Sunday, February 27, 2011

Government Spending: Y Oh Y?

GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X - M).

Y = C + I + G + (X − M)

This is the basic economic equation that appears in every debate over private and public economic activity. Consumption (and exports) are a proxy for production. One can see the inherent relationship between consumption and production; if a society consumes more than it produces, imports (M) increase, net exports (X) decrease and the GDP drops. Thus consumption, itself, cannot keep a society going. Savings, here, could be seen as a threat if it is removed from the economy and goes under the mattress but is a boon if it goes into investment. But investment itself might fail, produce nothing to consume or export, take that money from consumption and be a negative. So consumption could be a negative, investment could be a negative and the import-export balance could be a negative. For some reason we never look at the government spending in the same light.

The key point is, unlike the other factors, government spending (G) is not a proxy for production. The government might build a school for 600 kids grade 1 through 4. That seems like a good place for money to go. But what if the school has only 30 kids show up, or what if each floor has a their own electron accelerator? That will still show up as a positive contribution towards GDP. If the government builds the school for 1200 kids, the contribution to GDP will be double, even though there will be no more use for it than for the school built for 600. If the government realizes its mistake and tears the school down, that expense is more government spending and more contribution to GDP. So the building and then the destruction of a school are both positive contributors to GDP; that is clearly unreasonable. Had a private school made the same investment it would report losses that would accurately reflect the circumstances. It might even go out of business and become fertilizer for the next economic planting. More, the government takes money in taxes to pay for the useless school that could have gone elsewhere, consumption or investment, that would have also contributes to the GDP and might have had the additional advantage of stimulating further investment.

The unused school will never show up in the equation accurately. Government always takes money that might be used otherwise as a real contributor to the economic community and puts that money in areas that are open-ended, that are never judged economically. Moreover, as government spending always counts towards GDP, it is--by definition--productive regardless of how inefficient or costly. Wars are always "productive" but terribly inefficient and inflationary because the government pays for things that blow up on purpose. It would be like building refrigerators that automatically stopped working in 3 months--or building schools to tear them down.

The TARP program is winding down; it is a temporary economic stimulus and its time is up. However, there is an infrastructure of 17,000 employees and they will not be going away. So the purpose of the bureaucracy has ended but the bureaucracy has not. That expense will be counted as a positive for the GDP. There is no negative for government spending. Ever.

Until we are able to look at government spending clearly, not as an absolute number but as a contributor or a threat to GDP, we will never make progress with our economic problems.

Friday, February 25, 2011

The Art of the Plausible

Every American ponders starting a business. There is some genetic confidence the Americans have in their ability to do it, the belief it has a local and even national social value, and they have the inverted view that such a risk is a virtue. Of course the technical and scientific fields are fertile here but many wonderful creations have emerged from the softer areas.

The Freudian franchise comes to mind at once. Freud was wonderfully creative; one need look no further than his Moses and Monotheism, a much more entertaining work than his psychological fiction. But rather than pursue the "Moses as an Egyptian" idea, he stayed with the psychological product. Brilliantly he merged it with the genius of Sophocles to give it historical and intellectual heft. (Imagine how different life would be if he had chosen the beautiful writer, Webster, and saddled the West with a generation of The Duchess of Malfi and lycanthropy.)

What raised this question was a comment on the phrase "Psychological Homogeneity" yesterday, a phrase coined to highlight the disparities often seen in pathological personality where one would expect the pathology to bleed from one discrete area into another but somehow does not. This is more than a Bill Clinton-like compartmentalizing, it is a true parallel life that allows the ax murderer to move seamlessly through his nonviolent world, as comfortable as a bigamist. It is not simply the absence of guilt or the apprehension of capture; there seems to be a true comfort these people have in both entities. Unlike Jekyll and Hyde, they are the same man, with no chemical interface.

"Psychological Homogeneity" has "The Art of the Plausible", a creation that has a reasonable appeal that fits an inherent preconception. Like so many notions, "right brain, left brain", the value of trans fats, the inherent instability of societies with disparate incomes there is an appealing and totally improvable logic in the concept. This is a fertile field for entrepreneurs. The plan would be to get some start up money, endow a university chair, set up a charity with a few high profile personalities and start employing the kids.

Thursday, February 24, 2011

A Good Man is Hard to Find

I think it all has to do with life, liberty and the pursuit of happiness, and the misconception that the government is obliged to provide those things or has the jurisdiction to deny them. We’ve gotten away from the principle that they were only created to secure those rights. And that’s where, I believe, much of the trouble has surfaced.

This seemingly reasonable statement that undoubtedly would be agreed with by many was made by Timothy McVeigh, the bomber of children, innocents, by-standers and government employees at the Oklahoma City bombing in 1995. It raises the interesting question of "Psychological Homogeneity", the notion that people who are deranged in a small way are likely crazy all over.

A recent movie about the Craiglist Killer created a picture of him as a complex--but not necessarily contradictory--man mainly through the sympathetic depiction of his attractive fiance who wandered through the story planning her wedding, in complete ignorance of her husband-to-be's criminality; she never suspected a thing.

Ted Bundy, of course, was a charming guy well liked by everyone who met him who moved though the young female population in the United States like a infectious fatal illness. He actually can be tracked by the statistical deviations in the deaths of young women as he travelled from Florida to the West Coast.

Ted Kaczynski was a bit peculiar--he was terrible shy--but he graduated from high school at 16, listened to Vivaldi and Bach, got a PhD from the University of Michigan in mathematics and was regarded as a very bright social critic. The fact that he mailed letter bombs for 7 years to the homes of total strangers, killing and maiming them with the risk of doing the same to their families, did not seem to fit. Moreover, like Bundy, Kaczynski always had supporters, the former because people--particularly women--simply couldn't believe the charges against such an attractive man and the latter was admired by people, particularly academics and artists, who saw the murderous but presumed anti-technological acts as somehow less of a crime, somehow forgivable in a poorly articulated intellectual way. (One attack on David Gelernter, one of his victims, by Joyce Carol Oates was particularly bizarre.) People Magazine made him one of The Most Intriguing people of 1996.

Norman Mailer campaigned for the parole of Jack Abbott, a career criminal who had sent him essays on the prison system. He was paroled in 1981 and his book of the essays, In the Belly of the Beast, was published the same year. The New York Times gave it a terrific review but, unfortunately, Mr. Abbott saw fit to kill a waiter in an argument in a restaurant the same week and was sent back to prison.

This is a serious problem. One would like to think that a homicidal maniacal necrophiliac would give you some hint sometime between the appetizer and the coffee. More, one would hope that once the mask was off and the evil revealed for all to see, so many people--particularly intellectuals, those self appointed guardians of our zeitgeist--would not be ambivalent.

Wednesday, February 23, 2011

Rumors of War

The objectives of war are certainly hard to achieve, especially if one side tries to limit the damage done to the other.

A report (PDF) from the International Council on Security and Development (ICOS) shows that 92 percent of Afghans surveyed had never heard of the coordinated multiple attacks on US soil on September 11, 2001. It also shows that four in 10 Afghans believe the US is on their soil in order to "destroy Islam or occupy Afghanistan." It may be difficult to bring many of these stone age communities up to Enlightenment speed; usually bombing and SAW fire drives targets from modern to stone age, not the other way. And, as bizarre as polling the enemy might be, it is the way of our world now, although it does raise some interesting possibilities. Could the enemy manipulate the results of the polls for his advantage? Could every guerrilla band have a PR man?

Our motives will never be clear to everyone; they're not always clear to me. But now that the resistance to us has moved to Pakistan, what are our objectives now? This adventure in the Middle East has all the trappings of a good, abstract idea. But these ideas are experiments, nothing more. Conjecture. And it is hard to justify putting the lives of young people on the line for conjecture.

But it has always been easy for the elite to be courageous with the yeoman's life and happiness.

Tuesday, February 22, 2011

Love and Mourning

I went to church on this sad day in a small hospital chapel. The chapel was plain and spare, a dim echo of the magnificent Catholic churches of even the recent past. The congregation was sparse and scattered about the pews, everyone alone. There were ancient nuns, one or two strangers--patient relatives, I suppose--and three physicians. Each of those physicians had lost a child under shocking and horrible circumstances. It was an insubstantial time in an insubstantial place. The service was short and then the chapel was empty.

I am old enough that I can look back on my life with some clarity and precision. I have started to write a little to raise points about things I have learned and I think of value. But there is one overriding single truth that surpasses all others: There is nothing as important as the love you have for your family and friends and the responsibility that love creates in you. And it is crucial that the love be returned.

This love is not simple; I believe it to be the building block of much of our species' accomplishments and monsters. It becomes Romeo and Othello, the bond of the warrior band, the community of the Pequod, the ideal of revolutionaries, the xenophobia of the Hatfields. Like the staircase, it goes two ways but is one. It has provided us much of our spark. Noble and trashy, austere and effusive, searching and content, kind and vengeful--it is us.

Monday, February 21, 2011

Grappling With The Ultimate Suicide Bomber

Insincerity is the antagonist of man's highest aspiration. Truth is more than the guidepost, it is the solution. No effort can hope for success if truth is not in its very fabric. Problems have their resolution within them; the question is always how those solutions will be manifested. The debates over the state budgets must understand that these questions will be answered; the real question is how? Ethanol as a fuel is an answer to a question but which one?

This notion--that in every situation there is a truth--is particularly applicable to The Middle East. The decades debate over the nature of the economies, the conflicts within Islam, Palestine, Gaza, the Suez Canal, the dichotomy between the average citizen and his leadership and how these questions are related to Israel. As soon as a tremor hits any of these subjects editorial volcanoes result. And as soon as any change occurs the topic immediately changes to Israel and how the new situation will impact it. This preoccupation with Israel as a nation under siege contains a basic flaw, an essential unreality. Israel will never be overcome; the worst it will experience is a draw, a double knockout. In the unlikely event it is mortally wounded with its dying breath it will cry "I stab at thee" and destroy the entire Middle East as its final, vengeful act. Like Samson, surrounded and harried and humiliated by his enemies, Israel with its massive nuclear weaponry will rise in its last moments and tear the entire Middle East temple down--ending Arabian past and future. And, incidentally, blow the developed nations back into the steam age.

Israel and its remorseless nuclear capacity is the ultimate Middle East reality. It is not going to go away. And it is the ultimate suicide bomber.

The Americans are not protecting Israel from the Arabs, they are protecting the Arabs (and their oil fields) from Israel.

Wednesday, February 16, 2011

The Democrats' Nixon Moment 2

Following yesterday's budget release and press conference The Washington Post has called Obama "The Punter-in-Chief". The Washington Post!

Without doubt, there was little in his budget or his conference to create optimism. There seems to be a distance between what is perceived as a problem and the White House' response. In fairness neither this problem nor our passivity towards it are new. The notion of over promising is deeply ingrained in the political system in this country and has been so for a long time. Nor are the programs what they were started as; everything has evolved. (Income insurance is twice the size of social security.)

And the solutions will not be easy; moreover, they will cause pain. Unfortunately, that's what happens when you sign up for the big state dinners and the motor escorts: You have to make hard decisions. The problem here looks to be that Obama is deferring the decision making to the republicans who, historically, could not lead a wolf to a fresh kill. The republicans will look foolish and, as long opposed to the programs, political and cruel.

It may be politically wise to keep a low profile during hard times but leadership allows no conscientious objectors, no agnostics. At some point the problems must be confronted and resolved in an orderly, planned way otherwise they will solve themselves in chaos. Obama, like a timid and fearful physician, seems to be watching a disease run its course rather than accept the responsibility of the side effects of intervention.



Two interesting sites on the budget and the deficit:

http://www.wallstats.com/deathandtaxes/
http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html

Tuesday, February 15, 2011

The Democrats' Nixon Moment

Missionaries, Christian Colleges, the Peking Union Medical College and America's war against Japan that benefited China so much were all American efforts that promised reasonable relations between the U.S. and China until Mao won the war with Chiang Kai-shek, Chiang fled to Taiwan and Mao created the Peoples' Republic of China. Mao began to harass everything not Chinese--especially Americans, the Korean War broke out eventually pitting Chinese troops against Americans (where Mao's son was killed) and any hope for a relationship was lost. The Americans signing a defense treaty with Taiwan in 1954 made things worse.

Nixon became president with anti-communist credentials from Helen Douglas to Hiss to the Kennedy Taiwan debates. But close on the heels of the inane "ping-pong diplomacy" Kissinger went to China secretly in 1971 and arranged to provide China with American intelligence on Russia. Nixon followed in 1972. The China door was open.

A democrat could not have done that; only someone with a history of being part of the process can reverse it. That time has come for entitlements and the republicans can not do it. The democrats must. This will be ugly but these programs are democrat programs and must be curtailed in some thoughtful, sensitive but meaningful way.

On the assumption that the Congress can not be as foolish as they appear, this will be more than an intelligence or parliamentary test; it will be a test of integrity.

Sunday, February 13, 2011

Anyone Can Grow Up and Become President

It appears that the land is abuzz with the likelihood that Rep. Gabrielle Giffords will run for the Senate in Arizona. The early polls say she will win handily. That no one has actually seen the unfortunate candidate since the assassination attempt has deterred no one.

One wonders what, if anything, the media is thinking. And in answering the absurd question of her candidacy is the public being anything more than polite? Here a terribly injured woman is in the early phases of a long recovery, recovery that often culminates in miserable compromise. That she was an attractive and enjoyable woman seems certain; her life seems to have been filled with a number of successes. But she is now a different woman; she has been shot through and through the left cerebral hemisphere with a 9 mm. bullet.

The American democracy is nothing if not forgiving. How in this difficult period of our history, with the nation desperate for quality leadership, anyone could take seriously the question of the candidacy of a woman with a serious brain injury whose recovery is in evolution raises questions of the competence of both the questioner and the answerer. Worse yet, perhaps the Senate is viewed so that such a candidate would not be much off the mean.

Saturday, February 12, 2011

Lincoln

Today is Abraham Lincoln's birthday. There is something transcendent about his life--all of his life--his background, the death of his child, his strange marriage and wife, his appearance and leadership at the time of rupture in the American history, his weighty mind, his death. There is something chilling about the photo of his second inauguration, the first inauguration photo ever, where Booth, his future assassin, is so uniquely and prominently seen. http://commons.wikimedia.org/wiki/File:Second_Lincoln_Inaugural.JPG

There is a reassessment of Lincoln now, particularly from the libertarian camp. They say he violated the founding notions of liberty in his use of the federal power against the recalcitrant states. I was going to discuss this accusation today but instead have excerpted a wonderful scene from Goodwin's book Team of Rivals:

In 1908, in a wild and remote area of the North Caucasus, Leo Tolstoy, the greatest writer of the age, was the guest of a tribal chief “living far away from civilized life in the mountains.”

Gathering his family and neighbors, the chief asked Tolstoy to tell stories about the famous men of history. Tolstoy told how he entertained the eager crowd for hours with tales of Alexander, Caesar, Frederick the Great, and Napoleon.

When he was winding to a close, the chief stood and said, “But you have not told us a syllable about the greatest general and greatest ruler of the world. We want to know something about him. He was a hero. He spoke with a voice of thunder; he laughed like the sunrise and his deeds were strong as the rock…His name was Lincoln and the country in which he lived is called America, which is so far away that if a youth should journey to reach it he would be an old man when he arrived. Tell us of that man.”

“I looked at them,” Tolstoy recalled, “and saw their faces all aglow, while their eyes were burning. I saw that those rude barbarians were really interested in a man whose name and deeds had already become a legend.” He told them everything he knew about Lincoln’s “home life and youth…his habits, his influence upon the people and his physical strength.” When he finished, they were so grateful for the story that they presented him with “a wonderful Arabian horse.”

The next morning, as Tolstoy prepared to leave, they asked if he could possibly acquire for them a picture of Lincoln. Thinking that he might find one at a friend’s house in the neighboring town, Tolstoy asked one of the riders to accompany him. “I was successful in getting a large photograph from my friend,” recalled Tolstoy. As he handed it to the rider, he noted that the man’s hand trembled as he took it. “He gazed for several minutes silently, like one in a reverent prayer, his eyes filled with tears.”

Tolstoy went on to observe, “This little incident proves how largely the name of Lincoln is worshipped throughout the world and how legendary his personality has become. Now why was Lincoln so great that he overshadows all other national heroes? He really was not a great general like Napoleon or Washington; he was not such a skilful statesman as Gladstone or Frederick the Great; but his supremacy expresses itself altogether in his peculiar moral power and in the greatness of his character.

“Washington was a typical American. Napoleon was a typical Frenchman, but Lincoln was a humanitarian as broad as the world. He was bigger than his country — bigger than all the Presidents together.

“We are still too near to his greatness,” Tolstoy concluded, “but after a few centuries more our posterity will find him considerably bigger than we do.

“His genius is still too strong and too powerful for the common understanding, just as the sun is too hot when its light beams directly on us.”

Friday, February 11, 2011

A Great Day for Madison and Jefferson

So now Mubarak has resigned. Likely it will be seen as a great victory for "the people" rather than the loss of his chair when the music stopped.

There is a great distinction between being overthrown and becoming inconvenient.

Optimism as Old as the Pharaohs

The football player Ben Roethlisberger is said to go out frequently to dine locally and not pay his bill. This became such a problem for restaurant owners that most banned him. Apparently he never caused a fuss, was not overserved and often was alone. He never argued; he just left. Certainly this was not because he was under economic pressure or that he habitually forgot. My bet is he thought it his due. Like the travelling kings of yore who would visit their vassals, the rich, the famous and the powerful assume their own type of "entitlement" where they live by different rules and deserve what we working stiffs do not. It should be our pleasure to serve them and that, in itself, is reward enough. So rock stars destroy hotels, producers seduce children and movie stars live as they live, all without consequences.

So why is anyone shocked at Mubarak's decision to stay in power? It is said he is "out of touch" with his people. Out of touch? A man who lives like a pharaoh? A man who takes what he want, who he wants, when he wants? A man who has been the absolute ruler of 85 million people for thirty years? Out of touch?

Mubarak's non-concession speech revealed only one thing: He is not a politician, he is a warlord. A politician would have made the optimistic and insincere platitudes sound believable. A politician would have made it sound that his continuation in office was exactly what everyone wanted. A politician has learned, as his popularity requirements for office is broader than just the military, to convince the public that his self serving and incompetent reign is just what the electorate needs.

In Iraq, under Hussein, the women would flee the streets when the ruler's sons appeared; the princes would take what they wanted.

Rather than being "in touch" with their "leaders", most people just want to be beyond their reach.

Thursday, February 10, 2011

The Bathoes Show an Ugly Face

Anyone seeking insight into the workings of contemporary democracies should study the crisis in Egypt. Not that they are a democracy in any way other than parody; most democracies seem to be moving towards Egypt, not Egypt towards them.

A small number of people, 250,000--not small for a ball game but small in a city, city, of eighteen million--have gathered in a square and chanted for the removal of the current president-for-life. Their motives are unclear, certainly disparate, and apparently conflicting. Drawn to the chaos, groups without colors or flags move through the crowd fighting, intimidating and killing. A sniper sets up somewhere. The American press is frightened and several are roughed up.

Editorialists discuss and debate. "Democracy" is apparently in the air, in the air of a country where a candidate for president must have two-thirds approval from the parliament, a country whose current president has been in power for thirty years, a country in which the only nonreligious institution is the military. Somehow this event is seen as optimistic, democratic and hopeful. Somehow this is change, and change in the dialectic view is by definition positive. A vacuum is just the intermediary of progress, chaos the stew before the meal.

No thinking person would defend the Mubarak regime. But the Muslim Brotherhood is not a secular group regardless of what the American government says, "change" in itself has no inherent value regardless of what the President says and destabilization of the Middle East would be a nightmare beyond anything the military thugs in Egypt could imagine to wish upon their enemies.

The government has changed positions so many times they seem to be waterboarded. But they, like Mubarak, always come up pompous and idealistic, full of absurd pronouncements. This is a microcosm of our future: Stupidity, violence and insincerity presented by the idealistic, the incompetent and the homicidal.

Thursday, February 3, 2011

The Press, the Bathoes and Groundhogs

The Cairo streets are alive with democratic fervor...or Islamic fervor...or something else. The economic crash was caused by greedy bankers...or inept regulators...or low interest rates...or something else. The health plan is a godsend...or a disaster...or unconstitutional...or something else. We are buffeted by conflicting winds of change. And, while the politicians and the press are episodically quite convinced and convincing, they are changable. Obama's State of the Union Speech was all spend and stimulus in the first half, all caution and frugality the second. Now it seems the leading candidate for the Republican nomination in 2012 is Jon Huntsman Jr.; where did he come from? Who decided that?

In 1954, June 18th, 480 men, led by an exile named Armas, armed and lightly trained by the United Sates invaded Guatemala with the intent of overthrowing the current president-for-life Arbenz. Their plan was not to engage the government forces because they knew they were too weak. (They lost half their men the first several days anyway--most at the hands of local townspeople.) This was convenient for Arbenz who was fearful that total destruction of this ragtag group would cast him as a tyrant in the eyes of the Americas. But while Armas had few men, he had a big radio--"The Voice of Liberation"--that touted itself as a jungle revolutionary station but was actually relayed through Honduras from Miami. This CIA funded effort gave out dramatic accounts of battles, heroes and victories as it charted a gradual advance of a nonexistent army towards its objective, the evil Arbenz. Eventually Arbanz resigned and Armas became president and the next assignation target.

Manipulation of information is as old as the Garden of Eden but usually less malevolent; it is usually just bias. Or conjecture. Or a result of a need to fill a space. The West--indeed everyone--is at a point where errors can have significant impact. Dithering, guessing or dogmatism are not going to be adequate responses to our highly leveraged problems. Probably the mob in Cairo is well intentioned, Jon Huntsman Jr. is likely a swell guy, the politicians in Washington may well know what they are doing but the world needs some leadership that is well grounded.

This country has no Delphi. And politicians--and the press--have to do more than come out every so often and make decisions based on whether or not they see their shadow.

Wednesday, February 2, 2011

Cairo: The Power of Cameras and Placebos

The population of metropolitan Cairo is eighteen million. The protest/demonstration numbers are estimated at about 250,000. One wonders how the decision is made to take such an event seriously. There are much larger demonstrations after sports events in much smaller cities. The Tea Party demonstrations in Washington were much bigger as were Glenn Beck's curious gatherings; they had little effect on anything and rightly so. Why should this Egyptian demonstration be so honored? And what is expected?

Demonstrations are nothing if not eclectic. They attract everyone from the wild-eyed partisan to the bored. A mob is difficult to read and impossible to summarize; it has countless motives. Moreover, any change in Egypt will be internal. The chairs at the table will be rearranged among the military. No one new will be invited in. Why do we anoint this one with significance?

Are we feeling guilty?