PREVAILING PRINCIPLES OF ECONOMICS AND MODERN LIFE: 2011 Edition

The study of economics usually reveals that the best time to buy anything is last year. ~ Marty Allen

With 2012 fast approaching, here are some notions that provide me with a bit of guidance for living in this tumultuous, tenuous time.

·         Because everything is ultimately related to everything else, it's wise to remember that the Law of Unintended Consequences reigns supreme. All other economic "laws" – such as the Law of Demand, of Supply, of Diminishing Returns –pale in significance.

·         Make sure to distinguish between correlation and causality. Failure to do so is called the "post hoc fallacy," the mistaken notion that just because one thing happens after another, the first event was a cause of the second event. Post hoc reasoning is the basis for many erroneous beliefs and superstitions that are espoused all too often.

·         Daily "explanations" in the media of what caused yesterday's changes in some stock/bond market index are vacuous. At best, they reflect flawed post hoc reasoning about the index (Dow Jones or whatever) and some prominent, but essentially unrelated event(s) during the day. As one trader put it, "I cannot explain today's action in the market… it's head-scratching." So much for verbal efficiency of markets.

·         Objective data and analysis don't exist (and never have). All data and analysis contain some bias either explicitly or implicitly. Remember this apt saying, "Why are statistics like a bathing suit? Because what they reveal is enticing, what they hide is essential." Or this one by Paul Krugman, "All economic statistics are best seen as a particularly boring form of science fiction." You don't believe that objective data and analysis have been extinct? See, "The Myth of Objectivity" in The Atlantic .

·         Doddering Democrats and truculent Republicans have emasculated fiscal policy mechanisms (changes in govt spending and/or taxes) to counter macro-economic imbalance (like the current, continuing recession). Total political dysfunction has removed one of the two most effective and proven mechanisms of Federal macro-economic policy. With no meaningful fiscal policy possible, what's happened? The Federal Reserve, home of monetary policy (the other principal macro policy mechanism), has had to step into the fiscal vacuum. Thus the Fed has been forced to continue its essential and very aggressive expansionary monetary policy to get the economy moving forward. Is this good? Time will tell. But don't be fooled, the Congress (and the President) have abdicated their roles as purveyors of timely,  appropriately expansive fiscal policy during this period of deficient aggregate demand – the stubbornly high unemployment rate (8.6% in Nov) is but one prime indicator. In this time of mounting need, politicians won't meaningfully increase govt expenditures and/or meaningfully reduce taxes (for the lower 99% of us anyway – 2 months of payroll tax cuts, wow!) due to fallacious, unyielding political ideology. I hope Ben Bernanke and his cohorts can, with a moderate amount of luck, pull it off. As one of the millions of concerned voter plankton, I'm counting on him.

·         Whenever you hear that some semi-important person is leaving his/her job to "spend more time with my family," should you believe it? Not for a nanosecond. The real reason(s) for the departure have nothing to do with family interests. Sorry kids.

·         The more emphatically and more often an official denies (or agrees) with a particular position – e.g., Nixon stating "I'm not a crook" or the head of the National Association of Realtors saying "Housing prices are now headed upwards." – the more likely that stated position is bogus and/or soon to change.

·         The 80/20 rule holds true in a wide variety of circumstances. For example, in many markets 20% of customers account for 80% of revenues. Why is it that this 20% minority really rules? And should we be glad it's 20% and not 1%, like it is in income or wealth "markets"?

·         The process of becoming educated is akin to flowing down a funnel: you begin at the widest-top by knowing virtually nothing about everything, you end up (especially those of us with PhD's) by knowing pretty much everything about next to nothing. And yet, I remain exhilarated by again being part of this dynamic, necessary process for personal and economic growth.

·         Temporary is forever. Despite their rhetoric, politicians never, ever allow "temporary" tax cuts or subsidies to be transient. Witness what's now happening (once again) in Congress with President Obama's desire to "extend" the "temporary" payroll-tax cut. Thus, "temporary tax cut" is one of the highest-order political oxymorons. A close variant of this principle is allegedly short-term subsidies offered to "infant" (new) industries – e.g., ethanol, solar and oil & gas producers. Like virtually all other interim subsidies, these folks (remember, corporations are now people) continue to enjoy the benefits of sizeable taxpayer-provided funding for years and years and years. Subsidies, like tax cuts, are forever even when they stop making economic sense.

·         The "good old days," although rarely as uniformly superior as we romantically remember, nevertheless offer a nostalgic foundation for progress.

On that note, I hope the days of 2012 prove to be good for you and everyone else. Happy New Year!



FINDING A FUTURE FOR OUR CHILDREN

Education is the most powerful weapon which you can use to change the world. ~ Nelson Mandela

Now that the super-committee's decision-makers (what an oxymoronic phrase that is) have thrown in their towels and declared failure (blaming everyone else), the rest of us are left facing a probably bleak fiscal future to be dictated at some point by international bond markets. These 12 politicians now have been added to my growing list of cowards – afraid to solve pressing problems, like our lack of adequate growth and economic imbalance, with solutions that may either go against their rigid political orthodoxy or upset folks that fund their campaigns. I'm convinced members of Congress and virtually every other politician no longer have any idea about what really constitutes the public interest. They don't care; they only seek to serve narrow, private interests, not the broader, longer-term public interest. Our children are ultimately going to suffer most from this breakdown.

As I've said before, everyone of us 312 million US residents has a stake in resolving the over-riding issue of getting our country back in balance with equitable growth. However, as a parent with a son now in college, I have a particular concern about what can be done to prevent his generation (the Millennials) from becoming lost in the undertow of our persistent recession and political dysfunction. The Millennials' welfare is vital if the rest of us want to realize a sustainable future.

His generation has begun to show the rest of us how upsetting the lack of equitable opportunity can be; most clearly in venues with the Occupiers. In my view it's principally set off by three inter-related trends – the lack of sufficient economic growth, the unswervingly ideological basis for politicians' hypocritical non-decisions and the consequences of crony/predatory capitalism.

These trends have considerably weakened the axiom held by generations of Americans, "Going to college will guarantee you a good job." The table below shows the steady rise in the proportion of young adults who have received a college B.A. degree since the beginning of the 20^th century, based on Census data. College has been an intimate part of realizing opportunity and achieving "the American Dream." As parents we've promised our kids that by working hard and graduating from college, they will prosper by having a good job and an adult life better than ours. This promise is the same one my parents, and their peers, offered me and countless other young people.

Year	Proportion of Young Adults with a College B.A.
1905	2%
1930	4%
1950	5%
1960	10%
1970	11%
1980	20%
1990	24%
2000	24%
2003	27%
2009	30%

Except now it isn't working out that way. Our children have been graduating from college in ever-increasing numbers, but real wages have been stagnant and "good jobs" have become an ever-distant prospect. I'm feeling the very disturbing prospect that my promise about post-college success may turn out to be baseless.

Here's my family history regarding college. I grew up in a household where there was never any doubt what I would be doing after graduating from high school: I was going to college. Beginning more than 50 years ago, many parents like mine have spoken this mantra to insure their kids' hopeful triumph as adults. Our kids are the fourth generation of my family who have gone to and graduated from college. When my grandfather graduated in 1905 from what would later become the University of Massachusetts, less than 2% of young adults – YA's – (then meaning almost exclusively men) got college degrees. When my mother and father graduated from their colleges in the early 1930's (not an especially propitious time), less than 4% had college degrees. The B.A. my mother received in 1932 truly distinguished herself, only 1% of females graduated from college. My, have times changed; last year more women attended college than men and received nearly 60% of the B.A.'s awarded.

I received my B.A. in 1967 when about 10% of YA's had college degrees. In the 1990's, when our daughters finished college, 21% of YA's had a college degree. By 2010, about 33% of high-school graduates entered college. Currently, more than one-half of children from higher-income families complete college, up from one-third 20 years ago. As the table shows, college-graduating has steadily broadened in the US for a long, long time. This has been a very good thing from many perspectives.

But now that 30%+ of YA's have college degrees there may be some downside consequences, especially when macro-economic growth is woefully inadequate. Unemployment rates of teenagers (16-19 yrs old) and young adults (20-24 yrs old) remain alarmingly high: the Oct 2011 rates are 24.1% and 14.0%, respectively.

In the moribund labor market, having a B.A. no longer assures young people of the "meaningful" jobs we parents (and their teachers) have been promising throughout their lives. Instead, more and more newly-minted B.A.'s are under-employed, waiting tables, selling shoes, flipping burgers or whatever – if they find a job at all. Competition for jobs by college graduates has become more intense. Thus, employers have become increasingly demanding about who they hire, even among college graduates. This naturally creates deep distress and resentment – a likely contributing factor to the advent of Occupiers.

In effect, having a B.A. is becoming the "new normal" minimum requirement for a broader number of jobs, some of which may not really require this skill level at all. This requirement wasn't present when a smaller minority of job market entrants had B.A.'s until the 1990's, when the US economy was growing strongly, and when roughly one-in-five young adults were college educated. But now things are different because having a B.A. is less distinguishing.

Does it remain true that an individual receiving a B.A. is a good thing when applied to ever more young adults? Most certainly, the US has long benefited from having more YA's receive B.A.'s. and will continue to. Nevertheless, from a macro perspective, the relative value of completing college is probably diminishing. The law of diminishing returns holds for B.A.'s as well as virtually every other good or service people purchase. This is in part why employers can be more choosy about job requirements – continued high unemployment magnifies this further.

Given this, you might argue that to really distinguish themselves YA's now need to get a post-graduate degree (a masters or OMG, a Ph.D.) – the way Boomers like me did with a B.A. in the 1960's and 1970's. Predictably, applications to graduate schools have been progressively increasing. In 2009, almost 8% of adults had received master's degrees; almost 3% have Ph.D.s. I'm not saying your typical YA needs to get a post-graduate degree to get a job; I am saying that as more and more YA's receive B.A.'s the relative value of this achievement will diminish as a distinguishing part of a resume.

Nevertheless, the formidable education industry still shouts from the tops of its classroom buildings, "You need a college degree to get a good job." And YA's and their parents understandably believe it, because there are a myriad of statistics that back this claim up. As an example, household income is strongly correlated to educational attainment; 2009 median weekly earnings for a college graduate were 64% more than that for a high-school graduate. But this increased expected income is now paired with much increased costs of getting that degree.

How can we adults help our children's generation secure a satisfying, remunerative future and not become "lost"? In the most general sense, we can do everything possible to increase macro-economic growth. [This week the Dept of Commerce reduced its estimate of 3^rd quarter GDP growth to an abysmal 2.0%, from the previously-stated 2.5%.] With higher growth, more jobs will be needed and more Millennials will be hired. Growth of at least 3.5% will do wonders for everyone's economic well-being.

We also can invest in them, provide opportunities for them and insist that spending more funds on prisons than higher education is not a recipe for social or economic progress. Boomers must pressure politicians to increase the availability of Pell Grant and other federal and state college- and vocational-training funding. I don't have much issue when college tuitions increase at the same rate as inflation, but recent increases at the University of California and Cal State campuses (and many other public and private colleges) are up to four (4) times as great as inflation. This level of unjustified tuition increase has been all too normal and illustrates the significant inefficiency (and audacity) of many higher-education institutions.

Boomers should adopt an uncharacteristically magnanimous approach to insuring more balanced growth by agreeing to lessen our public retirement costs (see my Nov 11 post) as a means of funding the Millennial-targeted benefits discussed above. Why should we do this? Because Millennials will soon be paying for our public retirement and Medicare expenses. And because Millennials are our future; the better off they are, the more secure we Boomers (and the rest of the US) will be.

GETTING TO BALANCE

"Action is at bottom a swinging and flailing of the arms to regain one's balance and keep afloat." ~ Eric Hoffer

What actions can we take to get the Bottom 50% (or even up to 80%) of our citizens back afloat and to put our nation more in balance?

The dictionary defines balance as: a state in which various parts form a satisfying and harmonious whole and nothing is out of proportion or unduly emphasized at the expense of the rest. Sign me up for balance. It seems like a utopian goal, and totally divorced from what has been and still is happening in our political realm.

A Greek citizen was recently quoted as saying, "The politicians are playing games with the people." This applies to us as well. Our politicians are not telling us the truth about the current and future state of our economy – that due to too slow growth, our aging population and crony capitalism, soon we won't be able to afford the fiscal commitments we've promised ourselves and others. It's not just the politicians though; it's us as well who refuse to acknowledge (and accept) these eventualities. We seem all too content to keep treading in the river of denial. What we need is more balance, perspective and unselfish action.

Although it seems next to impossible now, what can we do to renew and regain balance? Could each side – the Distracted Democrats and Ranting Republicans –come in from the cold and somehow cast aside their narrow, petty vituperativeness and become harmonious enough to create economic policies designed to move the nation forward towards higher growth with more genuine opportunity for 100% of US citizens? Impossible? Hopefully not.

Here's my suggestion for how this could happen with the following 6 actionable steps.

1.      Each political party and its members agree to behave reasonably with each other. This represents a colossal change from current manners, I admit. Why would they change their negative behavior? Because we would have the nation's political leaders be required to meet with their young children under 12 years old (or their grandkids). The children, having purer hearts and minds than their parents/grandparents, would look them straight in the eye and demand the leaders (the dads/moms and grand-fathers/grand-mothers) pledge, promise and cross their hearts to start acting as responsible grown-ups, be nice to everyone and don't hold grudges or pick fights. In other words, stop throwing sand in the sandbox making life difficult for others, and start doing their jobs (making difficult decisions to serve the broad, long-term public interest). Am I being woefully naive that our politicians would lie to their own children or grandkids? I hope not. In this sense, our leaders need to be K-5 children-like humans with a natural, unadorned sense of fairness and cooperation. They immediately need to stop acting like feckless, self-righteous middle-school bullies. As re-emerged children, Congressional leaders and the President agree to be bound by the decisions made in the following 5 sets of activities. If they don't agree to be harmonious to each other and pass the 2012 New Balance Act (see below), they will receive the following "fiscal timeout": salaries of Congress members and the President will be immediately reduced by 6.4% (the same reduction that US median household income has fallen since 2007). In the future, these leaders' salaries will continue to be adjusted yearly by the change in median household income, not the cost of living.

2.      Both political parties each agree to provide numeric values for three macroeconomic objectives; (1) the US's nominal GDP growth rate for 2012Q4 (It should higher than this past quarter's 2.5% rate), (2) the overall unemployment rate for 2012Q4 (Hint: it should be lower than October's 9.0%), and (3) FY2013 federal deficit, as a percent of expected 2013Q4 GDP, (Hint: it should be no higher than the 8.6% level, now estimated by the Congressional Budget Office - CBO). A 5-person Panel of Expert Economists (PEEs) – 2 named by each party, 1 by the CBO – will "arbitrate" these GDP growth, unemployment and deficit numbers and will decide the numeric value of these 3 objectives within 2 weeks (after all these people are practicing, knowledgeable economists; they've been thinking about this for a long time).

3.      The PEEs decision about these 3 objectives will be submitted to a 12-member Jury of Citizens (JoCs), picked at random from people who voted in the 2008 Presidential election (with 3 members from each of the 4 Census regions and an equal over-all balance between registered Republicans, Democrats and Independents/Other parties), for their review. The JoCs will meet with the PEEs in either Winnemucca, NV or Weed, CA [Because they're way far away from Washington, DC, have cool names and (based on personal experience visiting and/or staying in each) are typical, small (less than 10,000 population) American cities where real folks live.]. The JoCs will have 1 week to prepare their review comments to the PEEs, the Congress, the President and the public.

4.      After receiving the JoCs review at the retreat's conclusion and within 1 week, the PEEs will provide their concluding decisions regarding their final assigned growth rate, unemployment rate and deficit objectives to the President, the Congressional leaders, both political parties, the JoCs and the public.

5.      Once these objectives have been specified, the PEEs will utilize the nonpartisan CBO's macroeconomic forecasting model to run a series of simulations assessing annual forecasts over the next 3 years for GDP, unemployment and deficit and related parameters. The PEEs will report within 2 weeks describing these detailed results. Their final report will be submitted to Congressional leaders, the President, both political parties, the JoCs and the public within 2 weeks.

6.      Within 2 weeks, the Congressional leaders from both parties will jointly submit for passage the 2012 New Balance Act, which presents economic policies to achieve the agreed-upon economic objectives consistent with more balanced growth.

I would hope Congress (with the President's active support) will include at least the following 9 initial actions within the 2012 New Balance Act. These actions will get the US moving in the "right direction" and will spread the pain sufficiently broadly so no germane interested groups are excluded from realizing that moving together towards balance means everyone must make changes and sacrifices.
1. The Bush income tax cuts will be ended; on Dec. 31,, 2011 (as now planned) for folks making more than $200,000, and on Dec. 31, 2012 for the rest of us. The social security (FICA) tax will apply to all earned income, not capped at $106,800 as it is now. The carried-interest loophole will be closed, effective Jan 1st, 2012. Other tax loophole closings are welcome, as long as income tax progressivity is strengthened.	2. Medicare/Medicaid and Social Security benefits-payments beginning in December 2012 will be reduced by 4% for all people earning more than $70,000, by 2% for people earning less than $70,000. Qualifying retirement age will be increased to 67. These entitlements will become fully means-tested in 2013. State and local governments will re-balance their under-funded pension and health-care programs (by reducing benefits, increasing employee contributions and raising the qualifying age), if they want to continue receiving federal funds for other programs.
3. Investment tax credits will be increased by 10% for firms who have 500 or less than employees and 5% for firms who have more than 500 employees, provided each firm increases its full-time work force by at least 3%.	4. The Dept of Defense budget will be reduced by 8% each year beginning in Oct 2012 for 3 years.
5. The Food Stamp program benefits will be increased by 5% for qualifying participants for up to 2 years.	6. Federal subsidies to the private sector (e.g., agriculture subsidies, energy company subsidies) will be cut 8%. Any other cuts in government spending (beyond DOD and subsidies) cited in the Act will require an 8% cut in Congress' operating costs (including staff salaries) and an 8% cut in the Office of the President's expenses (including staff salaries).
7. Payroll taxes for employees and independent contractors with incomes less than $70,000 will be cut by 4% for up to 2 years.	8. Home-owners with "underwater" mortgages will be allowed to reduce their outstanding principal by up to 25%.
9. All financial institutions with more than $500M in assets and/or have received government bailout funds (even if they've "paid" them off) will be required to increase personal and small business loans by 10% at non-usurious rates within 2 months, and will reduce yearly total bonuses and deferred compensation to no more than 2% of deposits for "small-ish" banks (less than $500M in assets) and 0.02% of deposits for larger banks.

After passage, the President will execute the Act into Law within 24 hours of receiving it.

Will passage of such an Act cause concern and upset? Certainly. Nevertheless, our fingers will be collectively crossed in hopes of a more balanced, productive, and growing future. Onward…

OCCUPY EVERYWHERE

"Yeah, baby I need a plan, oh, to understand that life ain't only supply and demand" ~ Amos Lee

It has been notably impressive that Occupy Wall Street has spread as far as it has to numerous "Main Streets" throughout the US and beyond – to well over 1,000 US cities according to occupytogether.org – with considerable help from the media that always gives protests at least their due. Occupiers are popping up everywhere saying "We are the 99%," now in Berkeley, where a dozen or so stalwart Occupy Berkeley people have camped out "indefinitely" downtown in front of the Bank of America – a beautifully appropriate spot. Many, including me, have wondered  why it took so long to get this started. I guess we should be thankful that younger folks finally got it enough together to catch the media's attention about economic and social issues that have been gnawing away at this nation, and others, for a fairly long time.

I have a minor pedantic quibble about the Occupiers' 99 percent. Sure, it's well worth focusing on the indisputable fact that the very richest Americans (the top 1%) have hugely and disproportionately benefited during the last decade relative to the rest of us. But the tippy top of this giant group – the 99^th percenters – makes on average $815,868 per year and have net worth of $19,167,600. That the Occupiers are hoisting their "99%" flags is thus askew on its face – although the media loves it.

Are we really so concerned about these gilded 99^th percenters, a completely exclusive group that includes numerous millionaires (as well as some of the current candidates for the US presidency), that people are now occupying public places around the US? I hope not.

It's far more appropriate, though less media-centric, to talk about the economic hollowing out of a narrower, less inclusive majority of us; say the 50% of us – what we used to call the "middle class." Median US income – the 50^th percent of working people – is now $26,364, down 1.2% over the past year and the lowest since 1999. On an hourly basis, that's less than $13/hr. and less than one-thirtieth of the 99% folks' income. It's these 50%ers and below who have suffered and continue to suffer, not the 99%ers. Their real income has steadily declined since 2002, unlike the 99%ers.

Other analysts have stated the 50%ers dead center in the US income distribution had about 90% of their assets in their home. Now, after the 2007-08 popping of the real-estate bubble, between a third and a half of their total wealth is gone, unlikely to return during their lifetimes.

So why do some of us keep wondering why folks don't feel positive about the future, and willing to display their upset? Here are but two reasons: (1) because at least 50% of us are significantly poorer than we were a short time ago; and (2) because 21.6% of US children are now affected by poverty, a despicably high percentage that ranks our nation 28^th out of the 34 OECD countries. New York Times columnist Charles Blow's column, "America's Exploding Pipe Dream," centers on this and related issues.

The Occupiers are right – economic policy over the past several decades has certainly caused a huge number of folks to lose in many economic contexts – but to say that 99% of us have been screwed is egregiously wrong. If the Occupiers truly care about the distressed majority, then drop the imprudent 99% number and re-focus on the "Bottom 50%ers" who have been truly suffering. It's these folks that the Occupiers are really talking about, despite their slogan.

The Bottom 50%ers account for a mere 13% of all earned income. These people's economic standing has been steadily deteriorating (median real US income has declined since 2002). The Bottom 50%ers – including working class, lower middle-class, urban and rural poor, dropouts, unemployed and homeless people – have become increasingly unsupported either through their own actions or by federal, state, and local government programs. This is the tragedy of Republicans' all-too-successful efforts to cut education funding and government programs that provide aid to middle-class and lower-middle class people who are unemployed and untrained.

The Occupiers have been unjustly criticized as not having a single, media-friendly focus. Others say it is precisely because the Occupiers don't have a single message that they've been successful. [This judgment of success seems a bit premature to me.] Nevertheless, irony abounds that Fox and other mainstream media demand that the Occupiers make the networks' lives easier by only shouting one or two glib, 15-second sound-bite statements. OMG. It boggles my mind why the Occupiers should accede to the media's narrow demands.

The multi-hued rainbow of Occupiers is justly upset about a lot of inter-related things that have happened recently which I believe have its base on the insidious spread of crony capitalism – including income inequality (and more dramatically wealth inequality, although it's not as much mentioned as it should be), wars and conflicts around the globe, immigration policy malfeasance, political graft and duplicity, continued and devastatingly  high unemployment, unending housing crisis, education issues, and the "heedlessness of economic growth" (a quote from an Occupier in Arizona). There are a myriad more if you scan the Occupiers' protest signs (including, "Abolish Money." Huh?) Given these many legitimate concerns, are there any policy actions that can make these folks less incensed? Of course there are, but because of policy-makers' complete unwillingness to address and remedy these central issues, I wouldn't hold your breath.

In the meantime, should the Occupiers non-violently expand their presence everywhere and continue to remind everyone far and wide that our nation's priorities are way out of balance? Absolutely.

TIME AND AGAIN…

Time flies like an arrow. Fruit flies like a banana. ~ Groucho Marx

Recently, physicists reported that they may have found sub-atomic particles (neutrinos) that travel faster than the speed of light; an occurrence that if verified would be inconsistent with Einstein's theory of relativity. That could cause a fair amount of soul-searching in the physicist realm. Meanwhile, in the non-scientific world of Washington D.C. policy-making, time seems to have stopped altogether. Our elected federal representatives get stopped any time they deal with anything related to creating economic/fiscal policy. They continue talking past each other and consciously avoid creating appropriate, effective fiscal policies for our time – a time of continued macroeconomic weakness, elevated long-term unemployment (6.2M Americans have been out of work for half a year or more) and increased inequality.

How can time be so different? I have become so inured to the incomprehensible, outrageous positions politicians (mostly Republicans) have taken regarding the US economy – oh, say regarding the deficit and fiscal policy in a time of sustained unemployment – that I've started doing 2 things. First, I've stopped listening to the media's reports on "the latest" goings-on about Congress', the president's and/or the "super-committee's" macro-economic policy deliberations. It's pointless since they are merely stonewalling any movement to a rational policy due to base politics. They'd rather wait until the very last moment and pass another sub-optimal measure that at best addresses a few of the effects not the causes of our economic malaise, or produce another temporary, partial "budget," so they can pretend to be doing something useful. Nothing substantive is happening that will relieve real citizens' economic unease. And fewer people outside the Washington beltway are fooled by the politicians' empty talk. Which explains in large part why only 15% of surveyed citizens approved of the job Congress is doing; I'm surprised it's that high.

Second, I'm again wondering how seemingly bright people – the folks we've elected to manage our nation and lead its future development – can believe in such outlandish, downright short-sighted, stupid behavior. Despite no evidence of competence for resolving our on-going economic problems, there appears to be absolutely no political soul-searching on the part of Republicans or Democrats that would create more reasoned and responsible approach to getting our nation moving and growing again. Instead, it's always one more time, without any feeling, to do nothing useful except play with each other and blame someone else.

Once again, the narrowness and myopia of political discussion astounds me. What time (and place) do they think they are in? Politicians only care about their (and their funders') current, narrow self-interests. The only time they seem concerned about is today, not tomorrow or afterwards.

Economists have several tools for evaluating this inept behavior, including present value. Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate. The higher the discount rate, the lower the present value of the future cash flows. In not acting as if tomorrow (the future) has any value, politicians essentially have a nearly infinite discount rate – not valuing the future at all – where future consequences are completely dismissed. Most non-politicians (e.g., normal adults and businesses) do place value on the future, act accordingly, and expect other folks to do so as well. Actual people's implied discount rates are often subject to debate, but probably range from 3% to 8% at this time. Thus, there is a monumental difference between the politicians' discount rate and that of the rest of us.

For me this difference in time-perspective explains a fair amount of the impending tragedy of politicians' neglectful, juvenile behavior. If they don't value the future (other than getting re-elected), have no time for serving the broader public's interests to get the economy growing again, and choose only to recite dogmatic, selfish ideology, why would they do anything except be histrionic? They're stuck in time, unable to agree to any compromise that could lead us forward and improve ourselves, because they don't care at all about the future. And who suffers most from this? We do.

Should we be surprised that our politicians have difficulty making politically-unpopular decisions in a timely manner – like reducing entitlements and reducing defense spending? Not at all, they are difficult decisions that if properly done, will initially upset many. But these decisions must be made ASAP; and aren't being made by politicians whose job it is to make them. I didn't vote for "my" politicians to merely continue the unsustainable status quo of no growth, high unemployment and growing inequality, I voted for them to look forward, solve these current problems and hopefully make things better. At this time, no politician now seems interested in doing his/her real job.

This time is not that different from others in the past – we remain in a significant recession and need to get the country growing by augmenting government spending to put more people back to work. In time and after we start growing again, unemployment will fall as businesses and consumers start to invest and consume more. [The most recent quarterly increase in real GDP was a miserable 1.3%.] What we now don't need at all is reduced government expenditures that would further prolong the recession. The Republicans' unyielding fetish in "making government smaller" and "no new taxes" at this time is wrong, fool-hardy and self-defeating. It's yet another example of politicians being "stuck in time" (by not having any interest in considering the future), thereby making our impending prospects needlessly more difficult and dour. This leads to increasingly resonant feelings that this time throwing all of them out on some sidewalk may be useful. Or maybe we should just feed them some special neutrinos to get them moving. If only.

EVERYONE'S UPSET; DOES THAT MEAN THE "DEBT DEAL" IS OK?

Ignorant citizens elect ignorant leaders; it's as simple as that. ~ George Carlin

Is the debt deal OK? In a word, No. This myopic measure, the Budget Control Act of 2011 that passed the Congress and was signed by the President Tuesday, has set the bar so low for expectations of realistic recovery (both political and economic) that perhaps we should follow Lt. Gen. Russel Honoré's apt suggestion. He wants every elected representative and senator to be forced to attend boot camp until they remember both their responsibility to the American people and what they were elected to do – honor and promote the public interest. [I'd add that they should attend fiscal, not just physical, boot camp to pound some sense into them about the scary, beyond-the-beltway economic realities they've seemingly forgotten (or never knew).[1]]

It's too early to tell whether the popular revulsion now being expressed in the media regarding the passage of this Act is truly widespread or not. How many citizens will remain upset enough for long enough (say, 15 months) for Congress' malfeasance to have a political impact? Not that many as memories are short. As Willie Nelson said this week, most people understandably care far more about their home's ceilings, not the national debt ceiling – an abstract concept they probably don't really comprehend anyway.

And if the distress is felt by more than just the Taliban Republicans (TRs) and liberal-progressive Democrats, will it make any difference beyond this week? Hard to say. But for the life of me, I can't understand why any TR could be as upset as they purport to be – didn't they just disproportionately dictate a huge swing to the right for this sorry piece of legislation? Didn't President Obama exercise his all too usual flawed tactic of before-the-fact capitulation in the name of "getting something/anything done?" Yes indeed.

Sure, the debt limit was finally increased some, but at the likely expense of casting high unemployment in stone for a long time to come and seriously lessening the already anemic growth of the domestic economy. It does nothing to solve our fundamental, structural economic imbalances.

But wait, isn't this the real, unstated goal of the Republicans – to elongate the Great Recession as much as possible, hopefully to Nov 6^th, 2012? I think so. The Republicans remain cynically willing to sacrifice the economic well being of millions of Americans so they can hope to win the next presidential election, when numskull voters will blame President Obama for their economic plight, not the true perpetrators – plutocratic Republicans John Boehner and Mitch McConnell, et al. – who do this with sardonic, self-righteous smiles. The real, remaining question now is how much lower will the TRs go? Because they've just successfully kidnapped the nation (and representing only 1/8 of 1/3 of the federal government's elected decision-making institutions; a chilling example of the tyranny of the minority), I fear for the very worst.

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[1] Here's but one measure of the everyday, scary reality facing Main Street: one (1) out of five (5) Americans older than 20yrs is now on food stamps; 45.7 million folks.