Post No. 100: If Tin Whistles are Made of Tin, What are Credit Default Swap Derivatives Made Of?

© 2009, the Institute for Applied Common Sense

There’s a reason the Logistician likes the Laughingman. He can reduce crap to its irreducible essence.

We try to avoid taking sides in our discussions. It just doesn’t get us anywhere. No party or ideologue can legitimately lay claim to the concepts Common Sense and Personal Responsibility. We try our best to weave the concepts into each original article posted.

Our goal is to get 95% of the heads nodding. Sometimes we get close. Others times, it’s a reach.

We recently sought topics from you, with the hope that we would all learn something new through the exchange, and take away something of value. Exasperated by all the barking about our economic situation, the Logistician posted the following comment on a number of blogs he frequents. His thoughts jived with the topic suggested by the Laughingman, and thus the title of this piece.

“We as a society have to take responsibility for where we find ourselves today. By doing so, we might be able to turn this thing around.

“We have a tendency to forget the basic, big picture stuff, and complain when things deteriorate.

“Things on planet Earth are actually quite simple. (Gore Vidal once referred to us as the ‘United States of Amnesia.’ Perhaps we’re such a young nation, we haven’t fully learned to appreciate history.) Consider the following:

“1. Innovation and technology, leading to building and creating 'things,' determines EVERYTHING in a civilized society. (If you don't personally know a scientist or inventor in your neighborhood advancing society's interests, or some kid who WANTS TO DO SO, you have a long term problem.

“2. New technology, followed by the production of things using the technology, generates JOBS. The tax revenues derived from those technological enterprises determine what government ultimately can do. No innovation and no production of things - no tax revenues.

“3. The more hours that one works, the more one produces. (Up to a point, of course. We do not want people collapsing from exhaustion.) Exhaustion occurs way beyond 40, or even 60 hours a week for that matter. Take a break, and you run the risk of falling behind your competition.

“4. When the vast majority of a substantial segment of your society's time is spent trying to cover the essentials, that segment isn’t particularly useful. It’s no different than the role played by mass agriculture in history. Food production has to be relegated to a few, so that the others can engage in the advancement of innovation and technology, and the trade and exchange of the products produced.

“5. The simplest way to reduce rising health care costs? Stop eating Kentucky Fried Chicken, smoking Camels, drinking Colt 45, and hit the treadmill. You'll see a dramatic improvement in health, and at a pretty low cost.

“6. Retirement (when workers still have talent and the ability to contribute) kills your society and generates other problems, especially when you shift tax revenue to people who sit on their asses for years. Capable people who work until the day they die are more productive members of society, physically and mentally. And, they feel that they have some value in society.

“7. War is not a revenue generating enterprise. There are few positive ramifications. It’s a resource drain. It kills productive members of society (who could be inventing some stuff), and gets people pissed off at you.

“8. When you treat any segment of society unfairly, for whatever reason, they become less motivated, and less capable, to work in concert with you to pursue long-term societal interests. It makes more sense to have them voluntarily and emotionally 'buy into' your societal goals. They'll be more motivated .”

If one looks back in history, it’s clear that this is simply Common Sense.

A society which rationalizes its poor choices for too long a period of time is ultimately doomed. It might ride its success for a short period of time, but not for very long.

We, as a society, are ignoring all of the stuff that really matters. We're fooling ourselves while we engage in meaningless debates.

And wasting time.

It's like a boat sinking because of a leak, and the sailors are all arguing, while blowing tin whistles, about who’s responsible for the leak, and what mechanism to use to get the water out of the vessel.

If tin whistles are made of tin, what are credit default swap derivatives made of?

We’d like to know.