The Ethics of our Economics

In a 10 June 2009  NEW YORK TIMES article about the newly elected Orthodox Patriarch of Moscow, New Orthodox Patriarch Pulls No Punches, Sophia Kishkovsky writes:

Patriarch Kirill also did not mention America, but said immoral economies are doomed to collapse. “An economic system built only on the striving for profit, on indifference to the fate of people, on disregard for moral norms, is deprived of stability and can collapse at any moment, burying the fate of people under its rubble,” he said.

Patriarch Kirill offered these comments at an Orthodox youth rally where thousands had gathered to express their own connection to the Russian Orthodox Church.

Some Americans are offended when foreign leaders criticize anything about America, but this is probably doubly true when the critic is a Russian.  My own reaction as I expresses before is to accept the criticism as opportunity to see ourselves through the eyes of others in the world (see my blog A Foreign but Friendly Critique of America).  It is a good time for self reflexion and to examine our lives and values as Americans.  What is it that we are doing that causes others in the world to see as as they do?

Regarding the current economic crisis facing America and the world, some American leaders continue to do nothing more than play a blame game – always blaming the “other” political party.  The NEW YORK TIMES article America’s Red Ink Was Years in the Making demonstrates the contribution of both political parties to the huge national debt with Obama continuing more than adding to what Bush started.     But how many Americans use this moment as an opportunity to evaluate the morality of our economic structures and decisions? 

Americans are concerned with how bad things are or might get.   They are concerned about encroaching “socialism”, inflation, the recession, taxes, wealth and the stock market.   But how many are concerned about the morality involved with wealth?   How many Christians think that the Gospel has anything to say about economics?  How many are worried about doing through the economy what is pleasing to God?

Was or is our economic system as Patriarch Kirill said based on

the striving for profit?

on indifference to the fate of people?

on disregard for moral norms?

Do we even imagine that any of these things are a problem?   Is in our system “profit” always a good or even the highest good?    Has our system been based in the entitlement ideas of the “well placed” few who believe that their prosperity is always good no matter what the cost to others?   Has our system been so based in an entitlement idea that those who are prospering need never concern themselves with those who aren’t?   Do those who have money (investments and stocks) ever think about anything but their own bottom line – never caring about the fate of others as long as their portfolio is growing even as others lose their jobs? 

We can ask ourselves:  to what extent did our our economic ethics and market place morality contribute to the economic collapse we and the world are experiencing? 

Patriarch Kirill’s comments should give us pause to reflect on the ethics of our economics and the morality of our wealth.   We can ask ourselves, what do we imagine that God would want blessed America to do with its wealth for His world?

A Foreign but Friendly Critique of America (2)

This is Part 2 and the conclusion of my blog A Foreign but Friendly Critique of America.

Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, wrote what he considered to be a friendly and loving critique of American government policies,  Can America Fail?  in  THE WILSON QUARTERLY Spring 2009.   I briefly commented what he listed as the first two American policy failures in the first blog.   Mahbubani continued: 

The third systemic failure of American society is its failure to see how the abuse of American power has created many of the problems the United States now confronts abroad. The best example is 9/11. Americans believe they were innocent victims of an evil attack by Osama bin Laden and Al Qaeda. And there can be no doubt that the victims of 9/11 were innocent. Yet Americans tend to forget the fact that Osama bin Laden and Al Qaeda were essentially created by U.S. policies. In short, a force launched by the United States came back to bite ­it.

Mahbubani believes ill conceived U. S. foreign policies have pushed some Islamic people to see America as their enemy, not ally.   The world can see America’s blindness on this issue, but it is a fault Americans cannot see about themselves.   He thinks Americans totally fail to see how the suffering of the Palestinian people does win them the sympathy of the Islamic world which in turns blames America for the suffering of Palestinians.  He thinks this will also continue to feed an anti-Israeli hatred among Muslims, which cannot be good for Israel.   Americans seem unable or unwilling to see how their own policy causes Islamic anger toward Israel.   He feels instead of America blaming the Muslim world, we should look at how our own policies exacerbate Mideast tensions and end up threatening Israel, our ally.

Because, according to Mahbubani,  Americans tend to think that all of her own problems come from outside of America, they rarely think about how what they are doing as a nation impacts themselves or the world.   Americans also are so often focused on the immediate, and favor instant solutions and instant benefits, that they do not think about the long term impact of their current policy decisions.   This is just another form of entitlement – we are entitled to good things now, we can’t worry about how these will be paid for in the future or what the price will be.   This too is an American blind spot regarding itself.

In democracies, the role of government is to serve the public interest. Americans believe that they have a government “of the people, by the people, and for the people.” The reality is more complex. It looks more like a government “of the people, by special-interest groups, and for special-interest groups.” In the theory of democracy, corrupt and ineffective politicians are thrown out by elections. Yet the fact that more than 90 percent of incumbents who seek reelection to the U.S. House of Representatives are ­re­elected provides a clear warning that all is not well.

How is it that incumbants become so protected that they rarely get voted out of office?   To some extent it is because special interests prefer it that way and they pay to keep current office holders in power.   Special interests rather than public interests have become protected by U. S. policy and they use congressional redistricting as a way to keep their favorite politicians in power.    President Obama noted:  “These days, almost every congressional district is drawn by the ruling party with ­computer-­driven precision to ensure that a clear majority of Democrats or Republicans reside within its borders. Indeed, it’s not a stretch to say that most voters no longer choose their representatives; instead, representatives choose their voters.”

 Mahbubani points out other issues which the rest of the readily sees about America but which Americans fail to notice or discuss.   According to him studies show that the ability to be upwardly social mobile in America has been declining and in many nations in Europe it is far more likely that someone born into the lower class might move to the middle class than it is in America.   Additionally the gap between the wealthiest Americans and poorest Americans continues to widen.  The top 20% of Americans, who complain that they bear too much of the tax burden, earn 15 times what the poorest 20% earn -  ”$168,170 versus $11,352.”   And the wealthiest 20% expect the poor not only to live on their meager incomes but to shoulder a tax burden which goes to fund programs that protect the wealth of the top 20%.

The U.S. education system produces children who in the world “ranked 24th in mathematics and 17th in science. It should come as no surprise that though the United States ranks second among 177 countries in per capita income, it ranks only 12th in terms of human development.”   Does our prosperity blind us to these national shortcomings?  We are the wealthiest and military-wise the most powerful nation on earth.   Does this cause us to ignore our domestic troubles and make us blind to the future in which other nations might overtake us because they focused on education and equality?

We may neither like nor agree with Mahbubani’s analysis of America nor with his offered solutions for us.  However, friendly criticism is not “friendly fire” – it is not deadly.  It gives us opportunity to see something about ourselves that we may not be able to see.   Mahbubani feels the one word American politicians always want to avoid is “sacrifice.”  He optimistically feels there are solutions to our nation’s problems, but Americans, especially in the realm of economics, must abandon entitlements and accept sacrifice to solve some of our economic, health care and retirement problems.   He thinks Americans are creative enough to come up with solutions for these problems, but it will require a willingness to make personal sacrifice for the common good.

The Economic Collapse: It was the software’s fault!

As I’ve continued to listen to stories about the economic collapse, I have as I commented before come across numerous stories in which one group of professionals or one political party blames another group or party for the global economic disaster.  Listening to National Public Radio the other day I heard the story of Michal Osinski, a software developer and his own confession that the softeware he helped develop to make complex financial transactions simpler to accomplish helped smooth the way for the complex banking-lending-real estate-Wall Street crisis to occur. 

His story was intriguing as I had not heard anyone blame computers or the Internet for the collapse, but sure as could be, the economic fiasco probably could not have occurred without the software and Internet to make easy incredibly complex global investments.

Osinski tells his story in the 29 March 2009 issue of the NEW YORK MAGAZINE: My Manhatten Project: How I Helped Build the Bomb That Blew Up Wall Street.    His admission for some responsibility in the mess (though he accepts limited liability) reads in part:

I wrote the software that turned mortgages into bonds. … The packaging of heterogeneous home mortgages into uniform securities that can be accurately priced and exchanged has been singled out by many critics as one of the root causes of the mess we’re in. I don’t completely disagree. But in my view, and of course I’m inescapably biased, there’s nothing inherently flawed about securitization. Done correctly and conservatively, it increases the efficiency with which banks can loan money and tailor risks to the needs of investors. Once upon a time, this seemed like a very good idea, and it might well again, provided banks don’t resume writing mortgages to people who can’t afford them. Here’s one thing that’s definitely true: The software proved to be more sophisticated than the people who used it, and that has caused the whole world a lot of problems.

The first collateralized mortgage obligation, or CMO, was created in 1983 by First Boston and Salomon Brothers, but it would be years before computer technology advanced sufficiently to allow the practice to become widespread. Massive databases were required to track every mortgage in the country. You needed models to create the intricate network of bonds based on the homeowners’ payments, models to predict prepayment rates, and models to predict defaults. You needed the Internet to sail these bonds back and forth across the world, massaging their content to fit an investor’s needs at a moment’s notice. Add to all this the complacency, greed, entitlement, and callous stupidity that characterized banks in post-2001 America, and you have a recipe for disaster.

His article makes for an interesting read.  The Wall Street world appears to be as personally and financially excessive and obscene as many Americans suspect it must be.  In Osinski’s description he encounters traders in a fashion pissing away profits.  You’ll have to read his article to know what I mean.

The world of computers is based in “garbage in, garbage out” mechanics.  There was nothing wrong with the software.  What was being done by these economic decisions makers (who were also making millions of dollars) produces the massive amounts of toxic assets which have been dumped on America and the world.   Osinski writes that some of the abuses and problems can be easily corrected and that much of what was going on was good capitalism.  But then there is that simple fact that we live in a fallen world, a world of sin which infects humanity and not machines.  Osinski calls it human “complacency, greed, entitlement, and callous stupidity.”   The modern world ever doubts and denounces Christian ideas of morality whose foundation is based in an understanding of human sinfulness.  Yet time and again we are confronted by human sinfulness on a massive scale. We’ve seen this before in wars, but also in previous financial crises as Osinski writes:

At Lehman, I began a thirteen-year effort to streamline the process of securitizing home mortgages, as well as other forms of debt. That was 1988, around the time of the savings-and-loan crisis. Remember that one? Lenders had gone nuts with, what else, real estate, and as they went bust, the government was stepping into the breach. Mortgage securitization was the answer.

Folly and sinfulness in one person are dangerous, damaging and deadly.  On a massive scale their effects are exponentially greater.  Despite those facts, modern humans think Christianity has nothing to say to the world.  Yet a simple dose of Christian teaching easily forewarns all of humanity about fallen humanity, original sin, the need for repentance and for that prophetic voice that warns about the ‘profitic’ love of money. 

But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that  plunge people into ruin and destruction. For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs.”  (1 Timothy 6:9-10)

The Birth of Economics

Many years ago I read a quote which was parody of the First Chapter of John’s Gospel.  It read something like:

“In the beginning was the word.

And the word became print.

And they called it a lie.”

For some reason I attribute the quote to Jonathan Swift, but I couldn’t find it in a quick online search, so I’m not sure who said it or where I read it as it could be Monty Python for all I know.

What brought the quote to mind was my continued effort to read some things so that I can try to grasp how the economic collapse happened.  As I noted in a previous blog there is plenty of blame to go around but few willing to accept that blame.

Economics is an interesting study.  I mean people talk about theology being confusing, pie in the sky, or man made or nonsense which leads some to become atheists.  But if there is a faith based “science” it is economics which conjures up all kinds of schemes, fake heavens and hells, false gods, and is based largely in opinions of people who do not have to base their theories in any experience or reality.  All they have to do is imagine it, no divine revelation is necessary.  I wonder if there are a-economists, like theology’s atheists, people who simply don’t believe in economists or their theories at all?

I think TIME and NEWSWEEK magazines have been taking turns lining up the usual suspects for who was responsible for the economic crash.  WHO’S TO BLAME: WASHINGTON OR WALL STREET?  asks one NEWSWEEK debate article.     TIME’s HOW AIG BECAME TOO BIG TO FAIL also provides a handy dandy chart answering, “Who’s to Blame?”  I made my own suggestion for cleaning up the mess – have each political party and each of the professions and government agencies which contributed to the mess take a serious look at themselves alone – stop looking at or blaming anyone else and clean up your own house.

I did find the 21 March 2009 NY TIMES article When Deficit Isn’t a Dirty Word a bit helpful.  I have been ever doubtful about the goodness of national debt – even when Reaganomics made it a positive idea.  Robert Franks acknowledges the value of the national debt is difficult to comprehend but he offers some explanation about when and why a national debt serves a purpose.  He ultimately concludes it is what the money in the debt was used for which determines whether it is a good thing or not.  Unfortunately he feels the huge debt run up during the Bush presidency was bad debt and largely a loss for the country.  Now we are faced with the need for even greater debt to get the economy running again.  He notes that Herbert Hoover made the mistake of trying to balance the budget at the very time when government spending was needed to help the economy.    I probably would end up being a Hoover myself as I still feel most comfortable with a balanced budget.  [BTW, in 1815 there were an estimated 8.4 million Americans and President James Madison in his Annual message to congress said the national debt (due to the just concluded war with Great Britain - of 1812) was $120 million.  Which meant each American owed about $14.50 to eliminate the national debt.  According to USA TODAY, when President Bush's term came to an end in January of 2009, the national debt was about $10 Trillion, which meant each American owed about $30,000.   But hey, we just came through the biggest and longest economic boom party ever thrown so we all should expect to have to shoulder the cost of that party, right?  Or wait a second, if there was so much prosperity, how could there be such a huge debt?]  And of course President Obama’s plan is going to increase the debt, but it’s all for more prosperity, so why worry?

But really, will the Geithner-Obama plan work?  Again there is plenty of opinion to go around  (see the NY TIMES’ editor’s opinions) but it still is hard for me to find comments that offer hard evidence for where we will land if we follow this plan.  Plenty of criticism is offered, but as I’ve said before a plan so large offers a huge target for naysayers, but rarely do I see them offer SPECIFICS of an alternative.  But maybe that is exactly what economics can’t do.  Economists seem best at imagining all the things that can go wrong with a concrete but can’t offer a concrete alternative, or they are good at ignoring all the things that might go wrong with their theory and offer it up void of any specifics or critical analysis.    (Would we let architects put up buildings based on abstract theories rather than on sound engineering?  NO, but we will let economists build the economy in this way).

A few facts I noticed -

• 1) More writers seem to be accepting of or talking about some form of progressive consumption tax, especially when it comes to oil use. I will admit this seems wise to me.
• 2) Though there has been a lot of outrage over the million dollar bonuses paid to the very AIG executives who bankrupted their company, and nearly the planet, the truth is the outrage is only because these people failed miserably. But I feel a bit of outrage over how much they were paid in bonuses even if their pyramid schemes had succeeded. At least on that point I found Justin Fox of TIME to agree with me (The Upside of Anger). He offers as an alternative to trying to get back all the bonuses from the AIG losers, to cast a much wider net and impose a retroactive tax (he says 50%) for the past four years on the execs from any financial institution that receives bailout money. He thinks it would make all financial execs keep a much closer eye on what is happening everywhere in their companies.
• 3) Bill Saporito pointed out in his article HOW AIG BECAME TOO BIG TO FAIL that the $165 million in bonuses which is a lot of money, pales to the $170 BILLION which AIG has received in bailout monies. He says we need to be more concerned about that huge bailout than about the bonuses, which may be a real distraction but are “small potatoes” when compared to the whole disaster. What was going on in AIG and in the world economy would make an economist lose all faith in his theories and conclude that economics is not founded in facts or anything real. Saporito does pin a lot of the blame on the President of AIG’s Fianancial Products Joseph Cassano for the AIG disaster. One of Saporito’s best lines: “Cassano said in August 2007 that he couldn’t imagine a situation in which AIG would ‘lose one dollar in any of these transactions.’ He was right. AIG didn’t lose a dollar; it lost billions of them.”

When the word became print, economics was born.   I used to think that only in blogging can you get away with having no facts but still having strong opinions.  But economists were doing the same thing long before the Internet was born.

Plenty of Blame to Share: Few Takers

I am going to offer a suggestion which I think might help the U.S. work through the economic crisis which grips our country and the world today.  That I think I have an idea for the economy which I think can be part of the solution to the crisis will no doubt amaze the readers of this blog since I have confessed openly that I know nothing about economics, and I have done nothing but puzzle over what is happening and how it happens (a webpage where you can learn about economic terms and theory:  http://vimeo.com/2606496).

I am going to speak from the point of view of my strength – being an Orthodox Christian priest, so I am not going to entangle myself in economic theory.

Here goes:

We Orthodox are in the middle of Great Lent.  There is a prayer we say throughout Lent which I think could help all of the politicians, economists, bankers, lenders, financers, federal regulators, brokers, and capitalists deal with the crisis.  I’ll paraphrase the one line from the prayer which is essential here (and you don’t have to even believe in any kind of deity to say this part of the prayer):

“Grant me to see my own sins and not to judge the other.”

For though I have heard countless people say regarding the financial meltdown that there is plenty of blame to go around, I have not heard many (any?) of the players in the crisis accept that blame.  There have been incredibly few “mia culpas” for all of the blame that is being thrown around.  Plenty of blame, but no one courageous and honest enough to own it.

So my solution is this:

Republicans look only at the ways that Republicans have contributed to the mess we are in.  Then clean up your house.

Democrats look only at the ways that Democrats have contributed to the mess we are in.  Then clean up your house.

Congress do the same.  Federal agencies too.  Wall Street also. Bankers, lenders and brokers the same.  Economists and borrowers too.

For the remaining time of Lent, let no one point the accusing finger of blame at anyone outside their own house.   Let each group responsible for this mess finally and honestly accept the blame for what they did to contribute to the economic collapse.  Stop covering your own butts, stop trying to make everyone else look bad, stop blaming and accusing and start owning up to your share of the blame.  Then you will be able to correct the faults in your own house and you will contribute positively to the recovery.   Take the painful step of confessing how your political party, your organization, your profession was responsible for the economic collapse.

That’s about the only way we are going to end Washington gridlock and Wall Street greed.

[Editorial Note:  I just heard this on NPR this evening.    President Obama said, "Washington is all in a tizzy and everybody is pointing fingers at each other and saying it's their fault, the Democrats' fault, the Republicans' fault. Listen, I'll take responsibility. I'm the President."    It's a start!  He also said he didn't create the mess, but acknowledged it's now his job to deal with it.    A little lame - it's easy to accept blame when you don't really think you are part of the problem.  He was part of the Senate though.  What blame will he be willing to accept from that role?]

Back to Basics: If it Seems to Good to Be True, It Is

“a $1.2 trillion subprime-mortgage market, a $62 trillion unregulated, nontransparent credit-default-swap market, $50 billion private-equity buyouts of cyclical companies, hedge funds going public-seem, on their face, to be irrational, silly nonstarters.”  (Daniel Gross)

The worldwide economic collapse is just too big to ignore, even though I can’t begin to explain it.   I look at the above quote from Daniel Gross, author of DUMB MONEY: HOW OUR GREATEST FINANCIAL MINDS BANKRUPTED THE NATION and though he is writing in English, outside of understanding he is talking about an unimaginable amount of money, I don’t really know what the terms he uses mean.   Even less do I understand how the economic meltdown occurred, seemingly overnight. 

Gross in his 9 March 2009 NEWSWEEK article “Reining In Bubbles So They Won’t Pop” (an adaptation from his book) says part of the problem was (is?) that

too many elements of our financial system and money culture were procyclical. Which is to say that built-in features of our economic operating system-government policy, private companies, the media, popular culture-functioned as accelerators rather than brakes. Once a hot money trend gets going, everybody wants in.

In other words our economy was geared for plunging into and inflating every economic bubble that should appear.  Who is to blame for this?  Gross writes:

There’s plenty of blame to go around: poor regulation, eight years of a failed Republican economic philosophy, Wall Street-friendly Democrats who helped stymie reform, misguided bipartisan efforts to promote home ownership, Wall Street greed, corrupt CEOs, a botched rescue effort, painfully fallible central bankers.

The result of these economic policies?

The implosion of the dumb money economy-housing, insurance, real estate, the auto industry-has erased much of the economic progress of the decade. By the end of 2008, stocks had fallen back to where they were in 1997.

So what should we have learned through this economic collapse?

There is nothing acceptable about what happened. This crisis was not a random, once-in-a-lifetime thing that fell out of the sky. It was a manmade product that turned out to be immensely toxic and damaging. And we’ll be paying for the cleanup for a long time. We can and should get angry. We should also get smarter.

Warren Buffett in the same issue of NEWSWEEK (“Our Country Has Faced Far Worse Travails”) also thinks we need to get smarter about the economy and he cites many of the same problems as Daniel Gross did to explain the economic crisis. Buffett also offers a little painful lesson about what he admits is a needed strong and swift government response to the crisis.  We are going to get smarter, but this is what we are about to learn:

Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome after-effects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

Buffet does offer one piece of very down to earth advice as a lesson learned:

Home purchases should involve an honest-to-God down payment of at least 10 percent and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified. Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.

Buffett’s own company, Berkshire Hathaway, has followed his advice, and apparently is doing  better than many other companies.  I don’t know how many times I’ve heard the warning about get rich quick scams: “If it seems too good to be true, it invariably is.”  Too bad those who were leading us into financial disaster had the pyramid scheme attitude: “if it seems too good to be true, put all your money into that bubble.”

Bailout: No Avoiding the Pain

According to the dictionaries, the word “bailout” as a term applying to corporate financial rescue was coined in the early 1950’s.  I am not sure what was happening at that point in the U.S. economy that such a term became necessary, but perhaps it was the post-WWII economic boom that created companies that grew too fast and needed then to be bailed out.   An old parental adage which says, “little kids, little problems; big kids, big problems,”   apparently also applies to the corporate world and to the U.S. economy as a whole.

The unprecedented “growth” of the U. S. economy beginning some 30 years ago was enjoyed by many, especially those at the top.   It was based in sectors of the economy who boomed or ballooned and then in recent years we began to experience these sudden growth spurts for what they were – empty bubbles that burst.  Much of the unparalleled spending spree by Americans, which was a driving force in this supposedly robust economy, was actually resting upon an unparalleled growth in personal and corporate debt – the booming economy’s foundation was an ever ballooning debt.  The huge vaporous emptiness which the debt represents was somehow thought of as both our wealth and also was the supposed bedrock on which the entire structure called the U.S. economy was being built. 

Not being an economist, I can’t understand how these things came to be believed, but they were, and the banking, stock market and real estate booms were inflating the voluminous bubble that couldn’t sustain the weight of the skyrocketing economy.   Apparently it was addicting to watch the economy grow in this way because people kept looking up at the unlimited growth rather than down at the foundation upon which this growth was being built.   Too bad some economic structural engineers weren’t called in to offer a safety opinion on whether in fact debt could bear the load of the economic building.

So I found listening to  Morning Edition, February 27, 2009, painful as the title of the story implied:  Taxpayer Beware: Bank Bailout Will Hurt.   The entire 30 year economic boom was a big party to which I did not attend, and yet I am going to be stuck with the bill.  I have no credit card debt.  I have faithfully paid by mortgage.  Admittedly, I have had very few vacations, do not have an expensive car and do not own a brand new spacious home with all of the modern devices others couldn’t live without.  I don’t have a lot to show for the 30 year economic boom – no investments, no savings account, but a mortgage and some college loans I had to take out to keep kids in college.

One of the factors that got us into our current problem is debt, pure and simple.   For most years, the amount of debt Americans owed was about 50% of the value of the entire U.S. economy.  But then between 2000-2008 (where were the fiscal conservatives?), our debt skyrocketed and equaled the value of the gross domestic product of the U.S.:  13 trillion dollars.  The last time that happened was 1929. 

David Beim, a former banker who is now a professor at the Columbia Business School has an explanation for what happened.

We have overborrowed, Beim says: “We’ve been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen.”

In other words, the problem the banks are facing is the problem we, as a society, are facing: We all have too much debt. And getting rid of it is going to be painful.

If you want a solution in which those who bear the most guilt for the financial crisis pay the most to fix it, while the innocent don’t have to pay anything, that’s not going to happen.

It seems that the U.S. economy is way past that point. Americans are going to spend a lot of money. The government may bail out some banks that some people wish it wouldn’t. There is no magical solution where the U.S. gets out of this mess without any pain.

While they might disagree on who will bear the brunt of that pain, all the experts interviewed for this report say the longer the U.S. waits, the worse it will be for everyone.

So whether you participated in the problem or not, you are going to have to pay these economists say.  No wonder web pages such as Stop the Mortgage Bailout have arisen;  for it does seem as if the prudent taxpayer is being forced to pay for the excesses of those who over borrowed, those lenders who promoted over borrowing for their own profit, and those who inflated housing prices and their corporate bottom lines.    The economic boom was based on an economic balloon over inflated  by excessive borrowing and lending.  Now we are seeing the price tag for this.  Who could have known we would have to pay our debt?   I mean as Christians don’t we pray “forgive us our debts”?

The Mythical Camel and the Real Straw Which Broke His Back

Pundits and talking heads are filling the airwaves with their analyses of the proposed stimulus package.  Lots of criticisms being offered, and no wonder – the stimulus package is huge thus offering a big target for critics.  There is plenty to criticize.   Besides, the daily talking heads have a massive amount of airtime to fill and so they babble on hoping to stimulate the troubled minds of their faithful just as the politicians hope the stimulus package will spark the troubled economy.

The critics seem to be short on specific predictions and details for what alternative should be followed.   When all you have to do is criticize, the job is not too hard, especially whan the target to be criticized is so massive.  For life if it teaches us anything enforces the lesson that something is sure to go wrong.  So it doesn’t take a whole lot of smarts to predict that something will go wrong.  Besides, when the inevitable happens, no matter what the wrong is, the critics can always say, “I told you so.” 

What would be far more helpful to us would be for the critics to state exactly what they think will happen and when it will occur if the proposed stimulus package is enacted.  Such comments as “too big”, “not enough”, “too fast”, “not soon enough” are really not helpful at all.   What would be more helpful is people taking their economic theories (opinions, ideologies, whatever), and spelling out in specific detail what they think will go wrong, when and why.   With such specifics, we could actually learn something about how these different pundits’ ideas actually work.    We might learn which economic theories and ideologies successfully predict the future.   Thus if someone says, if you do that you will create inflation but deflation happens, that person would not be able to say, “see I told you your plan wouldn’t work” because even though the taken action didn’t produce the desired result, neither did it produce the critically predicted result. 

It isn’t helpful enough to say a plan won’t work, or that it is a bad idea.  Let the political pundits give us the specific predictions of what they think will happen if the proposed stimulus in inacted.  Then we can measure the words of these talking heads against reality, and they won’t be considered wise for predicting “things will go badly” which is no prediction at all; specifically spell out what the negative effects are going to be, otherwise your criticism are more empty on specifics than the plan itself.

Maybe slightly more helpful is pointing to an example of what a stimulus did or didn’t do.   This you can find in Martin Fackler’s 5 Feburary 2009 NY TIMES article Japan’s Big Works Stimulus is a Lesson.   There at least we can see how big time spending impacted Japan’s economy or failed to do so. 

Steven Pearlstein in a 6 February WASHINGTON POST article, “Wanted: Personal Economic Trainers.  Apply at Capitol“, makes the suggesting that we use the stimulus money to hire personal economic trainers for each congressman and senator in order that they learn how an economy really works so that they can make sensible comments and decent decisions based in economic realities and not in their personal opinions or ideologies.   If economic stimulus means increased spending, then he argues government spending is shown to be much more effective than tax cuts for stimulating economic growth.

Part of the problem for me in dealing with the economic crisis is that I do not understand economics.  That is why I read articles like Stephen Gandel’s “Why Your Bank is Broke” (TIME magazine, 9 February 2009).   It has very colorful charts showing how many tens of billions of dollars less the biggest banks are worth after having received the billions of dollars in TARP funds from the government.    The basic reason banks are broke is something like this:  You want to borrow $10 from me.  I only have $1 to my name.  I lend you $10 anyway. ….  Wait a minute you say, how could you lend $10 if you only have $1 to begin with?   That apparently is the lure of capitalism – capital produces more capital, at least on paper.   Banks came to rely not on their deposits and holdings but on supposed profits and money from their investors.   In other words I take $9.50  from friends who trust that I am going to make them money with the $9.50 they gave me.  I lend $10 to you.  My friends get paid back only if I make money on what they entrusted to me.  But if you cannot pay back the $10, those who invested in me lose their money and I now have $.50  left and am stuck holding a $10 IOU that is worthless.   It’s possible that everyone – borrower, lender and investor all end up being losers.   That is as far as I can tell what happened to our economy.  Banks were lending not what they owned but other people’s money (investor’s money), which works as long as those people don’t ever ask for their investments back or as long as the borrowers keep making payments on the loan.  It is a giant pyramid or Ponzi scheme which was being played by more players than just Madoff.   Some want to put all the blame for this on questionable loans that were made to first time unqualified borrowers (see my The Party in which Democrats and Republicans Reveled).   But there is a much bigger picture to the banking scheme of which these questionable home loans were just a part.  They may have been the straw that broke the camel’s back, but that camel was loaded down with an unsustainable system which for a period of time was so incredibly profitable for some as to be addictive to the many.  Breathing this intoxicating air of seemingly unlimited profits, the entire banking system gleefully threw the expanding home loan business onto the top of the pile which the poor camel was carrying.  And great was the fall thereof, or what was realized was the camel didn’t really exist so there was nothing to carry the load.

U.S. Stimulus Package: Imminence vs. Importance

President Obama met with Republican congressmen and senators yesterday in what some see as an unusual move, yet is totally consistent with his claims that he is trying to do something different in Washington.

Yes he can, in all probability get a stimulus package passed through both houses on Capitol Hill without the support of Republicans.  The reality of the economic crisis facing America and the world is that what would best serve the interest of our country is that we have decent buy in from both major political parties.   Why do I think this is important?

There is no guarantee that whatever is attempted is going to work, have a positive impact on the crisis, be successful in attaining its goals.  Unfortunately, there is no agreement among economists or politicians as to what might work nor on what the negative impact of whatever is attempted might be.  (see the NPR.org article on Keynesian economics and the great unknowns)   Many feel there is a narrow window open to try to prevent an even worse economic scenario from unfolding, but the opinions about all these things are based in ideology more than in verifiable fact.  Additionally, in economics there is probably some truth to the notion that like with many bodily ills, even if a person does nothing, the illness often eventually gets better ‘on its own.’  So the question is:  will the proposed “cure” be less harmful to the patient than the illness itself?   Or as I’ve learned about dealing with chronic illness: there no cure to the problem;  all we can do is to try to manage the problem and learn to cope with its effects.

Because there are no guarantees as to what might work, thus greater bi-partisan buy in on the stimulus package means greater chance that more of the politicians will take ownership of  and responsibility for the solution (they already own the problem).    This means if the “recovery” gets shaky at points or falter, the politicians will work together to shore up the solution, rather than all stepping back and watching the whole thing collapse in a passive aggressive I-told-you-so mode.   The stimulus package is huge and so has lots of opportunities for critics to step up and engage in endless political guerrilla warfare against the effort.   To allow the stimulus package to be a Democratic solution is to put 40-45% of the electorate and congress in opposition to the effort, whereas this is truly a time for everyone to work together for the common good and general welfare.  Neither Obama nor the nation need or would benefit by having 45% of the people taking shots at the plan or finding chinks in the armor.   Rather he and the nation would be much better off if the Republicans saw whatever armor the stimulus plan offers to protect the nation as protecting them as well rather than being something they are endeavoring to weaken.

A bigger portion of the burden for finding compromise and cooperation and bipartisanship is going to fall on the Democratic majority.  For they will be tempted to use their majority status to ignore Republican concerns.  But if President Obama is serious about bringing change to Washington, then he is going to have to stand up to his own party to bring about the needed change.   In a NY TIMES article from 27 January 2009 the usual way of doing business in Washington is made clear to Obama:

While he is relatively new to Washington, having served less than one term in the Senate, many Democrats who have served longer harbor rancor from past years when Republicans ran Congress and, with George W. Bush in the White House, excluded Democrats from lawmaking.

If change is going to come to Washington and partisan gridlock is going to end, the Democrats are going to have to end it by forgetting the past and dealing with the present problem and situation in order to set the course for the future.  President Obama is the one who is going to have to lead the Democrats out of this past and into the future – not by forgetting Republican fiscal concerns (which surely are valid – we are proposing a huge solution which we are asking Americans in the future to pay for) but by forgetting how things were done in the recent past by those in power. To lift a phrase from St. Paul:  “one thing I do, forgetting what lies behind and straining forward to what lies ahead, I press on toward the goal for the prize”  (Philippians 3:13-14).  We will see whether the Democrats place the nation ahead of politics.

A last aside – in coming up with an economic solution, all politicians would do well to remember what got us into our current situation.  1)  American short-sightedness: we have been addicted to short term gains, profits and financial growth.  Let us not lose sight of what is important by focusing completely on what is imminent.  2)  While many politicians and economists are calling for lenders to again begin lending generously, remember a good deal of what caused the economic collapse was the pushing of generous lending to get more people into pyramid scheme of economic growth.  How can the very thing which triggered the economic collapse possibly be part of the proposed solution?  Mostly because of what I mentioned in #1.

Obama’s Sober Address and Our Daily Bread

I heard some commentators say that they felt that Barack Obama’s Inaugural Address offered a fairly sober if not stark picture about what he and we face as a nation. 

History was made today, but we all know it is the making of history which is so agonizing and burdensome.  Obama’s election would not have so much meaning to it if it weren’t for slavery, the civil war, and the war for civil rights.  A lot of suffering goes into history being made – but we often only remember it made not what made it!

Though there were a couple of “quotable” phrases (I thought his comment “that God calls on us to shape an uncertain destiny” rather than the usual American idea of “manifest destiny” was notable – perhaps sobering but also at this moment in history appropriately humbling.  I for one did not find the cowboy bravado of our previous president to be inspiring).

Obama’s “sobering” tone certainly is found in his closing words:

America, in the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come. Let it be said by our children’s children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God’s grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations.

The task before us is daunting – the global economic crisis and the war with Islamic terrorists are challenges to our ability to deliver the gift of freedom to our children.   There is no getting around these problems for the way to a decent future is by facing them head on.   President Obama places the better days in the future on the other side of the immediate crisis – today we need the courage to journey through these turbulent times.

This past Saturday, while I was serving Vespers, I had my own thought about what we face as a nation and citizens of this planet.   As we prayed the words, “give us this day our daily bread”, I somehow became more aware of the looming threat of our economy.  How will we Orthodox American Christians react when the words “give us this day our daily bread” become our literal prayer?   For in recent years those words have been for most of us in our comfortable middle class lives more symbolic than real; few of us have been forced to hope for enough daily bread to survive.  “Give us this day our daily bread” has meant more like “continue to pour prosperity upon us” or “give us all we want” or “continue to grow our economy, our 401ks and increase the value of our homes a hundredfold.”   But few have had to worry whether there would be enough to eat or to survive or to subsist.  

If “give us this day our daily bread” becomes reality – a true begging for subsistence, how will we react as Americans and as Christians?    When having enough bread for today becomes our measure of happiness and supplants abundance and overindulgence in our daily lives, will we appreciate the power of the Lord’s prayer?   Will we realize the American dream and the pursit of happiness is found in sharing, in self denial and self control?

We can hope that it will not come to this – that we will not have to say this prayer with literalism and fervor.  We say the Lord’s prayer daily while simultaneously hoping it will never come to be that meaningful in our lives!   Sobering indeed.

Obama puts America’s hope in the better future – attained through meeting the difficult challenges of the present.   It is a sobering thought for a people who constantly believe in immediate gratification, short term profits, fast foods and who live only in ‘the now’ and have never had to wait or hope for their daily bread.