I’d like to continue my Big Lie series with an even bigger lie than the one I talked about last time. This lie – generally (and unfairly) attributed to John Maynard Keynes – is the one that says a nation can stimulate economic growth through borrowing.
I need to be unequivocal on this. The notion that a nation can increase its standard of living by borrowing is completely and categorically false. It is not supported by history or logic.
First, let's be fair to Lord Keynes. Although his name is almost always mentioned in connection with deficit spending, he didn’t advocate it. What he said was that a nation can smooth out the effects of the business cycle by acting counter-cyclically. In other words, the ups and downs of the cycle can be mitigated if a government borrows and spends when times are bad and pays the money back (i.e., runs surpluses) when times are good.
And this is right. I agree. Governments can lessen the impact of a down cycle by spending. In that sense, I am a total Keynesian. But have you ever heard anyone quote Keynes to argue in favor of running surpluses? I haven’t. And my guess is, you haven't either.
But enough of Keynes. God knows, he’s received enough scholarly analysis already. What I want to talk about is the dynamics of borrowing, what it is, what it does to human beings, and what it does to the economy. First of all, we need to ask the fundamental question, what is borrowing?
Borrowing means using something I don’t own, right? I borrow your saw to cut some lumber. I borrow your shovel to get the snow off my driveway. I borrow a cup of sugar to bake a cake. No harm, no foul. Nothing wrong with that. As long as I get your permission to use the saw or the shovel or the sugar, and as long as I give it back.
Okay, so we know what borrowing is. The next question is, when I borrow something, where am I borrowing it from? I don’t mean this in the sense of “Bob’s garage” or “Emily’s kitchen”. I mean it in the sense of, “from what source or store of value”?
One answer might be, I am borrowing from someone else’s savings. At some time in the past, the person who bought the saw or the shovel or the sugar deferred the possibility of present consumption in order to “invest” in the things I am borrowing, and I am borrowing from those savings.
Another answer, equally correct, is, I am borrowing from my future consumption. In other words, by borrowing, I am incurring an obligation that will have to be repaid from resources that I am going to have to save, rather than consume, some time in the future.
Now, you may object that not all borrowing has this characteristic. For example, if I borrow a saw from you, I haven’t necessarily taken anything away from my future consumption. This may be true in some cases, but in general, the fact remains that if I borrow the saw, I have an obligation to return it in more or less the same condition. If I break the saw or damage it or wear it out –which I eventually will do if I keep borrowing it – I’ll have to replace the saw, and this will have to come out resources that could have been devoted to future consumption. (Admittedly, the point becomes clearer if I borrow the sugar or, say, a hundred dollars or two.)
So, in general, it’s fair to say that borrowing involves a shifting from future to present consumption or, in other words, a higher standard of living now, at the expense of a lower standard of living later.
Don’t get me wrong. There’s no value judgment implied in this. It’s a statement of fact. It may be entirely rational for me to borrow in order to meet a present need. But the idea that borrowing can increase my standard of living in the long run is preposterous. While my standard of living may apparently increase when I am in debt, it will decrease when I pay the debt back. In the long run, my standard of living will remain the same. In itself (i.e., ignoring the cost of interest) borrowing is standard-of-living neutral.
What’s true of me, is also true of a nation. In the long run, borrowing affects only the timing of consumption, not its quantity. It has no effect on the long term standard of living … ignoring the impact of interest.
But how can we do that? How can we ignore the impact of interest? The answer is, we can't.
If you read the Bible (especially the Old Testament), you will see that the ancient Israelites took a very dim view of lending anything out at interest. The reason is never really stated, but a distinction is clearly made between lending as an act of generosity or kindness, which is considered good, and lending at interest, which is considered bad.
So, what’s the difference?
Again, the Bible doesn’t really say, but here’s my guess: The world is an uncertain place. Things don’t always go according to plan. Despite our best intentions, it’s sometimes impossible for us to meet our obligations. And the problem is, the debtor- creditor relationship doesn’t take this into account. If I borrow from you, end of story, I have to pay you back. If you’re my neighbor, I may have reason to hope you’ll make allowances. But if you’re my banker? If you’re my banker ... let's just say, at the first sign of trouble, you're gone. The friendly loan officer who was delighted to welcome me as a valued customer, extend me a line of credit and take me to lunch, is nowhere to be found. In his place is a “workout specialist” who calls me, my wife, my boss, my kids and anyone else he can think of to make my life a living hell.
Obviously, this situation does nothing for me psychologically. It raises my stress level. It damages my self esteem. It in no way helps me to relate harmoniously to my wife and family, to perform my work or, for that matter, to repay the loan. But as bad as it is for me, it’s probably even worse for the workout guy, who somehow has to find a way to deal with the guilt he feels, day in and day out, for the despicable things he has to do.
So there are very real psychological and spiritual costs to the institutionalization of debt that economists don’t consider in computing standard of living. But there are also important economic consequences that they do take into account.
The first – and obvious – consequence is that when debt is institutionalized and the debtor has to pay interest, the interest tends to make borrowing a worse deal than it would have been without the interest. And all governments – even governments like ours, with central banks that can print money to buy the debt and force down the interest rates – still have to pay interest when they borrow money. The negative impact of interest is exacerbated when nations borrow money from foreign sources, because the interest cost directly reduces the long term domestic standard of living. This is present the case in the U.S.
The second – and less obvious – consequence of interest is that its existence tends to increase the concentration of wealth; first, because the existence of interest increases the incentive for those with excess resources to hold onto them rather than spend them; and second, because it increases the amount of future consumption those with resource deficits (i.e., borrowers) have to give up when they repay the money.
Concentration of wealth has its own negative consequences, which are beyond the scope of this post. Perhaps we’ll deal with that in another installment of the Big Lie series.
But I think the next post will have to deal with inflation.
Friday, November 19, 2010
Thursday, November 18, 2010
THE BIG LIE I - WORLD TRADE
There are a lot of big lies out there, but the one I want to talk about today is the lie that says a country can increase its standard of living by buying cheap stuff from places where the standard of living is lower. This lie is usually defended under the banner of “free trade”-- the benefits of which are taken to be well established and proven. Actually, this defense is bogus. Trade among nations with different standards of living ultimately has a leveling effect. The lower standard of living goes up, and the higher standard of living goes down.
The classical notion of free trade is that nations can benefit by concentrating on the production of goods with respect to which they have “comparative advantages”. The classic example -- given by David Ricardo -- is trade between England and Portugal. Since the cool, damp weather of England is hospitable to sheep, and the warm, dry weather of Portugal is hospitable to grapes, both England and Portugal will benefit if England produces wool and Portugal produces wine, compared with the situation in which both countries try to produce both commodities themselves.
In situations where nations have true “comparative advantages” – such as location, climate, or natural resources – this is no doubt true. Both can benefit from expanding production of the product with respect wo which they have a comparative advantage (forgetting, for the moment, the cost of transportation).
But what does any of this have to do with the modern world. In particular, what does it have to do with China?
China is located nowhere near its primary export markets. Its climate is highly variable, and not particularly suited to the production of one thing or another. What’s more, China is notoriously poor in energy and many other natural resources. So what does it have going for it?
Well, despite several decades of Communist pretense, China does have a centuries-old tradition of trade. Just travel around Asia and you’ll see what I mean. Everywhere you go, there are Chinese (and Indian) traders descended from long lines of Chinese (and Indian) traders. Second, China has a command economy that can allocate capital quickly to take advantage or perceived opportunities. Third, China has an enormous pool of unemployed and underemployed workers who are used to an abysmally low standard of living.
All of these factors are necessary in explaining China’s recent economic ascent; none is sufficient standing alone. But it also needs to be pointed out that none of these factors – least of all a large pool of impoverished workers – can be called a “comparative advantage” in the classical sense. A “comparative advantage” in the classical sense is not diminished by its exploitation. England does not get less rainy by producing wool. Portugal does not get less sunny by producing wine. But a pool of impoverished workers? Over time, it will be diminished as people are put to work. As their standard of living rises, the “comparative advantage” of their poverty will be lost.
And what about the trading partners that have benefitted from that poverty? Even assuming all else is equal -- that they have traded goods and services -- whether in raw materials, technology, or agricultural commodities -- of equal value, their benefit will be lost. But to the extent these countries have run trade deficits with China, their export has been debt.
Debt is a promise to suffer a lower standard of living tomorrow in exchange for enjoying a higher standard of living now.
This is the trade the United States has been, and still is, engaging in.
The classical notion of free trade is that nations can benefit by concentrating on the production of goods with respect to which they have “comparative advantages”. The classic example -- given by David Ricardo -- is trade between England and Portugal. Since the cool, damp weather of England is hospitable to sheep, and the warm, dry weather of Portugal is hospitable to grapes, both England and Portugal will benefit if England produces wool and Portugal produces wine, compared with the situation in which both countries try to produce both commodities themselves.
In situations where nations have true “comparative advantages” – such as location, climate, or natural resources – this is no doubt true. Both can benefit from expanding production of the product with respect wo which they have a comparative advantage (forgetting, for the moment, the cost of transportation).
But what does any of this have to do with the modern world. In particular, what does it have to do with China?
China is located nowhere near its primary export markets. Its climate is highly variable, and not particularly suited to the production of one thing or another. What’s more, China is notoriously poor in energy and many other natural resources. So what does it have going for it?
Well, despite several decades of Communist pretense, China does have a centuries-old tradition of trade. Just travel around Asia and you’ll see what I mean. Everywhere you go, there are Chinese (and Indian) traders descended from long lines of Chinese (and Indian) traders. Second, China has a command economy that can allocate capital quickly to take advantage or perceived opportunities. Third, China has an enormous pool of unemployed and underemployed workers who are used to an abysmally low standard of living.
All of these factors are necessary in explaining China’s recent economic ascent; none is sufficient standing alone. But it also needs to be pointed out that none of these factors – least of all a large pool of impoverished workers – can be called a “comparative advantage” in the classical sense. A “comparative advantage” in the classical sense is not diminished by its exploitation. England does not get less rainy by producing wool. Portugal does not get less sunny by producing wine. But a pool of impoverished workers? Over time, it will be diminished as people are put to work. As their standard of living rises, the “comparative advantage” of their poverty will be lost.
And what about the trading partners that have benefitted from that poverty? Even assuming all else is equal -- that they have traded goods and services -- whether in raw materials, technology, or agricultural commodities -- of equal value, their benefit will be lost. But to the extent these countries have run trade deficits with China, their export has been debt.
Debt is a promise to suffer a lower standard of living tomorrow in exchange for enjoying a higher standard of living now.
This is the trade the United States has been, and still is, engaging in.
Monday, October 18, 2010
WHAT EVER HAPPENED TO HENRY FORD?
In an interview published in the October, 1926 issue of a business magazine called The World’s Work, Henry Ford announced that he was instituting a 5-day, 40 hour work week throughout his business enterprises -- with no reduction in pay.
Five days work for six days pay. It was a big deal. Remember, the norm at the time was a 6 day, 48 hour week.
A dozen years earlier, Ford had shocked the industry by instituting am 8-hour day and a $5 daily minimum-wage. (The average in the auto industry at the time was $2.34 for 9-hours.)
Five days work for six days pay. It was a big deal. Remember, the norm at the time was a 6 day, 48 hour week.
A dozen years earlier, Ford had shocked the industry by instituting am 8-hour day and a $5 daily minimum-wage. (The average in the auto industry at the time was $2.34 for 9-hours.)
So why did he do these things? There were no labor unions to worry about at the time. There was no shortage of factory labor.
Was Ford a bleeding heart liberal? Was he a socialist? A communist? Was he an altruistic humanitarian?
None of the above. Ford was a capitalist, through and through -- and hard nosed as they come. But in seeking to maximize returns, he beyond the next quarter's profits. According to Ford's own account, when he originally instituted the $5 minimum wage, he was concerned mainly with retaining a quality workforce, which was being undermined by high labor turnover.
Regarding the reduction in hours, his reasoning was somewhat different. Here, in his own words, is Ford's explanation of why he did it.
The country is ready for the five day week. It is bound to come through all industry ... because without it the country will not be able to absorb its production and stay prosperous.
The harder we crowd business for time, the more efficient it becomes. The more well-paid leisure workmen get, the greater become their wants. These wants soon become needs. Well-managed business pays high wages and sells at low prices. Its workmen have the leisure to enjoy life and the wherewithal with which to finance that enjoyment.
The industry of this country could not long exist if factories generally went back to the ten hour day, because the people would not have the time to consume the goods produced. For instance, a workman would have little use for an automobile if he had to be in the shops from dawn until dusk. And that would react in countless directions, for the automobile, by enabling people to get about quickly and easily, gives them a chance to find out what is going on in the world-which leads them to a larger life that requires more food, more and better goods, more books, more music -- more of everything. ….
Just as the eight hour day opened our way to prosperity, so the five day week will open our way to a still greater prosperity.
[emphasis added]
Wow! Reading these words today is like a breath of fresh air, isn't it? Make no mistake, this stuff is radical . Because it reflects a recognition that in the end, there can be no difference between a company's employees and its customers. Corporate policies that seek to exploit cheap labor eventually destroy the market for the very goods that cheap labor is producing.
Listen to this. Henry Ford in his own words. “The people who consume the bulk of goods are the people who make them. That is a fact we must never forget -- that is the secret of our prosperity.”
The secret of our prosperity. Well, sorry to say, American business has forgotten that secret. And it's lack of remembrance is the source of our current Great Recession. Offshoring, out-sourcing. part-timing, pension-raiding, benefit cutting -- business tactics like these, pursued over a period of decades, has systematically undermined the American consumer. It's no wonder income disparity hasn't been this high since the eve of the Great Depression.
The nation is stuck at 20% unemployment/underemployement. Why? Because the job market has been gutted through a series of short-sighted schemes instituted to “maximize shareholder value”.
Adjusted for inflation, average weekly wages haven’t increased since 1973. All the wives and kids who can find a job are already working. And now that the home equity is gone, there’s nothing left to borrow against. It's no wonder the consumer has finally run out of gas.
Ask yourself this, "Where is a recovery going to come from when our biggest export over the past three decades has been jobs?"
What we need is a renaissance of American thinking. We need to realize that making cheap goods abroad will not sustain a domestic market. We need to realize that nobody's going to have a job if everything we buy is made aborad.
We need to realize we're all in this together.
We need few more Henry Fords.
Tuesday, June 8, 2010
SO WHOSE FAULT IS IT, ANYWAY?
Certainly the oddest feature of modern American culture has to be the notion that the government is supposed to take care of everything for us.
Is there a problem? The government has to fix it. Is there a challenge? The government has to meet it. Is there a risk? The government has to utterly and completely obliterate it.
If there are people without food, the government has to feed them. If there are people without medical care, the government has to provide coverage. Folks out of work? The government needs to create jobs – and pay unemployment compensation until they do.
Is there discrimination? The government has to stop it. Identity theft? Stop that, too. Credit card fraud, sleazy sub-prime mortgages. Stamp them out. Greedy bankers? Islamic terrorists? Stamp them out, too.
War on crime! War on terror! War on greed! War on drugs!
Oil spill in the gulf? Mine disaster in Kentucky? Athletes on steroids? Wall Street … the deficit … mediocrity in education. War on them, too!
These things shouldn’t be happening. Why isn’t somebody stopping them? It must be the government’s fault.
That’s what most Americans think. If you ask them, they'll tell you …the problem is actually ... the government. American icon, Ronald Reagan, said it in his first inaugural address:
“Government is not the SOLUTION to our problem; government is the PROBLEM.”
And Ronald Reagan ought to know. He doubled government spending and increased the national debt by 70% during his time in office. But that proves the point, doesn't it? For all his wit, charm and pomade, Reagan was a politician, too. And everybody knows, you can’t trust the politicians.
Because politicians run the government and “government is the problem.”
According to a recent Rasmussen poll, 59% of Americans agree with that statement, 40% of Democrats, 60% of Independents, and 83% of Republicans. They'll tell you. Government is the problem.
Well, that sentiment might fly in a dictatorship, but in a republic it’s more than a little bit idiotic. Because here in America, we have something called “elections”. Politicians have to run for office. If we don’t like them, we need to start waging war on the idiots who elected them.
War on Us!
That's right, war on us! War on the self-righteous, self-indulgent, emotionally adolescent, ever-increasingly-indebted American.
Where on earth did we get the notion that government – which is really nothing more than an aggregation of people just like ourselves – was supposed to solve our problems for us? Our grandparents didn’t think so. The pioneers didn’t think so. And the founding fathers CERTAINLY didn't think so.
"We hold these truths to be self-evident," Thomas Jefferson wrote in the Declaration of Independence, "That all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men ..."
Hear that? Life, liberty and the PURSUIT of happiness. Our government was instituted to secure our right to PURSUE happiness. It wasn't instituted to make sure we actually achieved it.
That’s a big difference. A difference we Americans seem to have forgotten.
If we decide there are things we need before we can be happy, it's up to US to get them. If there are things we decide we need to get rid of before we can be happy, it's up to US to get rid of them.
Oh, and one more thing for you tea party-ers out there. When we decide to pursue our goals collectively -- in other words, as a nation?
We need to be willing to pay for it.
Is there a problem? The government has to fix it. Is there a challenge? The government has to meet it. Is there a risk? The government has to utterly and completely obliterate it.
If there are people without food, the government has to feed them. If there are people without medical care, the government has to provide coverage. Folks out of work? The government needs to create jobs – and pay unemployment compensation until they do.
Is there discrimination? The government has to stop it. Identity theft? Stop that, too. Credit card fraud, sleazy sub-prime mortgages. Stamp them out. Greedy bankers? Islamic terrorists? Stamp them out, too.
War on crime! War on terror! War on greed! War on drugs!
Oil spill in the gulf? Mine disaster in Kentucky? Athletes on steroids? Wall Street … the deficit … mediocrity in education. War on them, too!
These things shouldn’t be happening. Why isn’t somebody stopping them? It must be the government’s fault.
That’s what most Americans think. If you ask them, they'll tell you …the problem is actually ... the government. American icon, Ronald Reagan, said it in his first inaugural address:
“Government is not the SOLUTION to our problem; government is the PROBLEM.”
And Ronald Reagan ought to know. He doubled government spending and increased the national debt by 70% during his time in office. But that proves the point, doesn't it? For all his wit, charm and pomade, Reagan was a politician, too. And everybody knows, you can’t trust the politicians.
Because politicians run the government and “government is the problem.”
According to a recent Rasmussen poll, 59% of Americans agree with that statement, 40% of Democrats, 60% of Independents, and 83% of Republicans. They'll tell you. Government is the problem.
Well, that sentiment might fly in a dictatorship, but in a republic it’s more than a little bit idiotic. Because here in America, we have something called “elections”. Politicians have to run for office. If we don’t like them, we need to start waging war on the idiots who elected them.
War on Us!
That's right, war on us! War on the self-righteous, self-indulgent, emotionally adolescent, ever-increasingly-indebted American.
Where on earth did we get the notion that government – which is really nothing more than an aggregation of people just like ourselves – was supposed to solve our problems for us? Our grandparents didn’t think so. The pioneers didn’t think so. And the founding fathers CERTAINLY didn't think so.
"We hold these truths to be self-evident," Thomas Jefferson wrote in the Declaration of Independence, "That all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men ..."
Hear that? Life, liberty and the PURSUIT of happiness. Our government was instituted to secure our right to PURSUE happiness. It wasn't instituted to make sure we actually achieved it.
That’s a big difference. A difference we Americans seem to have forgotten.
If we decide there are things we need before we can be happy, it's up to US to get them. If there are things we decide we need to get rid of before we can be happy, it's up to US to get rid of them.
Oh, and one more thing for you tea party-ers out there. When we decide to pursue our goals collectively -- in other words, as a nation?
We need to be willing to pay for it.
Thursday, April 15, 2010
WHAT AMERICA WANTED
The America we baby boomers were born into was a very different place from the America we know today. I mean, think about it, in the days right after World War II --
- 33% of the homes still didn’t have running water.
- 40% didn’t have a flush toilet.
- 60% didn’t have central heat.
- Less than 50% had a phone.
- Only a third of the people lived in a town with 50,000 or more people. If you lived on a farm – and 17 percent of the people still did – the odds were better than even you didn’t have electricity.
Running water, electricity, flush toilets -- these were simple things. Things everybody wanted.
Then there was the car. When I was born, there were 26 million cars registered in the entire country. And as we know, everybody wanted a car.
And the television. Believe it or not, there were a total of 17,000 T.V. sets in America in those days – hulking cathode ray machines with unsteady black and white images and tiny 10 inch screens. The picture quality was so bad that every TV came equipped with “hold controls” you needed to keep the picture from rolling one way or the other for no apparent reason. And remotes? Forget about it. The Zenith Space Command didn't come on the scene till a decade later. When I was born, if you wanted to change the channel, you got out of your chair. Not that it did much good. TVs had twelve channels in those days – but only three that worked – ABC, NBC and CBS. That was it. And they weren’t on 24-7, either. Around 1:00 a.m. each night, a waving American flag came on and they played the Star Spangled Banner. Well, that had to change!
And the television. Believe it or not, there were a total of 17,000 T.V. sets in America in those days – hulking cathode ray machines with unsteady black and white images and tiny 10 inch screens. The picture quality was so bad that every TV came equipped with “hold controls” you needed to keep the picture from rolling one way or the other for no apparent reason. And remotes? Forget about it. The Zenith Space Command didn't come on the scene till a decade later. When I was born, if you wanted to change the channel, you got out of your chair. Not that it did much good. TVs had twelve channels in those days – but only three that worked – ABC, NBC and CBS. That was it. And they weren’t on 24-7, either. Around 1:00 a.m. each night, a waving American flag came on and they played the Star Spangled Banner. Well, that had to change!In those days, a lot of the things we now take for granted either hadn’t been invented or hadn't come into common use. A few of them:
- Air conditioning - except in a few public buildings (imagine the Sunbelt without it!)
- Microwave ovens
- Anything digital (computers, cameras, watches, CDs, MP3s)
- The Internet
- The cell phone
- Credit cards, debit cards, ATMs
- Anything battery operated
- Almost anything imported
I guess so. I mean, there are more cars in America today than there are people registered to drive them.
Today the average American household has 2.86 television sets, and there are more telephones in the country than there are people.
Yeah, we've come a long way .... By other measures, too.
At the end of World War II, America produced —
- 57% of the world’s steel
- 62% of the world’s oil, and
- 80% of the world’s cars
- America had 7% of the world’s population, but produced 42% of its income.
- America was the world’s premier creditor nation
- America had three-quarters of the world’s gold.
Obviously, things had to change. I mean, when I was born, the second World War had just ended and the United States, was the only major country that hadn’t been either bombed, invaded, or both. So Americans were much better off than most, and the world economy had to rebalance .....Still, it’s interesting to see just how much things have rebalanced.
Today America produces –
- 7% of the world’s steel
- 10% of the world’s oil, and
- 12% of the world’s cars
We Americans still have the fifth highest GDP per capita. But unfortunately --
We also have the world's highest debt. In fact, we are the biggest debtor nation in the history of the world.
And when they write the history of the Baby Boom generation, I'm afraid that's what they'll remember. I guess the ttruth of the matter is, we got what we wanted.
And we wanted it all.
Monday, March 29, 2010
THAT SINKING FEELING
Come on, tell the truth. Do you really feel like the recession's over? Of do you feel like maybe it's over for the economists, but it isn't over for you?
If GDP is growing like they say it is, why do you feel like you're treading water? Okay, let's be honest here. Why do you feel like you've been treading water for years? Or (gasp!) maybe even slipping? And why does it seem like just about everybody you know is in the same boat as you?
There really is an answer to this. And it's a simple, little number compiled by the Bureau of Labor Statistics (BLS) called "Average Weekly Wages". This little number -- almost never quoted in the press -- is the average amount people earn every week, adjusted for inflation. And the sad truth is, according to the BLS, this number has actually gone down somewhat since Richard Nixon was in office.
If you think that can't be true, you're right. It's really much worse.
Because the BLS is cheating. In order to make it look like real wages have only gone down a little bit (and do a few other things, like pumping up GDP and keeping the cost-of-living adjustments on Social Security to a minimum), instead of using a constant measure of inflation, the BLS keeps changing its methods to make it look like prices are going up less than they are. If you calculate inflation on a constant basis, for example, applying the method the BLS used before Bill Clinton came to office, Average Weekly Wages have actually gone down more than the BLS admits. A whole lot more.
There are a bunch of of reasons most people don't realize what's going on. First of all, nowadays, more people in the family are working -- Mom's working, Dad's working, the kids are working -- everybody's working. (Or anyway, they would be working, if they could find a job.) If you add up all those jobs, it amounts to about as much as one person used to make when Tricky Dick was in office.
The second reason we don't see what's going on is that -- at least until recently -- the things we owned were going up in value, so it made us feel richer. If we needed money -- for college, for a medical emergency, even for a vacation -- we could always borrow against the house.
No more.
The third reason is, consumer goods have been cheap. Why? Well, the main reason is that the industrial revolution finally came to Asia, so hundreds of millions of Chinese, Indians, Indonesians,Vietnamese, and Malaysians have been streaming into the cities from the farms, flooding the markets with cheap labor. The result is, you can buy a suit or a sweater or a dress for less than what you paid thirty years ago, adjusted for inflation. The only problem is, the suit or the sweater or the dress has to be made in Asia. And that means they're aren't any jobs making suits or sweaters or dresses (or toys or tools or TVs) in America anymore. And that's one reason jobs are a problem.
Another reason we don't see what's going on is that the government and the financial media are so good at hiding the problems. Economic statistics are now gamed to such an extent that they're nearly worthless. By the magic of the "birth/death" model, millions of new jobs are assumed into existence on the theory that new businesses have been created, even though there is absolutely no evidence any new businesses have actually been created. Through "hedonic adjustments", the prices of products that have actually gone up are "adjusted" to have gone down on the theory that their quality has improved. By "geometric weighting" it is assumed that if the price of an item goes up, people will use less of it, and therefore it's impact on inflation automatically goes down.
We hear constantly on television that Americans have the highest standard of living in the world, the best health care and so on. So we believe it.
If you want to keep on believing it, go ahead.
It won't be true, but maybe it will help with that sinking feeling.
Friday, March 26, 2010
HEY, I KNEW THAT GUY IN HIGH SCHOOL
A friend of mine once made an offhand remark that wound up changing the way I’ve looked at people ever since.
“Everyone is someone you knew in high school,” he said.
Now there are a couple of ways you can take this, but in the context of what we were talking about at the time, I knew right away what he meant. And I had to admit, he was right.
There’s something about high school – a vulnerability, an inexperience, call it what you will. But somehow, in the light of it, all things stand revealed. In high school, nothing can be hidden, though we no doubt wish it could. Like it or not, try as you might, in the implacable judgment of yourself and your peers, you’re an open book.
That's probably why high school is the land of eternal archetypes – the jock, the cheerleader, the wannabe, the politician, the conniver, the hoodlum, the geek, the goth. The names may change, but the types sure don't. After high school we find ways to cover these things up. Speech, dress, manners, occupations, possessions. The jock goes to college and becomes a lawyer. The geek makes money and hires a personal trainer. The cheerleader divorces the jock and goes into real estate. The politician sells life insurance and takes up golf.
But the point my friend was making is that none of this matters. Underneath the carefully accumulated adult accoutrements, the archetypes aren't lost. The jock will snap wet towels in the locker room. The conniver will look for an angle. The politician will seek your vote. The cheerleader will ignore the geek. The geek will assume he’s being ignored.
When you look at people the way they were in high school, the fog of adulthood lifts, the disguises vanish, and the archetypes are once again restored.
So, what? you say. That archetype is just an idea, a category of thought. We can always change it. In theory, you're right. But in the modern world, you're wrong.
In the modern world, we educate ourselves on every subject except ourselves. We never try to see ourselves as others see us, so we remain strangers to who we really are. We get out of high school or college or post-grad and we think our education is over. We rush through life, avoiding what we’re afraid of, going after what we want. We lead unexamined lives, so when we get to the end, we haven’t changed at all. We're the same people we were in high school.
We age the way a house ages. Year in, year out, buffeted by the seasons, we fade, become dated, lose function, get cluttered. From time to time, we may try a makeover – change the furniture, update the kitchen, add a master suite, repaint, recarpet. But fundamentally, we’re the same – Gothic Revival, Georgian Colonial, Split-level Ranch, Mid-Century Modern. The same old house.
That’s what my friend meant. Most people don't change. So if you can see them the way they were in high school, the disguises will fade away and you’ll see who they are.
As you get older, this trick gets easier and easier to perform. Sometimes it requires no effort at all. You look at a person and at the same time you see someone else – call it, the “high school version”. You’ll see the whole thing – who they are, who they were, who they think they are, and what they want you to see. It’s almost embarrassing, to tell the truth.
I remember the first time I saw George Bush, I thought right away, “Hey, I knew that guy in high school.”
"Uh-oh."
“Everyone is someone you knew in high school,” he said.
Now there are a couple of ways you can take this, but in the context of what we were talking about at the time, I knew right away what he meant. And I had to admit, he was right.
There’s something about high school – a vulnerability, an inexperience, call it what you will. But somehow, in the light of it, all things stand revealed. In high school, nothing can be hidden, though we no doubt wish it could. Like it or not, try as you might, in the implacable judgment of yourself and your peers, you’re an open book.
That's probably why high school is the land of eternal archetypes – the jock, the cheerleader, the wannabe, the politician, the conniver, the hoodlum, the geek, the goth. The names may change, but the types sure don't. After high school we find ways to cover these things up. Speech, dress, manners, occupations, possessions. The jock goes to college and becomes a lawyer. The geek makes money and hires a personal trainer. The cheerleader divorces the jock and goes into real estate. The politician sells life insurance and takes up golf.
But the point my friend was making is that none of this matters. Underneath the carefully accumulated adult accoutrements, the archetypes aren't lost. The jock will snap wet towels in the locker room. The conniver will look for an angle. The politician will seek your vote. The cheerleader will ignore the geek. The geek will assume he’s being ignored.
When you look at people the way they were in high school, the fog of adulthood lifts, the disguises vanish, and the archetypes are once again restored.
So, what? you say. That archetype is just an idea, a category of thought. We can always change it. In theory, you're right. But in the modern world, you're wrong.
In the modern world, we educate ourselves on every subject except ourselves. We never try to see ourselves as others see us, so we remain strangers to who we really are. We get out of high school or college or post-grad and we think our education is over. We rush through life, avoiding what we’re afraid of, going after what we want. We lead unexamined lives, so when we get to the end, we haven’t changed at all. We're the same people we were in high school.
We age the way a house ages. Year in, year out, buffeted by the seasons, we fade, become dated, lose function, get cluttered. From time to time, we may try a makeover – change the furniture, update the kitchen, add a master suite, repaint, recarpet. But fundamentally, we’re the same – Gothic Revival, Georgian Colonial, Split-level Ranch, Mid-Century Modern. The same old house.
That’s what my friend meant. Most people don't change. So if you can see them the way they were in high school, the disguises will fade away and you’ll see who they are.
As you get older, this trick gets easier and easier to perform. Sometimes it requires no effort at all. You look at a person and at the same time you see someone else – call it, the “high school version”. You’ll see the whole thing – who they are, who they were, who they think they are, and what they want you to see. It’s almost embarrassing, to tell the truth.
I remember the first time I saw George Bush, I thought right away, “Hey, I knew that guy in high school.”
"Uh-oh."
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