When we have achieved the ability to see ourselves as we are – which is to say, when we have integrated our attachment to being this or that and our fear that we may never achieve it – we no longer need to seek our identity in the mirrors of others peoples' eyes. We KNOW what we are. And when we KNOW what we are, we also know that what other people THINK we are cannot possibly change it. At this point the perceptions of others are reduced to what they really are – the perceptions of others. They are not our SELVES, and they cannot in any way define us. At this point we become authentic. Authenticity leads to peace of mind.
I suspect people in public life have an especially difficult time with authenticity. After all, the very phrase “public life” means, “life in the public eye,” which is another way of saying, “life in the public perception.” People who seek a life in public perception tend not to be very introspective, and it is introspection that leads to authenticity.
This is not an introspective age and we Americans, in particular, aren’t very introspective. We live in the world of matter. We believe in science, the quantifiable, the “objective” – by which we mean, the external. We want our achievements and abilities graded: batting averages, football rankings, opinion polls, report cards, achievement tests, IQs, SAT scores.
Interestingly, this obsession with the external “objective” is the flip side of an internal myopia. The need to see ourselves mirrored in other people’s judgments of our abilities and achievements masks our inability to see the abilities and achievements themselves. Having abandoned our inner life, we have exiled ourselves to worrying about what OTHER people are thinking, rather than what WE are thinking. We spend our lives trying to manage OTHER peoples’ perceptions and expectations, rather than taking time to discover and enjoy the unique, idiosyncratic being WE are EXPRESSING. Make no mistake: inauthenticity is not a respecter of identities. Slavery to the opinions of others manifests equally in the aspiration to be a high school politician, a cheerleader, a bad-boy or a clown. If we are trying to manage other peoples' perceptions, we have not achieved authenticity.
One interesting thing about authenticity is that if we have it, we immediately recognize and appreciate it in others, and if we don’t have it, we don’t recognize or appreciate it at all. That’s because when we are authentic, we see other people as they are. When we are inauthentic, we are so busy trying to figure out what we SHOULD be thinking (because of what OTHER people might think of others and what other people might think of US if we think this or that about others) that we cannot possibly see anyone as they really are. What's possibly even worse, we can't trust what other people tell us, because we aren't sure that if we were in their place we would say something truthful ourselves.
It has become something of a national pass-time among Americans to disparage politicians. Yet the undeniable fact is, America is a democracy and every single politician in America was elected. So sorry as I am to say it, if we Americans want our politicians to be more authentic, we're just going to have to become more authentic ourselves.
Tuesday, October 21, 2008
Friday, October 17, 2008
THE ECONOMIC CRISIS AS METAPHOR
First, the economic truth. The mainstream formulation that lays responsibility for the current economic crisis on excessive debt, or leverage, is only half right, because that debt could not exist without excessive global savings and the misguided government activities that have facilitated and perpetuated it.
Here’s the formula:
— Concentrations of wealth and export driven government policies result in savings that cannot be productively invested
— Savings that cannot be productively invested are unproductively invested , resulting in asset bubbles
— Unproductive investments fail, asset bubbles burst
— Financial intermediaries whose capital is tied up in overpriced assets are threatened with collapse
— Governments intervene to shore up financial intermediaries and purchase overpriced assets
— Assets are reflated, preserving wealth concentrations and excessive savings
— Excessive savings result in new, uneconomic investments
— New asset bubbles inflates, and so on
As noted above, most commentators blame the current situation on excessive debt, and there is a grain of truth in this. If human beings – particularly in the United States – did not want to consume more than can afford, we would not be facing the current problem. Advertising driven consumerism is an inherent aspect of modern American culture. And the apparent inability or unwillingness of many Americans to delay gratification has created an ever-increasing demand for consumer credit. But consumer credit is only a small part of the problem.
It is common knowledge that the United States has become a debtor nation. As widely reported, on September 30, 2008 the federal budget deficit crossed the $10 trillion threshold. But this number doesn’t include Social Security, Medicare, Medicaid and other unfunded obligations. If these unfunded obligations are included – as they are in the Government’s audited statements (which are well hidden, but nevertheless available on the Treasury’s website) the accumulated negative net worth of the federal government is now $59.1 trillion, or about $516,000 per household. Compared with this, the additional $112,000 per household for mortgages, car loans and credit card debt looks small! Nevertheless, all in, the average household debt of $628,000 is more than twelve times median household income ($50,233 as reported by the Census Bureau for 2007).
But this debt could not exist unless someone was willing to lend the money, for the undeniable fact is, every dollar of debt represents a dollar of savings. To the person who borrowed it, it's a debt, but to the person who lent it, it's an asset. And it is actually these assets, and their relentless pursuit of an economic return, that has created the situation in which we find ourselves.
According to the Federal Reserve’s most recent Survey of Consumer Finances, the richest one percent of families in the United States own 34.3% of the nation's net wealth (equivalent to accumulated savings). The top 10% of families own 71%. And the bottom 40% have virtually no savings at all (2/10s of 1% of total wealth to be exact). Concentrations of savings like this have not been seen since in the U.S. since just before the Great Depression.
But dislocation of savings is even more pronounced on an international level. In 2005, Ben Bernanke gave a speech in which he discussed the steep upward trajectory of the U.S. balance of payments deficit (from 1.5% of GDP in 2000 to 5 3/4 % in 2004). He asked the question, “Why is the United States, with the world's largest economy, borrowing heavily on international capital markets – rather than lending, as would seem more natural?” Although most commentators had ascribed the external borrowing to a low domestic savings rate and accompanying U.S. budget deficits, Bernanke didn’t buy it, pointing out that the U.S. current account deficit continued expanding during Clinton’s second term, when the U.S. budget was actually running an aggregate surplus of $300 billion. So if a low savings rate wasn’t the answer, what was? Bernanke’s answer was interesting:
"Although domestic developments have certainly played a role … over the past decade a combination of diverse forces has created a significant increase in the global supply of saving – a global saving glut – which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today. … [A]n important source of the global saving glut has been a remarkable reversal in the flows of credit to developing and emerging-market economies, a shift that has transformed those economies from borrowers on international capital markets to large net lenders."
In other words, rather than investing their savings at home, rich people in emerging-market countries were investing them in the United States. And in fact, their governments were facilitating the process by issuing debt and using the proceeds to buy U.S. Treasury securities and other assets “Effectively, governments have acted as financial intermediaries,” according to Bernanke, “channeling domestic saving away from local uses and into international capital markets.” From a governmental perspective, this was done, at least in part, to build up foreign exchange reserves to protect against possible capital outflows. But the fact is, it would not have been done to the extent it was if the power elites in those countries had not wanted to protect their savings.
In any given society at any given time, there are a limited number of investments that will yield an economic return. Exactly what those investments are will depend on the state of economic and technological development in that society at that time, as well as the distribution of wealth and income. When the demand for economic investments (determined by the level of saving) exceeds the supply, the prices of investments are bid up to a point where they no longer yield an economic return. When that happens, savings begin to flow into uneconomic investments.
While this sounds theoretical, if we take a look at what happened in the recent housing bubble, we can clearly see the process at work. As the bubble reached its zenith, the supply of savings flowing into collateralized mortgage obligations had become so great that economic returns could not be provided based on the current incomes of prospective borrowers at all. Rather, loans could be justified only on the assumption that the borrower’s income would increase in the future (so-called Alt A loans) or that the future savings of the borrower – measured in terms of increased asset values – would be depleted to make the payments. This was clearly an extreme situation.
In a free market economy, excess savings are automatically drained out of the system through asset deflation, as investments that do not provide an economic return decline in value. But we do not have a free market economy in the United States. Rather, what we have seen in recent decades is a pattern of government intervention on behalf of certain preferred groups – primarily well-to-do American and foreign citizens and foreign central banks – designed to prevent asset deflation, preserve excess savings and protect existing concentrations of wealth.
Whatever the problem has been – the Savings and Loan Crisis of the 1980s, the Dot-Com Bubble of the 1990s, or the Housing Bubble of the early 2000s – the cause has always been the same: excess savings that drove down the cost of capital and encouraged uneconomic investment. And the “remedy” has always been the same as well: reflation of asset values through the injection of money borrowed by the public sector. Actually, this “remedy” has not only protected existing concentrations of wealth, it has tended to concentrate domestic wealth further, because, as deficits were increased, taxes were decreased on those with high marginal rates of saving (i.e., the rich) while the increase in public sector debt forced cuts in expenditures favoring those with high marginal rates of consumption (i.e., the poor), further reducing their savings.
As stated above, the quantity and character of investments that will yield an economic return at a given point in time depends to some extent on the state of economic and technological development in a society. But I would argue that it also depends on the distribution of wealth. People who have not yet met their basic needs spend all of their income to meet those needs, while people who have already met their basic needs don’t have to. And while savings are necessary to finance capital investment, consumption is necessary to provide investment opportunity as well. There is a story that Henry Ford decided to give his workers a half day off on Saturdays. Asked why he did it, Ford replied that if his workers had no time off, they would also have no use for his cars. In other words, he recognized that his employees were also his customers, and it was their consumption that provided him with an economic investment opportunity. This way of thinking is notably lacking today – in the United States, and in emerging-market economies.
As noted, concentration of wealth and excess savings is not just a problem in America. The so called “export driven” model in emerging-market economies – based on keeping domestic wages low in order to capture an ever-increasing share of foreign markets – has resulted in excess savings in the form of foreign exchange surpluses. Invested in dollar denominated obligations, these savings have served to keep U.S. interest rates artificially low, encouraging uneconomic investments, whether in technology, consumer industries, or housing. The savings of emerging-market nations should be used to build infrastructure and raise wages at home, thereby increasing domestic demand. They should not be squandered on nonproductive foreign assets. And if they are, the U.S. government should certainly not intervene to perpetuate the misallocation of assets at the expense of future generations.
Debt is often reviled, and legitimately so – it enables irresponsibility, promotes anxiety and culminates in guilt. But make no mistake, debt cannot exist without savings to fuel it. And when excessive concentration of wealth drains resources away from what is needed to finance basic expenditures, it creates dislocations.
As people acquire wealth, they also acquire power. If they do not embrace philanthropy, they seek out ways to justify inequality. They buy media outlets; they endow chairs at universities; they finance think-tanks that promote their way of seeing the world. If their efforts are successful, they can wholly or partially define the universe of discourse within a society. This is also what we have seen in America.
Tax cuts, deregulation and free market economics have been mantras in the Unites States since the 1980s. But tax cuts have not been accompanied by decreases in public sector spending. And when unwise economic decisions have resulted in market crashes, free market principles have been cast to the winds, with governments borrowing money helter-skelter to protect existing wealth concentrations against loss at the expense of the general public – nearly half of whom do not even have appreciable savings.
Here’s the formula:
— Concentrations of wealth and export driven government policies result in savings that cannot be productively invested
— Savings that cannot be productively invested are unproductively invested , resulting in asset bubbles
— Unproductive investments fail, asset bubbles burst
— Financial intermediaries whose capital is tied up in overpriced assets are threatened with collapse
— Governments intervene to shore up financial intermediaries and purchase overpriced assets
— Assets are reflated, preserving wealth concentrations and excessive savings
— Excessive savings result in new, uneconomic investments
— New asset bubbles inflates, and so on
As noted above, most commentators blame the current situation on excessive debt, and there is a grain of truth in this. If human beings – particularly in the United States – did not want to consume more than can afford, we would not be facing the current problem. Advertising driven consumerism is an inherent aspect of modern American culture. And the apparent inability or unwillingness of many Americans to delay gratification has created an ever-increasing demand for consumer credit. But consumer credit is only a small part of the problem.
It is common knowledge that the United States has become a debtor nation. As widely reported, on September 30, 2008 the federal budget deficit crossed the $10 trillion threshold. But this number doesn’t include Social Security, Medicare, Medicaid and other unfunded obligations. If these unfunded obligations are included – as they are in the Government’s audited statements (which are well hidden, but nevertheless available on the Treasury’s website) the accumulated negative net worth of the federal government is now $59.1 trillion, or about $516,000 per household. Compared with this, the additional $112,000 per household for mortgages, car loans and credit card debt looks small! Nevertheless, all in, the average household debt of $628,000 is more than twelve times median household income ($50,233 as reported by the Census Bureau for 2007).
But this debt could not exist unless someone was willing to lend the money, for the undeniable fact is, every dollar of debt represents a dollar of savings. To the person who borrowed it, it's a debt, but to the person who lent it, it's an asset. And it is actually these assets, and their relentless pursuit of an economic return, that has created the situation in which we find ourselves.
According to the Federal Reserve’s most recent Survey of Consumer Finances, the richest one percent of families in the United States own 34.3% of the nation's net wealth (equivalent to accumulated savings). The top 10% of families own 71%. And the bottom 40% have virtually no savings at all (2/10s of 1% of total wealth to be exact). Concentrations of savings like this have not been seen since in the U.S. since just before the Great Depression.
But dislocation of savings is even more pronounced on an international level. In 2005, Ben Bernanke gave a speech in which he discussed the steep upward trajectory of the U.S. balance of payments deficit (from 1.5% of GDP in 2000 to 5 3/4 % in 2004). He asked the question, “Why is the United States, with the world's largest economy, borrowing heavily on international capital markets – rather than lending, as would seem more natural?” Although most commentators had ascribed the external borrowing to a low domestic savings rate and accompanying U.S. budget deficits, Bernanke didn’t buy it, pointing out that the U.S. current account deficit continued expanding during Clinton’s second term, when the U.S. budget was actually running an aggregate surplus of $300 billion. So if a low savings rate wasn’t the answer, what was? Bernanke’s answer was interesting:
"Although domestic developments have certainly played a role … over the past decade a combination of diverse forces has created a significant increase in the global supply of saving – a global saving glut – which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today. … [A]n important source of the global saving glut has been a remarkable reversal in the flows of credit to developing and emerging-market economies, a shift that has transformed those economies from borrowers on international capital markets to large net lenders."
In other words, rather than investing their savings at home, rich people in emerging-market countries were investing them in the United States. And in fact, their governments were facilitating the process by issuing debt and using the proceeds to buy U.S. Treasury securities and other assets “Effectively, governments have acted as financial intermediaries,” according to Bernanke, “channeling domestic saving away from local uses and into international capital markets.” From a governmental perspective, this was done, at least in part, to build up foreign exchange reserves to protect against possible capital outflows. But the fact is, it would not have been done to the extent it was if the power elites in those countries had not wanted to protect their savings.
In any given society at any given time, there are a limited number of investments that will yield an economic return. Exactly what those investments are will depend on the state of economic and technological development in that society at that time, as well as the distribution of wealth and income. When the demand for economic investments (determined by the level of saving) exceeds the supply, the prices of investments are bid up to a point where they no longer yield an economic return. When that happens, savings begin to flow into uneconomic investments.
While this sounds theoretical, if we take a look at what happened in the recent housing bubble, we can clearly see the process at work. As the bubble reached its zenith, the supply of savings flowing into collateralized mortgage obligations had become so great that economic returns could not be provided based on the current incomes of prospective borrowers at all. Rather, loans could be justified only on the assumption that the borrower’s income would increase in the future (so-called Alt A loans) or that the future savings of the borrower – measured in terms of increased asset values – would be depleted to make the payments. This was clearly an extreme situation.
In a free market economy, excess savings are automatically drained out of the system through asset deflation, as investments that do not provide an economic return decline in value. But we do not have a free market economy in the United States. Rather, what we have seen in recent decades is a pattern of government intervention on behalf of certain preferred groups – primarily well-to-do American and foreign citizens and foreign central banks – designed to prevent asset deflation, preserve excess savings and protect existing concentrations of wealth.
Whatever the problem has been – the Savings and Loan Crisis of the 1980s, the Dot-Com Bubble of the 1990s, or the Housing Bubble of the early 2000s – the cause has always been the same: excess savings that drove down the cost of capital and encouraged uneconomic investment. And the “remedy” has always been the same as well: reflation of asset values through the injection of money borrowed by the public sector. Actually, this “remedy” has not only protected existing concentrations of wealth, it has tended to concentrate domestic wealth further, because, as deficits were increased, taxes were decreased on those with high marginal rates of saving (i.e., the rich) while the increase in public sector debt forced cuts in expenditures favoring those with high marginal rates of consumption (i.e., the poor), further reducing their savings.
As stated above, the quantity and character of investments that will yield an economic return at a given point in time depends to some extent on the state of economic and technological development in a society. But I would argue that it also depends on the distribution of wealth. People who have not yet met their basic needs spend all of their income to meet those needs, while people who have already met their basic needs don’t have to. And while savings are necessary to finance capital investment, consumption is necessary to provide investment opportunity as well. There is a story that Henry Ford decided to give his workers a half day off on Saturdays. Asked why he did it, Ford replied that if his workers had no time off, they would also have no use for his cars. In other words, he recognized that his employees were also his customers, and it was their consumption that provided him with an economic investment opportunity. This way of thinking is notably lacking today – in the United States, and in emerging-market economies.
As noted, concentration of wealth and excess savings is not just a problem in America. The so called “export driven” model in emerging-market economies – based on keeping domestic wages low in order to capture an ever-increasing share of foreign markets – has resulted in excess savings in the form of foreign exchange surpluses. Invested in dollar denominated obligations, these savings have served to keep U.S. interest rates artificially low, encouraging uneconomic investments, whether in technology, consumer industries, or housing. The savings of emerging-market nations should be used to build infrastructure and raise wages at home, thereby increasing domestic demand. They should not be squandered on nonproductive foreign assets. And if they are, the U.S. government should certainly not intervene to perpetuate the misallocation of assets at the expense of future generations.
Debt is often reviled, and legitimately so – it enables irresponsibility, promotes anxiety and culminates in guilt. But make no mistake, debt cannot exist without savings to fuel it. And when excessive concentration of wealth drains resources away from what is needed to finance basic expenditures, it creates dislocations.
As people acquire wealth, they also acquire power. If they do not embrace philanthropy, they seek out ways to justify inequality. They buy media outlets; they endow chairs at universities; they finance think-tanks that promote their way of seeing the world. If their efforts are successful, they can wholly or partially define the universe of discourse within a society. This is also what we have seen in America.
Tax cuts, deregulation and free market economics have been mantras in the Unites States since the 1980s. But tax cuts have not been accompanied by decreases in public sector spending. And when unwise economic decisions have resulted in market crashes, free market principles have been cast to the winds, with governments borrowing money helter-skelter to protect existing wealth concentrations against loss at the expense of the general public – nearly half of whom do not even have appreciable savings.
If we were to take all the assets and all the liabilities in the world at any given time and put them on a spreadsheet, they would cancel each other out. It does not matter who owns and who owes. In good times and bad times, prosperity and depression, booms and busts, the same economic resources exist on earth. And except in times of war and natural disaster, there is always enough to provide the essentials. Luxuries, perhaps not.
So the problem is never one of resources. It is one of trust. Regardless of why or how savings become concentrated, why and how liabilities are created, when the distribution of wealth becomes sufficiently unbalanced that debtors can or will no longer meet their obligations, trust is lost.
If we step back and view the last decades as metaphor, it is not a pretty picture. Grasping, striving, manipulation, abuse, ever-deepening anxiety, ever-increasing greed – a veritable gumbo of unholy emotions. It is easy to see the dark side. But what’s the point of it all?
From a spiritual perspective, the point is to let it go. The point is to turn away from this Halloween show and realize that what is gained on this earth is left on this earth, and what is lost on this earth can never be a loss to our souls. We arrived here with nothing and nothing is what we will take when we leave. Our relationships with loved ones and most important, our relationship with God -- that is what matters. And until we realize it, we will suffer the nightmare of gain and loss.
In this world, Mother no one can love me
In this world, they do not know how to love me
Where is there pure loving love?
Where is there truly loving me?
There my soul longs to be
There my soul longs to be
-- Paramahansa Yogananda
If we step back and view the last decades as metaphor, it is not a pretty picture. Grasping, striving, manipulation, abuse, ever-deepening anxiety, ever-increasing greed – a veritable gumbo of unholy emotions. It is easy to see the dark side. But what’s the point of it all?
From a spiritual perspective, the point is to let it go. The point is to turn away from this Halloween show and realize that what is gained on this earth is left on this earth, and what is lost on this earth can never be a loss to our souls. We arrived here with nothing and nothing is what we will take when we leave. Our relationships with loved ones and most important, our relationship with God -- that is what matters. And until we realize it, we will suffer the nightmare of gain and loss.
In this world, Mother no one can love me
In this world, they do not know how to love me
Where is there pure loving love?
Where is there truly loving me?
There my soul longs to be
There my soul longs to be
-- Paramahansa Yogananda
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