Let It Be

Eckert Tolle, one of my favorite writers and spiritual teachers, points out that the nature of the Universe consists of both expansion and contraction.

We are born, we grow up. We age, we die. The tide goes out and comes in. At the most basic level, we breath in (expansion), we breath out (contraction).

Can you imagine breathing in and then holding your breath forever? What would the result be? Physical death.

Humans by nature resist the contraction phase of just about everything. For some reason we think we should always be expanding. We believe we should do more, be more, have more, create more.

Can you imagine how the contraction phase of any natural process creates room for the new? The tide cleans the beach. The forest fire creates a clearing that allows a new plant species to emerge. Even catastrophic events (from our perspective contractions) can make way for tremendous progress. The suffering endured during these times in whatever form makes way for something new and different to emerge.

Let me frame this in terms of the economy, because by now I am sure you know where I am going with this story.

Our society (government, citizens, etc.) is operating under the collective belief that only economic growth is desirable. In its view, contraction, or recession, is always bad. There is very little deeper questioning about what kind of growth is desirable, and little or no distinction made between healthy and dysfunctional growth.

A child outgrowing their clothes and moving on to the next size is a healthy expansion. My weight going from 130 to 150 is definitely not. Cancer is expansion of cells that is so rapid it sometimes can't be stopped, until the supporting organism perishes.

In my view, the debt and consumption driven growth supported by greed and an insatiable desire for more that we have seen over the past 20 years or so is a bit like a cancer of the economy. The clearing out that was supposed to happen (if the government had not bailed out failed banks and corporations) was a natural clearing mechanism that would have cured the system of its cancer, making room for new, healthy growth. This growth would have been (and still can be) an opportunity for real capitalists to take advantage of the opportunities that arise when the game is no longer rigged.

The powers that be (namely the congress, FED, Treasury, and giant financial institutions) made sure the needed contraction didn't happen. They fail to understand that Main Street would survive without Wall Street in its current form. Main Street would survive without an intrusive, parental government. The very cause of Main Streets' problems swooped in as the "savior", obscuring the fact that the "savior" was the cause of all this distress in the first place.

Bad things shouldn't happen. People shouldn't be unemployed...ever. Economies should always grow, regardless of the source or nature of that growth. The sun should always shine. The tide should never come in. You shouldn't ever have to breath out.

Really? Because the fact is that bad things do happen. People are unemployed. Economies do contract. We have cloudy days, and dark nights. The tide comes in and you have to breath out.

Does this mean our government shouldn't help those that can't help themselves in times of need? Of course not. But it certainly will not be able to perform that function if it bankrupts itself trying to make sure our economy permanently expands.

John Stewart Takes On Edward Conard

This interview is a must watch.  John Stewart should have been an economist.  Well, maybe not, then I wouldn't get to enjoy The Daily Show.

The Daily Show with Jon Stewart

What a great debate. I think JS is touching on a very important point. I have been thinking the same thing for a long time:

http://econmom.blogspot.com/search?q=our+economy+has+been+doped
http://econmom.blogspot.com/search?q=cancer
http://econmom.blogspot.com/search?q=this+is+not+capitalism

For just a few minutes, pretend you are neither a Republican or Democrat. Do this because if you cling to the ideology of either group, you will fail to see the truth. (If you are neither, it will be easier.)

Many Republicans, like Mr. Conard, base their defense of Capitalism not on moral arguments, but on overly academic ones.  This was the problem Greenspan had.  He failed to see the forest from the trees.  He paid so much attention to the details, that he forgot how to think clearly.

Are risk and reward related?  Absolutely.  This is obvious, and I can't imagine having the patience to write an entire book about it.  Does this relation mean that encouraging risk takers through the tax code always works?  No, not necessarily.  People are motivated by many things, money is not always one of them, and if it is, it is not always the most important.  Should we have a tax code that encourages risk taking?  Well, that depends, doesn't it? (To quote one of my favorite professors.)  It depends on what types of risk taking we are promoting and whether they are desirable for the economy as a whole or not.

What about creating a tax code that was neutral?  Would that even be possible?  Government may create an environment conducive to business and innovation by minimizing regulation and taxes, but should not in any case be subsidizing one business over another.  This not only creates moral hazard problems, but it makes the game unfair.  Subsidies are much more harmful to Capitalism than taxes.

Why?  Because they strip the Capitalists of a moral justification for their philosophy.  Subsidies make Capitalists hypocrites, and slaves at the same time. They are destroyers of Capitalism.  They skew the risk reward system to such an extent that it cannot be relied on as a market arbiter.

What industry is more subsidized and "coddled" as JS says, than any other (perhaps with the exception of oil and farming)?  The financial industry.  How?  The Federal Reserve (arm of the Government) "lends" free money to speculators at the big money center banks.  They then "invest" it in the stock market.

By fixing the price of money, which Conard calls "saving" the economy, the Government is giving these large financial institutions the biggest free ride in economic history.

If they make good decisions, they are rewarded handsomely. If they fail, they are bailed out by the taxpayers.  This is the "investor class" Edward Conard is speaking of, and many of them are indeed are feeding of the Government teat.  But they don't want you to know that.  They don't want to give up their subsidy, their advantages...and why would they?  If you were playing poker and you knew your betting money would never dry up, would you place riskier bets?

Obviously, not all in the financial industry fit this profile. There are many investors who participate in the market with the intent of not only making money for themselves and their clients (which is great), but also to support innovation.  It is the honest guys at the middle sized firms who don't have access to leverage at 0% and actually have to make money for their clients who are at a competitive disadvantage. They don't get Federal Reserve funding, but their clients still expect results.  Many true Capitalists are operating as independently of the government as possible, and putting up with many cumbersome regulations on top of it.  These are not the people or firms I am referring to.

I love that JS points out that in the while the real estate bubble was forming "We lost our minds chasing wealth."  He also asks a question I have been thinking about for a while:  Is our overvaluation of growth coming at the price of lost stability?  YES!  YES, it IS!

In a free economy, no central bank would be able to hold the price of money artificially low and in doing so warp the normal risk reward mechanisms imposed by markets.  In a truly free economy there would be no Goldman Sachs, no GM, no AIG, no Freddie and Fannie, and no taxpayer bailouts of hedge funds.

I say these things not to disparage Capitalism, but in the hopes we can save it.  We will NEVER be successful in cutting entitlements, which is necessary to the health and well being of this country, if we do not end Government subsidies and bailouts in the "private" sector.

If the "investor" class continues to behave as it has, and ignore these issues, I am afraid I will not be able to blame the masses for their rebellion.

Rebublican Party: Get It Together

I have said before that I am neither a Republican, nor a Democrat. If you must label me, think of me as an Independent Libertarian.

That said, since a Libertarian is not going to become President any time soon, if I want to vote in Presidential elections, I usually settle for which candidate I think will do the least damage to our country. (First, do no harm!)

I am always hopeful, though, that the Republicans will get their act together and drop the whole Christian extremism thing (the mingling of their religion and politics). I am also hopeful that the Democrats will drop the whole Socialist thing.

But today, it is the Republicans I am going to pick on.

Can you not come up with one credible, intelligent, charismatic leader to run for President? If not, why not?

I am hopeful that someone will emerge, but first, let's look at the current field:

(Warning: not all of the following thoughts will be complete sentences, but I am not running for President, so that is acceptable.)

Sarah Palin: I can't stand to listen to her whiny voice for more than 5 min, even if the occasional witty attack seeps through those lips.

Donald Trump: Great businessman. Perhaps effective on a pragmatic level. Would cause Islamic extremists to pee their robes (a plus), but an egomaniac nonetheless. He just doesn't seem like a very nice guy. I would like to see him bald, Daddy Warbucks style. That alone may win him the election.

Mitt Romney: Pro-Life conversion annoying, great hair though! Sounds like Mass. health reform is going well. Looks like used car salesman-definite minus. Is against stem cell research-another clue that religion has taken over his thinking. Separation of church and state is way too important to elect this man.

Mike Huckabee: Couldn't keep his religious views out of politics if it was personally requested by God. Supports civil rights, but opposes Gay marriage-can the two co-exist? Somewhat rational on the economy, but really likes Wal-Mart (says something about his style).

Rudy Guiliani: Cancer survivor, staunch anti-Islamist, pro-choice, in favor of extending same benefits to same-sex unions as traditional marriage (although doesn't go so far as to support Gay marriage, a mistake, in my opinion.) Is for reducing deficit through drastic spending cuts. Has survived very public shame in marriage failures, humbling him, humility is a necessary trait for any great leader. For free-markets. Handed the check back to Prince from Saudi Arabia after 9/11.

Run Rudy Run!

Newt Gingrich: Very smart guy, but owes Clinton an apology. You can't apply your moral code to everyone but yourself. A staunch supporter of "The Defense of Marriage" act, (anti-Gay marriage), who doesn't know which of his marriages to defend. His moral hypocrisy is really too bad, because on issues of foreign policy and economy, Newt is somewhat brilliant.

Michelle Bachman: Seriously?

Tim Pawlenty: Boring with a capital "B"...too religious. Can't win.

I am getting tired, but I guess Rudy is my choice. Wait, he's not running, nor would the Republican establishment ever support him.

John Stewart is always so funny:

Crash?

I have never agreed with much Dick Bove has to say and think he rather arrogant. But I must say, I agree with him that we are going to have a market crash.



This is not necessarily a bad thing. The unhealthy bubble economy and a stock market driven by money flows and speculation, instead of profits, must come to an end.

Growth for the sake of growth is like cancer to a healthy economy.

I am all for Obama and Volcker's plan. Capitalists....we can't have it both ways. The creation of FDIC and the concept of TOO BIG TO FAIL have created giant moral hazard problems.

You cannot take government money (taxpayer $) and gamble with it, (you got lucky and won this time) reap huge profits, and then expect the taxpayers to be happy about it while they are losing their home because of YOUR rampant speculation, manipulation, and greed.

We need a moral Capitalism. The market is the arbiter of this, and when the government steps in and saves the bad guys from themselves the moral hazard and incentive problems in the system multiply.

I am sorry, but if we have FDIC and TOO BIG TO FAIL, we must bring back Glass Steagall as a counter balance.