture capitalists who created the dot-com business model were explicit about the difference between "has a plan to actually make money doing this some day" and "doesn't." But the people selling shares in dot-com startups didn't want to hear that caveat, not if it stood in the way of making their numbers. So they just remembered the part about how some companies in some investment pools were going to make huge money down the road, enough to pay off the losses on the investments in the ones who didn't, and brainwashed themselves into forgetting the rest of the caveats so that they could make their numbers.

Now remember that ever since the first experiments in widespread home loans for first-time home buyers during the Great Depression, one thing that the industry has learned is that working class and middle class people, once they're in a home, will relentlessly work 120 hour work weeks, and if that isn't enough they will murder random strangers and feed their entrails to their children, rather than default on the mortgage, that people who've never taken out home loans before have long been charged risk premiums that are way out of line with their defaults. Remember that in the late 1990s and early 2000s after waves of Clinton and Bush administration deregulation, investment firms' quants came up with a way to spread the risk of the few (but big) defaults across so many people that they'd never notice it, so long as we didn't change our model of who was buying homes and why they were buying them. And then compare that to this paragraph, from Lewis' "The End:"
Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. “The price was absurd, and they were giving her a low-down-payment option-ARM,” says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he’d hired back in 1997 to take care of his newborn twin daughters phoned him. “She was this lovely woman from Jamaica,” he says. “One day she calls me and says she and her sister own five townhouses in Queens. I said, ‘How did that happen?’” It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. “By the time they were done,” Eisman says, “they owned five of them, the market was falling, and they couldn’t make any of the payments.”
I guarantee you that in every firm involved in this market, somewhere in some windowless cubicle in the basement, there was at least one quantitative analyst screaming his head off in emails about this, about how the mathematical modeling that underlaid the calculations that determined pricing on collateralized debt obligations was based on statistical analysis of customers who were buying their primary home, not as an investment vehicle but to live in, and pricing those homes based on reasonable expectations of what someone in their social class could afford to live in and paying no more for them than three times their income. And no BSD in the entire industry wanted to hear that caveat. He didn't dare. He almost certainly paid people to intercept those emails and keep them from him. Because if he let himself get drawn into what must have seemed to him like an arcane and wrong-headed argument about what something is "actually worth," when there really is no such thing, when everybody knows that the only accurate way to value something is to put it in the hands of a talented salesman and see what he can sell it for? He wouldn't have made his numbers.


Tonight, and in every speech I've heard him give in the last couple of months, Senator Barack Obama called Tuesday's election a referendum on 8 years of failed policies. I think that it's been more than 8 years. I think that next Tuesday's election is a stark choice, the clearest choice we as American people have been asked to make, not in 8 years, but in 28 years. Twenty eight years ago, the second weakest, second stupidest American president of my entire lifetime, someone whose legacy of failure in every way rivals George W. Bush's, Jimmy Carter, was left to be the one to make the case for one of two competing ideas. In the hands of one of the most gifted orators of my time was the other competing idea. And in troubled times, in the aftermath of four years of horrific incompetence that themselves followed over a decade of general incompetence at the hands of Presidents Johnson and Nixon and the do-nothing caretaker presidency of Gerald Ford, the American people chose, not entirely irrationally, to turn their back on the economic policies and social policies that had once saved the United States from the Great Depression and saved the world from fascism. They concluded that however good or necessary those ideas may have been for their times, they were costing us too much, they were leading to their own problems that had the potential to cripple the United States. They voted to turn America to a new course.

Much of what passed for "new" was, of course, no such thing. We call the economics of low to no taxation, of little or no government regulation of work or business, of little or no protection for the poor and the powerless after its French name, laissez-faire, because it got its first serious hearing as a proposed governmental policy after a meeting between French businessmen and the French monarchy in 1680, and had its first wide-scale trial when it was adopted by the French monarchy in 1750. In less than thirty years, the original laissez-faire resulted in mass starvation, lead to the rise of the largest-scale anarchist and communist movements in western European history, and eventually brought about the rioting, terrorism, and wholesale brutal revolutionary slaughter of the French Revolution followed by Napoleonic military dictatorship. Nevertheless, less than a hundred years later, we chose to try it again in the United States, believing that the "new economy" productivity innovations of steam technology and the assembly line, global instantaneous communications via telegraph, and a nation-wide open market through the deployment of the railroads, combined with our Puritan cultural ancestry, would lead to a different outcome. It didn't, and perhaps only the assassin's bullet that took out Huey Long saved the country from anarcho-communist revolution long enough for President Franklin Roosevelt to save us all, to save freedom, to save democracy, and yes, to save the capitalist free market. But that's hindsight talking. 1979 and 1980 were very dark days in America; people wanted change. And they got it. Vox populi, vox Dei, or as H.L. Mencken famously put it, "the common people know what they want and deserve to get it, good and hard."

In 1980 "change" went by a name, and that name was Supply-Side Economics. The argument for supply-side economics goes something like this: salaries come from jobs, and jobs come from companies, and therefore no job or salary can be secure, or prosperous, unless we have secure and prosperous companies. And there is nothing in the democratic process, nothing about getting elected or appointed to political office, that demonstrates that you understand what it takes to make a prosperous company; the only people in America who've demonstrated that they know what the needs of prosperous companies are are, obviously, the people who run currently-prosperous companies. And those leaders of prosperous businesses told us, and told the government, that they needed three things. They said they needed total repeal of all taxes on big, successful businesses, or as close to zero as could be achieved. They said they needed total repeal of all taxes on high salaries, and especially on the profits from stock market investments, while taxing everything else, so there would be huge tax incentives for people who had any money to make that money available, via the stock market, to successful businesses in order to invest that money in growing their operations and hiring more and better people. And finally, they also said that they needed an end to all government interference in business operations: no more worker safety or product safety or environmental safety regulation, no more anti-fraud consumer protection laws, no minimum wage or collective bargaining protection laws, nothing. They said that if we gave them those three things, American businesses would naturally, automatically, as a result of inescapable economic and natural law, be better able to hire more Americans and pay them better wages, and naturally inclined to do so.

And they, and the people they persuaded of these things, and especially the few people who profited handsomely from these changes, still believe this, and you can hear the proof on every radio station and on every TV station in America these last two weeks. Almost every single local or statewide Republican campaign has warned that electing even one single Democrat to even the lowest-level local or statewide office means one thing: "job-killing taxes." "Job-killing taxes." "Job-killing taxes" over and over again is almost their only mantra, the only case they have to offer to explain why we should continue to support right-wing Democrats in our Democratic Party primaries, and even if we do that we should then go on to vote for the further-right Republican Party candidate anyway, to protect us from "job-killing taxes." But where are all the jobs that were killed by taxes? Which jobs are those? Yes, American jobs have gone overseas. But we've lost almost as many jobs to countries that charge much, much higher taxes to their corporations and to their wealthy than Americans would ever tolerate, software jobs to Ireland and India, electronics jobs to Finland and Germany, aerospace jobs to England and France. The fact of the matter is that jobs go overseas for lots of reasons. Sometimes it's to be closer to raw materials. Sometimes it's because other nation's governments are far, far more corrupt than ours, allowing companies to use slave labor, adulterate products, and poison the countryside for hundreds of miles in every direction. Not infrequently, it's the money from the huge tax breaks we gave those corporations that paid the moving expenses of those jobs; giving companies "more money to invest" gave us no guarantee whatsoever they would invest that money here at home. And quite frequently, companies moved overseas in order to be nearer to customers; if the Chinese need, numerically, a lot more refrigerators and automobiles than we do, then it makes a certain amount of economic sense for refrigerator makers and auto makers to be building factories in China. On the other hand, not since the Beatles left England has anybody shown me even one single job that left America or any other country just to get lower tax rates.

But the economic collapse of a few weeks ago wasn't sparked by any rise in taxes. Nor was it solely, or even largely, caused by spiking prices of raw materials or energy; the huge spike in oil and fuel prices preceded the widespread failures of our economic system by months. We cannot tax-cut our way out of this. We cannot oil-drill our way out of this. So what was it that happened all at once, about a month ago, that threatens us with the possibility of cascading bank failures wiping out our checking accounts and our savings accounts, that threatens us with businesses having to close their doors and mass unemployment, that threatens us with runaway inflation if the government has to run the printing presses cranking out worthless pseudo-dollars to try to fix these things in a terrifying hurry? The American consumers closed their wallets. Mostly it was because the foreclosure crisis, when Americans stuck with "teaser-rate" loans found that they'd been lied to when they were promised they could refinance out of them when the rate reset, got so bad that even Americans who hadn't been personally affected by it began to panic. We also had a brief spike in the price of gasoline, and that scared even more Americans into closing their wallets. Why was it a crisis when, for as brief a time period as a month and a half or two months, American people became suddenly thrifty? I'll tell you why.

It doesn't matter how much investment money is available. It doesn't matter how low you make the taxes on businesses or on wealthy investors. It doesn't even matter how many overt government subsidies you give to big businesses. It doesn't make any sense for any business, anywhere in the world, to pay someone to make products unless there's someone out there who can afford to buy them. And over the twenty eight years since the election of Ronald Reagan, American businesses have cut wages, relative to inflation, in good times and in bad times, almost every single year. And with every increase in productivity due to better technology, they've laid off more of the workers who might have bought their products, instead of using that productivity to make more affordable products and more products and hiring more future customers with the profits. Americans tried to do their "patriotic duty" to the world economy, they succumbed to the lie (that they should never have been allowed to be told) that it was safe and smart to draw down their home equity to increase the debt limit on their credit cards, by paying them down with home equity and then maxing them out again "because house prices can only go up." Been in a restaurant lately, or a clothing store, or on a car lot? Now there's no one left to buy anything. So who will hire them to make it? Not just here in America, either; since that tap of easy (but, truly, unaffordable and unsustainable and fraudulent) credit has dried up, there've been mass layoffs in all the places those jobs went to, too, including China.

And so, next Tuesday, the choice really is clear. One candidate, whatever his other disagreements with his own Republican Party, had made it unambiguously clear for months now that whatever else he does or doesn't believe, he, John McCain, still believes in supply-side economics. In a world where even Alan Greenspan is having a crisis of conscience, questioning the wisdom he learned at his famous cult leader's knee back when he was one of Ayn Rand's personal hand-picked inner-circle disciples, after imposing her cult of Objectivism on us as a world-wide economic dogma, John McCain is one of a dying breed for still drinking the supply-side Flavor-Aid, and that's why he's almost certainly going to lose. But if you still agree with him that what the American economy needs, and the economy of the whole world needs, is more deregulation, less worker protection, less environmental protection, less anti-fraud and product safety regulation, and above all more tax cuts for big businesses and wealthy investors? If you still believe those things, then you absolutely need to go out next Tuesday, if you haven't done so already via early voting, and vote for John McCain. Even if you live in a state that John McCain can't possibly win, run up the losing vote as much as you can, because both parties will be looking at those vote tallies when they pick candidates in later election cycles. They want to know what you really believe, they're judging by the final election numbers county by county, and if you still believe in supply-side economics in a world where it sure looks like your belief is going out of style, this is the only way for you and the people who still agree with you to prove that you're still out there.

If, on the other hand, you're willing to consider some "demand-side economics"? Not even a whole-hog remake of the US economic system but at least a few measures aimed at improving the ability of the American worker, of the American college student, of the American retiree, to afford the necessities of life? If you're at least questioning the claim that was made to us, back in the 1970s and ever since, that paying American workers enough money to actually pay their bills on time without maxing out their credit cards "must" result in lost jobs and runaway inflation, if you're willing to consider trying some experiments to find out if it's possible to save the American Dream, possible to pay people enough that they can save up some money for their retirement and for their kids' education without destroying the economy? If you're coming around to the possibility that maybe the way to protect those people's wages from runaway inflation is for the government to raise some of those wildly cut taxes on the wealthy back up to where they were so that the government doesn't have to borrow so much, since we didn't get any benefit out of those tax cuts anyway? Then you need to go out next Tuesday, even if you live in a state that Barack Obama can not possible carry, and vote for the man who is willing to consider both supply-side and demand-side measures, the man with the deepest commitment in an entire generation to looking at evidence to see what works, so that even if in your home state you lose, the whole world sees how many Americans are no longer blindly and dogmatically bound to the ideas of laissez-faire and supply-side tax-cut economics. And if they try to stop you from voting or trick you into taking a likely-to-be-thrown-away provisional ballot, you need to keep trying to actually vote, go down to the election board office and fight for your right to vote even if it takes you all day, because the stakes in this argument really are that high.

Either way, if you are an American citizen and legally allowed to vote, vote next Tuesday, and do so knowing, as no American has known since 28 years ago, that there is a clear and important difference between the two candidates, that you are being asked which of two competing ideas of what is right for America you prefer, and that if you clearly prefer one of those two ideas to the other, you absolutely can know which candidate you prefer.
I have a shiny new game to distract me, but the real reason that I haven't wanted to blog about current events is that I've been holding my breath, waiting for the bailout to finally pass. Why? Because I can't think about anything else for more than a few minutes at a time. Because I'm trying my flat level best not to panic. As in blowing a big chunk of my savings on hoarding food before the dollar becomes worthless level panic.

(Where to store a month's or a year's worth of food? Donate it to local food pantries, that's my plan. They have room to store it, I don't. Yeah, it means other people will eat the food I donate between now and when the fit totally hits the shan, but it means the food that gets donated after me will still be there when I get there. It also means that there are people who'll be in a better position to help me, down the road, because they didn't go under first. Step one: save as many people who could help you in the future as possible. Always. I'm thinking donating a couple of hundred bucks' worth of store-brand prepared, ready to eat soup. I already took care of step two: buy a pair of shoes that is solid enough that it will last you a couple of years. As one of my readers once succinctly put it, in any disaster you will not last any longer than your feet do.)

We are at most two more big-bank failures away from a collapse of the FDIC. Which means one of two things. It means persuading foreigners to lend us enough money to replace everybody in America's lost savings and checking accounts, which isn't going to happen. Or it means the US government running the printing presses to pay everybody back for the cascading bank failure with hyper-inflated funny money, assume everything goes up in price by double, triple, or even more ... and remember, we're not only not independent on energy, the US has become a net importer of food, even. Dosh distimming extremists on both the left and the right are acting as if we have the leisure, the luxury, to argue about what we should do, and we don't. A federal fund to buy up the currently unsellable "assets" of failing banks, and then make some of that money back by reselling them once we figure out which parts, if any, are actually worth anything, any fraction of what they're worth, is not "socializing the entire mortgage system" nor is it "a giant taxpayer give-away to the rich." It wasn't when the Resolution Trust Corporation did the exact same thing the last time the entire banking system got stupid, and it's not now. Yes, I'm sure that you have some argument for some theory that explains why some alternative would be better. Tough. We're not watching bank after bank fail because of a desperate urgent lack of theories. We need an agreement, and we need it now ... while there's still food on the shelves, gas in most of the gas stations, and the lights are still turned on.

Not to mention before bank customers start a general run on the banks. You know why there are cattle stampedes? Because as soon as even one cow starts running in any direction for any reason, a huge herd of cows knows that a stampede is possible ... and that only the first ones to stampede have any chance.

And I still, obviously, haven't found any way to write about this, or talk about it, that doesn't make it clear how close to panic I am.

Only indirectly related: I've spent the last year, off and on, running Internet searches, reading professional review sources, and asking historians I know about what is the current best book available on the Weimar Republic, specifically, on what life was really like then. It has gradually dawned on me, as I've read more and more history, just how politicized and flat-out untrue the two main narratives I was taught were, but I can't find any generally accessible work by a professional historian to replace them. If I want a good general read on what life was like during the Weimar period in Germany, year by year, and not just for the intelligentsia and literati in Berlin, what book should I be reading?
Today on the Freakonomics blog, I saw Stephen Dubner quote an older friend of his as saying, supposedly jokingly, that, "Yes, it’s true that the Chinese have been selling us toxic toothpaste, toxic pet food, toys with toxic lead paint — but all the while we were selling them toxic investments."

I'm not sure that one's actually funny.

When the toxic pet food and toxic toothpaste and toxic toy scandals all broke, I made the same point each time: this is what happens in a corrupt legal system. The reason that some Chinese businessmen were able to get away with selling dangerously tainted products is that in China, the Communist Party and by extension its ranking members and their friends, are entirely above the law. In extreme cases, low-level, non-member scapegoats will be found and will be quickly executed or found to have suddenly committed suicide before they might have said anything public to clear their names, but the people truly responsible will not be found guilty of anything. And thus, the practice will continue, from scandal to scandal, until one of two things happens: until China grants its judiciary independence and tenure like we have, or until the rest of the world stops buying Chinese exports because they can't know that they're safe. If it comes to the latter, you can bet that the Chinese will find some way to stop the problem, no matter how much it costs -- although it'll still be unlikely that any senior members of the Party, however guilty, will be inconvenienced in any way other than (at most) being passed over for promotion.

This is eerily similar to how we got into the current problem. Back during and immediately after the Great Depression we, as a nation, put in place some admittedly expensive to maintain safeguards to keep the kind of mess we have today from ever happening again. Those safeguards also prevented some corporations from making quite as much profit (on the upside of the business cycle) as they might have without the regulations. But they also protected not just the companies, but the taxpayers who'd end up having to clean up the mess if those companies all went into default, on the down side of the business cycle. Well, along about the 1980s followers of Ayn Rand and her disciples like Milton Friedman and Alan Greenspan convinced us that the business cycle had been tamed, and that due to the magic of our super-efficient computerized markets and the superior moral quality of today's New Capitalist Man, it was no longer necessary to protect taxpayers against the kinds of stupidity that sank the country back in the late 1920s. And so, under both Republicans and right-wing Democrats, Congress and the agencies of the executive branch have removed safeguard after safeguard. Some of those safeguards were too popular to repeal, but that was no obstacle to our New Capitalist Man. The financial services industry simply invented new names for old products, and new products, that would fall entirely outside the 1930s regulatory schema (because they didn't exist back then) and abandoned the old regulated system for the new unregulated system. And, as we've seen, the products were just as toxic. More so: if the US banking system collapses, or for that matter if we pay off our debts with wildly inflated money that sinks the financial industries in every nation that was foolish enough to keep buying, it's going to kill more people through starvation and suicide than the Chinese killed in Latin America with ethylene glycol in toothpaste.

Of course, we "civilized" nations of the world have a system now for determining whether or when one nation's regulatory, or deregulatory, rules are unfair to other countries: the World Trade Organization. We could submit it to their literally secret tribunal. Of course, those of us who know the history of the WTO know how it'll rule: in favor of everybody else, against the United States. Think I'm kidding? Compare the Canada vs. USA case involving methyl tertiary butyl ether (MTBE) to the USA vs. European Union case on genetically modified organisms (GMOs) like Roundup-Ready corn and soybeans. The cases are absolutely identical in their facts. Actually, no, the facts are slightly more on the USA's side in the MTBE case: unlike GMOs which some people say (with no evidence) might, some day, some how, in some way we don't know, cause some unspecified damage, MTBE is a known human carcinogen with a long history of seeping into the water supply. And yet, the USA lost both cases. It's not hard to tell why, really: we're saps. We want it too badly. It's been such an article of faith to both the Republicans and their right-wing Democratic allies that we need "free trade" no matter how corrupt it is that we have no negotiating leverage with the WTO; they know they can ignore the facts and rule against us all day long, and we won't do anything about it. (Vote Barack Obama.) So if you think, despite all the noise yesterday at the United Nations about how toxic our exported investment products turned out to be, that the world is going to do anything more about poisonous American Collateralized Debt Obligations than it's going to do about poisonous Canadian MTBE or poisonous Chinese food and medicine ... well, you may be right, but I doubt it. Although maybe they should.

And, Annoyingly, We STILL Don't Know

Way back on January 29th, I wrote a little philosophical essay, over-extending the metaphor of "if everybody else jumped off of a cliff, would you?" In a nutshell, what I was arguing was that you never, ever want to be one of the first people to try some new (and probably) dumb thing, and you absolutely don't want to be one of the last. But if everybody around you is determined to do some thing that's going to wreck their lives, then you better join them. Because when the vast majority of the voting public has the same problem at the same time, that's going to be the only problem that gets addressed; gods help you if you have some other problem at the same time. Anyway, as people guessed at the time, it's not entirely a coincidence that I wrote this 3 days after my essay denouncing last January's US "economic stimulus" program as something that everybody in Congress knew was useless, just a way to buy time for the real negotiations over what to do about an oncoming economic train wreck.

Back then those negotiations were hung up on two questions. Negotiations had been ongoing for months at that point, and the negotiators for the financial services industry had walked away from the talks over the first of those two questions. And here it is, about a day before a (soft) deadline for announcing our plan for how we're going to deal with it, with the added urgency of the economic train wreck already having begun. And we still don't have an answer to those two questions. So watch, this coming week, to see if anybody finally has an answer to these two questions:
  1. If the taxpayers are going to buy all of the unsellable mortgage-backed securities and the derivatives based on them, how much are we going to pay the current private holders of those securities? Not the total dollar amount, but what percentage of face value? And ...

  2. Once the taxpayers own all of those defaulted (or about to default) teaser-rate sub-prime mortgages, and other mortgages that are now seen as almost certain to go into foreclosure? The ones that can't be renegotiated because the current debt is higher than the actual market value of the house, where the equity has gone negative? And the other ones where people are being pushed into bankruptcy by double-digit inflation in energy prices and medical costs? The "plan" (such as it is) is to try to recoup those prices by cleaning up the mess in some way, unwinding the securitization and the derivatives and returning them back to the original mortgages probably, and then selling them back to investors. So here's the question: will they be renegotiated or marked down in any way, to reflect the actual value of the houses and the debtors' actual ability to pay? Or will they all simply be foreclosed?
We do, kind of, have a partial incomplete answer to the first question. The government's official position is that the US flatly cannot borrow more than $700 (American) billion, $700,000 million, without wrecking the currency and causing just as much damage as not having a bailout at all. If we try to borrow more than that all at once, investors are almost certain to conclude that they're going to get paid back in high-inflation dollars where the inflation rate will be far, far higher than the interest rate. So if we price it any higher that $0.7 trillion, we may not be able to get the loan at all. I don't know where they came up with that number, but it seems kind of plausible.

But what percentage is that of all the depreciated-to-worthless assets? No idea. I don't mean I have no idea, I mean that nobody has any idea. It's not a number that investment firms or banks were required to disclose, so nobody disclosed it. Accounting rules didn't even require them to keep track of it for internal use, so while I'll bet there's serious scrambling going on this month to find out, even the individual investment firms and banks that would qualify for a slice of that $0.7 trillion probably don't even know yet how much they need to sell, at least not most of them. But with the hard-cap of $0.7 trillion, once we do have that number, that gives us a percentage, more or less. Or does it? Right now, the rough-draft plan calls for a reverse auction, where the companies willing to take the highest percentage write-down get first crack at the money, until it runs off. But remember, how we got this far with this mess is that the financial services industry has been sticking together, showing more solidarity than any labor union in the world ever had. And up until last week, they were still all insisting that they had to be paid 100% of the face value of those worthless assets. For some of them, this may no longer even be a matter of honor, or a matter of principle (not wanting to be seen to have gotten a worse deal than the banks and the S&Ls got back in the 90s). If they get paid less than 100%, quite a few of them are still going to go bankrupt, because their capital asset ratio will fall below the statutory minimum for their industries. So what happens if nobody bids below 100%, and the $700 billion doesn't cover it all, and everybody's about to go bankrupt all at once anyway, throwing us back into the Great Depression's soup lines and shanties? Are they going to come back for more money? Who'll blink? The government, insisting that no, no way, there just isn't that much money out there available to lend to the US for the bailout, or the banks, saying if you're not going to save us, we might as well keep holding out for a better deal?

So, can they get a better deal? Let's look at the real question of how much is $700 billion to the US government? Right this minute, the US federal national debt is a smidgen over $3 trillion. Adding $0.7 trillion to that is a roughly 20% to 25% bump, all at once. (Or, equivalent to less than two years' worth of current deficit spending.) So, with one caveat (that I'll save for a moment), what that really means is that the only part of the national debt that's been paid since the Clinton administration, the annual minimum interest payments, would have to go up by roughly 25%. Right now, according to the ever-invaluable summary at WallStats, interest on the national debt is the 6th largest federal expense (after military spending, Social Security, Medicare, most of the rest of the executive branch departments, and unemployment benefits, only slightly ahead of the cost of Medicaid) at $260 billion. Increase that by 25%, and it means that annual spending goes up by $65 billion, which would be added to the annual deficit, currently running at a smidgen over $400 billion. If you prefer, that $65B is less than the annual cost of the Iraq War, so what it really means is that we get no cost savings from when the Iraqi government stops accepting our military "help" mid next year. Or, if we assume that it's going to be made up in increased taxes (it's not), spread that $65B/yr over roughly 150M taxpayers and it would cost an average tax increase of $83/week for the life of the loan.

What's the caveat? The caveat is that the US Department of the Treasury has been getting really, really great low interest rates on that debt, thanks to the fact that the entire world, both governments and companies and private investors, know that US Treasury Bills are the world's safest place to store money you're going to need back too soon to gamble it on any kind of actually potentially profitable (but potentially losing) investment. But that deal has depending, for a very very long time, on the entire world continuing to remain reassured that the US is not going to go into another period of 1970s-style hyperinflation. Can we borrow $0.7 trillion all at once without watching the interest rate on the national debt jump? If it doubled, then the interest payments wouldn't go up by 25%, they'd go up two two and a half times what they are now. And skyrocket from there, as we have no way to pay that without adding even more to the deficit, increasing the amount we need to borrow at an astronomical rate. At that point, we'd have basically two choices: the kind of "austerity plan" that the US has always imposed on 3rd-world countries with these kinds of problems, shutting down almost every hospital and school in the country and tripling the unemployment rate, or really, really substantial tax increases, on the order of 50% or so across the board.

That's why the government is taking a hard line, saying that $0.7 trillion had better be enough to fix the financial system. It's already high enough that we're playing "chicken" with the fate of the nation.

Oh, and about that second question? In weekend negotiations, the Democrats have taken the position that the mortgages need to be renegotiated before being repackaged for sale, so another half million or million foreclosures don't wreck our ability to pay the taxes to pay off this bailout. The Republicans, including the President, have mostly taken the position that they mortgages should be allowed to go into foreclosure and the underlying assets sold at fire-sale prices, so the bailout money gets repaid as fast as possible. The Democrats have the majority; the Republicans have the Senate filibuster and the Presidential veto. So that one's just as tough a deadlock as the other one. And the clock's ticking. Someone has to blink.

Now if you'll excuse me, I need to get back to playing Warhammer Online.

Some Potentially Useful Numbers

I could blame my latest "vacation" from posting journal entries on the cold I've been fighting off, or on the knee that's blown out hard. (I'm beginning to understand why old people talk about their failing body parts so much; I didn't know that any part of my body could hurt this much.) But no, it's more because lately, my thoughts have been so weirdly incoherent and wandering, I've been hesitating to write them down. I've been short on answers lately, and long on questions that I don't have answers to, questions I don't even know if I'm phrasing the right way, questions more philosophical than useful. For example, here's one. We want a mobile work force, one that's ready to relocate if the jobs leave their home town, willing to go wherever the jobs are. But we also want people to buy their own homes, settle down, care about and improve their neighborhoods. If we want people to be able to relocate across the country to follow their best possible job opportunity, why do we write 30 year mortgages? Now, I know that some of you just said, "wow, Brad, that's a good question, tell me your thoughts on it." Sorry. I'm short on thoughts. All I have, lately, is questions. Weird ones, as I say; that may be the least weird of them.

But when I finally got around to reading the New York Times Sunday, later than usual thanks to a hurricane-powered cable-modem outage, I saw that the headlines are entirely dominated by speculation over just how bad today's, Monday's, stock market drop is going to be, on the news that one of Wall Street's oldest and most famously stable investment banks is being bought at pennies on the dollar, and another is going into bankruptcy, a near total wipe-out of both investment banks' stocks. And, just as importantly, the markets are going to be reacting to the fact that the government did nothing to stop it, which tells them that all the other technically insolvent financial services firms are (as some were predicting) on their own, shouldn't be waiting for a bail-out. And this makes a good time for me to offer you some numbers, I've been collecting, that may help you with your own personal financial planning:

12/31/2009: That's the date when you can assume that the economy will stop getting worse. Why? According to an article I saw (and lost, sorry) about a month ago, by the end of 2009, 97% of all of the teaser-rate mortgages will have reset. Only a tiny handful will be remaining to trickle in over the first couple of months of 2010. Among the implications of this, that's the date on which the glut of foreclosed houses being dumped onto the market all at once will peak. It will be months or years before there are enough buyers to work their way through that huge backlog of sales, but at the very least, it will have stopped getting worse.

The other major implication of this is that any financial institution left alive by the end of 2009 will probably survive. If you want to be pessimistic, stretch that date out to March 31st, 2010, to allow for the last of the December '09 loans to be defaulted and foreclosed on, for the institutions stuck holding fragments of those loans to have to give up on them. But for all practical purposes, the melt-down of our financial services sector will stop getting worse by the end of 2009. As with the housing glut, it will take time for the surviving firms (and probably some help from the government) to raise the capital necessary to start making serious numbers of loans again, for anything, but the credit supply should, barring further disaster, stop contracting by the end of 2009. Which means that some time in 2010, regardless of anything else, companies may be able to start hiring again, and consumers may be able to shop again.

One third of the median income on your block: That's the number that everybody forgot to factor in, the number that got us into this problem in the first place. That's the answer to the question, "what is the highest possible loan payment that anybody can really afford to pay for a house on your block." That's not a guarantee that your house is worth that much. Your house might be a wreck. But assuming that it's not, assuming that your house is roughly as good as the median house on your block, that number can tell you what your house is really worth. Go to the US Department of the Census web page. Look up the median income for your census tract. Knock about a third off of that for taxes. Divide the resulting number by 36, to give you 1/3rd of the monthly take-home pay for a median household in your neighborhood. Now plunk that number into any random loan calculator, at whatever interest rate someone living in your neighborhood is likely to qualify for, 30 year loan. Add a couple of grand to at most five grand for down payment. There. No matter how much you paid for your house. No matter how much houses sold for in your neighborhood during the housing bubble. No matter how many improvements you put into your house, even if you made the silly mistake of making your house the nicest house in the neighborhood? No matter what some politician or banker or (gods forbid) realtor tells you about the potential investment value of your house? That's what your house is actually worth.

Hint: You can probably short-cut this calculation, if you go back and look at what a comparable house sold for ten years ago, before the bubble started inflating, before people started buying houses on "the greater fool theory" (the one that says it doesn't matter if you pay a stupid price for something, as long as you can count on an even greater fool to pay you even more for it later). If you want to be insanely optimistic, push that price up by roughly 30%, to allow for inflation, and hope that the glut of foreclosed houses hasn't pushed the value of your house below that.

If you have to sell your house any time soon, whether because you lost your job, or you're going bankrupt because of medical bills, or because your teaser-rate mortgage reset and suddenly you can't get refinanced because your equity in the house went negative? That's what you're probably going to be able to get. At best. And even then, you may not be able to get that much until some time in 2010.

Plan accordingly.


Don't Read Me Today

Nothing I could write this morning would be anywhere near as actually useful to you, as incisive, as clear, as historically accurate and detailed, or as instructive about what this Presidential campaign is all about as today's Sunday New York Times article "How Obama Reconciles Dueling Views on Economy" by NYT economics columnist David Leonhardt. The subtitle or pseudo-title, in the web version's <title> tag, is a better, more informative, more accurate title than the official one: "Barack Obama, A Free-Market Loving, Big-Spending, Fiscally Conservative Wealth Redistributionist." A few quotes, as a teaser:
... John McCain’s economic vision, as he has laid it out during the campaign, amounts to a slightly altered version of Republican orthodoxy, with tax cuts at the core. Obama, on the other hand, has more-detailed proposals but a less obvious ideology. ¶ Well before this point on the presidential calendar, it’s usually clear where a candidate fits within the political spectrum of his party. With Obama, there is vast disagreement about just how liberal he is, especially on the economy. ...

To understand where Obama stands, you first have to know that, for 15 years, Democratic Party economics have been defined by a struggle that took place during the start of the Clinton administration. It was the battle of the Bobs. On one side was Clinton’s labor secretary and longtime friend, Bob Reich, who argued that the government should invest in roads, bridges, worker training and the like to stimulate the economy and help the middle class. On the other side was Bob Rubin, a former Goldman Sachs executive turned White House aide, who favored reducing the deficit to soothe the bond market, bring down interest rates and get the economy moving again. Clinton cast his lot with Rubin, and to this day the first question about any Democrat’s economic outlook is often where his heart lies, with Reich or Rubin, the left or the center, the government or the market. ...

Among the policy experts and economists who make up the Democratic government-in-waiting, there is now something of a consensus. They agree that deficit reduction did an enormous amount of good. It helped usher in the 1990s boom and the only period of strong, broad-based income growth in a generation. But that boom also depended on a technology bubble and historically low oil prices. In the current decade, the economy has continued to grow at a decent pace, yet most families have seen little benefit. Instead, the benefits have flowed mostly to a small slice of workers at the very top of the income distribution. As Rubin told me, comparing the current moment with 1993, “The distributional issues are obviously more serious now.” From today’s vantage point, inequality looks likes a bigger problem than economic growth; fiscal discipline seems necessary but not sufficient. ...

As anyone who has spent time with Obama knows, he likes experts, and his choice of advisers stems in part from his interest in empirical research. (James Heckman, a Nobel laureate who critiqued the campaign’s education plan at Goolsbee’s request, said, “I’ve never worked with a campaign that was more interested in what the research shows.”) By surrounding himself with economists, however, Obama was also making a decision with ideological consequences. Far more than many other policy advisers, economists believe in the power of markets. What tends to distinguish Democratic economists is that they set out to uncover imperfections of the market and then come up with incremental, market-based solutions to these imperfections. This helps explain the Obama campaign’s interest in behavioral economics, a relatively new field that has pointed out many ways in which people make irrational, short-term decisions. ...

For three decades now, the American economy has been in what the historian Sean Wilentz calls the Age of Reagan. The government has deregulated industries, opened the economy more to market forces and, above all, cut income taxes. Much good has come of this — the end of 1970s stagflation, infrequent and relatively mild recessions, faster growth than that of the more regulated economies of Europe. Yet laissez-faire capitalism hasn’t delivered nearly what its proponents promised. It has created big budget deficits, the most pronounced income inequality since the 1920s and the current financial crisis. As Lawrence Summers, the former Treasury secretary and Rubin ally from the Clinton administration, says: “We’ve probably done a better job of the last 20 years on the problems the market can solve than the problems the market can’t solve. We’re doing pretty well on the size of people’s houses and televisions and the like. We’re not looking so good on infrastructure and education.” ...

The Tax Policy Center, a research group run by the Brookings Institution and the Urban Institute, has done the most detailed analysis of the Obama and McCain tax plans, and it has published a series of fascinating tables. For the bottom 80 percent of the population — those households making $118,000 or less — McCain’s various tax cuts would mean a net savings of about $200 a year on average. Obama’s proposals would bring $900 a year in savings. So for most people, Obama is the tax cutter in this campaign. ...

I asked Obama whether he thought he had been able to tell an effective story about the economy during this campaign. Specifically, I wondered, did he think he had a message that compared with Reagan’s simple call for less government and lower taxes. ¶ He paused for a few seconds and then said this:

“I think I can tell a pretty simple story. Ronald Reagan ushered in an era that reasserted the marketplace and freedom. He made people aware of the cost involved of government regulation or at least a command-and-control-style regulation regime. Bill Clinton to some extent continued that pattern, although he may have smoothed out the edges of it. And George Bush took Ronald Reagan’s insight and ran it over a cliff. And so I think the simple way of telling the story is that when Bill Clinton said the era of big government is over, he wasn’t arguing for an era of no government. So what we need to bring about is the end of the era of unresponsive and inefficient government and short-term thinking in government, so that the government is laying the groundwork, the framework, the foundation for the market to operate effectively and for every single individual to be able to be connected with that market and to succeed in that market. And it’s now a global marketplace. ¶ “Now, that’s the story. Now, telling it elegantly — ‘low taxes, smaller government’ — the way the Republicans have, I think is more of a challenge.”
It'll take you a longish while to get through the whole piece. But it's worth it. This one long, long article here, this is the best single example I've seen lately of why so many people, both Left and Right, think the Sunday edition of the New York Times is a good investment of their time and money.

P.S. Less important, maybe, and certainly shorter, but a good read, also from today's Sunday NYT, on the subject of a recent change (for the better) in Florida's statewide curriculum standards in high school biology, and the effects they're having on teachers and classrooms: Amy Harmon, "A Teacher on the Front Line as Faith and Science Clash."
There's some history that's weighing on my mind, these last couple of weeks. It's history that I'm not surprised that John McCain doesn't remember; he's famously not very bright. Nor am I terribly surprised that Barack Obama doesn't seem to know it; he was awfully young at the time, and going through a rough time in his personal life, so it's long before he started paying attention to economics or politics. I wish I were surprised that more of the American people don't remember it, since roughly half of us lived through it as young adults or adults, but the 1970s was a long time ago, I guess, and human beings, especially the Americans, tend to treat anything over three years old as "ancient history," not especially relevant to their lives unless someone shows them otherwise. I know that I remember it because it mattered to me personally at the time, and because it was only a couple of years after that that I embarked on my first serious studies of economics. But here's the part that really annoys me: George W. Bush doesn't seem to remember it. And that's pretty inexcusable, since important parts of it happened to him, personally.

Let's review. This will be long, please bear with me. You might care: it's about the history of oil prices. Let's start with an overview graph, inflation-adjusted to 2007 prices, from an extraordinarily good technical overview of the topic by James L. Williams, his 2007 "History and Analysis - Crude Oil Prices."

For all the right reasons, Williams' graph starts in 1947. Why 1947? Because in 1947, the USA inherited a really freaky bit of luck: we had very nearly the only oil refineries in the world that hadn't been bombed to smithereens. This meant that if anybody in the world wanted to buy gasoline, diesel fuel, jet fuel, kerosene, plastics, petrochemical fertilizers, or any other product derived from oil, there was only one place they could buy it: American companies. What's more, those companies were themselves busily converting back from war-material production to civilian production, so for quite a long time the demand was much higher than the refineries and chemical plants could supply, so forget competition. American companies could set the prices for petroleum products however high they wanted, and did. Furthermore, oil-exporting countries desperately needed to continue exporting oil in order to pay for food, and only the Americans were buying. So long as the Americans were paying even a few pennies more than it cost to pump the oil out of the ground, even if it meant they were paying no local taxes, no local mineral rights costs, and slave-labor wages to the oil workers, it was still worth more sold to the Americans than left in the ground.

Unsurprisingly, Americans remember the 25 years after that as a golden age of American purchasing power, and we set our national expectations as to how we can afford to live by that baseline. But a whole lot happened over that period of 25 years. The most important is that Europe and Asia rebuilt their bombed-out oil refineries. Another is that the American manufacturing sector got lazy and sloppy. But also importantly, the US spent the last several years of that time period, under both Democratic President Johnson and Republican President Nixon, engaged in a long, expensive, and futile land war in Asia, the Vietnam War, and by bipartisan consensus, neither one of them asked the American people to pay higher wartime taxes or even to buy war bonds to finance that war; they instead simply "ran the printing presses," inflating the national debt at a rate unheard of since the Revolutionary War, and thereby running the US dollar into the ground. And worse: they also lost the war those deficits financed, and lost it in a way that wrecked our military so badly it took us another 10 years to rebuild it.

A world-wide economic cartel of oil-exporting countries, OPEC, had been trying to gin up oil prices to the point where they could at least pay their people starvation-level wages since the mid 60s. With the 1973 collapse of the Vietnam War, they realized that the time was right, because they could do anything they wanted to the US and there wasn't a single thing the US could do about it. Nor did they even have to go without selling oil to do so, since once they broke their contracts with American firms, there were plenty of newly rebuilt European and Asian customers eager to buy that oil for their refineries. And the US's limited defense of Israel from unprovoked aggressive invasions by Egypt, Jordan, and Syria gave them the political cover they needed to do what they'd always wanted to do: raise the price of oil at the well-head from roughly $2-$3 up to $12-$15. US inflation, already troubling, went ballistic, reaching double-digit levels, and priced in US dollars, the prices kept going up way, way past the original $15 target price, up to $50 and more.

Economists and petroleum experts assured us that no end was in sight; the era of cheap oil was over. Pessimists insisted that the real reason for the price spike was that we were going to run out of oil completely, world-wide, by the end of the 20th century, but even the optimists were saying that $50 to $100 per barrel oil was a reality we were just going to have to get used to. But there were people to whom that was good news, after a fashion: American oil companies, their suppliers, and the financial institutions that desperately wanted to lend money to them. To explain why, I have to explain something about oil.

You see, it turns out that there are very few places on Earth where there isn't any oil. Wherever you're sitting now, if you were to dig down far enough, odds are that you'd hit oil. Some places, it's very near the surface, under a thin layer of dirt, or a shallow swamp, or even a thin layer of sand. Other places you might have to go down through hundreds of feet of solid granite rock. Nor are is the oil evenly distributed. The oil pocket under your feet might only be a couple of feet deep; other places might have a vast underground ocean of the stuff. Nor is oil always at the same temperature. Some places are atop thin spots in the earth's crust, closer to the molten magma, and therefore warmed to nearly the boiling point and under high pressure; others, not so much, leaving the oil cold, and sluggish. Nor is it all chemically identical; some oil is more glue-like, stickier, more sluggish even at the same temperature and pressure. All of which makes a difference.

So, imagine two extremes. Oil well #1 is in a place where there's a vast ocean of oil underneath it. The oil in question is thin, runny, and smooth. The earth's crust is thin underneath the oil, so it's hot and under high pressure. The soil on top of the oil is a thin layer of sand, maybe a couple of feet thick. Oh, and to make life even better: it's in a dirt-poor part of the world, the people around the oil well work for pennies an hour. Now imagine that oil well #2 is in a place where there's not so much oil at the bottom of that well. The oil that there is, is gluey, thick, and sluggish. Worse, it's cold. Worse than that, oil well #2 has to go very, very deep, through hundreds of feet of solid granite. And as if that weren't enough, oil well #2 is in a place where there's a comfortable middle class economy, with good jobs, so the owner of oil well #2 has to pay his workers a decent living wage, and because of how hard it is to get the oil out from under his land, he needs more of them, too. I take it you can see how it might cost even 100 times as much for oil well #2 to pump a barrel of oil as oil well #1?

If there's more demand than both of them can supply, them and everybody else, that's one thing. In olden days, wars would have been fought to get exclusive rights to oil well #1's output for your country, so you could produce oil products cheaper. Nowadays, with more open markets, what ends up happening is that the price gets set at about what it costs the guy who owns well #2 to get his oil out of the ground, and the guy who owns well #1 makes out like a bandit. But ... what happens to the guy who owns oil well #2, which happens to be in Texas in 1980, if supply goes up or demand goes down, and suddenly oil well #1, which happens to be in the Middle East, can supply all the oil the world needs? This isn't a theoretical question. It happened.

In 1979, the Iranian people overthrew their government. Neighboring Iraq, sensing a power vacuum (and assured of quiet US assistance) set out to conquer Iran. This turned out to be rather harder than they thought it would be; instead of the couple-day march to victory that Saddam Hussein had promised his people, the Iranian people fought tooth and nail for every inch of their new revolutionary state. Further, Saddam failed to anticipate that his own sizable Shiite Muslim population, emboldened by the Shiite revolution in Iran, might take their Shiite brethren's side over their own country's, and he and his army suffered terrible betrayals, including one very credible assassination attempt. So as the war slogged on for year after year, both Iran and Iraq said to heck with their OPEC quotas, to heck with supporting high oil prices by limiting supply, they needed the money to fund their war. (Which, I mention in passing, shows that both Saddam Hussein and the Ayatollah Khomeini were smarter than Lyndon Johnson, Richard Nixon, and George W. Bush combined.) Worse luck for Americans invested in domestic oil production, they did this just when the US was starting to get its inflation rate under control. Oil prices plummeted through $30 a barrel, and further down to $15 a barrel, and briefly even flirted with the $12 mark.

Good news? You wish.

Remember what I said about runaway inflation in the US, a few paragraphs back? Imagine that you're someone with a few thousand dollars (or more) in savings in the mid 1970s, when inflation is running around 10%, and the best interest rate you can get out of any bank account, or any form of investment at all, is around 6%. Unless you can find an investment that pays better than 10%, your money is dwindling away steadily every day, like water running out of a leaky bucket. That's the trap that every bank, every savings and loan, every brokerage firm, every pension fund, every bond underwriting firm, and every financial services firm found themselves in: they had nothing they could offer people that would pay an interest rate that was even half as high as the inflation rate. So how do you think they reacted when every expert told them that the optimistic estimate for the future was that even if everything else went right, there was no way in hell that oil could ever drop below $50 a barrel? What's so magical about that $50 (in 1976 dollars) price point? That was what it would cost to pump more oil out of Texas. So with $50 to $75 oil in the present, and every expert assuring them that the price of oil would never drop below $50 and might well be on the far side of $100 in a couple of years, everybody in America sank their money, all at once, into Texas oil exploration. Houston office real estate became more precious than gold, as company after company was funded to buy up mineral rights, or to scientifically survey for good places to drill, or to drill exploratory wells, or to build oil well machinery, or to service oil well machinery in place. Among those companies was a tiny little firm named Arbusto Energy Services. Its founder and CEO was the son of a US Senator and largely unsuccessful Republican Presidential candidate, happy to take his father's campaign contributors' money and eager to take advantage of the fact that oil would never be priced less than $50/bbl to earn his own "independent" fortune, to prove that he was more of a man than his father. That man was, of course, George Walker Bush, and when oil hit $15/bbl, he went completely bankrupt.

How does a guy forget his own multi-million-dollar bankruptcy?

But here's why this is weighing on me right now: for the last couple of weeks of the presidential campaign, every politician in America has been eager to take a stand on the subject of off-shore oil exploration and mining, particularly on the outer continental shelf just over the horizon from both the east coast and the west coast of the continental US. And it's taken me pretty nearly that whole time, up until a couple of days ago, to find the number that I wanted most to hear: how much is it going to cost to mine that oil? What is the cost per barrel that oil will have to be at, or above, for those companies to not go bankrupt? I finally got that number, or range of numbers actually, last Tuesday from Jacob Liebenluft's article on Slate.com, "What's the deal with offshore drilling? Will it do any good at all?" I say "range of prices" because the oil companies haven't decided yet just how much technology to throw at the problem. If they throw in the minimum investment, they can get a little bit of that oil, enough to reduce oil prices by about maybe 1% world-wide, and it will cost them $50/bbl to get that much oil. What they want to do is throw some higher-tech pumping solutions at it, get enough oil to make it "really worthwhile." In this context, "really worthwhile" means enough to lower the cost of oil by maybe 3%, reducing, say, gasoline from $3.50/gal to $3.40/gal. But the higher-tech pumping solutions mean that it will cost us $80 to $115 per barrel for that oil.

And there are a lot of American investors really, really eager to fund those offshore oil platforms. Inflation is edging up; by honest numbers, as opposed to the cooked books we've been getting out of every executive branch since the Reagan administration, it's already in the 10% to 12% range. The government is intervening to keep interest rates low, officially to "stimulate the economy" but even more than that in a desperate attempt to keep the interest payments on the national debt even close to manageable. (More on that in a later journal entry.) The collapses of the tech-stock bubble and of the securitized-mortgage bubble have left investors with no reliable way to earn more than the inflation rate, so everybody in America is watching the value of their savings, their pensions, and so forth dribble away. But fortunately, as long as the price of oil stays above $100 or $115 a barrel, there is a lot of oil we can mine right here in America, and with prices "only going up, from now on," there's a lot of money to be made in lending the oil companies the money to build those oil wells.

It's disturbing how many people don't remember that we have been told this before. Nor is there any more reason, this time, to doubt that by the time those offshore oil platforms become functional, oil could easily be back down to $30/bbl. And where will we be, if we invest every penny in every bank and in every pension fund in offshore drilling, when oil prices drop below what it costs to pay off the loans on those oil rigs? Rejoicing that our oil and gasoline prices have gone down? You wish; no, where we'll be is flat broke, as a nation, again.

Didn't they tell you better than this as a kid? "The Itsy Bitsy Spider went up the water-spout. Down came the rain, and washed the spider out. Out came the sun, and dried up all the rain. And the Itsy Bitsy Spider ..."? Well, you remember the rest. I hope. You do if you're smarter than George Bush. Or John McCain.
How do you know that the economy is in a real recession, not just an imaginary one, one that's all in your head, a "mental" recession? When a Republican is out of work.

A particular Republican is out of work, actually: lobbyist and former US Senator Phil Gramm, the guy who said that the recession was something entirely imagined by a "nation of whiners" -- until he was laid off himself. OK, I'm aware that the newspapers say that he quit "to end this distraction." But trust me, he's out of work, and I don't think there's any doubt that this was a "quit or be fired" moment. Okay, he's really more of an involuntary retiree than the victim of a lay off, and I'm sure he has some rich Republican friends who'll front him his rent and grocery money should it come to that. Still, the fact remains that at this point, the architect of one of the pillars of Reaganomics is radioactive to any potential employers.

Most of the news media have covered this from the inevitable "Presidential horse race" angle, wanting to know what it means to the "contest" between Obama and McCain that Gramm wrote pretty much the entire McCain campaign economic plan; how much of an embarrassment is this to John McCain? And the focus is on that because the top candidates firing, dismissing, cutting themselves off from, betraying, denouncing, renouncing, and/or accepting the only-semi-voluntary resignations of their closest friends, allies, advisers, and staff has been a recurring thread this year, to the point where most news editors and many journalists are begging the rest of the commentariat to throw the phrase "throw (someone) under the bus" under the bus.

But there's a bigger news story here than the wannabe horse-race handicappers trying to juggle the odds on which "horse" will cross the "finish line" ahead of the other, and I'd like to thank the Washington Post's columnist E.J. Dione for calling it to my attention last Friday on Countdown with (No, Really, This Time) Keith Olbermann. Because Dione came very close to predicting this news story, a week in advance, pretty much by accident, with his column for July 11th, 2008: "Capitalism's Reality Check" (registration required). Because in a very real way, the 2008 election isn't about Barack Obama or John McCain. In a weird sort of a way, it's an actual national referendum about Phil Gramm. Because before he was before he was UBS lobbyist Phil Gramm, before he was Senator Phil Gramm, before he was U.S. Representative Phil Gramm, he was Texas A&M University professor of economics Dr. Phil Gramm, whose entire life's work has been about laissez faire economics. He wasn't just the a contributor to the Republicans' "Contract on with America," he was one of the main intellectual architects of Reaganomics, and for him, its founding principle was this:

In the long term, Dr. Gramm argued, it is basically impossible for a business to stay in business by harming its customers, without some unfair form of help from the government. If all government help is withdrawn from businesses, and a free market prevails, then customers will flock to the business that doesn't harm its customers, that business will earn more money than the businesses that do harm their customers, and the bad businesses will either go broke and close their doors or get bought out by the good business. This means that in a free market, any form of government regulation aimed at preventing companies from harming their customers is unnecessary. What's more, the effort that the government spends on checking up on companies that it thinks could go bad costs money, so they have to raise taxes to pay for the compliance checkers, including taxes on those companies. What's more, companies that are having to look over their shoulders at hovering, hostile government regulators have to practice business defensively, have to divert resources that could go into making better, cheaper products into dealing with regulators, have to hire and pay the people who do nothing but placate the regulators, and those costs get passed on to the customer. So according to Phil Gramm (and most other hard-core laissez faire economists) any kind of government regulation of business at all achieves no good end, gives customers no better products or more products than they would have had under a laissez faire market, and does so at a higher cost. Therefore any kind of consumer or citizen or environmental protection by government is an inherently bad thing.

When he was doing his academic work back in the 1970s, American businesses' regulatory compliance costs were at their all-time maximum; from the 1890s to the early 1970s, fed-up American voters had demanded more and more protection from companies by government. And when Phil Gramm was doing his academic work, the US economy was in horrible shape. In hindsight, we can see that this had more to do with horrible budgetary mismanagement during the Johnson and Nixon administrations, and the wreckage wrought on the federal budget by the ever-escalating costs of having just lost a major land war in Asia, than it had to do with corporate regulation. But voters, eager for a fast way to repair the wreckage of the Carter-era economy, were willing to listen to the many US businesses who were claiming that there wouldn't be so much inflation if they didn't have to spend so much money hiring people to protect them from unnecessary government regulators. And, in fact, by the end of President Reagan's first term, this academic and political argument had so thoroughly won the day that it not only became a permanent bedrock principle of the Republican Party (where it was no big surprise, as hands-off-big-business had been Republican party dogma since the robber-baron days of the 1880s and '90s), but it even became the majority position on economics in the Democratic Party, as well.

So we've spent the 28 years since Ronald Reagan won his first election to the US Presidency rolling back regulation after regulation, trusting more and more in "voluntary compliance" and "market-based solutions." And even where some regulations were too popular to repeal, businesses in formerly heavily regulated industries like banking, lending, real estate, and finance found ways to shift all of their actual money, all of the actual economic activity, into what had been niches too tiny to come to regulators' attention during the heyday of government regulation. We got exactly what Phil Gramm devoted his entire career to trying to persuade us to want, an almost completely unregulated economy. So it's not terribly surprising that Phil Gramm thinks that our current economy is really, really great; he just wants his side's politicians to make whatever bare-minimum entirely-symbolic gestures are necessary to placate the American voting public long enough for the "invisible hand of the market" to weed out the bad actors and turn the economy over to the good companies, still at a lower cost than government regulation.

But here's what E.J. Dione was writing about, a week ago last Friday: Phil Gramm, and his friend John McCain, and a few equally hide-bound ideologues with no actual business experience of their own, are practically the only people left on the planet who still think so. The same companies that spent the 1970s through the 1990s begging for less and less regulation are now begging for more and more regulation, and so are ever more of the Republican politicians that are beholden to those companies. Not just the American voters, but American companies, are standing up to Phil Gramm and saying en masse, "We tried it your way, and it turns out that it doesn't work." They don't want to hear from some pointed-headed economist turned politician turned lobbyist, who not only never managed a business but who never even worked a day of actual work in his life, how the economy "ought to work." They can see with their own eyes that it didn't turn out that way.

There is, actually, a reason why it doesn't work. It would not be entirely fair to penalize Professor Gramm, Ph.D., for not having foreseen this; much of the math didn't exist during his academic tenure. There have been an awful lot of advances in economics, especially coming out of the application of the school of mathematics known as "games theory," that couldn't have been made without fast and inexpensive computer simulations. But having done the math, and seen the results, there's a perfectly logical explanation in plain English that we can now give. When I do give it, it's going to sound so obvious that you're going to ask, well, sure, why didn't they see that coming? And all I can say to that is, you weren't there, it was a much more primitive world back then. Anyway, here's the reason why it doesn't work: all too frequently, the market doesn't have time to fix itself. Suppose that even just one company cheats by finding a way to make its products more profitable in a way that harms the buyers or that downstreams costs to its non-customers, imposes costs on them involuntarily, and manages to keep this at all secret for even a matter of months, or at most a couple of years. It can then drive prices down to the point where none of its competitors are making any money. They go bankrupt; this company then buys them out or monopolizes the market.

As one company cheats, therefore, there are morally crippling pressures on other companies to find ways to match the cheating company's prices; if anybody cheats, they all know within a matter of at most a few months that they have to cheat, too. Nor can they go public with their knowledge that the other company "must be" making deadly safety compromises with their product or dumping toxics onto an unsuspecting public. They know from their own business experience that that's the only way that the other company can be making that product, in the same market they are, with the same raw materials costs and vaguely similar wages and the same broadly-known business practices ... but they can't prove it in a court of law. It could take them years to find the evidence they'd need to protect themselves if they made that accusation and got sued for libel and slander. And they don't have years; they'll be out of business long before then, probably.

Nor does it help that we had a wave of shareholders' rights lawsuits back in the 1970s and 1980s, all with the same conclusion: company boards of directors have a fiduciary duty to their shareholders to maximize shareholder return in the short run, and since it is a fiduciary duty, they can be sued for not doing it. If there are investors out there (and there are) who think that the company should take insane risks with public safety because their competitors are doing so and thereby returning more value to their shareholders, it doesn't even help if the company that would rather do the right thing and wait for the market to catch up is still somehow minimally profitable, or if it has the cash reserves to wait until the evidence comes out: they'll still get sued, there'll still be a hostile takeover of that company, and new management will be put in that has no such optimistic faith in the goodness of markets.

And all of that makes Phil Gramm what he richly deserves to be: a retiree. At age 66, he's an academic economist who, through his success in politics, actually got to experiment with an entire nation's economy. As a "scientist" who still won't admit that the experiment didn't produce the results that his hypothesis said it would, even after all the evidence is in, he deserves to never work again; he's not just a bad person, he's a poor scientist. So he belongs where he is now, laid off, unemployed and unemployable, living off of Social Security and his US Senate pension, not anywhere near the reins of power; Gods help us, if he could, he'd repeat the experiment again, rather than admit that his model was flawed, in hopes it would turn out differently a second time.

That God-Forsaken "Responsibility" Speech

Forgive me if my tone is a bit angry, but Senator Obama is jumping up and down on my last remaining nerve ending. I have long since lost all patience for upper middle class black men who get up in front of black audiences and tell them that the reason black Americans are disproportionately poor and disproportionately in jail is that there's something wrong with black Americans. This crap was getting old already before even Dr. Cosby went out on his national tour on the subject; after being hectored by Bill Cosby for years on this same, tired, old lie I long-since had no patience left for it by the time Barack Obama started in on it. And when he gives it twice in as many weeks, unless I lose track of time again?

Look. I'm told in the news stories about his NAACP convention speech that when he got to "the responsibility speech," the crowd started cheering louder and louder. What I sincerely hope that that crowd was cheering for is their (I think, mistaken) idea that since surely Senator Obama actually knows the truth, what this part of the speech means is, "and I know what lies to tell white America to trick them into voting for me." Whenever I bring up topics related to this, that's what some Obama volunteer from somewhere on the Internet rushes into my blog to reassure me ... as if the prospect of my candidate lying to me were somehow reassuring.

Anyway, I'm not surprised that the cheering was muted for the first 2/3rds of the speech. Skim it yourself, and you'll see it's the same old Democratic boilerplate. It really can almost be summarized as this: the Republicans told us they had a better idea than the New Deal, so we tried it, and found out that it sucks, so let's stop doing things the Republican way, and go back to what worked before. Good enough. And he's right about that, and it's why I'm still voting for him. Probably. That is, as long as I keep reminding myself, to paraphrase the legendary "wit" of Donald Rumsfeld, you go into the November elections with the candidate you have, not with the candidate you wish you had. That's the only way I can tolerate voting for a man who keeps giving this speech ...
"So yes, we have to demand more responsibility from Washington. And yes we have to demand more responsibility from Wall Street. But we also have to demand more from ourselves. Now, I know some say I've been too tough on folks about this responsibility stuff. But I'm not going to stop talking about it. Because I believe that in the end, it doesn't matter how much money we invest in our communities, or how many 10-point plans we propose, or how many government programs we launch – none of it will make any difference if we don't seize more responsibility in our own lives.

"That's how we'll truly honor those who came before us. Because I know that Thurgood Marshall did not argue Brown versus Board of Education so that some of us could stop doing our jobs as parents. And I know that nine little children did not walk through a schoolhouse door in Little Rock so that we could stand by and let our children drop out of school and turn to gangs for the support they are not getting elsewhere. That's not the freedom they fought so hard to achieve. That's not the America they gave so much to build. That's not the dream they had for our children.

"That's why if we're serious about reclaiming that dream, we have to do more in our own lives, our own families, and our own communities. That starts with providing the guidance our children need, turning off the TV, and putting away the video games; attending those parent-teacher conferences, helping our children with their homework, and setting a good example. It starts with teaching our daughters to never allow images on television to tell them what they are worth; and teaching our sons to treat women with respect, and to realize that responsibility does not end at conception; that what makes them men is not the ability to have a child but the courage to raise one. It starts by being good neighbors and good citizens who are willing to volunteer in our communities – and to help our synagogues and churches and community centers feed the hungry and care for the elderly. We all have to do our part to lift up this country."
-- Barack Obama, Speech to the 99th Annual Convention of the NAACP, 7/14/08
... instead of the speech I wish he'd given:

"But even after we do all of those things, I can not promise you that the American Dream will work for all black Americans. Still, I am here to tell you that if it doesn't work, neither will anything else. Everybody in this room knows, even if too few people in America know, that every 10 to 20 years, another batch of swindlers comes along with a new lie, steals everything that black Americans have saved, and gets away with it clean because so far, no court has ever convicted, no legislature has ever been outraged; as long as when any scam collapses, if it's black America that disproportionately gets the shaft, justice has never been served. And like everybody in this room, I know that that, not some dysfunction of our families, is why generation after generation of young black men, after watching their fathers and uncles and grandfathers get humiliated over and over again, want to think that they should try some alternative to the American Dream, like professional sports, or professional music, or organized crime. And we have got to make it clearer to them than we have ever done that the odds there are even worse. Not one black man in 100,000 who tries will ever make even a middle class living off being a celebrity or a gang banger; it just doesn't work.

"Nothing works reliably in America but the good old fashioned 17th-century American Dream, and we have got to keep reminding them, and each other, and every new immigrant, and every American of this amazing engine of personal and national wealth. Stay in school as long as you can. Get the best grades you can, and stay out of trouble. Get married and stay married. Take any job you can get, work hard and reliably at it, and go the extra mile. Spend as little as you can, save every penny you can, and invest it in only two things: not jewelry, or fancy cars, or expensive shoes and clothing, but your neighborhood, and your own kids' education. And if you do these things, you will get ahead, and your kids will get farther ahead than that. No other way of life you can try can offers you anything like the odds of the American dream.

"But you have also got to tell them, to make sure they know, what no school will tell them: every 10 to 20 years, another swarm of white people in ties will come along with a seductive new lie called 'the next big thing' or 'the new economy.' They will explain to you in words so sweet that the reason the white people are wealthier than you is because they knew to invest early in this 'new economy.' Friends, when that man darkens your door, that is Satan himself talking through him. Treat him accordingly, and then pray your hardest that none of your friends or family members listens to his lies. Because if they do, then only a couple of years from now, you're going to lose everything you saved bailing them out after he's long gone, and their money is gone, and this 'new economy' is revealed to be what it has been every 10 to 20 years since Emancipation: a pyramid scheme that is running out of suckers, or else they wouldn't be peddling it in the black neighborhoods.

"And that's why, as your President, I will make absolutely sure that the Justice Department investigates those who peddled the last worthless dregs of the 'teaser rate' home loans on massively overvalued, essentially worthless homes, who sold you loans that they knew you'd never be able to refinance or pay off, because they didn't want your loan payments, or even your house after the 'gotcha' in that paperwork sucks all the savings you have out of the bank; they wrecked your life for one more loan origination fee. They were willing to destroy two million Americans' lives for a relative pittance, because they were that sure that the country would let them get away with it as long as so many of the victims were black. That has got to end. I can not promise you that I can get you back your money, although I promise you I will try. I don't even know if I can promise that I can save the houses you invested in, although with the help of Democrats in Congress, I will move heaven and earth to try. But while I'm trying to do those things, what I ask from you in return is that you learn to recognize a pyramid scheme, and you teach your children not to fall for them either, so that the American Dream can work as well for black Americans as it has always worked for all other Americans."

I can dream, can't I? This is the man who told me "there is nothing false about hope."

But I do know this: I will never again let pass the lie that it's black Americans' fault that they keep giving up on the American Dream until I start seeing racist scum "investment" peddlers serving hard felony time. Or as the authors of Get Your War On put it four years ago, before the latest round of outrages, when we still hadn't done anything yet to any of the scamsters behind so many completely worthless dot-com stocks, and Bush still thought he was going to get away with destroying Social Security:

Green Bubble?

One last thing I forgot to mention. Remember how, yesterday, I mentioned that somewhere, some Gen Xers are probably going to make a ton of money off of "saving the planet" from "global warming?" I forgot to mention that this actually has the potential to contradict not one prediction I made years ago, but two of them. Not just my prediction, over the last 18 years, that the Baby Boomer generation was going to wreck this country by dragging out their fundamentalist/secular spite-fest indefinitely, but another prediction that I was even more sure of than that one, one made more recently.

Back during the 2006 election, one of the things I was crabbing about regarding my own (Democratic) party was a lie I got very tired of them telling, almost all of them implicitly and some of them explicitly: the promise that electing Democrats would return us to the Clinton economy. What I was pointing out at the time, even occasionally going farther back to the primaries of the 2004 presidential election, and what I have stood by for years, is this premise: "Anybody who tells you that they have a plan to return the economy to where it was in 1999 is either an idiot or a liar." Yes, Bill Clinton did something that no President has done since before WWII, and no President since him. He not just balanced the federal budget, he actually made our only consecutive payments against the principal on the national debt in the last 50 years or more. But he didn't get the money to do so because his economic policies were so brilliant, nor was it because of the economic policies of the Republicans who controlled Congress during his terms. The biggest thing that went "right" with the economy of 1992-2000 was the dot-com stock market bubble of the 1990s. The capital gains taxes paid by active stock market traders on their ever-rising stock prices as they churned in and out of (actually worthless) dot-com stocks were the only thing significantly different between his budget and his Republican predecessor's. Nor was the dot-com stock bubble something he did on purpose; it was almost entirely driven by American industry's desperation spending on hardware and software to fix the Y2K bug. Yes, that investment did improve productivity, some, and was mostly worth it for its own sake, mostly, just as the people predicting "The Long Boom" in stocks were claiming. But not enough to make the whole stock market rise in profitability indefinitely, not at the 20% or more per year rate that it would have had to keep rising to keep balancing the federal budget. That defies gravity. And what I said in 2006 was that unless there turned out to be another problem that forced all American business to invest yet again in one industry at the same time again, you were never again in your lifetime going to see a bubble like that one.

One reason I was sure of this turned out to be wrong; until now, there was usually at least 20 years between bubbles, because once burned, each generation of investors has always learned to distrust bubbles, making it impossible to inflate another one until a new younger, still naive, generation came along. This should have made the housing bubble impossible; sadly, it didn't. But the housing bubble didn't do nearly as much to raise revenues for the federal government as the dot-com bubble did, because since Clinton, there is no capital gains tax due on the profit, however wild or inflated, from the sale of a primary residence that you've owned for 2 years or more. So still, I stood by my claim that we were going to stay in deep do-do until we found some non-bubble way to grow the economy way, way more than it has been growing in my adult lifetime, until we came up with some major tax revenue (not rate, revenue) increases, which meant that sooner or later, the US government is in for something resembling bankruptcy. At the rate we're borrowing, our interest payments are rising even with artificially low interest rates. When those rates go up (as they inevitably have to), that line of the federal budget is going to skyrocket, bankrupting the country, wrecking the currency even faster than it's going down now. That's why I've been campaigning and arguing for years that we need to expand the labor force in this country, to take in tens of millions of new legal immigrant citizens and put them to work; we need their taxes.

But here's where I may have been wrong in one particular: we may yet have, gods help us, one more ridiculous stock market bubble in this generation of investors: a green technology stock market bubble. Odds are, most of the companies making money on it will be just as fraudulent, or at the very least have business plans just as indefensibly stupid, as the software and Internet stocks were. But it would no longer surprise me if we got one. I will say this, though, in defense of Bill Clinton: may the gods grant that the President and Congress, if we do get an explosion in capital gains tax receipts because of yet another stock market bubble, be at least as smart as he was about resisting the call to lower taxes, be at least as determined as he was to use that money to pay down debt rather than count on it continuing to come in at that rate forever.
Been wondering why I spent two journal entries in a row ranting about how to prevent global warming, if I don't believe in anthropogenic global warming and don't particularly mind if it turns out that I'm wrong? Notice at all how greedy, money-grubbing, or at the very least overtly practical my suggestions were for how to "fight global warming" and "save the planet?" Did it strike you as at all odd how often I went out of my way to call global warming something that somebody, ideally Americans, could make one heck of a lot of money off of preventing?

A week or so ago, specifically June 25th and June 26th, I was struck by something that seemed kind of out of character, but definitely funny, about Jerry Scott's syndicated comic strip Zits. Summary, for posterity: Jeremy Duncan has just turned 16, after having been 15 for the last ten years; his parents are aging and now highly respectable ex-hippies. Jeremy has been consistently portrayed, ever since the strip began, as just barely short of pathologically lazy, and nowhere more so than with regard to chores around the house. So imagine his parents' surprise when he lectures them about trash that should have gone into the recycling or the compost heap, and then mentions in passing that he checked and fixed the air pressure in the family car's tires on his own initiative, so "you should see better gas mileage." Jeremy then goes on to pile up all the newspaper in the house, put it in the recycling bin, and roll the recycling bin out the curb without being asked. The kicker in the second strip is when Jeremy says to his dad, "A green lifestyle isn't just a fad to me ... it's real! My generation's job is to rescue the planet from damage caused by your generation!" Walt defensively replies, "We baby boomers got a few things right." And what he's thinking to himself after that, mentally finishing the sentence, is, "... like raising you guys, for instance."

And what struck me, especially after just having re-read Generations and having blogged about it a couple of weeks ago, was the generational politics of that strip. Since Jeremy, like a lot of comic strip characters, ages at a fraction of human speed, he has now been effectively retconned as a trailing-edge member of the Millennial Generation; his parents, though, apparently are and always will be Boomers. In the strips for 9/25/08 and 9/26/08, Zits' author Jerry Scott has written a moment of intergenerational bonding: despite any innate conflicts between parents and children, the one thing an aging hippy and a naive young kid of today can have in common is that they share an innate interest in the morality of environmentalism, and in using debates over the moral issues of global warming in inter-generational competition. Which is, of course, enough to make a cynical old Gen Xer like me want to gag. But then I got to thinking about something else Strauss & Howe wrote about in Generations: the Crisis of 2020.

As I alluded to in that column two weeks ago, Strauss and Howe predicted back in 1989 that like every other generation in American history that's gone through a massive "spiritual quest" in their teenage years, it is pretty much inevitable that just as their oldest members begin to reach retirement age, the Baby Boom generation of Americans will seek to find some cause with which to rally the nation behind their moral leadership. If we're lucky, it'll be something that the Biblical fundamentalist half of that generation and the liberal humanist/New Age half of the generation can agree upon; otherwise, they'll be tempted to make their generation's old-age fight be one between Americans. Strauss & Howe predicted (based on when they were going to be the right age) that it would start no earlier than 2000, probably not before 2010, and be at its absolute peak no later than 2020; that somewhere around 2020 will be the year that the Baby Boomers, and America, declare victory over whatever "monstrous evil" that "cannot be compromised with" the Boomers collectively decided to elevate (artificially, if necessary) to that status. They had at least four suggested scenarios, back in 1989, for what the Crisis of 2020 would be about, without expressing any confidence in any of them, just offering them as hypothetical examples: a war between the Christian and secular west and Islam, a global depression brought on an energy crisis, some kind of religious civil war between the secularists and the fundamentalists, or ... environmental collapse (actual or hypothetical), as in, global warming.

For decades now, I've scoffed at that last possibility. For one thing, I predicted with a high degree of confidence that the fundamentalist wing of the Baby Boom generation was wedged so far up the Republican Party's backside that there was no way you could persuade a broad majority of that generation to care about the environment. One of the joint projects in the fundamentalists' effort to fake up a form of twisted, anti-Christian "Christianity" that would be compatible with the Republican Party platform was a determined effort to "prove" that it was okay if we wreck the planet in our lifetime, because any second now Jesus is going to give us a new one. See my previous (moderately famous) essay series "Christians in the Hand of an Angry God," parts 1, 2, 3, 4, and 5. And in particular, remember Reagan administration Secretary of the Interior James Watt's famous answer when a reporter asked him if he thought we owed it to the next generation to leave them any natural resources at all. He answered that it was "the position of the Reagan administration" that Jesus was going to return to Earth "during fiscal 1988" (I always adored the fact he tied it to the fiscal year), "at which time God will hold us accountable for any resources we haven't used" (based on a very twisted interpretation of the Parable of the Talents). That it's God's will that we destroy the planet as fast as possible after the Jews' return to Israel, so we can use up all its natural resources in the same generation, so we don't get blamed by Jesus for having let them sit idle, has been the official doctrine of pretty much every fundamentalist Christian denomination for so long that I took it as inevitable that it was permanent.

So imagine my surprise when, this year, polls started showing that evangelicals, including fundamentalists, are suddenly turning environmentalist? That the devastation that will be wrought on the low-lying areas of the Third World (where, admittedly, those same denominations have missionaries) by global warming is now ranked by them as one of their top 2 or 3 issues? It would appear that I was wrong: it may well actually be possible to broadly unite both halves of the Baby Boom behind a Holy War against Global Warming. And I will admit, it suits them perfectly, in some ways. Like so many other "spiritual" generations before them, there is nothing your average baby boomer loves more than to get into a "dick-waving" contest with another baby boomer over which one of them is more moral. These various websites that make it possible to calculate your "carbon footprint" may have been the best idea anybody's ever come up with, no matter whether they're right or not: they give Baby Boomers a measurable way to compete against each other, in a competition of spiritual austerity and virtuous strength, for the coveted title of Holier Than Thou. I could just easily see them semi-secretly loving that to death.

And, as Jerry Scott reminded me in Zits, you don't have to convince a member of the Millennial Generation that it's his or her moral duty to save the world from global warming. Even the parts of that generation who have figured out that they were lied to by their DARE officers haven't even begun to consider the possibility that the "global warming experts" of their college years aren't any smarter or any more honest than the "anti-drug experts" of their childhood were. Not least of which because the whole global warming "thing" plays perfectly to their generational vanity, and to their other defining generational personality traits like fierce conformism and a habit of wanting to do things in huge groups or teams. (Anybody born between roughly 1982 and 2000 truly who considers themselves to be a highly independent individual knows the true meaning of the word suffering.)

So where does that leave us in what the marketers call Generation X and Generation Y, what Strauss and Howe called the Thirteenth Generation? Exactly where our "reactive" type generations have always been during great moral crusades. In every great national civic crisis (except for the one that was a national disaster, the Civil War), the "generational constellation" has been idealists in elderhood, reactives in midlife, civics in young adulthood. The idealists take advantage of the fact that the nation is used to being harangued by them over matters of principle to unite the nation against evil, the civics band together in obedient and cheerful teams to save the world from evil, and the reactives tell the civics how to do it. In part it's because reactive, neglected, abused, "lost" generations tend to get conservative once they outgrow their youth. In part it's because no matter how conservative they get, to a reactive generation, life is cheap enough that they will tell a bunch of young civics to march and die if that's what's needed. But another reason is clear: to the "winners" among a generation like mine, throughout human history, to the ones who make and get to keep their fortunes, rule #1 has always been, "anything for a buck!" Where it isn't "for a buck," it's, "anything for glory!" And being the CEOs, the managers, the generals, the officers during a national crisis (whether you personally believe in it or not) is a great route to glory, fame, and big bucks.

And thinking about that kick-started the part of my brain that suddenly remembered that I'm way way overdue to remind everybody else of two things that I need to tell everybody who was born between 1960(ish) and 1981(ish) in America. First of all, if the baby boomers and the millennial generation want to make a great national civic crisis, a national war of good versus evil, out of "preventing global warming," for the love of all holy gods and of your nation, do not stop them. If they don't wage war on global warming, they'll plunge us all into a decades-long war on something, and they could pick something a lot worse than global warming if we talk them out of this one. And secondly? Some of us could make a ton of money off of global warming, and if you were born between 1961 and 1980 and are in the peak years of your life for business, management, entrepreneurship, and investment, and luck breaks your way? It could be you.

Things You're Probably Not Already Doing

There are at least four things that I can think of right off hand that almost nobody in America does any more. They're all things that your grandparents, and in my case my parents, did because they lived through the Depression, and remembered when energy wasn't "free." Then along came the 1950s and 1960s, and Americans got in the bad habit of thinking of everybody else in the world's natural resources as ours for free. Which still wasn't reason enough to stop doing some of these things and go the other way; I'll probably never understand why some of these things happened. And they're all things that tick me off every time I walk by or into a house or apartment that doesn't do them, at least a little bit. I try not to be judgmental, I know that I myself am greatly ignorant in many areas, but some of these things strike me as so stupid not to do that I weep for my country that we don't all do them. Oh, and by the way? They all reduce "greenhouse gases." They also all reduce "throwing away blood and treasure that this country can't afford after an ill-considered land war in Asia." No matter why you should do them, can't we all just agree to do them?

Ceiling Fans: Except for maybe surgical operating rooms and other clean rooms, it ticks me off to walk into any room, anywhere, and not see a ceiling fan running. This is especially true when the building was built prior to 1950, because I know full well that that room had a ceiling fan at some point and some idiot ripped it out for no good reason. I know that it would cost as little as $25 per room to put one in, less than a c-note for a good one. And run full time, a modern ceiling fan will pay for itself in less than a year, not even counting what's going to happen to energy prices this year. Let me run through this one more time, because I am constantly reminded that there are people to whom this isn't obvious. All winter long, nearly all of your heating bill is spent heating the ceiling. Most of the benefit you're getting out of running your furnace comes from what little heat radiates down off of the ceiling; no wonder your feet are cold. Every time I bring this up, somebody says, "but I don't want a fan blowing on me in the winter." Really? Even if it's blowing warm air? And all summer long, half or more of the cold air that your air conditioner pumps out never gets any higher up than your knees, never gets up to the core area of your trunk where it's needed the most. So to solve this problem, you freeze the lower half of the room, so that eventually some of air where you actually live radiates its heat into it. No, really: from about November to April, you should have a ceiling fan at all times blowing hot air down off of the ceiling, and from April to November, that same ceiling fan should be running the opposite direction to bring cold air up off of the floor. Not only will this make your furnace and air conditioner run so much more efficiently that your energy bill will go way down, it'll make the center part of the room so much more comfortable that you may well find that you can stand to turn your furnace down 3 degrees or more, and your air conditioner up 3 degrees or more, without sacrificing a lick of comfort. (And that's on top of the extra 1 to 2 degrees of perceived warmth you can get all winter long by running a humidifier, but most people I know do that nowadays.) I'm not asking you to be miserable to save money or the environment, I'm asking you to make yourself more comfortable to save money or the environment -- why doesn't everybody do this already?

Window Awnings: When I was a kid, almost all residential houses except in the wealthiest neighborhoods still had metal awnings over every window except for ones sheltered by porches or very, very deep eaves. Then over the course of my childhood, virtually everybody in America tore theirs down, and I will never understand why. I mean, never mind that it's a one-time investment of a couple or a couple dozen bucks per window to almost never have to clean the outside of your windows again, because they keep the rain and the dust off -- they keep the rain and the dust out, too, which means you that you can actually open your windows without being afraid of the rain. But then comes the part where this is also about saving a ton of money and/or a ton of greenhouse gas emissions: shade. A proper window awning factors in your latitude, so you get winter sun, but not summer sun, which saves you a small fortune on your air conditioning bill even if you don't open the windows in the spring and fall. Seriously, what is not to like about awnings?

"Weedy" Trees: I know I'm going to catch some grief for this one from people who know what they're talking about, but hear me out. Although I will say, ironically, that if you live in St. Louis, at least that I know of, I may not have to tell you about this one after all; this is enough of a peculiarly St. Louis vice/virtue that some of you may well be doing it: plant fast-growing deciduous (leafy) softwoods like sugar maples, sweet gums, Bradford pears, or Tree of Heaven (the proverbial tree that "Grows in Brooklyn"). What these trees all have in common is that from one end of North America to the other, on any ground with full sun almost no matter how bad the soil is or how little water there is, they grow like weeds. We're talking 10' tall from a 2' sapling in 2 years, 30' tall in little more than that, topping out at 60' to 80' tall almost before you know it, with no care in particular on your part. Plant one each on the east and west sides of your home if your windows aren't already in the shade all day, and as many as 2 or 3 on the south side of the house, well back from the sidewalk or road and away from the house itself. Now I'd better give you the reason why some botanists and foresters are going to scream bloody murder at me for telling you this, and you if you do it. These trees only live about 40 to 60 years. Then you're stuck with a 60' tree that has to be taken down by a professional tree-trimmer with a crane, before some storm brings it down on your house. Big hairy deal. How much residential property do Americans live on any more that doesn't get bulldozed and rebuilt every 40 to 60 years, anyway? And even if it does have to come down, how many greenhouse gas emissions will it save, and how much money will it save, over those four to six decades of giving you beautiful shade that cools your entire yard, including the house, by around 10 degrees Fahrenheit all summer long without cooling it at all in the winter? More than enough to pay the tree trimming company, I'm thinking. And the beauty of this, as documented (with a note of unnecessary alarm) in Sunday's New York Times, is that research shows that unlike a lot of other plants, these are the exactly the kind of "weedy" or "trash" trees that will actually grow faster and better the more that you need them! (See Tom Christopher, "Can Weeds Help Solve the Climate Crisis?," New York Times, 6/29/08.)

Attic Fans: This technology was perfected during the Depression era, when almost every home in the suburbs had one; then as soon as air conditioners came around, every idiot in the country ripped his out. And oddly, I say "perfected" during the Depression only loosely, because we have the basic engineering knowledge now to make ones that are even better than the ones my parents, your grandparents, used during hot weather, but good luck finding one at all. It's nothing but a large, low-to-medium speed fan placed in the ceiling of the center of the top floor of the house, aimed to suck air up out of the house, into the attic, and out through the attic vent(s). This lets you take advantage of how much cooler the air is outside than in (remember, now that you've actually got shade, easily 10 degrees Fahrenheit cooler than the rest of the city) and pull it into the house at good, steady breeze speeds through every window in the house simultaneously. Older ones are a bit noisy; we know more about building quiet, high efficiency fans these days than my grandparents' generation did. And you would be absolutely amazed how late into the summer you can go, on a shady lot, with an attic fan and room ceiling fans going, without turning the air conditioning on even once. Yes, even if the humidity is high; the cool air coming up off the floor and in through the windows will still dry you off so fast, your mind will boggle, at a tiny fraction of the cost of your air conditioner.

So, "save the planet." "Save endangered species." Save however many thousands of American soldiers' lives fighting in wars we could ignore if we didn't need to import so much oil. Save a ton of money we're not going to have any time soon. If I'm wrong about us not having the money, save a ton of money you can spend on stuff that's more fun -- or at the very least, that you can spend on the doctor bills or mortgage that are bankrupting you. I don't care why you do these things, can't we at least agree to do them?

Bonus: Close some doors. It saves less than the examples above, and it involves the aggravation of training yourself, your roommates, and/or your kids, but it saves more than you might think: get fanatic about closing cabinets and closets and keeping them closed. Why spend good money (and generate extra CO2) heating or air conditioning a closet full of towels or a cabinet full of canned vegetables?

Global Warming and Me

Let me make one thing clear, right up front, for those of you who didn't know yet. I am a global warming denier. Or very nearly one. In particular, I think that the evidence that the earth is warming overall is merely suggestive, not conclusive. I think that the consensus scenario among climatologists who do believe in global warming for how warm it's going to get, roughly 9 Fahrenheit degrees over the forty to sixty years, actually sounds like a good idea, both for us and for the planet, for a long list of reasons that are mostly off-topic right this minute from what I want to talk about. And most importantly, I think the math for claims of anthropogenic global warming just plain doesn't work, that it's not an accident that none of the computer models can successfully predict the past, let alone the future. (If you put in old data and run the models, you don't get anything like current conditions.) It was the late George Carlin who hipped me to what's wrong with this argument, decades ago, when he observed that when environmentalists start talking apocalypse, it always sounded to him like they were (on some level) bragging: "Look how powerful human beings are, man: we wrecked the sky." We're a tiny fraction of this planet's biomass, which is itself a tiny fraction of the planet's mass; technology provides a multiplier effect, but not that much of one. The idea is overtly preposterous. And besides, since I like the idea of the planet finally climbing the last bit of the way out of the last Little Ice Age even if it takes some human help to do so, I really don't care a whole lot even if it turns out that I'm wrong.

But you know what? All that being said? If global warming is your number one issue, you and I do not need to be enemies, and I'll tell you why. There is almost nothing that you want to do to stave off global warming that I don't want to do, too, for my own even better reasons.

You want the world to burn a lot less coal? So do I. Not because I give a rat's hindquarters about CO2 emissions, but because there are only two ways to mine coal: completely wreck the local ecosystem, or send people down under the ground to die over and over again. It routinely chaps my back end that a bunch of moronic tree hugging hippies and crybaby luddites talked us into sticking with coal over nuclear over the last thirty years, when nuclear power (in any country that uses even vaguely modern safeguards) has killed exactly zero people in the whole time since it's been invented, but coal mining kills dozens or hundreds of coal miners every year.

You want the world to burn a lot less oil? So do I. Not because I think that what comes out of commuters' tailpipes matters all that much to the environment (now that we've cleaned up auto exhaust so much since I was a kid, thank Prime). Not because I'm all that terrified of "Peak Oil," a goofball idea that requires that you know exactly nothing about the oil industry. I had my eyes opened on this one by a guy I went to college with who was a petrogeologist for an oil exploration firm: there is always about a 75-80 year supply of oil in the known world oil reserves. Why? Because when it gets over 80, everybody cuts funding for oil exploration, starting it back up again when it drops below 70. If that ever happens and then the geologists don't find oil, then I'll worry, but it hasn't happened yet. I will say this, though: we may be about to run out of cheap oil, out of major oil reserves of light, sweet (low density, low sulfur, easy to process) oil that's close to the surface and under enough pressure to make it nearly free to extract. But whether we are or not, and whether it matters to the atmosphere or not, I want the US, especially, the heck out of the oil consumption "biz."

For one thing, most of you weren't even born yet when I acquired my permanent chip on my shoulder over OPEC. I lived long enough to see the Bell System dismantled; I hope to live long enough to see those damned OPEC sheiks crawl helplessly back to their cheap-ass tents and holes in the ground, so the rest of us don't have to care about their hopelessly corrupt medieval religious fundamentalist feudal backwater countries. Just about all of the major oil producing regions of the world right now are in violent backwater underdeveloped, horribly misruled, gangster-ridden, warlord-dominated parts of the world like the middle east, southeast Asia, Russia, west Africa, and Latin America, because those of us in the few decent places on the planet to live used up all our local oil (or all the cheapest parts of it) half a century ago; I'm sick and tired of watching America's finest march off to die in every stupid conflict in the third world, because we have to care about them because they have oil. The sooner we can stop caring about their stupid oil, the happier this cynical old-too-early curmudgeon will be, whether it "saves the planet" or not.

But for another reason, I know this about history: the reason America was the one bailing England out in 1943, and not the other way around, was that oil was just that much better than coal, and starting 50 years before that, we made the switch and England didn't, so we got rich and powerful while the fabled "empire on which the sun never sets" (because, as any Irishman will tell you, God Himself wouldn't trust an Englishman in the dark) shrank to a handful of counties in northern Ireland and a tiny little sheep farm off the coast of Argentina. Right now, something really important is happening all over the world. For the last hundred years, the rich white owners of every single corrupt sewer of a country in the third world have been doing everything in their power to keep the brown and yellow majorities in this world poor and enslaved, and over the last couple of decades, they've been gradually and grudgingly failing to keep people down. Despite the best efforts of the World Bank and the International Monetary Fund and every rich white elite in the tropics, the rest of the planet is developing a middle class. That middle class is going to want, going to need, a middle class lifestyle. And given a choice of technologies to power and fuel that lifestyle, they are not going to choose oil. They're going to buy nuclear power, or maybe solar, or maybe wind, or maybe geothermal, or maybe tidal, or maybe some combination of the above.

And here's the damnedest thing about that: our scientists and engineers are at or near the forefront of over half of those technologies. It could be us that they have to buy them from, it could be our companies that collect the patent royalties on those technologies (and pay taxes thereon), it could be our country that gets those jobs. But if we do, it'll be over the Bush (and probably McCain) administration's dead bodies. The President's current budget proposal cuts subsidies for solar research, already a pittance, by 7%, right at the point where the world is deciding where the factories are going to be built, and whose technologies are going to be the dominant ones, in 3rd generation flexible thin-film non-toxic inexpensive solar cells. That's inexcusable. That's selling our country's future out for cheap, considering what we're talking about cutting is 7% off of what was already only a $170 million dollar appropriation out of a $2 trillion budget. We could quintuple that research and development allocation and it would still disappear in the rounding error on the deficit. But you know what? My thinking is that all those new middle class citizens all over the world are going to buy solar, whether they buy it from us or from someone else. Probably not to "reduce their carbon footprint," no matter what they say, but for the same reason that those same parts of the world abandoned their old, corrupt, inadequate government landline phone monopolies and went straight to cellular: faster build-out, less politics, more choice, and able to be built in smaller, cheaper increments at a time. If it takes all the rest of you freaking out over global warming to get the US to get in front of that wave, fine; I'll go along, even though you're almost certainly wrong, because I want what you want, too.

For the same reasons and because no matter what tech they use, for the next several decades all those new middle class customers are going to be living in places where electricity from the national electrical grid is shortage prone, expensive, and unreliable, you can bet this about them, too: no matter what they use to generate power locally, they're going to buy the most energy efficient household appliances and corporate equipment they can get their hands on. You want people to upgrade their air conditioners and refrigerators and furnaces and computers and lightbulbs and what-all-else to new ones that use a lot less energy, so power plants will emit less carbon dioxide? They're going to want to do so because it's cheaper than building new power plants. Heck, we're insane if we don't do so rather than build new power plants. Over a decade ago, several major national electrical utilities did the math and showed their shareholders that, for less than the cost to build a new power plant of any kind, they could buy all of their customers new appliances that would eliminate the demand for a new power plant. They called it "generating nega-watts," and failure to implement those proposals is something we're all going to feel as oil and natural gas get more expensive, driving up the cost of electricity, while demand rises faster than new plants are built, browning out more of our electrical grid every year. And the most annoying part of that to me is that we're long past the point of Jimmy frakkin' Carter in a cardigan begging people to freeze in the dark to reduce energy consumption. We have the means now, from more efficient cooling of computers and smarter power-saving software to better-designed appliances to lower-friction higher-efficiency pumps and motors of all kinds to three entire new categories of suddenly-cheap lighting technology all of which generate as much light at 1/10th the power consumption with 1/10th to 1/100th the waste heat beaming down on you, to live as well as we are now, only cheaper. Get this through your heads, if you haven't already: even if gas goes to $7 a gallon and that results in runaway inflation, you don't have to live any worse than you do now; you only have to live smarter than you do now. You're worried about people's energy wasting wrecking the ecosystem? Fine, worry about that if that's what it takes to get you to do what's necessary to get people to stop wasting money we can't afford to keep spending and getting nothing back to show for it.

And if you want people to use more energy efficient gear to save the planet, and I want them to do it to save the economy and provide American jobs selling energy efficient gear, we have a common enemy. The same presidential budget cuts subsidies for energy conservation research by 27%, from the (again) already laughably low number of $870 million. Wow, we were spending a whole 1¢ a day per American subsidizing that research? And we're cutting it? Wouldn't it generate a lot more jobs and a lot more future revenue for the US treasury and a lot more wealth on the American stock market if we spent a whole dime per person, if that's what it takes to get our companies out ahead of what's obviously about to be a booming market? Whether it saves the planet or not?

Although speaking of wasting energy and money, what's the poster-child for global warming crusaders, the Saddam Hussein and Osama bin Laden and Satan himself rolled into one of the environmental movement? The SUV. You want people to drive a lot fewer Sport Utility Vehicles because you mistakenly think that their tailpipe emissions are going to raise sea level? I think you're a fool, hopelessly incapable of estimating even order of magnitude of the impact of those emissions -- but I hate SUVs even more than you do. Not because they pollute, not because of their "carbon footprint," but because they're mind numbingly stupid vehicles! Because they're so big, they cost a fortune, not just to run, but to build and buy, some of the most expensive cars in America. With America going into a period of stagflation, just like we did after the last deficit-financed bogged-down unwinnable land war in Asia, well, if we're not going to end up with another Great Depression (let alone the Wiemar Germany type meltdown that a few economists are warning of), then it's going to take the American people getting a lot smarter about their money. When we're talking about SUVs, that means getting them to look at the actual crash safety data and the actual accident statistics and realize that this "SUVs are safer for my kids" (if not yours) thing is not just immoral, it's factually in error. Which leaves the excuse that they sometimes need a car that big? Please. No more often than your average person hauls that much freight or that many passengers, it wouldn't just be better for the planet if they owned a subcompact and rented an truck or a van the times they needed one, it'd be thousands of dollars per year, maybe tens of thousands of dollars per year, cheaper. And for the tiny percentage of Americans who do routinely carry five, six, or more passengers on a daily basis? We used to have this thing called a "station wagon." Oddly enough, some car companies still make them. They seat just as many people as an SUV, just as comfortably. But at a third less weight, and half the height, they're cheaper to make and a holy heck of a lot cheaper to run. Watching people complaining about the economy while wasting money hand over fist by buying SUVs just annoys the heck out of me.

So yeah, those of you who actually think it's important that the planet have polar bears in the wild, who tremble at the thought that we might have to move our farming activity to land that hasn't been strip-mined to chemically-supported desert by industrial farming if the rain moves, who look at the long-shot chance of some of the world's worst slums getting flooded and see that as a problem rather than an opportunity, and who think that nattering on and on about "cap and trade" or "carbon footprint" is somehow going to stop all that? Don't mind me over here rolling my eyes and thinking that you're full of crap. Unlike the short-sighted morons who are running this country at the moment, while our reasons may be different, you and me, we want the same things. I'm not your enemy, and you're not mine, no matter how stupid I think you are (or you think I am).

P.S. For those of you who didn't see it on BoingBoing, there's a fantastic way to see, visually, just where the government's money is going. WallStats.com sells a gorgeous poster of the President's proposed budget for fiscal 2009, called "Death and Taxes." I bought two, one for myself and one as a gift. That's where the numbers on federal funding of energy conservation and solar, above, came from. There's a pan-and-zoom version of it on their website, too.

(Editorial note: In the interest of brevity, skip all the arguments intended to prove anthropogenic global warming. I've read them; anybody who wants to read them and find out why so many aging stupid tree-hugging hippies and mercenary scientists getting paid by think-tanks to pontificate out ahead of the data or outside their areas of expertise and naive young kids think that I'm full of crap can find it all online elsewhere. Grist's "How to Talk to a Climate Skeptic" is the best summary I've seen; I just don't feel like arguing about that right now. Save the comments here to discussions of the things that do or don't make sense for economic and practical reasons whether or not they "save the planet.")
Some clever subcontractor for Charter Communications decided, yesterday, that I needed a 14 to 18 hour vacation from having any television or Internet access in order to get some reading done. Well, no. What actually happened is that some dimwit, sent out to disconnect the cable service to the empty apartment below me (so the next tenant doesn't get free cable) misread the order and disconnected apartment 6 instead of apartment 7, and then apparently turned his pager off as he drove away so he didn't get Charter's text message to go back and fix his problem, leaving Charter unable to restore my service until the next day. But it did have the "desired" effect of getting me to finish a book I've been reading at mealtimes for (admittedly) too long now: Jeffrey Pfeffer and Robert Sutton, Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management (Boston: Harvard Business School Press, 2006).

I wonder how much it would cost, and how we could raise the money, to get a copy of this into the hands of every manager and every politician in America? Hey, here's a suggestion for starters. The book costs about $30. Divide that by the number of people in your department, take up a collection, and buy your direct supervisor a copy for Christmas. Best thing you could possibly do, for yourself, for him, and for the company. And maybe even for the country.

See, here's the deal. Think about how decisions get made, especially in management. The manager needs to make a decision. So he or she makes some assumptions or guesses about how the world works, or applies whatever ideology or beliefs he has about how the world works. He or she then reasons (more or less correctly) from these untested beliefs to the "obviously" correct conclusion, and issues the order that it be implemented. Anybody who questions this decision is punished for stupidity and arrogance. If the manager weren't perceived to be better able to reason from the "facts" then they wouldn't have been put in a position of authority, so if a subordinate is questioning their reasoning, either that subordinate is too stupid to reason correctly from the "facts" the manager "knows," too stupid or too arrogant to recognize the manager's superior reasoning skills and superior knowledge, or (at best, from the manager's point of view) too ignorant of the "facts" from which the manager reasoned. Having convinced himself or herself that his or her decision was brilliant, the manager then invests a great deal of confidence in it; if it turns out badly, the manager will either not notice, or will look for some external factor outside of his or her control to blame, because since the decision was reasoned (theoretically) correctly from (theoretically) known facts, the decision itself can't be at fault.

Pfeffer and Sutton have written a book documenting the results of literally hundreds of studies of both successful and unsuccessful management decisions, in order to hammer home the pitfalls of that style of decision-making and that style of implementation. Let's start from the beginning. Did the manager, in the example above, test any of his or her opinions about how the world works against external reality? Or are they prejudices, ideologies, half-baked guesses? Before reasoning forward from the "facts," this book keeps showing you the benefits of asking yourself how sure you are of these so-called facts.

For example, "everybody knows" that incentive-based pay systems make people more productive; it "has to" be true because "everybody knows" that the only reason that people come to work every day is to get paid, and "everybody knows" that the only thing that could motivate them to work harder is the offer of more money if they do. Really? Ask yourself, they tell the manager, is that actually true of you? Is that actually true of anybody you know well?

Well, no. On the contrary, they cite a ton of evidence, based on actual studies of actual employees, that employees are motivated by money, yes, but also motivated by a lot of other things, including a desire to please others and a desire to feel good about the work that they're doing. So, okay, now that we've acknowledged that there might be other ways to motivate people to work harder or smarter, have we tested the theory that the best way to motivate them, the most cost effective and/or efficient way, is via strong cash incentives? At most companies, the answer is no, they haven't tested their theory about how to incent employees, at all. In fact, they could only find large company that did run controlled experiments, using a variety of pay systems and management systems, to see which ones actually produced the most productivity improvements. When they looked at their own experimental results after a year, they concluded that in their company, at least, there were gains, but they were offset by serious negative consequences, such as impaired teamwork and more infighting, so they discontinued it. Which, sadly, only lasted until the next senior management change, because the company in question was HP. Not very long thereafter, then-new CEO (and now, perhaps not coincidentally, McCain economic adviser) Carly Fiorina came in with a firm ideology that strongly incentive-based pay systems "just obviously" work better than more egalitarian ones, a belief she held so strongly and that she was so sure of that she was flatly unwilling to look at any evidence to the contrary, even from within her own company. You will notice that she was a disastrously awful CEO; several times in this book she is cited as a bad example, as someone who never thought to ask if her ideas were right, to ask if anybody had any evidence to back up their suggestions, if anybody had checked if other companies had tried some idea and what percentage of them had failed, if any of the orders she'd given were actually producing good results or not once they were tried, someone who was adamantly unwilling to admit mistakes even when the evidence was overwhelming for fear of undermining her own authority.

Where do these incorrectly assumed so-called "facts" come from? Some of them just plain come from ideology, from religious or political or cultural assumptions about what people are like and about how the world works. But the most pernicious ones are often the ones where managers can cite something they mistakenly think is evidence to back up some theory, because they don't understand the rules of scientific evidence. Never mind the incentive-pay example above, think of any idea a manager has ever had, of every idea any manager has ever had. Odds are, they got it by looking at successful departments or successful companies and asking themselves, "what did they do that made them successful?" Which sounds like a smart question, but it's not. The successful managers did more than one thing. Some of those things were probably smart, some of them were probably dumb. How do you decide which ones were the ones that actually contributed to their success? If you don't understand the rules of evidence-based science, medicine, or management, you do so by latching onto the one that "obviously" mattered. What makes it obvious? That it agrees with something you already believed in, or that you'd already made up your mind you wanted to do. The way that actual science cures this bias is to look at not only successful examples, but also unsuccessful ones. Suppose I tell you that 75% of the successful companies did x. Sounds good, right? Will you think to ask what percentage of the unsuccessful companies did x too? If it's 0%, or 5%, or 25%, that might tell you you were right. If it were 75%, or worse, 99%? That would tell someone who knew how to make decisions based on evidence, not assumptions or guesses, to look for another factor to explain their success.

Based on that kind of thinking and on the results of hundreds of scientific studies, Pfeffer and Sutton do have some very specific half-truths and total nonsense to attack throughout this book. They especially emphasize the half-truths over the total nonsense, because they're harder to deal with. If you can show a manager that one of his favorite assumptions is total nonsense, even he might agree with you, but if he can show you some circumstance under which his favorite assumption is true, he probably won't be at all interested in listening to your examples of times when it's not -- that is to say, unless he's become devoted to actually thinking, unless he's learned to value all of the evidence. Anyway, here are their big examples:

"Work is fundamentally different from life, or should be?" Well, yes, in a few ways, but that doesn't change the fact that in deep and equally fundamental ways, it isn't: being a jerk is still being a jerk and leads to bad outcomes, people are not entirely mercenary and greed-driven, and if it's morally wrong outside of work, it's still morally wrong at work, just to name a few.

"The best organizations are the ones that only hire, retain, and pay the best people?" Uh, no. The best organizations, in example after example and study after study, are the ones that make the best use of the people they have, who are the best at taking ordinary or even poor performers and making top performers out of them. In fact, the ugliest side effect of this belief is that so many companies have concluded that "obviously" even the best team has a certain percentage of "under-performers" in it, so every team must fire or demote (or at least withhold incentives from) that percentage of its people. Really? Actual evidence shows that some teams are already made up of top performers, that applying that dangerous half-truth to such a team only wrecks the team, that it actually lowers performance. Not to mention the fact that pitting employees against each other for the best rewards, while it does do a little to incentivize the top performers, absolutely guarantees that nobody will even try to improve the performance of their worst-performing team members. I mean really, seriously, think about it: when you learn a way to be more productive, do you rush out to tell your competitors in other companies how to do it, too? No, of course not. So what makes you think that your people will share their productivity "secrets" with their internal competitors? Or even with you, if they think you might give away their advantage to someone else who'd use it to compete with them?

"The best way to get people to do what you need them to do is to pay extra for it?" Uh, no, not most of the time. Actual comparisons of which companies did well with what companies did poorly show that many of the best companies offered minor financial rewards to top performers, and the rest none at all; the others, through sheer self-selection bias, attracted only the most greedy, dishonest, and mercenary employees who set out to do, not what is right for the company or the team, but what brought them the most money personally. In study after study, the strongest, harshest, most unequal incentive systems were statistically associated with the most corrupt, dishonest, and destructive behavior.

"Strategy is destiny, it's better to do the right thing poorly than the wrong thing well?" Uh, not so much. Sure, doing the wrong thing is bad, but it's not nearly so hard to tell what the wrong thing to be doing is as is made out; actual strategy for a company or a department can probably be decided in one meeting of a couple of hours' length every year or two. No, actual evidence shows that the best companies are the ones that only change strategy when there is clear and unambiguous evidence that the only strategy isn't working, and who dedicate their actual attention the rest of the time to better and better implementation.

"Change or die?" Depends: is it really that dire? And is there actual evidence that the change is doable, the need is real, that we're going to make the right change as opposed to some random change, and that things really will be better after the change? And will the economic gains from the change outweigh the costs of the change? If not, then no; if not, you're better off with "get better at what you're doing, or die."

"Great leaders are in total control of their companies?" Uh, no; nobody ever is in complete control of their companies. No, from dozens of examples, both statistical of companies in the wild and in laboratory studies of leadership in teams, they show that good leaders are the ones who project confidence, yes (or else they don't get to stay in charge), but who also know that it's more important for them to design company systems, to learn and to teach, and to say the things that set the culture and tone of the organization than it is for them to micro-manage, that it's better leadership (not in theory, but in demonstrated fact) to concentrate on only doing those things and to otherwise get the heck out of peoples' way and let them do their jobs. And no, what the best leaders have in common is not how much control they exercise over the people under them, but how much effort they put into maintaining their own private humility, their own willingness to continue to privately question their own decisions and to keep looking for evidence that they might be wrong and might need to change their minds.

But the actual examples of bad ideas themselves, in chapters 3 through 8, are meant to be merely examples. Oh, sure, for a lot of managers who read this book and who lack the grounding, education, and inclination to actually think, those couple of dozen demonstrably half-true popular myths or demonstrably dangerously wrong classic blunders will be all they take out of it. Probably the most you could hope for, if your boss read this book, is that Pfeffer and Sutton might actually grudgingly persuade them out of continuing with some truly awful management fad or pervasive cultural bias that's wrecking your life. But some percentage of the managers who read this will, one can reasonably hope, have a moment of satori and set out to develop the habit of asking the kinds of questions that result in actual evidence and actually meaningful reasoning. Are my assumptions true, or false? Has anybody actually tried this, and of everybody who tried this (not just the winners, but the losers as well) what were their results? If nobody has tried this, how (and when) will I know if I was wrong, so I can change course? How (and when) will I know that I'm right, so I can share this with other people in the company and everybody can benefit from it? That would be actual thinking. It's hard. It's not obvious. It's unusual. But the companies (and countries) that do it best will be the ones that succeed.

So maybe what you should really hope is that your boss will read it, and he and the other managers at his or her level will take up a collection among themselves to buy their boss a copy, too?

Consent of Which Governed?

I was expecting a firestorm over Sunday morning's piece. I was a little bit proud of it even before Patrick Nielsen-Hayden and Arthur Hlavety promoted it and David Brin (!!!) showed up to praise it; I put a little bit of work into this one. And I knew that there is no more reliable path to Internet notoriety than mocking the libertarians, who are famously thin-skinned; libertarianism is legendarily one of those "third rail" topics on the Internet, the ultimate sacred cow. If you don't take criticism (and hate screeds) gracefully, mock the libertarians (and especially the "Objectivists") at your peril. (Non-LiveJournal.com readers: I apologize for the occasional lengthy delays unscreening comments; I will say, in my defense, that it was a holiday weekend and I was busy much of that time.)

But the piece really only started as two independent bits of mental fanfic. Yes, fanfic. Sure, I despise Ayn Rand's philosophy. But I'm not a whole lot crazier about Ernest Callenbach's, and I love Ecotopia. I'm generally a fan of political SF that puts some thought into alternate ways the world might be arranged, whether dystopian or utopian. I think Anthem may actually be the best dystopian novel ever written. And even Atlas Shrugged, for all its didacticism, flawed political theory, and utter failure to predict the present, I find better than John Brunner's Stand on Zanzibar, which even shares Rand's horrific recommendation for saving the world: mass die-off. And Zanzibar won the Hugo, for crying out loud. Similarly, Anthem makes most of the same points that Orwell made in 1984. But it makes them in a more plausible way, in a more chilling way, with more compelling language, and in a substantially more concise way.

And, well, when I read almost any novel I like, the book goes on in my head beyond what the author wrote. I think about what I would have done differently than the main characters. I think about what comes afterwards for the characters and their world. If the novel doesn't explicitly say how the world it's set in came about, I think about that, too. It was largely by coincidence that I noticed that the real likely outcome of Atlas Shrugged lined up astonishingly closely with the facts as stated in Anthem. Yes, I know that Anthem was written first. Yes, I know that Ayn Rand's personal vision of how the world of Anthem would come to be would be by steady expansion of communism, liberalism, environmentalism, and political correctness, not as a reaction against techno-libertarian utopians. But by the time I was reading Ayn Rand, anybody with eyes in his head could see that actual communism was in full-fledged retreat everywhere in the world, including in the so-called Communist bloc countries themselves. Heinlein's 1950 prophesy that by the year 2000, the the Soviet Union would be capitalist and democratic, but that they'd still be calling themselves communist, turned out to be more nearly true than Rand's irrational fear that communism would conquer the world. No, by the 1980s, right-wing pseudo-libertarian corporate fascism, sold under the bogus rubric of "the free market" (which is anything but) and "deregulation" (which turned out to be a code word for "legislation by corporations only") was doing an amazing job of discrediting the very idea of free market entrepreneurial capitalism all over the world; by the collapse of the dot-com bubble in 2000, or if not then, then certainly when the US did to Iraq what Germany did to Poland and Czechoslovakia in the name of "freedom," the idea that the world might sweep in some kind of pious moralistic and anti-capitalist dictatorship in reaction to libertarian rhetoric, that idea was uncomfortably feasible. Hence: "Shrug Harder."

But even while I was thinking about this, other events conspired to cause me to rethink a literally sacred cliché in American politics: "All government is by the consent of the governed." It's an oversimplification of John Locke's hugely influential 1689 2nd Treatise on Government, and where the traditional American interpretation goes far beyond what Locke was saying is this: Locke was arguing that in an ideal society, governmental legitimacy would depend upon the mechanisms of democratic consent, rather than monarchical fiat or other imposition of force. But American thinkers and teachers are more likely to argue it not as a utopian ideal but as a law of nature: not that all government ought to be by the consent of the governed, but that it is always within the power of the governed to withdraw their consent, overthrow a government they no longer consent to, and (in Jefferson's famous words, from the American Declaration of Independence) "to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness." And, indeed, examples abound, both good and bad, from the French Revolution to both Russian Revolutions to the Iranian Revolution to the Philippine Revolution to the Polish Solidarity uprising to the Ukrainian Orange Revolution, all of them incidents when the people withdrew their consent and government fell, for better or for worse.

So be it. But the thought's been growing on me, for a while now, that not everybody's consent is weighted evenly, nor can it be. There will always be people whose consent to be governed is more important than yours or mine, because they have a lot more power to withdraw their consent than you or I ever will. Coups d'etat are, after all, still the most common method by which governmental executives change around the world; anybody who commands an army's loyalty has the power to withdraw the army's consent to be governed by the current government. The Kamalist Democracy model pioneered by Mustafa Kamal Ataturk even institutionalizes this, as the people of Turkey have come to rely upon as a protection against religious sectarianism and the people of Pakistan and Egypt have come to regret. In the US, we institutionalized a long list of measures to prevent this, from the explicit depolitization of the military officer class to intense indoctrination of all American citizens to resist military coup to the intentional cultivation of inter-service rivalries. But even here in the US, there's another group that's even more able than the army to withdraw their consent and bring down the state, or more or less so. And they're the very ones that the first democracy, Athens under the constitution of the divinely-inspired Solon, went to so much trouble to disarm: the wealthy. If nothing else, the very first democracy had to explicitly recognize that as long as wealthy individuals can hire their own mercenary armies, then if those mercenary armies ever become bigger or more dangerous than the people's own army, then the consent of the people or of the people's elected government or the people's army becomes irrelevant. And this did in fact turn out to be no small part of how democracy died in Athens.

It's never come to that in America, although we've had one rather famous brush with it, when wealthy financiers tried to finance their own coup d'etat against Franklin Roosevelt's New Deal, the infamous Business Plot. America's institutional safeguards, and the Commander General of the Marine Corps' personal integrity, kept it from going that far. Nonetheless, by no later than the early 1980s, what wealthy financiers and corporate CEOs did to America, and what they've continued doing since then regardless of which party has ruled the White House or Congress, despite pleas to their conscience and extensive taxpayer-funded bribes to change their minds, can only be reasonably described as virtually all of the owners of American industrial capital withdrawing their consent to be governed by the United States federal government. Overthrowing that government having turned out to be impractical, even after a multi-decade propaganda campaign, they have done what the John Galts of the world can not be stopped from doing: they looted the country of every capital asset that wasn't nailed down and shipped it overseas, preferring to have their actual business operations "governed" in third-world hellholes from Mexico to Thailand where the laws were more to their liking.

I find it absolutely worth reminding my fellow liberal progressives that unless you can, like the divinely-inspired Solon, persuade the wealthy to consent to your laws, it doesn't do you any good to write them. It is entirely within their power to withdraw their consent to be governed, to liquidate every asset they own in this country (roughly 90% of it, I remind you) and send it overseas. That failure to continue to persuade the wealthy that the taxes they were paying and the regulations they were enduring were what protected their profit margins from unprofitable races to the bottom, to persuade them that campaign finance reform and other anti-corruption methods were what protected their own businesses and their own fortunes from the depredations of their fellow rich, that failure deserves to be writ large as the great failure of the Johnson, Nixon, and Carter administrations, and of the Democratic political thinkers of the 1970s.
We're into one of the major "driving" holidays in the US, the traditional unofficial start of summer. And that's not to mention a day that a lot of Americans need to travel, because officially, it's Memorial Day, a day of special annual funeral services for our war-veteran dead, and this year (as with the last four Memorial Days), there are a lot of families with new reasons to gather from all over the country, with especial urgency to gather, at military cemetaries. It's also (for those reasons) a traditional weekend for gasoline prices to fluctuate upwards, because of the rising demand from the "summer driving season" and the need for refineries and resellers to swap out their stock of winter-grade gasoline for (also more expensive to make) lower-smog summer-grade gasoline. So even if oil weren't trading about the previously unthinkable price of $135 a barrel (up from $45 a barrel 4 years ago, from $15 a barrel during the Reagan administration) this would be a weekend when gas prices would be going up. Just not as high as they are, breaking $4/gallon for regular unleaded in places scattered all over the country, and averaging only a little less than that. And not a few voters have been saying for weeks now that their vote in November will be determined almost entirely by their opinion of which candidate will do the most to lower the price of gasoline. (Europeans who are going to give us hell over that: save it. Nobody here needs or wants to hear it. No, really, don't bother opening your mouth.)

Vote for Barack Obama for President in November.

First, let me start you off with a fairly good primer, compiled by two Associated Press business reporters for the driving weekend: John Porretto and John Wilen, "AP Impact: What Makes Up the Price of Gas?," Associated Press, 5/24/08. It'll walk you through where the money is going, and why, step by step, penny by penny. Short answer: oil prices are vulnerable to speculation, like anything traded on a commodities market. Demand is up and supply is steady, but not enough to explain the hike. The price is taking an especial hammering when measured in US dollars, because the US dollar is dropping in value like a rock against almost every other currency in the world. There's also a risk premium, that is to say, prices go up when oil dealers get nervous about whether or not there'll be a supply disruption next month, a "hedge" against next month there being, say, civil war in Nigeria, or a US bombing of Iran, or Iraq's Sunni Arabs returning to sabotage of Iraqi oil facilities, or chaos in Russia, or civil war or coup d'etat in Venezuela, or any problem in any country that could lead to it temporarily dropping out of the oil-selling business. Then come the various taxes, but they haven't gone up in the last four years; the cost of refining, which has gone down over the last four years; and the profits to the gas stations, which have basically vanished over the last four years, which is why they're all remaking themselves as grocery stores and fast-food places that just happen to sell gasoline (at a loss). So no, really, the price hike is almost entirely due to the falling US dollar and the oil traders' increasing fears that US foreign policy is going to wreck yet another oil producing country.

This article doesn't say, but I've heard the "risk premium" estimated in other articles about oil trading, lately, as $25 to $30 a barrel just from the Iraq occupation alone. Furthermore, history strongly suggests that the Iraq War is also the reason for the other major factor, the reason why the US dollar is going down the toilet. Or rather, not the war itself, nor even its ruinous cost, but something more fundamental than that: the way we're (not) paying for it. When the US goes to war, there are only two ways to pay for it. All Americans, especially the wealthy but really no, all Americans, can make shared sacrifices, accepting rationing, accepting higher taxes, to pay the cost of the war. Or we can just print the money. In this case, we're just printing the money, specifically, we're issuing another almost 20% of the budgeted debt in government bonds (debt) for off-budget "war supplemental" funding, and unlike in some previous wars, we're not selling War Bonds at deeply discounted rates to the public out of patriotism, we're selling them at sharply rising rates on the open market, especially to China and Saudi Arabia. And whenever the US runs the printing presses to pay for a major war, the currency plummets in value; there's a reason why the phrase "not worth a Continental Dollar" was slang for "worthless, not worth the paper it's printed on" for a hundred years after the Revolutionary War. And that's why this graph (taken from GasBuddy.com via stlouisgasprices.com) shows that the steep rise in prices corresponds exactly to the war in Iraq, and not just to the war in Iraq (or else the price would have jumped at the beginning and plateaued) but, more importantly, to our total accumulated war debt:

So if you don't want to see runaway inflation get worse and runaway unemployment set in with it, like we had the last time, back in the 1970s when two presidents in a row (then one Democrat, Johnson, and one Republican, Nixon) both decided to fund a major land war in Asia without raising taxes or selling discounted War Bonds to the American public, your first priority should be to elect the person you trust the most to end the war in Iraq, to not just stop the pointless dying and the war crimes and the war profiteering and the endless series of blows to our reputation and the reputation of secular democratic free market capitalism and the easy recruiting bonanza for Islamists but to also stop the endless and unaffordable money hemorrhage, as fast as possible. And if you're at all honest with yourself, you know that that man is Barack Obama.
Was there a contest for "stupidest news story of 2007"? If so, I think we have a new winner: Martin Crutsinger, "$45 Trillion Gap Seen in US Benefits," Associated Press, 12/17/07. Summarizing the 2007 Financial Report of the United States, Crutsinger writes, "The government is promising $45 trillion more than it can deliver on Social Security, Medicare, and other benefit programs. ¶ That is the gap between the promises the government has made in benefits and the projected revenue stream for these programs over the next ..."

Wait for it ...

"... 75 years..."


"... the Bush administration estimated Monday."

Seventy. Five. YEARS?

Is there anything resembling a rational reason to be doing economic forecasting seventy five years into the future? To the extent that there is, is there anything resembling a rational reason to have even the slightest confidence in such a forecast, no matter who makes it? And if you have any irrational confidence that a 75-year economic projection might have some value, can you imagine an accurate 75-year projection coming out of a government that has never yet successfully predicted where the economy was going to be, what its own revenues and expenses were going to be, even one year in the future?

Let me put this in perspective. 75 years ago, President Herbert Hoover was running for re-election against the former governor of New York, Franklin Roosevelt. I don't know if the Hoover administration even tried to predict what the US economy would look like in 2007. But let's assume that they did. Is there any part of it that they could have gotten right? In 1932, the Hoover administration was predicting, as they had been predicting every year for three years, that the end of the Great Depression would be within the next year. In point of fact, the Great Depression didn't end for almost another decade.

In 1932, nobody had even suggested an Interstate Highway System; even Adolph Hitler, father of the autobahn, was barely thinking about the idea. Could the Hoover administration have predicted what demand for automobiles was going to be in 2007? If they had, could they have predicted what percentage of those automobiles would be built in the United States? Or by whom? In 1932, the Hoover administration almost certainly would have loved to have correctly predicted what percentage of the current US workforce was going to be unionized, but if they had, would anybody have believed them when the trend was going the exact opposite direction at the time? There were people predicting in 1932 that many of the jobs in an automobile factory were going to be done by robots, but do you think anybody in the Hoover administration predicted that? If they had, would they have predicted the effect that this would have on price? Correctly? Speaking of prices, let's say they had somehow wildly guessed correctly what percentage of automobiles in the US would be imported. In inflation-adjusted dollars, oil cost something like 1/4th or 1/3rd of what it costs now, but on the other hand containerized semi-automated shipping hadn't been invented yet, either. Think they could have predicted the transportation costs for an imported automobile in 2007?

And that's just one industry. In 1932, the digital stored-program computer hadn't even been invented yet; would the Hoover administration have been able to predict Microsoft's annual sales, or even IBM's? Having failed to predict the digital stored-program computer (let alone the Internet, the earliest predictions of which weren't until the 1940s), could they have predicted the productivity increases of the 1990s? In 1932, neither receptor-site biochemistry nor computerized 3-D molecular modeling were even anticipated, let alone confidently predicted; could the Hoover administration have predicted prescription drug prices in 2007? Or what percentage of those drugs would be US-made versus imported? Television was easily predictable in 1932; were television advertising revenues? Would the Hoover administration have been able to predict the world's appetite for American sit-coms, Brazilian soap operas, British comedy series, Japanese cartoons?

In 1932, the Soviet Union was our enemy, not yet our ally, nor our enemy again, so it's just barely possible that the Hoover administration could have predicted the Cold War. But their economic forecasts for 1932 could not possibly have included the costs to develop and deploy nuclear-tipped inter-continental ballistic missiles, since only a tiny handful of widely discredited science fiction writers were predicting either long-range rocketry or nuclear explosives. Nor could they have even predicted the cost of the strategic long-range bomber fleet that preceded the wholesale build-up of nuclear ICBMs, since in 1932 even bomber aircraft were considered economically implausible science fiction, let alone intercontinental heavy bombers. The Hoover administration would have had a hard enough time forecasting the cost of World War II, let alone the costs of the Korean and Vietnam Wars, and they absolutely couldn't have predicted what percentage of the latter the Johnson administration would deficit finance. And that guarantees you they could have come even within an order of magnitude of predicting the national debt of 2007. Nor could they have accurately forecast interest rates in 2007, knowing nothing about how computerized international brokerages and currency exchanges were going to affect the T-bill market. So they would have had no way to even guess what the government's expense would be, in 2007, for interest on the national debt.

Even the population trends would have been unimaginable in 1932. World War II was barely imagined; could even those who predicted another World War on the horizon have predicted the Baby Boom? Or the GI Bill? Having failed to predict the GI Bill, could the Hoover administration have predicted what percentage of the US population in 2007 would have a college education? Speaking of population trends, do you think the Hoover administration could have successfully predicted what percentage of the US population would be foreign-born immigrants in 2007, or from what countries and what economic/social classes?

Nor do we know any more about the next 75 years of military, economic, medical, technological, migration, or population growth trends than the Hoover administration would have known about the previous 75 years' worth. No, there's only one reason to even try to predict what Social Security costs or revenues will be like 75 years from now: they've been predicting the 5 year deficit, then the 15 year deficit, and neither number scared you enough to give them permission to do what they want to do, namely dismantle the program. So they came up with an even more dubious 75-year number, cooked the assumptions to make it even more gigantic, and they hope to scare you with that one?

I sincerely hope that nobody who reads this journal is dumb enough to be easily frightened by what honestly amounts to a random number.

Bad habits and craziness shouldn't pay off

Hunter S. Thompson is said to have once told a room full of journalism students that he couldn't recommend a life of alcohol, violence, drugs, and insanity to anyone ... but in his case, he pointed out, it worked.

The particularly malevolent forms that bureaucratic neglect took back when I was a constant victim of violence and bullying as a small child left me famously with a set of symptoms little short of a post-traumatic-stress disorder. When I have to deal with any of the bureaucracies that have left me powerless and helpless in the past, whether government agencies that have been particularly awful to me like the DMV, or any insurance company, or even most doctors, I relive my abuse all over again. The result is a level of aversion that (depending on the level of pressure) ranges from procrastination to massive permanent sleepiness to (in one notable case) partial catatonia, all accompanied by crippling depression. And I know what's going on here: my nervous system is attempting to do its flat level best to simply hide me from the bullies and their faithful bureaucratic and administrative helpers until somebody else attracts their attention and it's safe for me to go back out. When neither fight nor flight are options within reach, my body and mind react to perceived or actual threat with a powerful urge to "turtle up."

And you know what? I'd do this less often, maybe, if it didn't periodically work. You know how one of the characters in Peanuts once said that she believed that there was no problem too big to run away from? I've had one of those weeks that proves that adage dangerously true. (I say "dangerously" because, like my well learned lack of fear of being threatened by guns, one of these days it's not going to be true and I'll be in even bigger trouble.)

Winter's coming, and I had set this fall as my fairly-firm deadline for getting the driver's license taken care of, especially after concluding this summer that there is, after all, enough slack in my budget to cover a cheap used car plus auto insurance and repairs as long as I kept the actual driving to a minimum. Step one in this process is, obviously, to deal with the Department of Motor Vehicles, where my old lawyer has assured me they did, eventually, admit that I paid my back taxes and all I have to do is retake the test. Oops, no vehicle to retake the test in, and it's been a lot of years since I drove. So step two is to deal with the DMV, step one is to call a driving school and take some refresher lessons. Great, now I have two bureaucracies to deal with, one of total strangers and the other one that's screwed me over with malevolent neglect (at best) multiple times before. So okay, calling the DMV is step three, calling the driving school is step two; step one is to call my doctor and get back on the anti-depressants, side effects or no, for as long as it takes to deal with the stress.

Then, while I was already in procrastination mode over that, I got a new problem. When I first shaved my head a decade and a half ago, I found under the hairline a small, flat mole. Suddenly and without warning, about two months ago, that mole started visibly growing, and fast. Lovely, thought I, Brad's first cancer. Did I ever mention that melanoma is what killed my mother? And that we Hickses have such an awful history with doctors that we all learn to fear them and loathe them the way most Americans feel about the IRS? So now I needed a dermatologist willing to accept a new patient, willing to bill Medicare, to biopsy a potentially cancerous mole, right at a time when the news is full of horror stories about long waiting times in the US to see a dermatologist for anything other than cosmetic surgery. Great. OK, now it's a panic attack.

Except something truly weird happened to me about a week ago: some time in my sleep, the whole mole just fell completely off. Seriously. There's a faint discoloration where it used to be, but not even the tiniest bump that I can find either by eye or with my fingers. I panicked, hid in bed, and the problem went away on its own.

And reading the news this week, I think my other problem went away on its own, too ... mostly because of bad news for the rest of you. The local office of ACORN has totaled up all of the subprime mortgages here in St. Louis that are about to go to foreclosure because they can't be refinanced, and estimated that once you factor in what those foreclosures will cost the lenders, what the vacant properties will cost the city in lost property taxes, what declining property values due to increased boarded-up houses will cost the neighbors and cost the city, what reduced consumer spending, and other costs that the total loss over the next couple of years to the St. Louis metro area will be around a quarter of a billion dollars. (Mike Garrity, "Foreclosures Spiking In St. Louis, Costing Entire Community," KSDK-TV 10/23/07.) And that's in a housing market that national economists are saying will actually do better than the national average, because we missed most of the upsurge in housing prices that lead to the worst loans in the country being issued.

But wait, it gets worse. That estimate was made before the dollar started tanking, falling so sharply that "the green peso" has reached equity with the Loonie, so sharply that OPEC and other exporters are threatening to stop accepting dollars directly and price everything in Euros. This, by the way, would be a good place for me to remind you that the last time the US got bogged down in a land war in Asia, in some tiny little country's civil war we couldn't manage the national commitment to win, but couldn't manage the political courage to withdraw from, and that our national political leadership was deranged enough to think they could finance entirely through borrowing, this is exactly what happened then, too: energy prices went through the roof because oil exporters repriced their products against the dollar, leading to the crippling combination of runaway inflation and galloping unemployment. And it's happening all over again, with incomprehensible levels of lemming-like stupidity in the recent history of the financial services industry standing in for the similar levels of stupidity in our manufacturing industries circa 1970. These next couple of decades are going to be rough.

And, at the same time I'm absorbing all of this national and regional news, I got preliminary notice, through the news, of just how this is going to affect me personally: preliminary estimates of the Social Security cost of living increase for next year (well below inflation, even though that's technically illegal) and of my Medicare premium (about double the rate of increase for Social Security, with the year after that forecast to be even worse).

And you know what? Suddenly the fact that there's enough money in my budget to cover a car and insurance and a little bit of gasoline doesn't look like sufficient evidence that I ought to spend it on that. Because for all that I grumble all winter long about doing my grocery shopping on foot when it's below freezing outside and the sidewalks are iced up, for all that it limits my shopping ability to be dependent on the bus, for all that I'm stuck cadging rides for anything that runs later than 11pm or involves any of my friends who are suffering from the delusion that their homes in Fenton, Festus, Wentzville, or for crying out loud Washington are actually, you know, "in the St. Louis area" (yes, I know that the Census bureau shares your insanity on this. Y'all are still wrong) ... frankly, I've done pretty well without. In the last two years, my cab fare plus taxicab plus gas money expenses have only twice reached what even the monthly cost would have been for insurance alone. And with the dollar tanking right at the time that world-wide demand for oil is rising, gasoline is only going up.

And then there's my unshakable long-term pessimism about the public's permanent willingness to tolerate even the existence of Social Security Disability Insurance for mental illness. No, I think the writing is clearly on the wall about the program that pays my bills every month, never mind that no court is ever going to order employers to accommodate my disability either. No, one of the hot-button issues that whoever wins the Presidency in 2012 will have run on, or at the absolute latest of the congressional leaders who run for office in 2014, will be "SSDI reform," which will mean the same thing that "welfare reform" meant to Republicans and right-wing Democrats like the Clintons: punish the poor for being victims of discrimination. So suddenly the idea of taking the couple of hundred a month that I'm socking away into savings and spending it on transportation costs that I don't absolutely strictly need doesn't seem like such a good investment. If the dollar tanks hard enough and unemployment and inflation go through the roof, I may need that money to eat with and to pay the heating and electrical bills, not to mention to feed the occasional hungry friend. And even in the unlikely event that it doesn't come to that, the odds are uncomfortably high that I'm going to need all the money I can save up by the next time I lose my financial support and get threatened with starvation and homelessness. That'll be the 3rd (4th? I lose track) time that's happened to me in my life, that my disability has threatened me with the loss of everything I have (and probably not the last, which is what I really dread); suddenly, I think I've convinced myself that money in the bank is more valuable to me than a car by several long rows of tall trees.

So maybe the non-stop several-times-a-night sleep-destroying shuddering nightmares I've been having about automobiles will stop on their own, too.

Hey, what do you know? Yet another couple of health-threatening, sanity-destroying crises that I simply hid from and out-waited and they went away! Dammit, that really needs to stop working, or I'm never going to break myself of this bad habit.
Imagine a situation with two alternatives, and two people or groups that have to choose which alternative to pick. For reasons that will soon become obvious, we will call one of them the "right thing" and the other one the "wrong thing." In this hypothetical situation, that's not a moral or arbitrary decision, because here's how it works: if they both do the right thing, they both win. If they both do the wrong thing, they both lose. But if only one of them does the right thing, the one who does the wrong thing wins big. Too complex? Call it "playing by the rules" or "cheating." If both parties play by the rules, the outcome of the game is determined by their relative skill and by chance. If both of them cheat, the outcome of the game probably isn't any different, but now both players have a reputation as cheaters and nobody wants to deal with them, the whole game gets a reputation as being crooked. But if only one of them cheats, he wins for sure, and the other guy loses for sure.

Some of you are feeling insulted that I had to offer this example, because it's very old news. But it's very old news that not everybody has heard, so it's worth repeating, in as many ways as possible, because solving the mathematics of this really was one of the five or six most important scientific discoveries of the 20th century. As most of you know, it's (perhaps unfortunately) called The Prisoner's Dilemma, and Wikipedia has a very good summary article on it that's worth reading if any of this is new to you. But for now, take my word for it, and you can check up on me later if you like, but even if you can't think of any examples right off hand, it turns out that there are lots of situations in real life that are accurately modeled by one form or another of The Prisoner's Dilemma.

And I bring this up because it is, in fact, the solid mathematical and scientific justification for almost everything about my politics. If there's something that if everybody does it, we all lose, but if anybody does it, everybody has to do it or lose? Then it's in everybody's best interest that we have some as fair as possible, as neutral as we can keep it social mechanism for detecting the cheaters, exposing the cheaters, and stopping the cheating from getting out of hand. And that, my friends, is called government. But what if someone corrupts some part of the government, then doesn't everybody have to bribe their own part of the government? Yes, and that's bad. And that's why our ancestors invented divided government, checks and balances. But what if that fails, and someone manages to corrupt the whole government? Well, that's pretty darned unlikely, but that's why we invented Freedom of the Press, why we set up an entire different set of organizations, outside the government, that make big money every time they catch someone in the government cheating, but that the government can punish the heck out of if they prove that they were cheating. And that's called democracy, and freedom.

Does this mean that every opportunity to cheat has to have its own referee stationed over it? I hope not. That gets expensive. Imagine a world in which the only thing protecting your property was the quality of the locks on your door. How much would you have to spend on those locks? No, we get by with cheap cruddy locks that are little more than symbolic, in most of our homes and many of our businesses, locks that can be jimmied with a fingernail file faster than they can be opened with the key, because we know that for most purposes, the lock is only there so that the person who does jimmy the lock and who carries off the stuff can't claim afterwards, when they get caught, that they had permission. It can trivially easily be shown that voluntary compliance, where everybody knows that if anybody cheats we all have to cheat, or worse, we all have to spend huge sums of money on preventing and/or catching cheats so we all lose money, and so nobody cheats, is the cheapest and best way to live.

Unfortunately, it's unstable. Because sooner or later, in any situation, someone loses anyway. Some of them will take it gracefully, retool to compete again, or go on to do something else. But sooner or later, someone looks around, sees that there aren't enough safeguards against cheating to prevent them from getting away from it, and concludes that nobody will be hurt if they, and only they, cheat. And maybe they're right. Or maybe they're not, but maybe they are. But now they're saving money, or making more money than their competitors, by cheating. And pretty soon everybody has to cheat just to keep from losing everything. But that ruins the game, and everybody ends up losing everything anyway.

This all feels perfectly obvious to me. It must not be obvious, because we've got one and a half political parties out of two in the US convinced that government enforced regulations are always bad, and that only voluntary compliance is good. But those political parties, so convinced that rational actors will never cheat if they're allowed to self-regulate, are the only ones scratching their heads (and looking for nefarious explanations) trying to explain a headline that was in the New York Times last week: "In Turnaround, Industries Seek U.S. Regulations" (Eric Lipton and Gardiner Harris, 9/16/07). Especially since one of the examples in there is absolutely textbook quality: the ATV manufacturers who are lobbying for tighter safety standards for ATVs.

See, here's the thing the whole industry figured out decades ago. There was a point where ATVs were starting to get a reputation as death traps. Not only were they being threatened with expensive regulation, no it was worse than that. Customers were coming to the conclusion that it was absolutely inevitable that if you bought an ATV, one or more of your own family members were going to die. Who buys that product? Sure, maybe some people would be overconfident enough of their ability to handle it, and some ignorant enough to ignore the risk, but not nearly enough to support a robust ATV industry, to support the kind of dealer network it takes to get ATVs into customers' hands. So the only way for the industry to not just stave off potentially over-reacting and over-expensive regulation, but more importantly the only way for customers to feel safe buying ATVs for their family to play with, was if the entire industry designed safer ATVs and that was all they sold. Why does it have to be the whole industry? Because there's a paradox here: the unsafe ATVs are a lot more fun, while the fun lasts. Make a less safe ATV than your competitor, and all his customers will defect to your brand ... right up until he makes his ATVs less safe to catch back up, and so does everybody else competing with the two of you, and so many people die that customers get spooked and stop buying ATVs altogether. So with that strong an incentive, companies came up with a voluntary code governing safety features on ATVs a long time ago. But what do you know? Somebody's losing money. Somebody hungry enough to say, you know what? If I'm the only one who makes dangerous ATVs, what harm will it do? And in this case, what a shock, it's a Chinese company, one that wasn't here when the ATV market almost tanked last time, one that doesn't understand as viscerally what would happen if they succeeded in dragging everybody down to their level. So unsurprisingly, the ATV manufacturers have taken their voluntary code to Congress, and to the federal regulatory agencies, and are lobbying hard to make it mandatory. Because they discovered that, at least for now, it's the only way to keep somebody from cheating. And if everybody cheats, they all have to cheat, and the whole game collapses.

And you know what that's called? It's called classical liberalism. And it's a mark of what's wrong with the world today that I have to explain that all over again, that we somehow forgot why we went that way in the first place. There's a line I'm very fond of, I think it comes from Fiddler on the Roof, about how tradition is the collection of solutions to problems we solved so long ago that we don't even remember what the problems were? Well, guess what ... there were really good reasons for the tradition of classical liberalism. We got argued into trying getting rid of it, to see if the problems would come back, in no small part because after decades of prosperity, we forgot what the problems were. And now they're all coming roaring back. So, unsurprisingly, from health care to regulation of health care products, from taxes to fund public infrastructure to prohibitions on polluting public air and water, even the most hard-nosed business managers and CEOs are now ahead of the curve, ahead of the politicians: an ever increasing number of them are clamoring to get classical liberalism back.

Alan Greenspan and Blood for Oil

Ever since reviewers got their hands on advance copies of Alan Greenspan's latest book, The Age of Turbulence, one and only one line has been reprinted and reported on and discussed all over the world, in every country in the world: "I'm saddened that it is politically inconvenient to acknowledge what everyone knows -- the Iraq war is largely about oil." He spent last week backing away from the literal, obvious meaning of the line. His clarification is that he's not saying we invaded Iraq in order to seize and steal their oil, but that we invaded Iraq to keep Saddam Hussein from manipulating oil prices to our disadvantage, to keep his military from threatening oil shipments through the Straits of Hormuz. Whatever. The moment the sentence hit the web, fuzzy-headed liberals jumped for joy: look, a smart guy like Alan Greenspan agrees with us! Over at The Nation, in particular, they're literally all over it.

People, if I had any doubt left in my mind about the subject, which I don't? If I needed no other proof, the fact that Alan Greenspan says that we invaded Iraq because of oil is literally all the proof I need that oil had nothing to do with Iraq war. As every liberal on the planet, it feels like, and every anti-American, and every anti-capitalist, and every Islamist jumped up to cheer for the fact that Alan Greenspan agrees with their silly "blood for oil" conspiracy theory, I've been sitting here at home, scratching my head quizically, and asking myself, "Since when do any of these people agree with anything that Alan Greenspan says?"

Can any of you name even one single time that Alan Greenspan has ever been right?

His original claim to fame is that he "ended the recession." Now, first of all, you need no more proof that this doesn't make him a genius than this: he wasn't Reagan's first Federal Reserve chairman. During the time between when Paul Volcker stepped down and when the recession ended, Greenspan didn't actually change any of Paul Volcker's policies. He made literally no contribution of his own, favorable or unfavorable, to the perceived "success" of Reaganomics. Secondly, his theory about how he (not Reagan, not Volcker, not anybody else but him) saved us all from runaway stagflation was by raising interest rates so that businesses had to lay people off and break their unions. This, like everything else the man has ever said, sounds good in a dorm room at 3:00 am after having not slept the night before ... but it doesn't hold up. Basically this theory asks you to flatly ignore history, to pretend that the fact that it had been 10 years since the OPEC embargo had nothing to do with the US economy's recovery, that it had been 10 years since the US's humiliating defeat in Vietnam had nothing to do with the recovery of the US economy. Worse than that, this theory also requires you to ignore the fact that the "recovery" of the US economy was no such thing: poverty rates went up, not down, and stayed up until Clinton came along. Nor should Clinton, or any other right-wing Democrat, get credit for ignoring Alan Greenspan's advice; they tried to keep unemployment high, and thanks to the dot-com bubble, failed. And there's the last reminder that Alan Greenspan's "full employment leads to runaway inflation" theory is so much long-disproved science (at best): unemployment fell through the floor, wages went up for the first time in decades, and inflation not only didn't ignite, it fell.

(If you absolutely insist on ignoring historical fact and needing a theoretical justification for what's wrong with Greenspan's anti-worker theory of what's good for the economy, he never once has even tried to address the question of who, exactly, is supposed to buy things that the economy makes. How a man who left that big a gaping hole in his economic thinking, among others, acquired a reputation as some kind of super-genius I have no idea.)

And it's not as if the central thesis of his entire career being wrong was the only thing stupid the man ever said or did. He got the dot-com bubble wrong, insisting that it wasn't actually a bubble, then insisting that the bursting of the bubble wasn't going to hurt the broader economy. He got the real estate bubble wrong. He endorsed the Laffer Curve, lobbying Congress for every Republican tax cut, predicting confidently after each tax cut that government revenues would rise. After every government tax cut, revenues fell. He endorsed NAFTA and the WTO, predicting that they would both lead to more US jobs; the result was more lost US jobs. He endorsed the New Economy after that, saying that it was good because the high-skill high-pay jobs like computer programming would stay here in the US; those jobs started leaving for India, Russia, and elsewhere. Like most die-hard Randroids (and the man's credentials as a literal personal disciple of Ayn Rand are not in question, he was a member of her inner circle), the man really is a moron on the subject of how business actually works and how economics actually works. So if Alan Greenspan says that we went to war in Iraq because of oil, I'm inclined to assume that it had nothing whatsoever to do with oil, because the man has literally never been right about anything important in his entire life. If at this point Alan Greenspan assured me that it wasn't raining outside, I'd grab an umbrella out of reflex without even bothering to look out the window.

Let's face it. I don't need ad hominem attacks to prove that he's wrong about this, as important as they are to make and as much fun as they are on top of that. What Alan Greenspan can't answer, just like he can't answer any other questions put to him, is this. If all we cared about was access to Iraq's oil, or if that was even an important consideration for us, all we had to do was what the entire rest of the planet was asking us to do: formally end the Gulf War, end the sanctions. Sure, it would have meant screwing over the Kurds, but we've been screwing over the Kurds at least once a generation since 1917, and we've never had any grief come out of it. On the contrary, screwing over the Kurds would have made one of only real and important allies in that region, Turkey, ecstatically happy, since American-protected Kurdistan has been a reliable base for terrorist attacks against Turkey; why we're taking the Kurds' side against a NATO ally that's stood by us since the beginning of the Cold War, the only long-term stable democracy in the entire Islamic world, is a question that doesn't get asked nearly often enough. So why haven't we? He's got no answer. He's frankly too dumb to even think of the question.

For better commentary about the Greenspan book itself, see Tom Tomorrow, "This Modern World: The 'Evil Comedic Genius' of Alan Greenspan," 9/24/07.


Instead of Anarchy

Anarchy is, briefly, the absence of government, the absence of hierarchy. But as soon as inevitable randomness and uneven distribution of skill introduces even relative wealth into anarchy, it spirals inevitably into tribal warlordism. That's not speculation. That's historical fact. Anarchy isn't the path to human freedom, it's the path to the worst form of government known to all of history, one that guarantees that everybody, even the warlords themselves, dies young and lives crushingly awful lives. The closest things to historical counter-examples that you can point to are all in deserts so barren that nobody ever gets wealthy enough to hire their neighbors to protect their stuff; do you really want to live like that? And if so, what are you doing living indoors and typing on the Internet?

That anarchy cannot possibly work does not condemn us to an eternity under some hereditary hierarchy's boot. That's a false dichotomy. Contrary to what Mr. O'Brien predicted to Winston Smith in George Orwell's Nineteen Eighty-Four, history has not marched in irreversible lock-step towards "a boot stamping on a human face - forever." On the contrary; virtually everywhere outside of the former Spanish colonies, no brutal dictatorship has lasted long enough that anybody born under one who lived a normal length life died under it. Even the among the medieval and Renaissance European monarchies, few of which were as brutal or dictatorial as American propaganda would tell you, none of them lasted more than a couple of hundred years, and were seldom brutal for longer than a couple of years at a time. No, a brutal hierarchy starving its own people falls within at most one lifetime, if for no other reason than this: its neighbors' citizens make their whole society more wealthy, funding an even better army for the less brutal adjacent government, and fight harder for it.

Remember this, as I pointed out yesterday: there is no reliable way to force wealthy people to give up their wealth. At best, you end up overthrowing them with even more brutal dictatorships that are just as hierarchical, like the Bolsheviks in 1917 or the Terror in France in 1793, or in mass starvation leading to a third to two thirds of the population dying over the course of a decade or so, as happened all over the Mediterranean circa 1200 BCE. Under circumstances of any less brutal slaughter than that, it will always come down to this: however much force or law or religion or custom you can muster to take the wealthy people's wealth, power, and force away from them, they can muster more to keep it. If nothing else, it is always in their power to starve enough of the rest of the population into a willingness to fight for their oppressors, if that's the only means available to feed their own kids. Doubt it? Go back and look at the history of the mining strikes in the US in the early 20th century. No, then, now, and forever throughout human history, there has ever been a way to have a middle class, a way for the poor to live anything but the most dirt-eating miserable lives, because the wealthy people gave in and let them.

And the only reason they have ever done so was because they were persuaded that it was the only way for them to get ahead. You know that lie that the modern philosophers sold us back in the 1970s and 1980s, "a rising tide lifts all boats" the slogan went, that making the wealthy people wealthier would benefit us all? Lie. The current President's father was telling only the truth when he called it "voodoo economics." A rising tide does, in fact, lift all boats, but giving more and more wealth to the wealthy doesn't raise the tide. What raises the tide is raising everybody up, starting with the poorest of the poor; that's what lifts all incomes in society, including the wealthy's. Again, you want an example? I was living in a city during the dot-com bubble that went into "negative unemployment," where companies were bidding against each other in raises to compete for the only "suitable" workers, and desperately hauling in the "unsuitable" and finding ways to make them minimally suitable. The modern philosophers, sold on the lie of trickle-down economics, cried "doom!" Instead, the companies that were temporarily forced to raise wages found out that their sales went up faster than their wages; their own employees and other people's could suddenly afford to buy the products the wealthy had piling up in warehouses before. When the dot-com bubble burst, unemployment went up, and wages in that city stopped rising, fell relative to inflation same as the rest of us. And suddenly those same companies, owned by the wealthy, are reporting sharply lower sales and falling profits. Funny how that works. Eventually they'll figure it out.

The wealthy never give up their money voluntarily? How much do you know about the Ivy League university system in America?

Social class serves as a floor under the individual, as disaster-proofing against the inevitable time in your life when something goes wrong. Other members of your social class and above aren't afraid that if they give you the money and other help you need when things go wrong they'll be throwing money down a rathole, throwing good money after bad, because you display the class signifiers that persuade them that if you are kept at your current social class level, you'll be able to continue on your own without further help once the current crisis is dealt with. That's why upper-class etiquette manuals have been best-sellers for the middle class ever since 1528. And in America, one of the fundamental pillars of upper class society, the place where even the children of the upper class have to go if they want to learn the last bits of the language of the upper class, and make the upper class contacts outside of their home town and family they'll need some day, and acquire the credentials needed to convince other upper class people that they're not worthless layabout bums, is the Ivy League university. Now, remember what I said about how you can never create a system where the wealthy give up everything? Unsurprisingly, the wealthy people who voluntarily fund the heck out of the Ivy League schools insist that roughly half of all admissions are reserved for wealthy kids. But only about half.

The other half are awarded on merit, with a special effort made to look for merit among the working class and the middle class. That's how the dirt poor son of a single mother in a trailer park in one of the most god-awful poor places in America enters the upper class. Would we be a lot better off if, like China under the Confucians, all of those upper class educational positions were awarded strictly on merit? Of course. But how are you ever going to persuade the wealthy people who fund those schools, and who have control over enough of the economy to starve off any attempt to overthrow them, to give up all of those seats? No, they didn't have to give up any of them. But not only can said single mother's son from a trailer park go to an Ivy League school, rich people pay for most of his tuition and costs if he does. Voluntarily. Why? Because they learned in America, as they're learning all around the world, what a great idea that is. It increases the flow of good ideas that originate outside the upper class up to where the upper class will hear them. It co-opts the people most likely to be able to organize trouble for the upper class and gives them an incentive to protect it. It gives everybody outside the upper class reason to hope that the system will reward their hard work if they work hard, by making a place at the top for their own kids.

Even at today's gutted top tax rates, the wealthiest quarter or so of the population pay for half of what gets done in this country. And as they've spent the last 25 or 30 years reminding us, they don't have to. If they get it into their heads that the money they give up is being poured down ratholes, that good money is being thrown after bad, they have it in their power to hire think tanks to persuade the voting public to defend the wealthy's wealth instead of taxing it. For a while, anyway. But it won't last; eventually, the wealthy people will need more people to sell things to, will need the remaining workers to work harder than downtrodden slaves ever do. The reason to have hope in politics even in a world where hierarchy and unequal distribution of wealth are inevitable is that beyond a certain point, both because they get tired of having to spend all their time and money lawyering up and hiring lobbyists to defend themselves from each other and because they need the rest of us to work hard and be able to afford to buy the stuff they have to sell, the wealthy smarten up just like the rest of us do.

Persuading them, and persuading all of the rest of the voting public, that the wealthy are better off with capped access to wealth and power and that everybody, including the wealthy, are better off with a comparatively egalitarian distribution of wealth, is not only easier than overthrowing the system, it's safer. As a once-wise man once said to me, the problem with violent revolution is that people with guns and uniforms become inordinately influential, and the garbage doesn't get picked up on time.


How did I forget that anarchism is one of the ur-topics of the Internet? There are ur-topics, you know: subjects that all Internet conversation eventually devolves to. Libertarianism. Abortion. Gun control. The Christian Bible. Regulation of the Internet. A few others. And yeah, anarchism. And there I went and touched the third rail. Well, okay, in for a penny, in for a pound. If I'm going to get wet, I'm going to get good and soaking wet. Here is what strikes me as so repeatedly proven and so demonstrably true that, after about age 25 or so, if you continue to believe to the contrary it lowers my opinion of your intellect: anarchism is to political philosophy what Flat Earth is to geography, what young-Earth creationism is to biology, what communism is to economics. It's something that sounds very tempting when you're young, frustrated, and as ignorant as a cow. I forget who it was who said that anybody who's never had the urge to run out the guns and hoist the black flag has no soul, but that part is true. But let's dispose of the idea that it would actually work, shall we? Trivially easily.

If you were to somehow accumulate all of the wealth in the world and divide it evenly among everybody in the human race ... well, for one thing, most of us would starve, because the act of dividing up that wealth would almost certainly wreck an awful lot of our productive capacity. But even if you found some way to avoid that pitfall, let's face it: by the end of the first week, it would be distributed unevenly, if for no other reason than no cure has ever been found for the urge to gamble. Even if you managed to stifle short-term gambling and managed to educate people completely out of short-term stupidism first, by the end of the first year the amount of wealth people had would vary widely. Two farmers on side-by-side fields planting the same crops with the same equipment in roughly the same soil; one of them's going to have more luck than the other, with rainfall or pests or whatever, and he's going to harvest more crops. That's just as true in every other line of work. Attribute it to luck, attribute it to spirits, attribute it to God or the gods, but not everybody who does the same thing ends up with the same outcome.

So if you want egalitarianism, somebody's going to have to go around and tally up everything that everybody has every year (at least), divide by the number of people, and take away everything above that from the people who have it and give it to the people who have less than that. Now frankly, this is already the point in the conversation at which we've demonstrated that anarchism is deranged: once you have the mandatory power to compel taxation, it's a government, no matter what you call it. But there have always been a handful of anarchists who've insisted that if people weren't somehow traumatized by living under government or taught bad habits by a government, they'd never think to object to giving away all of their excess wealth. This has been tried. Over and over and over again. The net result is that everybody starves. Every time. You can not "educate" a human being to recognize an identical need in his neighbor as just as pressing a need as the same need when he feels it himself. You can not "educate" a human being to recognize that if he and his neighbor are working equally hard, he isn't working harder than that lazy bum over there. You don't have to be on the autism spectrum to fail to recognize other people's identical pain as being as intense as your own; on the contrary, it may actually be easier to teach this to those of us on the autism spectrum, because we rely on harder to spoof cues, like actual facts rather than emotional expressions. Every time "from each according to his abilities to each according to his needs" has been tried, the result has without exception been that people over-state their needs and under-estimate their own abilities, under-estimate everybody else's needs and over-state everybody else's abilities. No exception has ever been recorded, no matter what education (spiritual or practical) went into the population, however carefully selected, before the experiment has been begun.

But okay, let's assume that you have found some hitherto unknown way to do just that, to make everybody agree on what sharing fairly looks like. We are already deep into false-to-fact counterfactual territory here, but to humor the anarchists, let's keep going. After all, the experiment they want us all to undertake has been tried many times, some times have gotten farther than others. What happens next? Without exception in all of recorded history, someone concludes that if people would stop taking away his stuff every year, he could make even more stuff, and next year there'd be a lot more to share. He might even be right, up to a certain point. Or he could be kidding himself, which is going to be true more often. Either way, after a few years of resenting watching his stuff get carted away by the redistributors, it is as sure as the sun coming up in the morning going to occur to him that for less than what was taken from him, he could hire his own armed guards to turn back the redistributors. And now he's a warlord.

But the real problem doesn't even get started until two people think of this. Because maybe he really was right; maybe he could produce a lot more, and he and his warriors live well, and maybe he even stays educated like the anarchists assure us he would and wants to share the same amount with the greater community that the redistributors were taking away from him before. It could happen. I know it could happen; it has happened before. What happens, though, the first time somebody else raises their own private army to guard their stuff? One of the two of them looks over at the other one's private army and goes, "oh, crap, if he wanted to, he could send them over to take away my stuff." So now he has to have a bigger army. Maybe he gets more productive. Probably he does. But the same logic that applied to the two farmers with side-by-side fields applies here: even if he and the other nearby warlord start with equal resources and equal skill, by sheer luck one of them is going to end up richer than the other one. Which means that he can afford the bigger army. So now what does the unlucky warlord do? Now it's a matter of life and death; screw egalitarianism, I've got to get a bigger army. So now by simple logic he has no choice but to go on a war of conquest against any non-warlords he can conquer, and redistribution now goes the other way now: from the poor to the rich, to fund an arms race. History does not yet record a single instance of this experiment being tried where, if it even made it this far, that isn't what happened.

And if we stopped there, the people with Social Dominance Orientation would be right. But they're not. Observe.

During the dark age that followed the crisis of 1200 BCE, modern-day Greece was settled by two different tribes, both of them people who'd deliberately left civilization with an intent to never be ruled again. Within a couple of generations, though, they were already up to their necks in tribal warlords, and most of the population was starving to fund armies to defend the rival warlords from each other. After one particularly ugly spasm of inter-tribal warfare, all of the tribal warlords in the area around Athens agreed to a negotiated settlement. They picked one guy with a reputation for being fair, and swore their most sacred oaths to obey whatever peace treaty he wrote. The man's name was Solon, and he went far, far beyond his mandate, deciding instead to solve the original problem of warlordism. He abused their oaths to make them agree to one more round of really aggressive confiscation and redistribution, in this case of the farmland, along with a total wiping clean of all recorded debt. He then set up several limits by which anybody who got anywhere near amassing enough wealth to be able to afford an army would have it taken away from him before it got that far; he could have more wealth than anybody less hard working and less lucky, right up to that point, but no farther. And he incorporated a set of political and religious monitoring and auditing systems whereby if anybody did try to keep enough wealth to be able to raise an army of his own, everybody else would know it ... and know to descend on him en masse and stop him.

Solon was not given a mandate to redistribute land and wealth as radically as he did. They were bound by their oaths to obey, but they weren't bound by oath not to punish him. Every single wealthy warlord spent money they were about to lose anyway, before the redistributors got there, to hire the best hired killers in the region to track down Solon and kill him. He barely escaped with his life, and fled into exile under an assumed name. But here's the funny thing: seven years later, those same rich people sent out embassies to the whole known world, begging for Solon to come home, because having seen how it worked out, they had to admit that he had been right. Divinely inspired Solon, they called him thereafter, for the next several hundred years. And divinely inspired he may well have been; he was displaying the clear mark of inspiration, someone operating far beyond their own known capabilities. But seven years into this system, the rich people of Athens realized that they had never been as afraid of their own poor people as they were of their fellow wealthy people; that they had squandered so much money on defending themselves from hypothetical or actual threats from their fellow wealthy people that they were living better, more comfortably without the money than they had been when they had it.

Look, one great constant throughout all of history is that rich people arise through inescapable laws of nature. And once they do, there is no way to make them share any of that with us. You will never come up with a system where the people who have more can't find some way to hire guards, bribe judges and priests, impress the public with their short-term generosity, and hire writers and poets and philosophers to convince everybody else that they the rich people are right to insist on keeping all of their stuff. If Plato and Socrates were alive today, they'd be working at the Heritage Foundation and the Cato Institute, doing their flat level best for the same kinds of wealthy people who funded all of the philosophers except Diogenes the Cynic back in the day. (This of course makes Aristophanes the Michael Moore of ancient Athens. Don't think so? Read Clouds, a play that doesn't get staged nearly often enough if you ask me. The famous and hysterically funny debate between Good Logic and Bad Logic lacks only Powerpoint slides of being right out of Roger and Me.) But history has shown, and not just in ancient Athens, that if you persuade the rich that they are better off giving up an awful lot of the stuff they earn or make, as long as all of their fellow rich people have to do so too, then they're all better off, even if all you can appeal to is the logic of negotiated mutual arms reduction.

Think it wouldn't happen here? It has. And does so again every generation. I've already run too long, though. I have a specific example in mind; I'll give it to you tomorrow.

They Won't Let Anybody be "Wrong"

Back in George Bailey's day, the nation's hundreds of federally chartered Savings and Loans were part of a brilliant plan to finance new home construction for people who, during the flight from the farms to the cities and towns and during a time of massive immigration, needed houses built. It was designed to be fail-safe and fool-proof. They called it the "9-6-3 rule." Lend money to people buying homes at 9%. Borrow money by offering savings accounts that paid 6% interest. And since there are no decisions to make if you run an S&L, leave work early and be on the golf course by 3:00. But when the bills came due for the Vietnam War, and when Saudi Arabia and Egypt imposed economic sanctions on the US in retaliation for our support of Israel, the resulting 10% to 12% inflation made 6% passbook savings accounts look really unattractive to customers. I've documented elsewhere how a wave of cocaine-fueled stupidism among the deeply inbred wealthy WASP clans that own our nation's banking infrastructure wrecked the S&Ls, and dragged the banking and financial services and construction industries down with them, as those S&Ls went chasing any source of money that they could think up to fund new loans. But the part that I left out of that, the last time I wrote about it, is this: all those customers who'd been plowing their money into 6% passbook accounts who were no longer willing to watch that money hemorrhage value to inflation -- what did they do with the money they would have otherwise plunked into an S&L? Well, they did their part to make things worse, too. Because, you see, they had come to believe that anybody who puts money into savings is entitled, as a God-given matter of natural physical law of the universe, to make money relative to inflation every year. So they all "knew" (wrongly) that there must be something out there to invest their money in that would pay dividends plus capital appreciation that was higher than inflation. So they sank their money into investment funds that were, you guessed it, lending the money to the same banks that were blowing it all on a series of really stupid high-risk investments.

You do know where I'm going with this, don't you? See Edmund L. Andrews, "Fed Seeks Balance as Investors Clamor for Action," New York Times, 8/21/07.

One of the reasons why we had a dot-com bubble in the first place, in the 1990s, was that there weren't a lot of high-return investments out there, and some of the investors in dot-com stocks were making money. Or at least seemed to be. That created a huge demand for more dot-com stocks to invest in, because there just weren't enough of them for everybody who wanted in. That lead to the creation of more and more venture capital funds that were desperate to find something, anything, dot-com-like for them to put their investors' money into, because they wanted to make dot-com returns on investment, themselves. And the sick sad thing of it is, it was already an industry standard joke that all you needed to get a couple of million dollars in investment was two buzzwords jammed together and a web page you threw together in Microsoft Word in 5 minutes, long long before the crash came.

Let me give you another example, one that happened about halfway between the two. One of the things that investors were throwing money at hand over fist during the 1980s was "junk bonds." Most of you have no idea why. Let me explain: a "junk bond" is a loan to a business that gets charged a very high rate of interest because nobody in the banking industry has any confidence that this company will be able to pay back that loan. The only reason that they're willing to lend money to such companies at all is that they know that some of them will pay off, and if they charge all of them really high interest rates, the ones that do pay off will cover the loan losses from the ones that don't. And right at the time when the banking industry was desperate for high-return investments to out-perform soaring inflation rates, a quantitative analyst named Ivan Boesky crunched the numbers and proved that compared to other loans, junk bonds were actually over-priced; that the default rate wasn't nearly high enough to eat up as much as the banks and investment firms were charging in extra interest. But, he proved, the businesses in question were willing to pay that interest. And being mostly small businesses newly started by hard-working middle class families who were desperate to preserve their credit rating, the default rate wasn't nearly as high as risk analysts were thinking it would be, not nearly as high as if they'd loaned that money to rich people with equally unproven business plans. And for those of you who don't remember this (and can't see this coming a mile away), the result of this was that every commercial lender on the planet was desperate to write junk bond loans, enough of them for their profits to bail out their other unprofitable investments. There was so much demand that they ran out of middle class new businessmen to invest in. So the investment firms played bait-and-switch with their institutional investors and massively expanded junk bond lending ... into business models not covered by Ivan Boesky's research, like borrowing the money to buy up all the stock in a publicly traded company and take it over. Investors were being promised that, through the miracle of Ivan Boesky's quantitative analysis, all the risk had been managed out of junk bond lending. They were promised that this was a new age, that thanks to this new innovation junk bonds would always pay high interest and never lose money.

Look. If you learn nothing else, learn this. When somebody promises you a high rate of return on an investment with no risk that will go on forever? Run the hell away. Or at the very least, immediately stop investing any new money in it. Because for one thing, it has never, ever, ever been true, and it never will be. But if you don't believe me when I say that it will never be true, if you think that there's some science fiction future out there where brilliant investors and economists will eliminate the business cycle and automate all the risk out of investing, believe me when I say this. The other reason is that as soon as anybody says this, everybody wants some and wants it right now, and with demand outstripping supply, then by definition the investment will instantly become over-priced. Period. No exceptions.

But here's the thing that's saddest of all about this. Most investment firms are run by people older than me, people who, like me, lived through the S&L implosion and remember it well. These are firms whose employees, and members, and even their customers all lived through the junk bond fiasco and through the dot-com bubble collapse. Why don't they ever learn? I'll tell you why not: because three years is a long time to be wrong. It takes about three to six years, once somebody sells the public the lie that some investment class is risk-free, high return, and can only go up, for the bubble to burst. It is, to anybody who knows the rules that I just told you, 100% obvious that an investment that is sold this way is a sham, a bubble about to be hyper-inflated. But if you stay out of that investment, be prepared to watch in envy while all of your ant-swarm neighbors appear to be making huge money that you're not making in less fraudulent investments. Worse, if you're a fund manager, if you predict that an investment will ultimately lose money, for the first three years of that you will be visibly and obviously wrong. Try to time that, and you could end up being visibly, obviously wrong for another three years. And nobody gets to be wrong 12 quarters in a row in the financial industry and keep their job. Which means that if everybody else in your industry is investing in whatever scam is popular right now, you don't have any choice but to invest in it too, or they'll fire you and hire somebody less honest or more gullible.

As the character of Nick Naylor said in the brilliantly funny movie Thank You for Smoking, "I need to make my mortgage payment" is The Yuppie Nuremberg Defense.

So when the investors who didn't lose everything in the dot-com bubble, the ones who sold out in time, looked around the wreckage of the financial landscape in early 2001, they saw that in one regard, getting out in time had been very little help to them. All of their budgets, including yes, their mortgage payments, were budgeted on the assumption that they were entitled to at least a 10% return on any money they saved or invested, every year without exception; any year in which they didn't earn 10% on their investments would cost them their home, would cost their kids their tuition. So nobody asked a lot of questions when technical financial experts assured them that securitization was a brilliant new financial technology that had eliminated all risk from mortgage lending, that prices on mortgage loans would stay high enough anyway to earn early dot-com bubble levels of rate of return, and that since house prices can only ever go up, it was impossible to lose money. For some of them, the dimmer ones in inbred upper-class WASPland mostly, this was explanation enough because they'll believe anything if it contains buzzwords they don't understand and they're told it by a fellow Harvard or Yale alumnus. For others, they believed it because they were desperate to believe anything that offered to save their over-priced lifestyles. Some of them didn't believe it ... but found out that when everybody else believed it and the bubble hadn't burst yet, they had to pretend to like it or end up losing everything including their health insurance to unemployment.

It's sad. But it's not surprising. Not when we're talking about a species that really can't imagine any span of time longer than three years except as an abstract, unreal, theoretical concept. I saw a study a few decades back where young people were asked what they thought the future would be like in five years. They made all kinds of wonderful or horrible predictions, from pie-in-the-sky sci-fi to apocalyptic wasteland. Then, after a brief distraction, they were asked what they thought their own lives would be like in five years. They answered that their lives would be just the same as they are now.

Entropy Requires No Maintenance

I happened to catch the opening monologue of Randi Rhodes' show a couple of weeks ago, on the day after that steam line blew under Lexington Avenue in New York, just down the street from her home. (See James Barron, "Steam Blast Jolts Midtown, Killing One," New York Times, 7/19/07.) She had two points to make, mainly. The first is that the whole first half an hour or more after that explosion, every New Yorker she talked to was convinced it was a terror attack, and for one reason: she could not find a single New Yorker who actually believes that George Bush or Michael Bloomberg are doing what it would take to keep New York from getting hit again. But it's the second point that's more relevant to the latest news. She pointed out that we're spending billions of dollars on counter-terrorism, when the real "weapon of mass destruction" in New York was smuggled in back in 1927. Why did that steam line blow? Because it was stuck into the ground 80 years ago, by people who knew and warned us that it should be regularly serviced and maintained, and nobody did.

Wednesday evening the I-35W bridge across the Mississippi River through downtown Minneapolis/St. Paul, Minnesota collapsed at the peak of rush-hour. (See Patrick Condon and Gregg Aamot, "7 Killed in Minneapolis Bridge Collapse," Associated Press, 8/2/07.) So far the death toll is only up to 7, despite the fact that approximately 50 cars fell 30 to 60 feet into the river, some of them on top of each other. (There will be more, I guarantee it.) So far, terrorism has been tentatively ruled out. So why'd it fall down? In this case, a bridge that was built in the 1960s has gotten most of the maintenance it was supposed to get, and we're told it passed a safety inspection within the last year with only a warning that some time in the next 17 years or so the bridge deck was going to need to be replaced. But it also must be pointed out, as I heard two civil engineers say in separate interviews on the news last night, that we've learned a lot about how to build highway bridges since then, especially since the 1994 Northridge, California earthquake, and really, no highway bridge that's older than about 10 years is immune from one of the problems here. We know now to build bridges so that if one section fails, the whole bridge doesn't come pancaking down. But we are not going to go back and replace every highway bridge in America. Heck, even in earthquake-prone San Francisco, where they got their own vivid lesson in what's wrong with 1960s bridge construction technology in the 1989 Loma Prieta earthquake, they're still not done upgrading their highway bridges to prevent cascading failures.

Why? Because taxpayers are human, and there's a serious human failing. When times get tight, the very first thing that gets cut is routine maintenance. But then when the money does come in, it doesn't get spent on catching up on deferred maintenance: it gets spent on buying new stuff that will, itself, have to be maintained somehow. Lest you think that this is only a political problem, let alone unique to one political party or political philosophy, consider the literally dozens of poor people I've known who've been stuck with multi-hundred dollar surgery bills to remove shattered teeth that they could have saved if any time in the 12 months before the tooth shattered they'd had a routine $35 dental visit. Why didn't they? Because it's almost impossible to get people to take maintenance expenses and efforts seriously. If you want their money, you can't get it by telling them that it's to keep them from losing the stuff they have; you have to promise them new stuff.

I originally heard this decades ago, when the alarm bells were first ringing in the newspapers about the effects of decades of deferred maintenance on America's state and interstate highway bridges, as: "No politician ever got his photo in the newspaper cutting the ribbon on a filled-in pothole." But you know what? That's unnecessarily cynical, not least of which because it's been decades since the last time I saw any voter care about whether or not some politician was at the ribbon-cutting ceremony for a new highway. I don't think they even run highway-construction ribbon-cuttings in the newspaper any more. I know they ran the ribbon-cutting on the new I-64/I-170 interchange construction on at least one of the local TV stations, but I guarantee you that no voter remembers who was at that ceremony, or is going to care if somebody tells them later. No, this goes far beyond political grandstanding. This one goes back to the voters.

We've got a local St. Louis story going on now that doesn't pose anywhere near the kind of safety hazard that the Minneapolis bridge collapse shows, but it shows the same problem of getting taxpayers to take public infrastructure maintenance costs seriously. The St. Louis intra-city passenger rail system, Metrolink, was very controversial when it was built; it wasn't at all clear that anybody was actually going to use it. Post-Dispatch columnist Bill McClellan used to regularly mock it for going "from a cemetery near the airport to East St. Louis." So they had to build what they could, build enough to be minimally useful, on a shoe-string budget. That budget included some cheap cheap cheap construction techniques, like laying used railroad rail over crushed gravel beds rather than new steel over concrete. And what they didn't tell us at the time was that the budget contained no money for the all-too-inevitable day, soon, when they'd have to replace those rails and that cheap rail bed; they knew that if they did, the voters wouldn't pass it, not no more than they believed in it. Well, now most of St. Louis believes in it, more people use it than anybody thought, especially for special events, and the voters are really excited about it. So you'd think that they'd be perfectly willing to pony up a tiny tax increase to replace the temporary rails with more permanent rails, right?

You'd be wrong. Metro Transit Agency commissioned some polls, and found out that there was only one way that the voters would approve any tax hike for Metrolink, even the voters who believe in Metrolink the most. What was their almost unanimous demand? That the tax increase also cover Metrolink expansion. The only way they'll approve the money to make absolutely essential safety repairs to the system is if they also get more new, cheap rail lines that'll also, themselves have to be replaced with permanent rails and then regularly maintained. But they won't approve that money now. So presumably when the time comes to repair the expanded Metrolink lines, the taxpayers will also demand yet more new stuff if they're going be asked to pay for repairs on the stuff they already have.