Seething on the Third Rock

2008-10-20 Here's to the End of Greed, Fear, Hate and War

 

Today I took a personal stand to end greed, fear, hate and war. May my descendants know that I took responsibility for what others do in my name.

2007-03-04 Bush, Economics 101 and the Prestige

I am no economist but I find it extremely curious that we are hearing all these claims that nobody in the Administration, the Federal Reserve or Wall Street saw the economic meltdown coming.  I was perusing my blog and found this post from March 2007.

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Every great magic trick consists of three acts. The first act is called "The Pledge"; The magician shows you something ordinary, but of course, it probably isn't. The second act is called "The Turn"--the magician makes his ordinary something do something extraordinary. Now if you're looking for the secret you won't find it.  That's why there's a third act called, "The Prestige".  This is the part with the twists and turns, where lives hang in the balance, and you see something shocking you've never seen before.   

- Michael Caine as Cutter in The Prestige (2006).

saw the Prestige on DVD this week.  It is quite a film, much better than The Illusionist (2006) within the nascent genre of magic thriller I believe. 

Watching the film, for some reason I started to note several parallels to the current trends on global financial markets.  Volatility has recently spiked in equities, foreign exchange and commodities.  And like an ancient soothsayer, I have been trying to detect the trend lines that will portend our economic future.

We all know that the US continues to run massive budget deficits, trade deficits and current account deficits.  The current account consists of the balance of imports and exports in goods and services as well as transfer payments such as net investment income.  Meanwhile, negative real interest rates (baseline rates of interest minus inflation) introduced after 9-11 and only recently raised have helped to trigger a rapid runup in prices in key housing markets.  Basically, the price of risk has collapsed while the prices of assets (including commodities) purchased with debt have spiraled ever higher chased by ever cheaper money in over heating economies.

- Michael Caine as Cutter in The Prestige (2006).

saw the Prestige on DVD this week.  It is quite a film, much better than The Illusionist (2006) within the nascent genre of magic thriller I believe. 

Watching the film, for some reason I started to note several parallels to the current trends on global financial markets.  Volatility has recently spiked in equities, foreign exchange and commodities.  And like an ancient soothsayer, I have been trying to detect the trend lines that will portend our economic future.

We all know that the US continues to run massive budget deficits, trade deficits and current account deficits.  The current account consists of the balance of imports and exports in goods and services as well as transfer payments such as net investment income.  Meanwhile, negative real interest rates (baseline rates of interest minus inflation) introduced after 9-11 and only recently raised have helped to trigger a rapid runup in prices in key housing markets.  Basically, the price of risk has collapsed while the prices of assets (including commodities) purchased with debt have spiraled ever higher chased by ever cheaper money in over heating economies.

2008-10-10 Connecticut Supreme Court Overturns Gay Marriage Ban

he Connecticut Supreme Court overturned a ban on same-sex marriage on Friday in a victory for gay-rights advocates that will allow couples to marry in the New England state.

Writing for the majority in the 4-3 decision, Justice Richard Palmer found:

We conclude that, in light of the history of pernicious discrimination faced by gay men and lesbians, and because the institution of marriage carries with it a status and significance that the newly created classification of civil unions does not embody, the segregation of heterosexual and homosexual couples into separate institutions constitutes a cognizable harm.

2008-10-07 Bob Barr on Same Sex Marriage

Bob Barr on marriage from www.bobbarr2008.com

Regardless of whether one supports or opposes same sex marriage, the decision to recognize such unions ought to be made by each state rather than imposed as a one-size-fits-all mandate by the federal government. Any federal laws that prevent states from determining their own standards for marriage should be repealed; the federal government should not define marriage, whether by statute or constitutional amendment.

Well I suppose Mr. Barr would also favor letting states decide whether they should discriminate against women, minorities or the handicapped or perhaps he just thinks it's okay for states to discriminate against gays.  In any event, his philosophy would leave in place all of Federal immigration laws that discriminate against me and keep me and my family out of the country right now.  Strict constructionism of a constitution that was written 200 years ago fully supporting the enslavement of Africans and the disenfranchisement of women is either seriously disingenuous or otherwise out of touch with the progress of civil society that has occurred ever since.

2008-10-04 Republicans, the Cult of Individual Interest and the Threat to Capitalism

he events of the past year have been breathtaking.  We now have Republican John McCain swinging wildly from long held tenants of deregulation to a new found populist montra of regulation (at least in finance).  Meanwhile the capital markets and businesses large and small across the country and around the world wait anxiously to see how all of the volatility in both the financial and political marketplaces will affect them.  What is really going on here?

The now infamous Republican icon Ronald Reagan ushered in an era of deregulation and tax cuts with unrestrained government spending particularly on favored conservative welfare recipients in the defense industry and commercial agriculture.  The idea often muted was to load up the government with so much debt and such limited revenues that there would simply be no money left over to spend on society in general.  Individuals with means would somehow take care of themselves and we could ignore everyone else in good conscience as deadbeats.  This idea has now been utterly discredited by 8 years of the failed policies of the Bush administration.  But I think it would be easy to take away the wrong lessons from the experience. 

The real issue is that Republicans either don't understand or don't care to engage the complexities in the balance of incentives and disincentives in the proper functioning of capitalism.  Businesses may say that they don't like taxes or government regulations but what they really find hard to cope with is uncertainty.  It is arguable that cutting taxes aids the individual shareholder.  But if that leaves government unable to fund public education or health care in the end the same businesses and shareholders will have a hard time finding and retaining competent workers in order to grow and prosper.  Similarly deregulation is appealing up until it stimulates underpriced environmental degradation and unrestrained risk taking that not only threatens long-term earnings but even the on going viability of businesses and whole sectors as presently seen on Wall Street.

While the profit motive is an important incentive to business, the fact is that taxes and regulations are also necessary components of the societal framework for capitalism to grow and flourish.  American capital, hard work and ingenuity have proven time and time again to respond to this framework for the benefit of investors, competitors, workers and the environment alike. 

The Republican Party lost its way when it decided for short-term political advantage under the chimera of small government to take a sledge hammer to this proven framework by attempting to remove the disincentives of taxes and regulations.  We were told that by focusing purely on the needs of individual investors that somehow the markets and society would take care of themselves.  Again American capital, hard work and ingenuity responded to this policy redirection but with a plethora of unintended consequences.  The immediate result was moral hazard and an orgy of risk taking unrestrained by even the slightest fear of regulatory accountability.  In some sense the $700B bailout has even validated this belief by ultimately rescuing many of the American and global investors who were invited to the party.  And now as the Federal Reserve wrecklessly ramps up the printing presses; society, investors, workers, taxpayers and the environment alike will all suffer grievously as a direct result. 

Capitalism isn't threatened by sensible regulatory, tax and social spending policies that reflect the common stake that we all have in markets and society as a whole.  On the contrary, it is precisely the absence of these considerations in a misguided indulgence of individual self interest that has proven disastrous for all concerned.

2008-10-01 When Will We Learn?