20. May 2012 by admin.

In 1979, when I was finishing high school and starting college, I read Howard Ruff’s How to Prosper During the Coming Bad Years.  I was aware of inflation, was starting to understand what it meant, and I remember a few perilous months in early 1980 when the price of gold shot up, and it seemed at one point that the economy might go off the rails.

Now we face the same problems as back in 1979, only worse.  Howard Ruff has updated How to Prosper.  But we got through the last thirty years in mostly decent shape.  There was no hyperinflationary collapse.

Why is this time different?

More specifically, the bad things that we feared at the end of the 1970s never materialized.  Why should I worry this time?

Two thoughts:

• In 1979, we were still a productive country.  The Chinese were not in the business of manufacturing anything and everything for export.  There were still many businesses that were run in the interest of providing whatever goods or services they purported to provide, rather than making this quarter’s numbers.
• In 1980, Ronald Reagan was elected President.  Much has been written about how he turned the country around and made us prosperous again.  But he didn’t balance the budget, and indeed, first brought us into the era of huge deficits.  Reagan was every bit as inflationary as his predecessors, if not more.  But there’s one difference:
  • Under previous Presidents, inflationary spending went everywhere in the economy, and consumer prices went up along with everything else.  When the price of bread and gasoline go up, people get angry.
  • Under Reagan and subsequent Presidents, inflationary spending got directed into the investment markets.  Consumer prices still went up, but nowhere near as quickly as before.  But the stock market and the real estate market shot up.  When the prices of houses and stocks go up, people are happy, as they think they’re getting richer.

In 1979, we had margin for error.  That margin has been relentlessly squeezed out over the last 30 years.

Yes, it’s different this time.

Posted in Navel-gazing, Things Falling Apart, Money | No Comments »

13. May 2012 by admin.

Many years ago, before I entered the workforce, I understood that Social Security is not a retirement program.  It is a tax, whose proceeds are used to pay retirement and other benefits.  The difference is subtle but important.

In a real retirement plan, the money collected from you and/or your employer is invested over time.  In a defined-benefit plan, there is a commitment to pay you in the future at a specified rate.  In a defined-contribution retirement plan, the money is held in your name and invested.  But in either case, the money is invested in a productive enterprise, so that it will grow, and the amount paid in at the beginning is driven by the amount to be collected at the end.

Under Social Security, the money that you and your employer pay is lent to the rest of the government and spent.  The money that you ultimately receive in benefits is paid by current workers.  The vaunted ‘trust fund’ is an accounting fiction.  And the politicians who vote for new goodies can just as easily vote to take them away.

I didn’t know about defined-benefit and defined-contribution plans in 1979, when I was finishing high school.  But the rest of it, I knew back then.

And it wasn’t a deep dark secret: I read about it in books from the library and bookstores.

The government wants us to believe that Social Security is a pension plan.  They even send out statements every year with the benefits that we might receive, if the politicians don’t change their minds.  But it isn’t so.

Now, I’m roughly halfway through my working life.  With the recent discussions over the Social Security tax, it’s really clear that it’s fake.  (The employee share of Social Security tax was cut by a third a couple of years ago, as a temporary measure.  The cut was continued after raucous debate, as it was the only tax cut that reached the majority of ordinary Americans.  A real pension plan, driven by the need to pay people in the future, would never do that.)

Yet people still believe that Social Security represents a commitment for their retirement.

Now that I’m halfway through my working life, I would have liked to believe that Social Security would be there for me.

But now I’m sure that I will ultimately retire in a coffin.

Posted in Politics, Dysfunctional Government, Money | 3 Comments »

19. March 2012 by admin.

When Barack Obama was running for President, he had the entirely reasonable idea of letting the Bush tax cuts expire for those making over $200k/year.  In December 2010, he caved and signed on to an extension of the tax cuts for two more years, even though the government was (and still is) running huge deficits.

What happened?

Allow me a somewhat fanciful explanation:

Sometime after he was elected but before he was inaugurated, President-elect Obama was briefed on the realities of our world and the Presidency.  He was told the truth about terrorists and UFOs, the proper way to order an ICBM launch, and the location of the secret White House Coke machine.

I’ll speculate further that he was also given a briefing rather like the ‘primal forces of nature’ speech from the movie Network about how the US was doomed, and how he couldn’t raise taxes on the rich, or tweak entitlements, or do any of the practical things that one might think of to actually address the problems we face.  He was also informed in grisly detail of the consequences for proposing such heresies, or telling the American public the truth about what we are facing.

And so Barack Obama, apostle of Hope and Change, became yet another politician.

But we didn’t get that briefing.  We’re outside the corridors of power, watching our country crumble around us, wondering, if not about our next meal, where our meals will come from two years from now.

If we set aside, for a moment, our notions of what is politically correct or feasible, how could we restore productivity and prosperity?  Or is it really a lost cause?

Posted in Politics, Dysfunctional Government, Money, Barack Obama | 1 Comment »

6. December 2011 by admin.

A limited audit of the Federal Reserve Bank, conducted as part of recent ‘bank reform’ legislation, revealed that the Fed had lent some $16 trillion to US and foreign banks between 2007 and 2010.

This shouldn’t really be a surprise: bits and pieces about how the Federal Reserve was throwing money around in an effort to restart the economy appeared from time to time.  But since it’s a story that requires more than eight seconds to explain, the media didn’t really say very much about it.

OK: the Fed did what it’s supposedly intended to: maintain the money supply as the cornerstone of a functioning economy.  But in September 2008, when we were told that the would would come to an end if the government didn’t allocate $700 billion right this instant to bail out banks and insurance companies, we were being played for fools.

If the government hadn’t allocated the funds, the Fed would have.  It would make their $16 trillion pot a little more risky, which would have tweaked interest rates up a bit.  But life, and the economy, would have gone on.

We won’t get fooled again… I hope.

But beyond that, the actions of the Fed reveal that it doesn’t really matter what the government does: the Fed, and the banks, will do what they want anyway.

Posted in Dysfunctional Government, Money | No Comments »

22. August 2011 by admin.

The Republicans, who consider the entire concept of taxation to be evil, have found a tax increase that they actually like.

Last December, in an effort to stimulate the economy, Congress passed a one-year reduction in the payroll tax.  The actual rules are a bit complicated, but basically, the roughly 8% Social Security/Medicare tax that every working American pays (including the nearly half that don’t earn enough to pay Federal income tax) was reduced to about 6%, a little more than a 25% reduction.

Now we’re looking for ways to cut spending, and the Republicans are proposing not to extend this tax break for another year.  If this were a package deal, together with ditching the Bush tax cuts, I’d be OK with it.

To be fair, the Republicans have a point: putting a few hundred extra dollars into the pockets of ordinary Americans (who don’t create jobs) won’t do much to pull the economy out of its slump.  On the other hand, putting thousands of extra dollars into the pockets of the richest Americans hasn’t helped much, either.

For my part, I’m not sure that tax cuts do that much to stimulate the economy, and I get annoyed with politicians of either stripe who push for tax cuts just to score votes.  But the underlying argument of the Republicans is mean-spirited: rich people’s money is valuable to the economy and not to be taxed, while poor people’s money ‘doesn’t create jobs,’ and therefore fair game.

Posted in Politics, Money, Barack Obama | No Comments »

6. August 2011 by admin.

I’m sitting in the park on the Manhattan side of the Williamsburg Bridge.  It’s a pleasant summer afternoon, I’ve been riding my bike, and the endorphins are flowing: it’s all good.

When I was a kid, I lived near here, and my parents and I would go out on our bikes on Sunday morning.  It’s good to see that the park is, if anything, a little nicer than I remember it.

It’s been a crazy week with the alleged resolution of the debt brouhaha:

• Each side is now yowling that it was taken advantage of by the other.  Obama sold out to the Tea Party, while the Tea Partiers wimped out.
• On Wednesday, the government borrowed nearly a quarter of a trillion dollars, apparently making up for lost time.
• Some Republican (mainstream, not Tea Party) noted that the GOP was more than willing to let the deadline pass, until they considered that the Treasury, having to prioritize spending, would short the things that would make the public the angriest (like Social Security) so that they could blame the Republicans.  I find it hard to believe that the Obama administration would do that, but I suspect that a Republican administration would.
• After a 500-point drop on Thursday, the stock market had a barf-bag day on Friday.
• On Friday afternoon, after the markets closed, Standard and Poor’s downgraded US government debt from AAA to AA+.

But where does that leave us as far as the rest of the economy?  Sadly, not too well.  But that’s not really new.

The national government is a one-trick pony: there is only one thing it can do to address a sluggish economy: deficit spending.  Whether this takes the form of tax cuts or new spending programs, the goal is the same: provide loose money to encourage commerce and tide people over until new growth takes hold.

But in fact, the government spigot has been stuck on ‘loose’ for many years now.  Between the bailouts, the stimulus, tax cuts, and the Federal Reserve’s quantitative easing, we’ve delivered enough stimulation to launch the Empire State Building into orbit.  It hasn’t worked.

Now is the time to re-examine our premises and seek a new way forward.  It won’t be easy, and some of it will certainly be painful, but it’s still better than the alternative of yet more debt.

Posted in Dysfunctional Government, Life Goes On, Money | No Comments »

3. August 2011 by admin.

Yesterday, the Senate passed and the President signed into law a measure increasing the debt ceiling, and making present and future cuts in Federal spending–but no new taxes–averting the immediate crisis of a government unable to satisfy its $4 billion daily borrowing fix.  Everybody hates it, but then a good compromise leaves everybody mad.

Except that the plan doesn’t actually cut spending by a meaningful amount in the near term, and anything further in the future can be undone by the next Congress.

Moreover, it sets a dangerous precedent in that the next stage of spending cuts will be determined by a joint committee of Congress, with input from the President, and then be voted up or down with no debate or possibility of amendment.  On one level, since politicians don’t seem to have the intestinal fortitude to vote for serious spending cuts, this seems a practical necessity.

But the committee–called ’super Congress’ by some–has no constraints on what it can include in its ’spending cut’ package.  If they wanted to require all of us to wear lime-green underwear, they could.  For now, we can only hope that they’ll limit their concerns to things that will help the government’s finances.

OK, now that the circus is over, how about going back to the economy and creating jobs?

The economy is languishing, with growth in the first quarter restated at a 0.4% annual rate and the second quarter  at a 1.3% annual rate.  If you exclude banking/finance, and perhaps the oil companies, the rest of us are in a recession.

The government has one thing, and one thing only, it can do to stimulate the economy: it can make money looser.  It can do this by tax cuts (the Republican method) or new spending (the Democratic method), but either way, the intent is the same: to provide new money to encourage the private sector to invest and hire, or at least to tide people over.

But in spite of partisan bickering, the spigot has been stuck on ‘loose’ for a long time now.  Most Federal spending is preset before the budget process starts: Social Security, Medicare, and interest payments.  And the new plan is supposed to tighten things up, even if only incrementally.

So what can the government actually do to create jobs?

For my part, I have no idea.

Posted in Dysfunctional Government, Money | No Comments »

30. July 2011 by admin.

Yesterday,  the Republican-controlled House of Representatives passed a bill to raise the debt ceiling, begin to cut spending, and attempt to address the nation’s fiscal problems.  It was voted down in the Senate in less than two hours, with no serious debate.

Meanwhile, Our Fearless Leader, true to form, has left the details of the Democratic plan to Congress.  Senate Majority Leader Harry Reid is working on such a plan, but the details aren’t there yet, and the House Republicans have already resolved to vote it down.

The headline on today’s Daily News reads ‘Bam: Call Your Reps.’  I would call my reps if I thought it would do any good.  Alas, they’re all solid Democrats, and won’t care.  Or my position will be swamped by many of my fellow constituents.

We’re in trouble now because our government made promises in the past that it now cannot keep.  This happened because the productive capacity of the country was left to rot.  We’ve been working around it for a couple of decades now, telling ourselves lies about ‘the service economy’ and blowing bubbles, but we’ve burned through our savings and our credit and now find ourselves no better off.

A limited government like ours cannot simply will productive capacity into being.  It can’t construct productive enterprises for itself, and it can’t force the private sector to create jobs.  Under the circumstances, the only alternative is to cut spending and find a way to back away from its promises while causing the least damage.

The Republican plan is an effort to do that.  I disagree with the Republican orthodoxy in that I believe that new, higher taxes will be necessary.  The Republicans will say that higher taxes merely encourage higher spending, but one of the lessons of the Reagan administration is that politicians will spend anyway.

If we can’t expect some adult leadership from our government, then we’re really done for.

Moreover, if you want to ask where our productive capacity went, part of it got crystallized into the wealth of the very. very rich.  If the government can return some of that through taxation into the circulating economy, that can only help the rest of us.

So while I don’t completely agree with the Republicans, at least they’re trying.

Posted in Dysfunctional Government, Money | No Comments »

17. July 2011 by admin.

Before 2000, when politics were less polarized, I used to observe that given two candidates, one Republican and one Democrat, who were about evenly matched on the issues, I would vote for the Democrat.  I noted that while the Republican was a little closer to my views on the principles, the Democrat seemed more like the person I’d prefer to see in office: a little more humble, a little more trustworthy.

Some time after 2001 I read the thought somewhere that Republicans view power primarily as an opportunity, while Democrats see it more as a responsibility.

In our current debt-ceiling brouhaha, the Republicans like to point out that now-President Obama voted against a debt-ceiling increase while a Senator during the Bush administration.  But the Democrats relented then, at least partially because they saw maintaining a functioning government as part of their responsibility, even if a President they didn’t agree with was spending too much.

Since I last wrote, not much has changed in the current debt-ceiling drama, except that both sides have hardened their positions, and our President has gone out on a limb and suggested raising the retirement age for Social Security and making other entitlement tweaks.  But he isn’t supported by Democratic Congressional leadership, while the Republicans absolutely insist that there be no new taxes, because that kills jobs.

(There is a cogent rebuttal to that: the economy has become fractured, which portions doing really well, and most of us having trouble.  In that case, it is reasonable for the government to seek to fund itself by taxing the part doing really well more heavily.  Note that we’re not doing this to set up new programs, but to keep the promises we’ve already made.)

Some radicals on the right have suggested that we should ’starve the beast’ and relentlessly cut taxes until government can no longer function.  The Republicans have the opportunity to do that now.  They can remake government in their own image, if they can just tough it out for…

16 days.

Posted in Politics, Dysfunctional Government, Money | No Comments »

7. July 2011 by admin.

This afternoon, overtaken with a task that required relatively little actual thought, I turned on Rush Limbaugh.  It was instructive.

He played of a clip of some remarks by Republican Senator Marco Rubio of Florida:

… I want to know which one of these taxes they’re proposing will create jobs. I want to know how many jobs are going to be created by the plane tax. How many jobs are going to be created by the oil company tax I heard so much about. How many jobs are created by going after the millionaires and billionaires the president talks about? I want to know: How many jobs do they create?

The short answer is that taxes don’t create jobs, except maybe for tax accountants.  The longer answer is that the primary responsibility of government is to maintain an environment in which jobs are created, chiefly by the private sector.  And, as much as we would wish it otherwise, governments don’t–can’t–work for free.

Later, Rush discussed the difference between the ‘deficit’ and the ‘debt.’   His description was accurate: the ‘deficit’ is the amount in a specific timeframe that the government spends that it didn’t receive in taxes, while the ‘debt’ is the accumulated borrowings.  He further noted, accurately, that the government, even given the limits of the debt ceiling, is not in danger of defaulting on its debt.  Instead, hitting the debt ceiling would force the government to stop deficit spending.

But what he didn’t say was that if the government had to stop deficit spending, it  would necessarily have to shut itself down, and would probably have to cut entitlements.

I’m not sure the dittoheads on Social Security would be happy with that.

Posted in Rush Limbaugh, Dysfunctional Government, Money | No Comments »

6. July 2011 by admin.

I was watching Fox News this evening.  Yes, they’re a mouthpiece for the Republicans, but that can be helpful sometimes.  Tonight, they were rebutting Obama’s assertion that the Republicans have no ideas about how to address the deficit.

The Republicans, according to the report, are not against increasing government revenue.  The government can raise revenues by selling assets, or increasing user fees.  But tax increases of any kind, including getting rid of loopholes, regardless of how useless or stupid they may be, are absolutely off the table.

Usually, I disregard this as mere brinksmanship: they’re just playing chicken.  In New York, things like this happen with some regularity, and earlier this year, a Federal government shutdown was avoided with last-minute negotiations.

But we’re in a deep, deep hole: the Federal government is broke.  Getting out will be difficult and painful: it will take both tax increases and spending cuts, and we’re all going to get taken down a couple of notches.  We’re also going to learn the hard way that ‘entitlements’ are not ‘debts,’ and can be changed at the stroke of a pen.  In 2008, I had voted for Obama hoping that he would help us face our problems.  But he turned out to be just another politician.

We’re broke now: it’s just that we can juggle the books for another few weeks, until 2 August, before the country is officially in default.

What’s so difficult? I hear you cry.  Just raise the debt ceiling, like the last dozen times, and everything will be fine.  But the usual rationale is that after one raises the debt ceiling, the economy recovers, and the resulting growth cuts unemployment and covers the debt.  Unfortunately, that hasn’t been working for the last few years.  Our economy has lost the productive capacity that it would need to properly recover from our current situation.

So the alternatives are to negotiate some spending cuts, and possibly tax increases, and kick the can down the road for a few months, or to let a default happen.

If the default is inevitable, maybe it’s better for it to happen now:

• We’re all (except the very, very rich) stretched now, but it will be worse next year;
• If it happens now, we have a chance to stabilize the situation by next year’s elections.

And, perhaps, that is what is underneath the Republicans’ position.  They may want the default to take place, not out of malice, but because it is the least painful of the available alternatives.

I tend to doubt that this will be the usual game of chicken.

Posted in Dysfunctional Government, Money | No Comments »

3. July 2011 by admin.

Right now, the Federal government is running against the debt ceiling: on 2 August, it will no longer be able to borrow money, and be officially broke.  Timothy Geithner, Secretary of the Treasury, has cited Section 4 of the 14th Amendment as a reason that the government should keep borrowing anyway.  Let’s read it together, shall we?

*          *          *

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

*          *          *

The Amendment was enacted after the Civil War, and the former Confederate states were required to ratify it as a condition of readmission.  In that context, the meaning is clear: what the Union spent to fight the Civil War was a valid debt that could not be repudiated, but as for the debts of the Confederacy, or the value of slaves as assets, well, tough noogies.

OK: what does that mean now?

Debts of the United States that have been previously authorized cannot be repudiated.   So we have to continue paying interest on our outstanding debts.

But what if we’re in such bad shape that we need to take out new debt to service our existing debt?

In that case, perhaps, we could use the authority to coin money, if we hadn’t delegated it to the Federal Reserve.  But we’re not quite there, yet.

More practically, what the 14th Amendment tells us is that we do not have the option of failing to service our debts.  If we can’t create new debt, we have to take money that would be spent on other activities in order to pay the interest we owe.

So this means that everything else–defense, civilian administration, and even Social Security and Medicare–must be cut in order to pay our debts.

Even Social Security? I hear you cry.  You mean like poor little old ladies?

Alas, the little old ladies don’t have a Constitutional amendment.  Sorry.

Posted in Dysfunctional Government, Money | No Comments »

29. June 2011 by admin.

• This week, the New York Post raised the price of the daily paper to 75 cents from 50.  I’m sure its chief competition, the Daily News, will follow suit before the end of the summer.
• The back of my MetroCard features the word ‘optimism:’
  
  A line at the bottom of the card gives credit to Reed Seifer, under the MTA’s Arts for Transit program.  I’m compelled to ask:
  • Is this really art?
  • Did Reed Seifer actually get paid for suggesting the word ‘optimism’ on the back of a MetroCard?
  • If so, did the person responsible for that at the MTA lose his/her job as a result?  (Last I checked, they were crying broke!)
  • Are you now filled with optimism after reading this?
• For the last year or so, New York City has been giving restaurants and other food establishments ratings of ‘A,’ ‘B,’ or ‘C,’ based on their sanitary inspection results.  A restaurant in my neighborhood got written up in the newspaper for hiding their ‘C’ rating.  The next week, the sign was back up, but the orange ‘C’ had faded into invisibility.  It looked as if the sign had simply faded in the sun, but still I have to wonder….

Posted in New York City, Media, Money | No Comments »

26. June 2011 by admin.

No, not me.

A few weeks ago, after months of trying, my son finally found a job in a media office of some sort.  He was working as an office assistant, doing scanning and other tasks, and hoping that they would take him as a permanent employee (not there is actually any such thing in our era of employment at will).

The other day, he learned that the company would not take him as a permanent employee, and he was back in the street again.

I’ve been contemplating buying a new tablet computer, but on learning this, I shelved those plans.  He’s my son, and I don’t feel right enjoying a shiny new toy right now.   Instead, I’ll buy him driving lessons: he’s 25 and does not have his license.

Things are very different for him than for me.  Both of us grew up in the city, without cars in the household.  But I took driving lessons when I was 20, with my own money.  When I was 25, he was already one year old.

I wish I knew what to tell him, beyond the obvious, as he embarks on another job hunt that seems almost pointless.

Posted in Family, Life Goes On, Money | No Comments »

14. February 2011 by admin.

In my recent readings, I’ve come across something that seems extraordinary in our time, but really wasn’t.

For most of our history, we didn’t worry about Federal budget deficits.  The government went into debt at its inception, for the Civil War, and for World War I.  In between those events, the government ran a surplus, and paid down its debt.  It was only when we started trying to use deficit spending to get us out of the Depression that we got into trouble.

The Founding Fathers regarded public debt as dangerous, and for about 150 years, we believed them.  To be sure, it wasn’t always smooth sailing.  There was boom and bust, but generally we recovered more quickly from the busts than the present situation.  And taxes went up and down, depending on the vision of the party in power.  But the idea that the national debt was something to ultimately pay off was accepted by just about everyone.

In 2000, when we had been running a surplus for a couple of years, Bush, the candidate, said that the surplus belonged to the American people, and he would give it back through tax cuts.  And, indeed, once elected, he did just that.  The surplus was not meant for us to rebuild, and prepare for the next crisis: it was a big fat cookie jar waiting to be raided.  So much for the dangers of public debt.

So why can’t we return to our roots?

Because trying to pay back our debts would mean both higher taxes and lower spending, and both of these are politically unacceptable.

It was a charming thought, though….

Posted in Politics, Money | No Comments »

7. January 2011 by admin.

I was listening to Sean Hannity again this afternoon, and he was pressing the case that cutting taxes spurs economic growth.  He noted, as he has in the past, that government revenues doubled in the 1980s in spite of the Reagan tax cuts: hence, tax cuts actually increase government revenues.

Well, maybe.  A look at the official figures (http://www.gpoaccess.gov/usbudget/fy11/pdf/hist.pdf, pages 30-31) yields the following:

For 198o, the US government took in $517.1 billion.  For 1990, it was $1,032 billion.  So yes, in that time, government revenues almost doubled.

But government revenues doubled–or more–in every decade from 1940 to 2000.  So that really isn’t saying very much.

The government also presents figures where the revenues are adjusted to constant 2005 dollars.  By that measure, government revenues increased at a rate of 2.34% per year, on average, through the 1980s.

OK, what happened during the 1970s, the decade that brought us the energy crisis and stagflation?

Revenues went up, on average, in constant dollars, at a rate of…

…wait for it…

2.15% per year.

Also, government revenues as a percentage of GDP were 19% in 1980 and 18% in 1990.

All of this suggests that the vaunted Reagan tax cuts were, in the long run, tweakage.  Something changed during that time to make us all believe we were more prosperous.  But the tax cuts themselves had very little to do with it.

But what’s more disturbing is what has happened since 2000.  Government revenue went up a tick over the decade, but dropped in terms of constant 2005 dollars.  Meanwhile, expenditures went galloping ahead, more than doubling over the decade, or increasing at a rate of 4.97% per year in constant 2005 dollars.

So in the 1980s, taxes were cut–a little–and government revenues held steady, considering inflation and general economic growth.  In the 2000s, taxes were cut, and revenues dropped.

So cutting taxes does not increase revenues.

Sorry, Sean.

Posted in Money | No Comments »

31. December 2010 by admin.

One of my guilty pleasures is listening to conservative talk radio.  If I have a day, as I did yesterday, where I’m not actually writing as part of my work, I enjoy listening to the Rush Limbaugh and Sean Hannity programs.  Rush and Sean are in fact on vacation this week, but their stand-ins do a credible job.

Anyhow, the guy filling in for Sean Hannity acknowledged that, in our time, the rich are indeed getting richer and the poor are getting poorer.  He then suggested that, instead of taxing the rich and making them poorer, we should somehow ‘build up’ the poor to make them richer.

OK, it’s an admirable thought, but how are we supposed to do that?

Once upon a time, the rich got that way through productive investment.  For their enterprises to thrive, they needed to hire, collectively, millions of people.  And it worked: the rich go their profits, and the rest of us were able to prosper, as well.

Today, the rich invest don’t invest for production: that’s too risky and messy.  If there’s any manufacturing to do, better to do it outside the US where it’s cheaper and there aren’t so many pesky regulations.

And if you want to start a business in the US, those same regulations make it genuinely difficult.

Once, the poor were ‘built up’ because doing so brought profits to the rich.

How are we to do it now?

Posted in Media, Money | No Comments »

20. December 2010 by admin.

About 20 years ago, my parents gave me a bailout.

I had gotten divorced and was broke, and had moved back to New York City.  My job here paid better, but I still had a pile of installment debt from when I was married.  So one day, my parents sent me a check for $5,000.  It didn’t totally wipe out my debts, but it put a big dent in them, and I was able to better balance my books going forward.

I ultimately got completely out of debt, and then… I fell in love again, and got married.  And one hates to say ‘no’ to one’s beloved.    My new wife is more reasonable about money, so it wasn’t the crisis it was the first time, and things stayed under control.  But I got further into debt when I went into business for myself.  Today, I still am in debt, but I’m working to pay it back.

What can we learn from this?

1. Bailouts work if the bailout has actual value behind it.   My parents bailed me out with actual money they had in their checking account.   (OK, it’s fiat money, but it represents the savings of my parents, who didn’t have to borrow to send it to me.) When the Feds bail out banks and insurance companies with money they don’t have, it merely kicks the can down the road… and turns it into a bigger can.  And ultimately someone who has real value (i.e. the rich) will have to really bail us out.
2. Bailouts don’t change behavior.  You may be chastened by having received a bailout, but the feeling will wear off, and given the same circumstances as before, you’ll be back to your old tricks.

Posted in Navel-gazing, Dysfunctional Government, Money | No Comments »

18. December 2010 by admin.

Yesterday, President Obama signed into law an extension of the Bush tax cuts for two years, after insisting in his campaign that he wanted to let the cuts expire for those earning over $250,000/year.  The liberals who supported him are disappointed that he turned his back on his principles; more moderate commentators commend him for pivoting to the center like Bill Clinton.

For my part, I’m disgusted.

The bonanza for the rich (relief from what would have been a maximum 13% tax increase) was accompanied by a one-third cut in the employees’ portion of the Social Security tax for next year.  So we’ve all got a share of the goodies.
In this battle between Republicans and Democrats, the only thing that both sides can agree on is spending money they don’t have.

Meanwhile, the toxic borrowing goes on, and nobody seems to want to do anything about it.

Posted in Dysfunctional Government, Money, Barack Obama | No Comments »

22. November 2010 by admin.

The Debt Clock near my office (and perhaps not coincidentally adjacent to the local IRS office) is supposedly counting up our ever-increasing national debt.  It was originally installed a little south of its present location.  It was mothballed briefly in the late 1990s when the Federal government was supposedly running a surplus, and then a shiny new office building was built at the original site.  The clock reappeared in its present location not long after the yo9unger Bush became President.

But I’m not sure the Debt Clock is running fast enough.  It ticks off $9,958 every second.  There are about 31.5 million seconds in a year, so that comes out to $314 billion per year.  That’s an awful lot, to be sure, but we’re told that the Federal government borrows about $1 trillion per year.  The clock should be running about three times as fast.

Or am I missing something?

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21. November 2010 by admin.

I like being married.  I’ve been married and single, and for me there is no comparison: my wife brings me peace and happiness, which means more to me than the do-whatever-I-want freedom of being single.  But for an individual, one always has a choice.

As a society, we’re stuck with having a government, whether we like it or not.   But is it too much to ask that my government act like responsible adults?

My wife, like many wives I’m sure, asks me for stuff.  Most of the time it’s perfectly reasonable, but sometimes she asks me for things that we can’t quite afford.

Sometimes I’d really like to get her whatever-it-is, and sometimes I’m not sure it’s worthwhile.

When I was married the first time, I tried to tell my wife , ‘no,’ and she would just make my life miserable.  She thought we were rich, and that my resources were really infinite.  So after some tension, I would give up and buy whatever it was, until I really ran out of money and credit.  And then we got divorced.

My wife today is more fiscally responsible.  Sometimes I do stretch to buy something if I think it would really make her happy.  But I can tell her, “I’d really like to do this for you, but to do it would mean that I’d have to borrow and pay interest,” and she understands. And it works: although I’m still in debt from starting my business, it’s getting paid off, and I’m putting money in the bank.

In other words, we deal with money like responsible adults.

Meanwhile, our leadership seems to be unable to exercise even a little self-control.  Most of what our Federal government spends money on is fixed by law: Social Security, Medicare, interest on the national debt.  Only a small portion can be readily tweaked from year to year.

So if the government isn’t raising enough revenue from taxes to cover its expenses, then it needs to raise taxes or cut expenses.  We all know that from managing our personal expenses.  And sometimes, in our personal lives, being responsible means telling someone dear that they can’t have what they want, at least not now.  Anyone with a spouse and/or children knows that can be unhappy.  But if you’re responsible, you know that a little unhappiness now can work out better in the long run.

But our leadership seems incapable of making hard decisions.  One can’t raise taxes, even if it’s prudent, because someone on the other side will say that it’s better to cut taxes, and enough people will believe him because nobody likes to pay taxes.

And entitlements are called–with good reason–the third rail of politics.  President Bush, back in 2004, had a reasonable idea with privatizing Social Security.  But even he could not kiss the third rail without getting badly burned.

The same drama plays out for New York State, stumbling from one crisis to another, with some faction of the legislature believing that the money will always come from somewhere.

When will they grow up?

Posted in Navel-gazing, Dysfunctional Government, Money | No Comments »

10. November 2010 by admin.

Ronald Reagan, on balance, was one of our better Presidents.  Although the Soviet Union would probably have collapsed anyway, he accelerated the process; he reversed the trend toward bigger government; he made us feel better about ourselves, which seems silly, but is important, as it leads us to solve problems for ourselves, instead of moaning and wailing for the government to do it.

But there was one point where Reagan was mistaken.  He believed that tax cuts were an effective way to constrain the government: it the revenue isn’t coming in, then it can’t be spent.  Of course, his own administration did otherwise, ushering in the ear of huge deficits.  He proposed that he could cut taxes, increase defense spending, and still balance the budget.  I guess two out of three isn’t bad.

But now that we have the perspective of over two decades,  it’s clear that reducing taxes does not constrain government.  On the contrary: as long as someone out there is willing to lend, the politicians are willing to borrow.  Only when there is really and truly no more money will they stop.  But even then, they will rarely shut anything down.  Instead, they reduce its budget so that it works half-assedly.

And if we can come up with a gimmick in order to keep spending, like the current ‘quantitative easing’ by the Federal Reserve, so much the better.

Anything to avoid facing reality….

Posted in Ronald Reagan, Dysfunctional Government, Money | No Comments »

7. November 2010 by admin.

From today’s Daily News:

—

President Obama Saturday announced $10 billion in trade deals with India that will create 50,000 U.S. jobs.

“The United States sees Asia, especially India, as the market of the future,” Obama said at a gathering of business leaders in Mumbai. “We don’t simply welcome your rise … we ardently support it.”

…Still, he acknowledged many of his fellow countrymen don’t see India as a job creator.

“There still exists a caricature of India as a land of call centers and back offices that cost American jobs. That’s a real perception,” he said.

…”For America, this is a jobs strategy,” he said. “The goods we sell in this country currently support tens of thousands of manufacturing jobs across the United States.”

The deals, for instance, include Boeing building aircraft for the country and General Electric selling it jet engines.

***

Obama wants to assert that trade with India creates jobs for Americans.  OK, it’s nice that we can still build aircraft for export.  But the fact remains that call centers and back-office functions, as well as activities requiring actual thought, like legal and medical reviews, are outsourced to Indian firms on a far larger scale.

And the 50,000 jobs (or even 100,000, as some sources suggest) associated with the specific trade deals with India are far less than we need every month just to stay ahead of population growth.

And one day, probably sooner rather than later, the economics will come together to enable India to build aircraft and engines for themselves, rather than importing them.

Does Obama simply not understand what’s happening?

Or are we so desperate that any export deal is to be hailed as a major achievement?

Posted in India, Money, Barack Obama | No Comments »

17. October 2010 by admin.

I had what my wife calls a ‘doggy dream’ last night.

*     *     *

I was one of about 200 well-dressed people, mostly men, who were somehow associated with the Federal Reserve.  We had gathered in what looked to be a very utilitarian dining room: concrete floors and folding tables.

We sat in anticipation of the feast, which was brought out by a group of Chinese waiters: plastic platters of green money.  The smaller platters had perhaps two dozen bills, but other platters had big wads of $50, $100, and even $1000 bills.  There was no fighting over who got which platter, as we all had the sense that we would get our share.

And we all understood that intent was not to eat the money, but to take it home and spend it.

*     *     *

When I told my wife the dream, she thought it meant that I would one day be very rich.

More practically, I think it came from the news reports that I’ve been reading that suggest that the Federal Reserve Bank may embark on a second round of ‘quantitative easing:’ ‘buying’ up assets without regard to their real value in an effort to inject money into the economy, stimulating it.

It’s been discussed in the press as ‘QE2,’ evoking memories of the recently-retired ocean liner Queen Elizabeth 2.   I’m not sure why, other than that the image is vaguely charming.

I guess if you’re on Wall Street, it seems wonderful, but for those of us who have to earn a real living, it’s not so great.  The first round of quantitative easing boosted the stock market, and stabilized real estate prices, but didn’t resolve itself into productive activity and jobs in this country.

Alas, the rot continues….

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9. October 2010 by admin.

Yesterday morning, the US Department of Labor released the monthly unemployment statistics.  The figures were anemic, with an overall loss of 95,000 jobs and the official unemployment rate holding steady at 9.6%.  The stock market rejoiced, with the Dow Jones Industrials closing above 11,000.

On the surface, it seems strange: the employment figures don’t seem to suggest a recovery in progress.  Maybe investors actually want to see high unemployment, but the figures aren’t bad enough to suggest that either.

But the reason the stock market went up seems to have very little to do with the unemployment rate itself: the thought is that the Federal Reserve will make more money available to stimulate the economy.

So we’re all excited because of the new flow of funny money, so that investors can play their silly games.  If the money went for something productive, I might feel differently about it, but it seems to accomplish exactly nothing.  Yes, investors will be happy and the stock market will go up, but don’t expect it to resolve into anything so mundane as actual jobs for Americans.

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8. October 2010 by admin.

One of my earliest memories of midtown Manhattan as a little boy, besides obvious things like the Empire State Building, was the glass bank building at Fifth Avenue and 43rd Street.  I most keenly remembered the safe deposit vault at street level, that used to be opened during business hours.

As I grew up, it remained in my mind as the essential image of what a bank ought to be.  When I was a young man, it was a Manufacturers Hanover, which got swallowed by Chemical, which then got swallowed by Chase.  The ATM lobby was added as the machines came into use.  I don’t remember exactly when they stopped opening the vault during business hours, but it hasn’t been opened in a while.

It was pretty clear that the sleek, modern bank building had become an anachronism: a horrific waste of value to have a four-story building in midtown Manhattan.  It became clear that the end was near when Chase set up a new branch in an office building one block north.

Today was the last business day at the glass bank.  I don’t know what will happen next: perhaps some other bank will set up there, but I rather doubt it.

Posted in New York City, Life Goes On, Money | No Comments »

21. March 2010 by admin.

Friday night, I watched the Michal Moore film, Capitalism: A Love Story.  In it, he describes some of the excesses of modern capitalism, and asks some priests what they think of it.  They call capitalism ‘evil.’

Well, thank you!  I’m a capitalist, and I’m proud of it!  I run a small business; I earn a good living at it (not ‘riches,’ but it keeps food on the table, a roof over our heads, and power at the socket);  I have enough demand for my services that I’m contemplating the next step: hiring others to help me accomplish more and better things.  Am I evil, too?

Probably not.  Moore talks about his upbringing in Michigan, as the son of an auto worker.  Capitalism put food on his table as a kid; as a filmmaker, he is one of the obvious beneficiaries of the free market.

But something happened.  Once, capitalism supported vast industries, employing millions of people, and getting useful work done.  Now, capitalism has become an end in itself,  consuming everything it touches and not leaving so much as fertilizer behind.

About 20 years ago, I came across a book about ‘the coming economic crisis.’  It posited a world in which the dollar would implode from deficit spending, driven by ‘the Acquisitors,’ who would suck all the money out of the economy and leave nothing for the rest of us.  At the time, it seemed a little silly: after all, the economy was so vast, how could a small group of rich people simply take it all over?

But it actually seems to be happening….

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27. January 2010 by admin.

The Obama administration indicated yesterday that the President would call for a three-year freeze on discretionary spending as part of the State of the Union address tonight.  It’s official: he’s now just another politician, and not even a very good one.

Every President in modern memory, except one, has jumped up and down and insisted that the deficit be reduced.  (The only exception was Clinton: we were flush with the Peace Dividend and actually ran surpluses.)  And every President who jumped up and down about deficit reduction never actually accomplished it.

The freeze in discretionary spending affects less than $500 billion of a $3.5 trillion budget.  (Can’t anyone divide?  The press is reporting that the freeze affects 17% of the budget, but when I went to school, 500/3500 = 1/7 = about 14%!)  Of course, the sacred cows of defense and entitlements are off the table.  Projected savings from this measure in the first year are estimated to be $10 to $15 billion, or less than 0.5 %.  It’s like saying that I’ll balance my family budget by giving up magazines, books, and movies.

On the other hand, deficit spending (whether actual spending increases or tax cuts) is the government’s most useful tool for dealing with a bad economy.  The spending has to be chosen wisely, which didn’t happen with last year’s stimulus package (in which the Democratic Congress ran around like kids in a candy store).  Bad deficit spending is worse than flushing the money down the toilet, because the recipients of the money will have reason to expect more in the future. But good deficit spending (say, investments in infrastructure) can be genuinely useful.

More than I’m disappointed by the substance of the move, I’m disappointed that our President seems to be displaying no leadership at all.  He’s getting the buzz that people are worried about the deficits, so he’s serving up some old blather to suggest that people shouldn’t worry.

I wish President Obama would:

• Pick a direction.  For all that I railed against President Bush, he at least did this part right.  If Obama wants to temper his decisions to make them more acceptable to the opposition, it should be done before taking the plans to the public.  Setting forth a big plan, and then conceding later, looks wishy-washy.
• Articulate a clear vision of what he’s trying to do, going beyond the sound bites and addressing reasonable concerns from the other side.
• Do NOT then throw the issue over the fence and let Congress hash out the details.  Architects don’t draw up plans and then say, “OK, my work is finished, it’s now the contractor’s job.”  They generally have a role in managing the construction project, keeping things on track, and fixing glitches that pop up.

Obama also disappointed me with his remark that he’d ‘rather be a really good one-term President, than a mediocre two-term President.’  The only way you can get to be a mediocre two-term President is to get re-elected, and for that you have to be a good one-term President.

Looking back, when was the last mediocre two-term President?  Not Clinton: he presided over peace and prosperity, as well as bringing us the ongoing drama of the impeachment that wasn’t.  Not Reagan: he helped end the Cold War.  Not Nixon: he didn’t serve two full terms, and he resigned in disgrace: definitely not mediocre.  Not Johnson: he brought us civil rights and Big Government: the latter was perhaps not a good thing, but still not mediocre.  (Johnson also didn’t serve two full terms.)  Maybe Eisenhower, but that was before I was born, so I can’t really say.

But I’ll grant the possibility that someone might get re-elected to the Presidency, then go to sleep, and end up a mediocre two-term President.  Unfortunately, the only sure methods of being a great one-term President without running the risk of being a mediocre two-term President are to either (1) refuse to run for re-election or (2) die in office.

Posted in Dysfunctional Government, Money, Barack Obama | No Comments »

4. January 2010 by admin.

When I went into business for myself a few years ago, I expected that, at first, the business would not earn enough to cover my living expenses, and I’d have to go into debt.  And that, indeed, is what happened.  But I got past that, and now I earn a pretty good living, and I’m making progress at paying off the debt.

So I was taken aback when I got a missive from my bank today that they were refusing to renew my Visa card.  OK; it’s not quite as bad as that: they lowered its credit limit to just over the current balance,  so that I can’t make any substantial purchases.  They also didn’t send me a new card when the old one expired at the end of the year.

It isn’t an emergency: in the last few months, I’ve actually started saving money again, so I don’t need the card for current expenses.  But not having it is an inconvenience, and if something should happen that wipes out my savings, I’m screwed.

15 months ago, when we were worried that the economy was about to go off the rails, we were told that the problem was that the banks had become illiquid and couldn’t lend.   And we turned over billions upon billions of dollars in bailouts so the banks wouldn’t go kablooie.

And now everything’s rosy again, and the banks have mostly returned their bailout money, and now they cut me off, after I paid my bills faithfully every month for years.

Oh yes, we’re recovering, all right….

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16. August 2009 by admin.

I need to say, at the outset, that I’m not a car person.  I don’t own a car; I don’t feel I need one to be complete as a man or as an American; I consider them a means of transportation and not a member of the family; and I certainly do not want, as one recent commercial would suggest, to have a relationship with a car that smolders for a long time (the relationship, not the car).

One of the more successful government programs to stimulate the economy has been a grant of up to $4500 to people turning in old cars, for the purpose of buying a more fuel-efficient new car.  I’m not sure how much it is actually stimulating the economy, but it’s making people feel better, and I’ll grant that that’s worth something.

I accept, on an intellectual level, that the cars turned in under this program should be disabled so that they (1) can’t be turned in again, and (2) won’t appear on the roads of America (or anyplace else).

But the method for disabling the cars upsets me on a visceral level.  The engine oil is replaced with a solution of sodium silicate (brand name: Castle Clunker Bomb) and the engine is run at moderate speed to grind itself to destruction.

I can understand why the bureaucrats came up with the method: it’s effective, relatively safe, requires little mechanical skill, and doesn’t depend on the configuration of the engine.  But I can imagine myself as a mechanic, after a lifetime of training and experience in keeping cars running smoothly, having to listen to the sound of the engine destroying itself.  I’d want to tell my boss to go to hell; I’d rather drill a hole in the engine block (one of the methods that was considered and rejected).

When we kill living things of necessity, we try to do it cleanly.  I said at the beginning of this entry that I’m not a car person.  But the thought of enlisting a machine in the cause of its own destruction really bothers me.

Is the Clunker Bomb a metaphor for our world, in which productivity is turned to destruction?   Is it that my mother told me to ‘waste not, want not,’ and the thought of destroying thousands of car engines seems spectacularly wasteful?

Or is it that a society that destroys its cars–almost as near and dear to our hearts as Americans as our family pets–in such a horrendous manner will one day devise a similar method to destroy its people?

Posted in Automobiles, Dysfunctional Government, Money | No Comments »

14. June 2009 by admin.

This morning’s Daily News brought a color casino advertising supplement: all the latest shiny places to have fun.  The charm of casino gambling, for those of us who can’t afford to lose $10,000 at a clip, escapes me.  I went to Las Vegas a few years ago with my wife, and was actually bored.  But if you enjoy it, go and have fun: it’s a free country.

I was idly turning the pages until I saw a picture of a vaguely industrial-looking casino building, framed by a vaguely industrial-looking steel arch.  It was the Sands Bethelehem, built on the site of the former Bethlehem Steel plant in northeastern Pennsylvania.

When I was a kid, I used to see construction sites in the city, many of them for skyscrapers, and many of them had signs that read, ‘Bethlehem Steel.’  I wasn’t quite sure about the connection between the steel in the buildings and Jesus’s birthplace, but it was clear that these were big buildings going up.

So it’s come to that: what was formerly a locus of productive activity has now become a facility for depleting thousands of people of their savings.  But the people keep showing up, eager to be depleted, and the community where the facility is located is happy to have it there, because it brings tax revenue.

Didn’t the United States used to be a nation that accomplished things?

Posted in Things Falling Apart, Money | No Comments »

11. April 2009 by admin.

An article in yesterday’s New York Post brought out an interesting point:  while we, and much of the world, tend to blame the economic mess on American bankers who over-leveraged themselves, the data suggest something different.

A year ago, when we were dithering with the question of whether or not we were having a recession, much of Europe and Asia was already in trouble.  While we retroactively place the beginning of the recession at December 2007, the wheels didn’t really come off the American economy until September 2008.

So what happened?  In late 2007 and early 2008, there was a huge runup in the price of crude oil, topping out at $150 or so a barrel in July 2008.  For us in the US, the price rise played out as an annoyance: ‘Pain at the Pump’ was a constant headline on the NBC evening news.

The rising price pushed the economies of Europe and Asia, and even Canada, directly into recession.  But we hung on for a while: perhaps our propensity to run up debt shielded us from the direct effects of the price rise.

And then we got in trouble as the price fell. Perhaps we would have hung on if the price had stayed up; perhaps our unregulated hedgemen had bet on the price of petroleum and lost their shirts, and that was the straw that broke our camel’s back.  Or maybe we just exhausted our capacity to paper over our problems with debt.

In any case, when all hell was breaking loose last September and October, nobody seemed to notice–or to assess–the effects of the high price of oil in the previous months.  It was just that the price of oil had dropped because of slack demand.

Yes, our bankers made a royal mess of things, and created an environment in which even responsible businessmen believed they could make money out of thin air by investing in real estate.  But the rising price of oil has more of the blame.

However, if we consider the price of oil, instead of our inept bankers, as a primary cause of our difficulties, our strategy for dealing with the problem should properly change.  In that case, we simply took a hit from a market force that is no longer with us, and should try to walk it off, with some modest stimulus efforts.  The ‘troubled assets’ would be secondary, best left for the market to deal with.

Of course, that’s not the approach we’re taking….

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5. April 2009 by admin.

This past week, the New York State Assembly passed, and the state Senate is contemplating, the state budget for the fiscal year that began… last Thursday.

At a time when the economy is reeling, and one would figure the need to cut back, the budget weighs in at $132 billion, up some $11 billion over last year, and $8 billion over the budget that Governor Paterson proposed.  The State Assembly news release indicated that the budget “closes a projected a $17.65 billion General Fund gap by implementing $5.1 billion in necessary spending cuts, raising $5.2 billion in revenue, utilizing $1.1 in non-recurring revenues and maximizing $6.2 billion in federal stimulus dollars.”

I’m afraid to ask how there can be a $5.1 billion dollar cut if spending is up by $11 billion, and I’m not sure how ‘maximizing’ Federal aid differs from spending it.

Somewhere in New York is $5 billion in State spending that is absolutely wasteful and stupid, and the State leadership was finally able to kill it.  But beyond that, it seems as if the State simply relied on Federal aid and tax increases to otherwise maintain the status quo.  What happens a couple of years down the road, when the economy has recovered and the Federal government is no longer handing out aid?

Meanwhile, the budget legislation also modifies the state drug laws to favor rehabilitation instead of prison.  The original Rockefeller laws from the 1970s were modified a few years ago to eliminate their supposed Draconian excesses, and it seemed to work: prison populations are down, and the streets are far safer now than 20 years ago.   Yet the state Legislature is changing them now, and allocating additional funding for drug treatment alternatives.

So the state has money to preserve the sacred cow of education, and can drop the pile of nuisance taxes that were part of Governor Paterson’s original plan, but they can’t come up with a way to provide funding for the MTA and deter fare hikes and service cuts.  (Perhaps the MTA was one of the stupid items that got cut.)

The distressing part of it is that there seems to be nothing that we as citizens can do to stop this madness.  The state election laws effectively favor incumbents by making it very difficult for newcomers to run for office.  Once in a while, someone makes it, gets sucked into the Albany machine, and turns into a Legislature droid.

And electing a new governor doesn’t seem to help, either.  A while back, we elected Eliot Spitzer on his promise to clean up Albany.  Within six months, he was in a pissing contest with Joe Bruno, leader of the State Senate.  Governor Spitzer had a legitimate question: was Bruno using State travel privileges for political gain?  But by pursuing the matter in a thoroughly inept manner, making it look as if he was using the State Police to spy on Bruno, Spitzer effectively shot himself in the foot.  Needless to say, no actual cleanup occurred.

And then Spitzer really imploded when it turned out that he was seeing prostitutes, and he left office, leaving us Governor Paterson, who has been a singular model of ineptitude.

What can we do (besides move to New Jersey)?

Posted in New York State, Dysfunctional Government, Money | No Comments »

29. March 2009 by admin.

Last week, the Metropolitan Transportation Authority (MTA), our local mass transit agency, voted to raise fares and cut service.  The price of a monthly MetroCard for the buses and subways will go from $81 to $103 per month, and fares and tolls for other MTA facilities (they’re also in charge of the commuter railroads, and toll bridges and tunnels) will similarly go up.

That, in and of itself, wouldn’t be too bad: public transportation in New York works pretty well, and would be a good value even with the fare increase.  But the plan also includes a series of service cuts, including dropping two subway lines and about 30 bus routes, and reducing late-night subway service by one-third.

In good times, financing the MTA is not a critical problem: the agency is financed with transfer taxes on real estate and other similar transations.  But since the economy went kablooie, tax revenues are way down.

Historically, New York State has subsidized the MTA to some extent, but that’s difficult right now because the state is broke.  It’s not as if we couldn’t see the problem coming: Richard Ravitch, who ran the MTA years ago, was tasked last year with coming up with a plan to help finance the MTA under the current circumstances.  However, none of his recommendations have gotten through the New York State Legislature.  The Ravitch report included a plan to charge tolls on the East and Harlem River bridges that are currently free, but somehow the Legislature first decided that the toll could only be $2 (not the $5 proposed in the Ravitch report) and then couldn’t be done at all.

The only thing that the Legislature has apparently done, and isn’t specific to the MTA, is to crank up the income tax on higher brackets (above $250,000/yr).  While such a tax increase is a necessary component of dealing with the problem,  it can’t be the entire solution: raise the taxes enough, and the people who pay them will go elsewhere.

But then the Legislature seems to be on its own little planet, where there’s a shortage of funds, but never any need to do anything about it, and the Governor is on his own little satellite, apparently sucking his thumb while the whole mess unfolds.

The thought is that the Legislature will get off its rump and ‘do something’ to help fund the MTA.  The newspapers have been suggesting that we should all call the Governor and our legislators to get them to do something.

It seems pointless: I’ll save my breath to cool my porridge.

But watch: sometime late in May they’ll put something together, and the fares will only go up by 10%.

They always do stuff like that.

They’ll come through.

Won’t they?

Posted in New York State, Dysfunctional Government, Money | No Comments »

22. March 2009 by admin.

The big news last week was that failing insurance company AIG, despite receiving $180 billion in bailouts from the government, spent $165 million on employee bonuses, including some of the people who were responsible for AIG imploding.  There was an uproar in the press, and the House passed a 90% penalty tax in an effort to recover the bonus money.

But then it came out that our leadership knew about the bonuses and lad let them stand in earlier bailout legislation.  Moreover, the Constitution prohibits retroactive law.

I’d like to think that a prudent management, in writing contracts for employee bonuses, would include provisions for cancelling the bonus if the employee runs the company into the ground.  But then a prudent management would not have let itself be run into the ground.

In the end, even though it feels good to give in to the populist rage and try to take the bonuses back through one means or another, it’s probably better to let them stand.  We’re supposed to be a nation of laws and not of mob rule.  Moreover, some of the employees receiving bonuses might actually deserve them.

The bigger questions  are:

• Why did AIG management, over the years, applaud the very measures that led to their destruction?  The short answer is, ‘they turned a profit.’
• Why did the government so readily hand over billions to bail out AIG?  The short answer is, ‘AIG was, and is, too big to fail.’
• Why did nobody care to look beyond the short answers?

Posted in Dysfunctional Government, Things Falling Apart, Money | No Comments »

21. March 2009 by admin.

There was some encouraging news this week: Citigroup reported that it had turned a profit.  Yes, they receved billions in bailout money, but it’s still encouraging.  And the Dow Jones average was up for the week, for the second straight week.

Has the market found its bottom?  In another time, the answer might be ‘yes:’  we would reasonably expect the market to take its time to recover, for the parties to take their losses and lick their wounds, and then forge on.

But yesterday, the Congressional Budget Office quantified ‘trillion-dollar deficits as far as the eye can see’ to anticipate a cumulative deficit of $9.3T over the next ten years.

Who will pay for it?

For years, our deficits have been funded from overseas: from China and Saudi Arabia.  But they’re beginning to get worried.  Our own economy is now so oriented toward credit and consumption that we can’t finance it ourselves.

The only plausible alternative is inflation: the government watering down the money to make it go farther.

And the deficits aren’t just to fix the economy: they’re also for President Obama’s programs to remake the country in his own image.

And so what could have been the bottom almost certainly won’t be.

Posted in Money | No Comments »

8. March 2009 by admin.

For the last few weeks, I’ve been trying to resolve the disconnect between Barack Obama’s speech on the economy a couple of weeks ago, in which he reassured us that we’d get through it together, stronger than we were before, and the facts on the ground.

Last Friday, the Labor Department announced the unemployment figures for February: a new loss of 651,000 jobs, and a current unemployment rate of 8.1%.  I remember the last time we had an unemployment rate of 8.1%, back in 1983.  Somehow we got through that in one piece; indeed, before that, in the 1970s, we had worse.

And everything in our society still seems to work: there’s gas at the pumps and power at the socket and food in the stores.  Yes, times are tough: my son, who is finishing college this year, is looking for work without success.  But the world does not seem to be coming to an end: in my work, I booked a new project this week, and the stream of business still appears to be flowing.

From those observations, I would expect continued unemployment, perhaps an increase in crime, and probably higher taxes, but the overall economy would start to improve in a couple of  years and we’d get out of this morass.

So why did Our Fearless Leader address us that night as if our cities were in ruins and the end of the world was at hand?  Have we really become a nation of crybabies?

Maybe, but I don’t think Obama is really the crybaby type.

My current explanation is rather more worrisome.

Our recent Presidents, Clinton and Bush, were masters of dissimulation.  They would happily tell us what they wanted us to hear, and disregard, gloss over, or simply lie about the inconvenient truths in conflict with their agendas.

Barack Obama is a politician, to be sure, but he does not have the talent of his predecessors.  Or perhaps he simply believes that it’s better to at least try to be aboveboard with the electorate.

In any case, I’m sure that he has been briefed on the dimensions of the economic situation rather more thoroughly than what we’ve been able to read in the newspapers.

He has said for the record that things will get worse before they get better, but he hasn’t said how much worse they will get.

He knows how close we are to a state of emergency.

And I suspect that it’s closer than we think.

Perhaps he believes that the stimulus package, and similar deficit spending, is our last, best effort to pull ourselves out of the whirlpool; perhaps he believes that the primal forces of our downfall have been set in motion, and can no longer be stopped.

In either case, he recognizes that to discuss this matter forthrightly would ignite a panic, and bring about precisely the emergency he is seeking to avoid, or at least postpone.

So he addressed us two weeks ago as if the havoc, chaos, and destruction had already been released, while things still seem relatively normal.

This does not look good….

Posted in Dysfunctional Government, Money, Barack Obama | No Comments »

2. March 2009 by admin.

• One of the local throwaway newspapers, AM New York, ran a survey with the question, “Do the subway disruptions ruin your weekend?”  Every weekend, NYCT rearranges the service on some part of its network in order to do construction of one kind or another.  They post a list of changes a week before, and while I’ve had some unpleasant surprises, I can’t say that it’s ‘ruined’ my weekend.  Evidently other people’s weekends are far more brittle than mine:  64% of respondents answered ‘yes.’
• The Dow Jones Industrials dropped below 7000 today, down over 50% from its all-time high, below where it fell when the Internet bubble burst, below where it was when the Internet bubble even started to inflate.  Citibank and AIG have been effectively taken over by the government, which means they’re probably dead.
• Hulu.com is a Web site with streaming videos of old TV shows and a handful of movies.  Alec Baldwin appears in a commercial promoting it as a space alien looking forward to gorging on softened human brains.  The commercial is very effective: you wonder, for a moment, if Alec Baldwin really is a space alien and Hulu really is a plot to soften the brains of the populace before the invasion.  Nevertheless, they have an interesting selection of TV shows, probably worth the risk of having my brain turned to a ripe banana.

Posted in New York City, Television, Money | No Comments »

1. March 2009 by admin.

A former colleague recently sent me a New York Times article from 1999 discussing how Fannie Mae was easing requirements for the mortgages that it would purchase from banks, in an effort to increase home ownership among minorities.

As far as I know, my correspondent is correct: the root cause of our current economic woes was the decision in the 1990s, in terms of government policy, to make it easier to get a mortgage, ostensibly to encourage home ownership.

Yet last Monday, in a series on the economic crisis, the NBC Nightly News overlooked this detail.  According to the report, the origin of our difficulties came after 11 September 2001, when, in an effort to prop up the economy, interest rates were held low, and mortgages were issued to anyone who was breathing.  No mention was made of what led to the easy mortgages.

Yes, it’s a case of biased reporting.

The editors at Nightly News probably anticipated that if they traced the origins of our problems to government policy in the 1990s, they would be deemed ‘offensive:’ how dare you accuse innocent minorities of ruining the economy!

But the New York Post, which points to the easy-mortgage policies of the 1990s and neglects what happened afterward, is also biased. It strains their world view to consider that businessmen might be motivated by greed, to the exclusion of common sense.

Ultimately, it is the responsibility of each of us to review the news and decide for ourselves.

Everyone has their own particular axe to grind.

Even me.

Posted in Media, Dysfunctional Government, Money | No Comments »

26. February 2009 by admin.

Last Tuesday, President Obama addressed a joint session of Congress, and the nation, about the state of the economy.  I was disappointed.

For a while now, I’ve been trying to compose some coherent thoughts about the $787B stimulus package signed into law last night.  In brief, I don’t like it.

But how can I fairly say that I don’t like it when I don’t know what’s in it?  I know that there’s something about tax cuts and money for states and localities and ’shovel-ready’ projects.  On that level, my problem is still the same: commentators will pull out some aspect of the package or another for discussion or criticism, but I still don’t have a coherent view of the whole thing.

There are, however, some things that I can point to:

• Our Fearless Leader, in fact, exercised no leadership in composing the package.  In the runup to his inauguration, he indicated that he wanted to see a stimulus bill on his desk, but kept his hands off while the Democratic party faithful went to work.
• The Democrats responded like kids in a candy store.  Since all government spending stimulates to some degree, they decided to try and remake the world in the moderate President Obama that we elected.  Some of the really stupid stuff got killed through the legislative process, but much of it is still there.
• One provision that particularly bothers me relates to welfare reform, one of the great successes of social legislation.  The package makes funds available to localities who abolish their requirements for welfare recipients to seek work or be placed in jobs.  (Mayor Bloomberg has wisely declined this aid.)  The thought is that in a tough job market, it’s pointless to press welfare recipients to try and find jobs that don’t exist.  But the real reason, I suspect, is to deter cash-strapped local governments from replacing union civil servants with welfare recipients.  You know what?  Times are tought all over!

Obama’s speech Tuesday night was somewhat of a disappointment.  He bagan and ended with an exhortation about how we would get through this crisis, and end up stronger than before.  President Bush said the same thing after 11 September, and it resonated: there was actual physical destruction that I could go and see if I really wanted to.  But while we’re told that there is a vast economic crisis, it’s a little hard to believe when there is still food (and everything else) in the stores and power at the socket.  Obama’s call, alas, rings hollow.

He discussed how credit is essential to the economy, and the measures to try and get banks to lend again. So far, so good.

And then he launched into a discussion that was a rehash of his campaign promises on education and health care.   Despite his efforts to tie these to addressing the current crisis, it all seemed a distraction.

At least he didn’t say ‘green jobs.’

Posted in Dysfunctional Government, Money, Barack Obama | No Comments »

11. January 2009 by admin.

• Yesterday’s Daily News included a full-page ad from Macy’s, indicating that their one-day sale on Saturday would be extended to a second day on Sunday because of the ‘inclement weather.’  It snowed about two inches in the city over yesterday afternoon and evening, with probably more in the suburbs: not really what qualifies as ‘inclement.’  Considering the lead time in setting up a full-page newspaper ad, I have to believe that Macy’s was going to extend their one-day sale (which was a two-day sale to begin with, as it started Friday) to Sunday from the beginning, and was just betting that since it’s January, it must be snowing somewhere.
• Our New Fearless Leader released a report claiming that his recovery plan would create between three and four million new jobs.  Unfortunately, there’s no clear description as to just what this plan would consist of.  The same report includes a graphic indicating that the unemployment rate would top out at about 8% with the recovery plan in place, but 9.5% without it.  I’ll agree that a 9.5% unemployment rate is not good, but it’s hardly the end of the world, as everyone seems to make it out to be.
• I was watching the 1987 Arnold Schwarzenegger movie The Running Man yesterday evening.  The movie is set in about 2020, in a US where, due to ‘the economic collapse of 2017,’ many Americans don’t have a pot to piss in.  Arnold is an honorable Army officer who disobeys an order, is jailed, and eventually can earn his freedom if he participates in The Running Man TV show.  Besides showing Arnold breaking things and killing people, the movie is a commentary on government and the media.  In 2020, the two have converged, and they’re both flaming liars. The really distressing part (sorry for the long setup) is that we’re now two-thirds of the way from 1987 to 2020, and television is very definitely two-thirds of the way from what it was in 1987 to the world of The Running Man.  The concept of gladiatorial combat on TV was radical in 1987; it’s a much smaller step from the state of TV today.  And there was an appetite for the details of politics back then, while today the public would rather do something–anything–than try to understand the real aspects and practical details of politics.

Posted in Life Goes On, Money, Barack Obama | No Comments »

10. January 2009 by admin.

As Our New Fearless Leader is developing his plan to spend hundreds of billions to help the economy, an op-ed piece in yesterday’s New York Post suggests an alternative: substantially cut Federal taxes to ‘energize the added investments, new hiring and extra risk-taking needed to move our economy’s pace from tepid to torrid.’

I’d like to believe that this would a better approach than Obama’s efforts to remake the country in his own image.  But the short answer is, ‘Isn’t that what our current Fearless Leader was pursuing for eight years, that got us into this mess?’

Either method involves Brobdingnagian (the word ‘huge’ simply doesn’t cut it) deficits, which will have to be paid for in the long run with higher taxes and/or inflation.  Moreover, the rest of the world, which has been subsidizing our deficits for the last few years, has been reluctant to continue, as they need the money for their own problems.

More specifically:

•  Added investments: in what? Nail salons?  If someone wanted to make a large infrastructure investment, in, say, a power plant, a transmission line, a factory, or a railroad, they would face a daunting gauntlet of regulations and community opposition.  Moreover, investors today want don’t want to wait years to see their profits.  This would be especially true if the tax environment would be expected to change in the next few years.
• New hiring: only fools hire employees these days.  It’s much cheaper to hire independent contractors or outsource. While hiring someone as a contractor is better than not hiring him at all, part of our problem is that employment is perceived as impermanent: if you believe that you can lose your job at any moment, you’re going to limit your spending to the necessities.
• Extra risk-taking:  It’s entirely honorable to try, and fail, and take your own lumps.  The problem arises when people take imprudent risks, don’t recognize the initial signs of trouble, fail en masse, and then expect the government to bail them out.

The basic problem underlying our difficulties–which neither Presidential candidate addressed–is that labor is seen as a cost to be minimized, rather than a productive asset to be maintained and developed.  In the modern view of business, employees really are disposable.  And until that changes–which Obama’s plans say nothing about–the outlook will continue to be dismal for those of us who are not on the ‘rich investor’ side of the equation.

All right, what should the government do?

• Tweak taxes higher for the wealthy:  The Federal government does necessary things that cost money, and someone has to pay for it.  The government also needs to be prepared for emergencies, like war or natural disaster.
• Act to moderate the very worst effects of the downturn: This includes aid to states and localities, on a limited basis, contingent on the beneficiary exercising its own fiscal restraint.  (The New York legislature, in particular, is off on its own little planet where everything is still rosy, and they can spend to their heart’s content.)  A modest stimulus payment will also help.  One aspect of Obama’s plan that I agree with is tweaking taxes to make them more progressive (lower rates in the lower brackets, higher rates in the higher brackets).
• Tweak tax policies to encourage business:  For my business, profits are poison: about half of them go up in taxes.  When I had a really good year, I was running around in December buying things for the business, because, as I told people at the time, ‘it’s either spend it or turn it over to the government.’ I can run my business to limit profits and pay less tax, but it keeps the business weak, as it can’t amass capital.
• Otherwise, sit tight and sweat it out:   We got into this snit as a result of our collective delusions, and it will take time to recover.  If we try to maintain our delusions through deficit spending, it will take us that much longer to get over them.  We did it before, in the 1980s, when we had both inflation and unemployment: under Reagan, unemployment surged at first, but things came back into balance shortly after.

OK, I still haven’t done anything about the bean-counters who see labor as a cost to be reduced.  I don’t believe that any reasonable government can directly change people’s attitudes.

However, it will lead us away from being fat, dumb, and happy, and will hopefully make us better and more productive employees.  If the bean-counters see labor as a better value for their dollar, they might be re-awakened to the value of employees as assets.

Of course, all of this will be painful in the short term, which is why it will never happen.

Posted in Dysfunctional Government, Money | No Comments »

18. December 2008 by admin.

Yesterday’s news report noted that the Federal Reserve Bank was reducing the federal funds rate to the range of zero to 0.25%.  And in the next breath, the newscaster noted that the Fed was going to spend $2 trillion to buy up assets.  (’They’d buy up Picassos if they thought it would help the economy,’ a commentator quipped.)

A couple of months ago, we were told that the world would come to an end if Congress didn’t pass a measure allocating $750 billion for the purpose of purchasing ‘toxic’ assets.  Since then, some of the money has been spent buying ownership stakes in banks, and the White House has been contemplating using some of the money to help the automobile manufacturers, but none of it was actually used to buy assets, i.e. what it was allocated for.

So now we have the Fed running around buying assets.

Does this mean that the Fed could have done this at any time, and it didn’t need an allocation from Congress?

(No, not at any time.  Only when it was funny.)

Then what was the point of the $750 billion that we needed to save the world–half of which is still sitting there, and the other half was used for stuff that had nothing to do with the purpose it was allocated for?

Our leadership is either fantastically stupid, or they’re robbing us blind.

And my problem is, from my perspective, I can’t discern which of those alternatives is actually the case.

Posted in Dysfunctional Government, Money | No Comments »

15. December 2008 by admin.

I was out on another business trip last week, to the same place I went in November.  It wasn’t practical to write, chiefly because the people there are given to working long days: on average, we started a little after 9:00 am and finished around 7:00 pm.  They’re aware of the economic crisis, and that it will befall them eventually, but it hasn’t quite seeped to their part of the world yet.  Some companies have made cutbacks, but life is quite clearly going on.

Meanwhile, the big question in this country is the bailout for the old-line American automobile manufacturers.  A bailout plan passed the House last week, but stalled in the Senate.  The  Bush administration contemplated using money from an earlier bailout scheme for financial institutions to help the car companies, but then decided to hold off.

From my perspective, General Motors, Ford, and Chrysler have been basket cases for years.  An infusion of cash will only prolong the agony.  And Federal aid with strings attached, in the form of requirements for gas mileage or environmental protection or something similar, results in the government trying to run the automobile industry, which is probably the only thing worse than the current management.  (A big part of the crisis now befalling us has its origins in regulations to get banks to open up lending to minorities, in the name of civil rights.)

Consider: if the price of gasoline stays low, people will want bigger cars.  I don’t like sport-utility vehicles: they drive like buses and are hard to park in the city.  But it’s a free country, and if people want them, and are prepared to pay for them, it’s their privilege to own and drive them.  The natural response of an automobile company would be to make bigger cars to match the demand.  The non-Big Three car companies, unconstrained by their bailouts, will happily comply.

For GM, Ford, and Chrysler, and their government handlers, the question then becomes whether to do what is economically prudent, but politically incorrect, or to press on with more efficient cars that nobody really wants.

Beyond that, the most compelling reason that anyone can come up for ’saving’ the Big Three, after the effects on the economy, is that they are icons of American industry.  Alas, the icons did it to themselves.  The GM, Ford, and Chrysler that we knew are gone: refinancing their shadows won’t bring them back.

So part of me wants to simply pull the plug on them.  If they went broke, it wouldn’t be the end of the world.  It would hurt, but the wheels of commerce would grind on, and their assets would go on to bigger and better things.

And yet….

It’s true that the other car companies are have productive advantages over the Big Three: they have newer factories, a better capacity for innovation, and lower labor costs.  But  what about the unproductive advantages?

The Big Three built their factories generations ago, on land that they bought, either with cash on hand, or by borrowing on their own account.  They pay taxes, when and as they are profitable (maybe not now, but the principle is there).   They considered themselves corporate citizens, with generally the same responsibilities as ‘natural person’ citizens.  While they lobbied against taxes and regulations that affected their operations, they accepted whatever was ultimately resolved into law.

A company that wants to construct a large industrial plant today will comparison-shop among the locations where it might build.  But beyond that, it will negotiate with state and local governments for tax abatements and benefits for its operation.  After all, only damned fools pay full price.

And once the abatements and benefits are gone, the modern company is free to pull up stakes and start the whole process over.

To what extent does this difference resolve into the survival or the failure of the Big Three?  If it really does make a difference, then perhaps some measure of government help is called for.  If, however, the tax abatements and other goodies represent only a minimal investment of ’seed money,’ as the proponents of such measures suggest,  then whatever rescue we might prepare for the Big Three will only be throwing good money after bad.

But does this mean that the old-school approach of the Big Three to build a factory, stay put, and be part of the community, as we expect of good corporate citizens, is one of the quaint practices that led them to ruin?

Perhaps….

Posted in Things Falling Apart, Money | No Comments »

29. November 2008 by admin.

Today’s newspapers, like last Saturday’s, brought news of a gruesome death: a Wal-Mart employee on Long Island was fatally trampled by shoppers when opening the store yesterday morning.

Yesterday was Black Friday, when we’re all supposed to go out and buy stuff.  And I missed it.

As near as I can tell, we started calling the day after Thanksgiving ‘Black Friday’ about ten years ago.  Before that, it was simply a day that most of us had off from work, possibly given over to shopping, but mostly for hanging with one’s relatives, rest, and recovery from excess turkey ingestion.

But somehow it became all about the shopping.  And since no marketing phenomenon is complete without a catchy name, we called it ‘Black Friday,’ in a paroxysm of political correctness, in which the color ‘black’ is divorced from its usual sense in Western culture of death and destruction.

Of course I looked over the deals that were in Thursday’s papers: each newspaper came with an advertising supplement bigger than the newspaper itself.  But there was nothing that I really wanted.  As far as big-ticket items, we’d all like a new TV set, but the sets we have are serviceable.  If they were offering a nice TV for $100, I might have made the trip, but the sets that I was considering were going for $700, down from $1,000 or so.  And I’d like a computer to replace my desktop machine, which I bought in 1999, but that will have to wait until I’m feeling flush.

In any case, I had work to do at the office, and money is tight this month.  So I went in to work, and enjoyed the productive peace and quiet.

Posted in Life Goes On, Money | No Comments »

3. November 2008 by admin.

About two weeks ago, one of my colleagues sent me this cartoon:

My immediate reaction was that, well, my colleague is a Republican.   But there’s a little bit more to it than that.

I know that giving to those who are ‘too lazy’ doesn’t work.  Despite the best intentions, it engenders laziness and corrodes personal honor.

But what happens when the world changes, and those who did not set out to be lazy find themselves in dire straits?  Unemployment is creeping up, and jobs are hard to find.  The eight-hour workday, for many, is a quaint relic of the past.  And almost every night on the news, there is a report of some large corporation or another firing a few thousand staffers.  For my part, I left my last job (and went into business for myself) because I was expected to give over my weekends for unpaid overtime, and was still in the doghouse with management for overrunning my budget.

Barack Obama, the Democratic candidate for President, proposes to reduce taxes for most of us, while increasing taxes on those earning over $250k per year and closing corporate loopholes.  It doesn’t solve the real problem, but it helps.  One aspect of Obama’s plan is that more people in the lower income levels would actually receive a tax credit instead of paying Federal income taxes.

The New York Post calls that ‘welfare.’  Perhaps, but a refundable tax credit is not enough to live on; it’s just intended to make life a little easier.  As long as the tax credit is tied to some actual earned income, it’s not going to erode the value of work.

To take the contrary view, that of the Republicans, is to redefine ‘lazy.’  If you want to go out and work, even if it’s physically demanding, you’re still ‘lazy’ if you expect your employer, in return for your efforts, to take care of you through health insurance or other benefits, or you expect to be able to have a working life that allows you time for your own pursuits.

The major problem with this view is that most of us were not brought up to be entrepreneurs and be comfortable taking risks.  We may like the sensation of risk–such as one experiences when bungee jumping or skydiving–but those activities, with their redundant safety measures, are probably safer than crossing the street, and do not prepare us to manage risk in our lives.

While many of us may have set up lemonade stands when we were kids, I can’t remember taking a course in high school or college about the basic principles of business.  (There were courses in economics, which is not the same thing.)  And I wonder how our young people, who live in constant communication with each other with their cell phones and their computers, will adapt to the process of going into business for one’s self, which is intensly personal and involves, to a surprising extent, being able to keep secrets.

But that is what lies before us under the Republicans.   And in that direction, to take the zeroth-degree approximation, lies armed revolution: we will learn to be violent before we learn to be businessmen. Actually, we already know how to be violent, so it won’t be a big leap.

And that is why, despite my misgivings about Barack Obama, I will pull the lever for him tomorrow.

Posted in John McCain, Presidential election, Money, Barack Obama | No Comments »

18. October 2008 by admin.

It’s been another week where one needs a barf bag to follow the stock market.  Perhaps the market is beginning to stabilize, and the reality may be sinking in that the party is over, and we’ll have to go back to earning a living.  I hope so, anyway.

The rightist New York Post blames the economic crisis of the past weeks on Democratic politicians who encoursged banks to make mortgage loans to people who couldn’t afford them.  Both of the Presidential candidates lay the blame with greedy Wall Streeters who profitied from financial instruments that they didn’t really understand.

And both of those are true.  Those who say that Wall Street should be hoisted on its own petard, instead of being bailed out by the government, conveniently ignore that the government does not have clean hands in this matter.  Part of what genuinely worries me about this issue is that since everyone (politicians who encouraged bad lending, irresponsible borrowers, the banks that lent the money, and the Wall Streeters who believed that they could engineer the risk out of the whole affair) got us into this mess through their bad judgement, who will have the smarts to get us out of it?

But underneath it all, with 20/20 hindsight, it seems that everyone forgot a basic rule of economics: that the value of something, over the long term, determines its price, and not the other way around.  When the price of something becomes separated from its value, bad things happen.  It led to the Dutch tulip panic of years ago, to the stock market crash of the 1920s, and to the current economoc crisis.

Yes, the politicians encouraged banks to make loans to questionable borrowers in the 1990s, in the name of civil rights.  But if that was all that had happened, it would not have resulted in the situation before us.

But these loans were available to everyone, and many people took advantage of them, driving up the price of real estate.  It’s a funny thing: when the price of a loaf of bread or a gallon of gasoline shoots up, people get upset, but when the price of houses goes up, everyone’s happier because they think they’re getting richer.

Meanwhile, the underlying value of the property hadn’t really changed: the houses didn’t grow new bedrooms.  They were the same buildings, still where they were before, in neighborhoods that hadn’t really changed.   But somehow everyone believed that the rising prices reflected rising values, and that wealth was therefore being fabricated out of thin air.

Ultimately, even bankers and businessmen with normally good judgement bought into the charade, putting up new real estate developments into an overextended market.

And then the music stopped, and prices moved back into alignment with the underlying values.  Beyond the irresponsible borrowers who couldn’t pay their mortgages, even more responsible people might simply walk away from a house with a $500,000 mortgage if the property is only worth $300,000.

And now we have to pick up the pieces….

Posted in Dysfunctional Government, Things Falling Apart, Money | No Comments »

20. September 2008 by admin.

This past week saw great upheavals in the economy as the great investment banks and brokerage firms either collapsed in bankruptcy or were hastily sold off to more solvent institutions. AIG, a large insurance company, was bought out by the Feds midweek.

The stock market lurched up and down through the week, and late Thursday, the government announced a plan to buy upwards of a half trillion (that’s ‘trillion’ with a ‘t’) dollars of bad mortgages. And somehow, that made things all better: the market went up on Friday, and ended the week only a tick down.

Whew, that was close, but now it’s over. Or is it?

On one level, it makes sense: if we’re able to function with a national debt of $10 trillion, upping it to $10.5T or even $11T is only an incremental change.

But for the government to pump all that money into the economy in a short time will almost certainly be inflationary. No: it is inflationary, by definition. But the question is: has the economy been thirsting for cash for so long that the money will bring things into balance, or will prices shoot up as a result?

At best, we’ll get ourselves back to where we were perhaps two years ago, before the ‘housing crisis’ manifested itself. But I doubt that we will go back anytime soon to what we recognize as prosperity: where almost everyone who was physically and mentally able could find a job that paid a living wage and left one the time and energy to enjoy the non-work aspects of life.

This is because, in the view of the MBAs who run things, paying an employee more than is strictly necessary to keep him, or hiring more employees than will barely get the job done, represents wasted money and a lapse of profitability. And they continue to believe this, even though they are not exempt from their own bean counting: they can’t see what it’s doing to themselves.

An infusion of taxpayer funds won’t change that. And even the choice of the next President won’t change it, either.

Posted in Money | No Comments »

13. September 2008 by admin.

I set up a Simple IRA plan at my business, and my first contribution went through this week: $504.

If I’m able to keep that up, every two weeks, that’s about $13,000/year, and I’ll be a millionaire in 76 years.  OK: that’s not quite realistic; it doesn’t consider the magic of compound interest.  So it’ll take maybe thirty-something years.

But I’ll be an old man by then, and before that, the government will insist that I start making withdrawals.  Moreover, by then, a million dollars will probably be half a month’s rent.
Still, I have to at least try,

*          *          *

The electric bill arrived yesterday, and I actually felt good about it before I opened it.

During the winter, our monthly electric bill is typically $70-80.  We have a modest apartment in terms of size, and although we don’t make any great efforts to be ‘green,’ we try not to be too wasteful.

The July bill was for about $165, and reflected the first month of heavy air-conditioner use,  This was in line with past years, so it didn’t really bother me.

Then the August bill came in at $220, a new record.  We had gotten lazy, and in particular, on some days I just wanted to sit in front of the air conditioner and not do anything.   I told my wife and son about the bill, and we all made some effort to reduce our use.  Moreover, the worst of the summer heat had passed.

So when I opened the bill this morning, I expected that it would be in the $120-130 range.  But no: it was $195.  We used 15% less electricity than in the July bill, but will have to pay 18% more.

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23. May 2008 by admin.

In Dr. Laura Schlessinger’s blog a few days ago, she wondered what happened to the habit of saving money. For a student of the world, and how it has become a more difficult place, it’s a more than fair question. The statistics are chilling: while we were able about 8% of our income in the 1980s, the figure today is less than 1%, and has even gone negative.

“Waste not, want not: my mother always said that.” Well, when I was growing up, my mother always said it. She started a savings account for me shortly after I was born; when I was older, she would tell me about growing up in the Depression. My parents saved and invested: they weren’t rich but they had a comfortable retirement. And my mother’s problem, when the end was near, was not that she was poor, but that there was nothing that she could spend her money on that would give her peace. (From time to time, when she really couldn’t take care of herself, she went to a nursing home, and hated every millisecond of it.)

For my part, when I was first making my way out in the world in 1983, saving money was not a problem for me. I deposited my paycheck in the bank, paid the rent and my bills, took $40 from the ATM at a clip, and watched my bank balance gently float skyward, even though I was barely earning $8/hour.

And then I got married (the first time) and faced the emergency of parenthood, and the wheels fell off. I’ll skip the really icky part, when I got divorced: you’re supposed to be broke when you split up.

Since then, I’ll be able to drop $50 or $100 in my savings account, but only occasionally. And then something will happen, and the money will come back out. For now, I have an excuse: I’m building my business, and my personal income is not up to where it was when I was in my last job.

But before I went into business for myself, saving was difficult, if not impossible. I think I know why, even though these sound like weak pretexts rather than good reasons:

• Futility: Let’s say that you want to buy an apartment. Here in Brooklyn, they’re not cheap: let’s say $400,000, not to load the case. If you have to put 10% down, that’s $40,000, and if you can save $100/month, you’ll need about 30 years to accumulate it. If you can scrounge $400/month, it will still take a good few years. (Perhaps I was foolish not to take advantage of all the deals that were available a few years ago. But if I had, now I’d be bankrupt on top of everything else.)
• Wanting to do something nice: When my wife wants something nice, I have a choice: I can be the Blue Meanie and say we can’t afford it, or I can whip out the plastic. And when it’s the end of the week, and I can relax for a bit, it’s nice to go out for dinner. OK: when you do the math, it’s a few thousand dollars a year. But would it really be worth it to be a tightwad?

But beyond that, saving isn’t cool in the popular culture. The news guy every night tells us that the economy depends on consumer spending: while I don’t take it too literally (no: it’s not my partiotic duty to spend!), it’s unfortunately true as a practical matter. And the Robert Kiyosaki ‘Rich Dad, Poor Dad’ books suggest that the way to wealth is not through doing and saving: it’s through owning. (But how you you get the werewithal to buy something so that you can own it? I guess that’s beside the point.)

I could save money. I could brown bag it for lunch, and ditch some of the restaurant meals.

Why is that so hard?

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