Thursday, April 23, 2009

Post No. 108: Too Few Indians; Not Enough Chiefs


Something’s bothering us.

How in the heck did so many become experts on economic theory overnight, and declare themselves competent to expound on this tactic or that?

Not only are they economic experts; they can predict the future with certainty.

Lots of us have difficulty tracking a checking account balance.

We here at the Institute aren’t sure of much, other than tequila will make you stupid, vodka will make you delusional, and hanging out with more than one woman will make you broke.

And so with amazement, we have watched talk show hosts, pundits, and just regular folks like us, draw lines in the sand describing what happened, why it happened, and what is about to occur.

Where were these people before things started heading south? And why weren’t they running things?

We’ve operated businesses. Stuff’s tricky. We don’t pass judgment on others, especially those with larger /more complex operations.

One of the Logistician’s partners used to say that business people are happy if they get it right 51% of the time. 60% will make you wealthy.

And yet people with not even lemonade stand experience call others incompetent.

That’s not to mention those who’ve cornered the market on history and claim their view is historically accurate, while others are revisionist in nature, or worse yet, lies.

A symposium on the economy was recently held at George Washington University.

There were roughly 10-13 economists, journalists, former banking officials, and business professionals.

First, the group noted that over decades, our best and brightest were diverted or “distracted.”

Instead of pursing careers in science, bio-tech, and other technological areas, they spent time creating “innovative financial instruments,” and generated huge amounts of money, mostly for themselves, through leveraging.

Second, the question arose as to how the best and brightest from our top educational institutions managed to be at the center of this whole mess. This was not a collection of dullards.

Third, there was some sense that the captains of finance had little sense of social responsibility.

Fourth, no one attributed our economic situation as primarily due to one factor, a short period of time, one party, or one administration.

Even the least sophisticated amongst us should appreciate that:

1) The world hasn’t faced a similar economic crisis in our lifetime. There is no historical precedent. No one really knows precisely what to do;

2) This crisis seems to have been precipitated by an economic situation more or less defined by the availability of more capital than good deals;

3) There is no more “them” or “us.” We can’t get along without Chinese money and China can’t get along without the American market. We need a world wide coordinated effort… which is going to be difficult;

4) The economic policies of the last 8 (or 15, or 20, or 30) years got us to this point and did not produce the desired results;

5) When you find yourself in a hole, the first thing to do is stop digging;

6) There is no drug as addictive or powerful as easy credit and the promise of instant wealth;

Finally, we’ll pass on something from a buddy who should know. The main reason why Tim Geithner is flailing in the wind is he can’t consult the Street and the Big Banks because there are horrendous conflicts of interest. Treasury is also inadequately staffed for this reason, along with the fact that few have the guts to take on a task of this magnitude.

Much of the wailing and brow beating can largely be attributed to a few who became very rich during the last decade exploiting easy credit and nonexistent regulation.

They became hooked on the most powerful drug extant.

The rest of this public viciousness is nothing but political finger pointing.

Hunter Thompson once observed of Washington: “In a closed society, where everyone is guilty, the only crime is in getting caught, and the only sin is stupidity.”

Mark Twain, 100 years earlier, noted: “Few things are harder to put up with than the annoyance of a good example.”

We elected this man on the promise of change. Lord knows our economy is in desperate need of something different.

We at the Institute of Applied Common Sense ask only that those both for, and against, this change “get with the program.” If you have a better idea, let’s hear it.

If not, let’s tamp down the fervor, and give a new approach a chance.

After all, the stuff we did before obviously didn’t work.

Except, perhaps for the benefit of a few.

10 comments:

  1. This was not a collection of fools.I call that an unwarranted assumption. Greed can render one every bit as foolish as can tequila.

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  2. Rodak: You are absolutely correct. We stand corrected, and will change that in the original text. We need more people like you keeping us honest in a way that has some substance.

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  3. Everything we do has consequences. Most of those consequences will be unforeseen. What we do today will have consequences decades from now. Just as things that were done in response to the problems of trusts and monopolies at the turn of the century impacted the course of finance for the next 10 decades.

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  4. Logistician,

    I readily admit that economics is not my strong suit. Rather, the Constitution and the somewhat amorphous concept of "equitable dealing" in all things business is.

    That said, I agree with most of your conclusions with two glaring exceptions:

    1) Doing business with China = BAD IDEA. These people are NOT our friends. Dealing with an enemy who claims to be a "friend" is always a recipe for ruin, so we should extricate ourselves from China's lethal economic embrace ASAP; and

    2) Blindly following a leader (ANY leader) who prescribes "change" without providing specifics is also a BAD IDEA. Yes, some things in our economy needed a lot of fixing and some needed a complete overhaul if not outright replacement; and yes, our old leaders were far too slow to address these issues; but our new leader's unspecific calls for "change" virtually smack of the old Washington adage "Never waste a good crisis!" which, loosely translated, means: "Any crisis, real or perceived, is a GREAT opportunity to grab some more power! We will then worry about the actual solution (if there is indeed to be one) later."

    Jeff Dreibus

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  5. Jeff,

    1. You want to stop doing business with China? Fine. But where do you suggest we look for the billions (or trillions) we'd need to pay off all the money we've borrowed from them to prop up our own treasury? Second, China is part of the global economy. So are we. So are many other countries. For us to attempt to build a fenced-in economic fortress with ourselves "safely" at the center of it would only invite disaster.

    2. We've had serious economic problems for decades, the worst of them virtually invisible and systemic and therefore difficult to resolve. What's happened in the last year or so is that push has come to shove. In other words, the problems have grown so large and so out of control that it's likely Congress will finally see its way to passing worthwhile legislation.

    3. We've had a new president for less than three months. As for him not having specific ideas in mind... well, you must not have been following politics during 2007 and 2008 when the candidates were out on the campaign trail. Ultimately, the majority of us were persuaded that there was man who would indeed bring change to Washington. He's been on the job only briefly. So far I've haven't seen a shred of evidence that indicates he's a man who believes in your "Never waste a good crisis" adage.

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  6. Where do all these pronouncements come from? Have you never heard of 20/20 hindsight? In addition to people projecting from the state of collapse they can see all around them are the people who have ALWAYS predicted doom and gloom. Let us not forget that even a broken clock tells the right time twice a day.

    Jess-I understand your emotions regarding the Chinese regime but having no dealings with China will have a similar type of effect of having no dealings with Cuba. To wit the respective governments can demonize us to their hearts' content, their people suffer, our people suffer. The best thing for the Chinese people is the inexorable though perhaps slow accretion of freedoms that comes from continued interaction with the west. It is the reason the Taliban wants nothing to do with the west. They have figured out that continued exposure will result in an erosion of the ignorance and cruelty with which they rule their own people. Instead of sending in bombs deluge them with entertainments, comfortable goods and access to education. Give 15 year old boys an alternative to becoming a suicide bomber.

    I don't think President Obama is fuzzy about what changes he is trying to make. Some might think that because he is flexible and is willing to concede certain items that were either impractical or a wall preventing more important matters from going forward that he therefore is unclear about his goals. Not so. You can't win every battle. He knows that. You may not agree with him. I don't agree with all of his goals either. What I do see is a brilliant man taking on tough situations, willing to listen to council but making the final call on important matters. Without a doubt he has changed our image abroad from that of a clenched fist to an outstretched hand. I have no doubt that he will no allow foreign governments to walk all over him and you'll not be finding any paw prints on his face other than that of Bo when he can take the time to play with the puppy and his daughters.

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  7. Good article. I just wanted to thank you for visiting my blog and hope you will come back again.

    SQ

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  8. This will probably be my last post. I thought this was a blog where opinion was the interest. If you have to be an expert to voice an opinion, I’ll not participate under that proviso. I am pretty well read and am always interested in other points of view, whether informed or not.

    But regarding this subject, I am a little more familiar since I had an Economics minor, and Business major. I have been an executive of a fortune 50 company for more than 16 years, run a business in China, served Asia and Europe and now have my own small business.

    First I think it is important to separate the issues into two classes: political and economics. Regarding the main points of your economic discussion:

    1) The world hasn’t faced a similar economic crisis in our lifetime. There is no historical precedent. No one really knows precisely what to do;

    Actually, we have had several similar economic cycles worldwide (maybe not just in the US) that were precipitated by similar political inputs effecting the normal market processes. (Japan, Brazil, Argentina and even China to name just a few) Over the last 30 years there are several examples to give some picture of what is happening, why and what are possible solutions. This one is a little more problematic since the global effects of our economy on liquidity and currency worldwide due to global money markets has brought all our trading partners some pain.

    2) This crisis seems to have been precipitated by an economic situation more or less defined by the availability of more capital than good deals;
    This is a little more difficult to define since the capital chased what appeared to be good deals that turned into not such good deals. Greed is ultimately a factor here as it has been in just about every boom/bust cycle in history. The feeling that values of whatever will continue to rise without regard to underlying market forces is just the emotional start to the boom cycle leading to the bust when markets adjust. Stock crash of 29, Savings & Loan crash, Tech bubble, and now the subprime mortgage market are all examples. Next will be the adjustment of credit card securitizations, currency re-alignment and the related monetary policy affect. In many cases these cycles were actually influenced by government policy.

    3) There is no more “them” or “us.” We can’t get along without Chinese money and China can’t get along without the American market. We need a worldwide coordinated effort… which is going to be difficult;

    We already have a global monetary system which allows the free flow of capital without regard to borders or currency. The real problem is restrictions placed on free markets limiting the flow of goods and services. Free trade treaties are a good start but there needs to be more. Eliminating tariffs and other restraints will also improve the globalization process. In a truly global free market, all participants have an opportunity to succeed, not just the chosen ones or those with the best “deals”.

    4) The economic policies of the last 8 (or 15, or 20, or 30) years got us to this point and did not produce the desired results;

    “Economic Policies” - this is code for government intervention in free markets. I’m sure many will say that government has to “manage” some segments of the economy in order to prevent evil or runaway greed. Unfortunately, it never works. Managing economy by government has been tried over and over again throughout history with the same failed results.

    I fear that the current “changes” are more focused on the political management of economy as a ruse for some other political purpose rather than reducing the huge bureaucratic burden placed on markets by government. When the problem is really government interference in free markets, then more government interference is not the answer. The examples are too numerous to speak of but just think about it for a second. Auto industry – café standards force what cars are produced not the market. Unions set wages instead of the market causing competitive disadvantage with those competitors that are market driven, management packs boards with “friends” who don’t really look after shareholder interests, on and on.

    Steel industry, Airlines, Utilities, and many other manufacturing industries have all been decimated by the government bureaucrat. Many of the regulations are not even set by elected representatives. They are created by department heads or staff that are appointed or hired. Most recently, the EPA decision regarding carbon emmissions is an example.

    5) When you find yourself in a hole, the first thing to do is stop digging;

    I agree, but it is important to know how you got in the hole in the first place. If you got there by a bureaucrat, use the shovel but not to dig! (Just Kidding)

    6) There is no drug as addictive or powerful as easy credit and the promise of instant wealth;

    See my comments regarding boom/bust cycles.

    So in closing, if a salesman is in your living room telling you that you have a significant problem and must make a decision before he leaves or there will be dire consequences – you immediately whip out your credit card and buy the thing whether you can afford it or not. Right?
    That’s what I thought – then why are you not concerned that your representatives are buying all this crap on the same basis. (Without even reading and thinking about what they are really buying!)

    I am also a Mark Twain fan here is one of my favorites:

    It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt. (except on a blog!!)

    This one is attributed to him but was actually originated by another:

    “No Man’s Life Liberty or Property is Safe…While the Legislature is in Session”

    Well that’s my 10 cents worth. Have fun and I’ll see you around.

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  9. Coop's comments are great! It'd be a shame if he/she didn't make his/her opinions known in the future...

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  10. Logistician,

    I readily admit that economics is not my strong suit. Rather, the Constitution and the somewhat amorphous concept of "equitable dealing" in all things business is.

    That said, I agree with most of your conclusions with two glaring exceptions:

    1) Doing business with China = BAD IDEA. These people are NOT our friends. Dealing with an enemy who claims to be a "friend" is always a recipe for ruin, so we should extricate ourselves from China's lethal economic embrace ASAP; and

    2) Blindly following a leader (ANY leader) who prescribes "change" without providing specifics is also a BAD IDEA. Yes, some things in our economy needed a lot of fixing and some needed a complete overhaul if not outright replacement; and yes, our old leaders were far too slow to address these issues; but our new leader's unspecific calls for "change" virtually smack of the old Washington adage "Never waste a good crisis!" which, loosely translated, means: "Any crisis, real or perceived, is a GREAT opportunity to grab some more power! We will then worry about the actual solution (if there is indeed to be one) later."

    Jeff Dreibus

    ReplyDelete

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