So, the bipartisan Iraq Study Group report was released last Wednesday, and although most Americans (and much of the world) are interested in what it has to say, who has time to sift through all 160-plus pages? Well, lucky for you I did as I wound out the clock last Friday before the holiday party at my work got going. I'm gonna try really, really hard this time to just cut to the point and not drone on and on like certain other entries in the short-lived history of my blog.
To answer the main question posing us now, which is how we proceed, the report offers a couple of solutions. The biggest of which is that we need to engage Syria and Iran in particular in assisting the quelling of the insurrection (as opposed to assisting the insurrection itself, as they are currently doing). They also suggest that the resolution of the long-standing Israel-Palestine dispute is central to solving the current problem and stabilizing the region. Finally, they are advocating that American forces be integrated into existing Iraqi forces (both the military and the police) rather than our current system of having separate Iraqi and American forces. There are a grand total of 79 recommendations, so certainly they offer a lot more on a much broader range of issues than just these 3, but if you want the "quick and dirty" version, I think that sums it up pretty well.
The report itself is very easy to read, and if you have any interest whatsoever in foreign affairs you should definitely read it for yourself and draw your own conclusions. Without the appendices it's roughly 100 pages, although the pages are pretty small by normal book standards. The average person could probably knock it out in about 2-3 hours.
What I think is most revealing from the report is not the proposal of where we go from here but the very frank and grave assessment of the deteriorating situation as it stands today. Certainly a great many pundits, journalists, and just about everyone else has reported and commented on how bad things are, but the fact that this comes directly from a bipartisan government commission is something new and almost unprecedented as far as I know. But rather than paraphrase what I found to be most enlightening, I'll just quote the report itself:
On the Iraqi army:
"Significant questions remain about the ethnic composition and loyalties of some Iraqi units—specifically, whether they will carry out missions on behalf of national goals instead of a sectarian agenda. Of Iraq’s 10 planned divisions, those that are even-numbered are made up of Iraqis who signed up to serve in a specific area, and they have been reluctant to redeploy to other areas of the country. As a result, elements of the Army have refused to carry out missions."
"Units lack personnel. Soldiers are on leave one week a month so that they can visit their families and take them their pay. Soldiers are paid in cash because there is no banking
system. Soldiers are given leave liberally and face no penalties for absence without leave. Unit readiness rates are low, often at 50 percent or less."
On the Iraqi police:
"The state of the Iraqi police is substantially worse than that of the Iraqi Army. The Iraqi Police Service currently numbers roughly 135,000 and is responsible for local policing. It has neither the training nor legal authority to conduct criminal investigations, nor the firepower to take on organized crime, insurgents, or militias. . . Iraqi police cannot control crime, and they routinely engage in sectarian violence, including the unnecessary detention, torture, and targeted execution of Sunni Arab civilians."
"There are ample reports of Iraqi police officers participating in training in order to obtain a weapon, uniform, and ammunition for use in sectarian violence. Some are on the payroll but don’t show up for work."
" The Facilities Protection Service poses additional problems. Each Iraqi ministry has an armed unit, ostensibly to guard the ministry’s infrastructure. In the ministries of Health, Agriculture, and Transportation—controlled by Moqtada al-Sadr—the Facilities Protection Service is a source of funding and jobs for the Mahdi Army. One senior U.S. official described the Facilities Protection Service as “incompetent, dysfunctional, or subversive.” Several Iraqis simply referred to them as militias."
On the sectarian violence:
"U.S. forces can “clear” any neighborhood, but there are neither enough U.S. troops present nor enough support from Iraqi security forces to “hold” neighborhoods so cleared. The same holds true for the rest of Iraq. Because none of the operations conducted by U.S. and Iraqi military forces are fundamentally changing the conditions encouraging the sectarian violence, U.S. forces
seem to be caught in a mission that has no foreseeable end."
"The composition of the Iraqi government is basically sectarian, and key players within the government too often act in their sectarian interest. Iraq’s Shia, Sunni, and Kurdish leaders
frequently fail to demonstrate the political will to act in Iraq’s national interest, and too many Iraqi ministries lack the capacity to govern effectively."
"The Shia, the majority of Iraq's population, have gained power for the first time in more than 1,300 years"
"Sunnis are confronted by paradoxes: they have opposed the presence of U.S. forces in Iraq but need those forces to protect them against Shia militias; they chafe at being governed by a majority Shia administration but reject a federal, decentralized Iraq and do not see a Sunni
autonomous region as feasible for themselves."
"First, Sunni Arabs are generally Iraqi nationalists, albeit within the context of an Iraq they believe they should govern. Second, because Iraq’s energy resources are in the Kurdish and Shia regions, there is no economically feasible “Sunni region.” Particularly contentious is a provision in the constitution that shares revenues nationally from current oil reserves, while allowing revenues from reserves discovered in the future to go to the regions."
"Another key unresolved issue is the future of Kirkuk, an oil-rich city in northern Iraq that is home to substantial numbers of Kurds, Arabs, and Turkmen. The Kurds insisted that the constitution require a popular referendum by December 2007 to determine whether Kirkuk can formally join the Kurdish administered region, an outcome that Arabs and Turkmen in Kirkuk staunchly oppose. The risks of further violence sparked by a Kirkuk referendum are great."
"Iraq’s leaders often claim that they do not want a division of the country, but we found that key Shia and Kurdish leaders have little commitment to national reconciliation."
On the judicial system:
"corruption is rampant. One senior Iraqi official estimated that official corruption costs Iraq $5–7 billion per year."
"There are still no examples of senior officials who have been brought before a court of law and convicted on corruption charges."
"Intimidation of the Iraqi judiciary has been ruthless. As one senior U.S. official said to us, “We can protect judges, but not their families, their extended families, their friends.” Many Iraqis feel that crime not only is unpunished, it is rewarded."
On international aid:
"International donors pledged $13.5 billion to support reconstruction, but less than $4 billion has been delivered."
On problems with Iran and Syria:
"Iran has provided arms, financial support, and training for Shiite militias within Iraq, as well as political support for Shia parties. There are also reports that Iran has supplied improvised
explosive devices to groups—including Sunni Arab insurgents—that attack U.S. forces."
"Iran appears content for the U.S. military to be tied down in Iraq, a position that limits U.S. options in addressing Iran’s nuclear program and allows Iran leverage over stability in
Iraq."
"The Syrian role is not so much to take active measures as to countenance malign neglect:
the Syrians look the other way as arms and foreign fighters flow across their border into Iraq, and former Baathist leaders find a safe haven within Syria. Like Iran, Syria is content to see
the United States tied down in Iraq. That said, the Syrians have indicated that they want a dialogue with the United States, and in November 2006 agreed to restore diplomatic relations with Iraq after a 24-year break."
Conclusions on the current situation:
"As of December 2006, nearly 2,900 Americans have lost their lives serving in Iraq. Another
21,000 Americans have been wounded, many severely. To date, the United States has spent roughly $400 billion on the Iraq War, and costs are running about $8 billion per
month. In addition, the United States must expect significant “tail costs” to come. Caring for veterans and replacing lost equipment will run into the hundreds of billions of dollars. Estimates
run as high as $2 trillion for the final cost of the U.S. involvement in Iraq.
Despite a massive effort, stability in Iraq remains elusive and the situation is deteriorating. The Iraqi government cannot now govern, sustain, and defend itself without the support of
the United States. Iraqis have not been convinced that they must take responsibility for their own future. Iraq’s neighbors and much of the international community have not been persuaded
to play an active and constructive role in supporting Iraq. The ability of the United States to shape outcomes is diminishing. Time is running out."
This one quote, though, sums up everything very effectively:
"To put it simply: there are many armed groups within Iraq, and very little will to lay down arms"
Tuesday, December 12, 2006
Wednesday, December 06, 2006
Fiscal Inferno Part II (or How I Learned to Stop Worrying and Love the Debt)
Alright today I'll finish off my thoughts on the debt with a (hopefully) not as long-winded approach. I've got lots of fun and exciting graphs to share, too! Let's start out with a completely indecipherable one showing the federal debt as a donut graph:
What does this tell us? Absolutely nothing; it just reminds us that donuts are very tasty. Why don't you get yourself one right now? Go ahead, I'll wait.
Back? Good. Let's continue.
My objective here is that first I will lay out all the scary numbers, then make it seem like it's not a big deal, then spin it in a new, scary way. First, the scary part. Today the national debt currently stands at $8.644 trillion dollars, though by the time you read this it will undoubtedly have gone up a few million. And you know what they say, "A million here, a million there, and pretty soon we're talking about some real money." Anyway, the national debt has steadily risen over the past 50+ years. As some useless trivia, the last time the debt decreased from one year to the next was from 1959 to 1960, when it decreased by .20%. To be sure, there have been budget surpluses in years since then, but the government has opted to either spend the additional surplus on new programs or return it to the taxpayers rather than apply it towards the debt. Here is a graph of the balance of the federal debt at year end for every year since 1950.
Chances are you’ve seen a graph just like this before, and it is almost always accompanied by talk of how the debt is a classic representation of exponential growth, whereby things rise very slowly at first but then hit a point and rise very, very quickly.
Now I will continue with the scary news and show some projections of what the debt picture may look like in the next 10 years. Over the last 20 years, the debt has averaged an increase of 7.7% per year. For the sake of being conservative, let’s use that as the high end of growth predictions. Here are three different scenarios for the debt, using 2, 5, and 7.7% growth per year:
This means that if we continue on the growth rate that we have averaged over the last 20 years, by 2016 we will be looking at a national debt of $16.844 trillion, effectively double what we have today. The lower growth rates certainly make it more manageable, but are definitely on the side of extreme optimism rather than realism.
Now, are you ready for some good news? Looking at the national debt by itself is completely worthless. If I told you that one person is currently $5000 in debt and another is $20,000 in debt and then asked you who was in a better financial situation, most people would say the person with $5000 in debt. But the reality is that you need more information. If both people make the same amount of money, then that is correct. But if one makes $20,000 per year while the other makes $100,000 that changes things. So, we cannot look at the national debt in a bubble, we have to consider the nation’s income as well. While the nation doesn’t get a yearly salary, we do have a way of measuring it in the form of its Gross Domestic Product (GDP). For those not familiar, GDP is defined “as the market value of all final goods and services produced within a country in a given period of time.” So it seems that, much like a credit card company will look at a person’s debt-to-income ratio to determine their financial health, we should look at the country’s debt-to-GDP ratio to determine the country’s ability to pay off the debt. Here, there is better news. As of end of year 2005, our GDP to debt ratio is .637. Over the last 50 years it’s been higher and it’s been lower but on the whole it is just slightly above the average of .587.
So, simply put, all that’s really important, at least from a financial health perspective, is that annually our rate of GDP growth is equal to or exceeds our rate of debt growth. Has this been the case? Let’s check it out:
I will admit that at first glance this is a hard graph to decipher. Rather than try to evaluate any one point or year, the important thing to look for is a trend where one line is consistently above the other. And I think there are two trends that become clear. Generally speaking, from 1950 to the mid-70s GDP growth was consistently higher than debt growth and from the mid-70s through today the opposite has been true. There are certainly exceptions, most notable the period from the mid-90s through 2001 where we made balanced budgets a central issue (for both parties) and also enjoyed one of the greatest economic booms this country has ever seen.
In fact, had I written this in 2000, the outlook would be very rosy indeed and I would probably have described how the reversal of fortunes is shining evidence that when we as a country put our mind to something we can overcome even the largest of problems.
But, alas, times have changed. I hope in all the ramblings above I have at least successfully portrayed the message that this is an issue which, although certainly manageable, requires perpetual vigilance. It is therefore deeply disppointing to me to see that it seems to have lost resonance with the general public. Certainly I am not advocating that fiscal issues take precedence over national security and the fight on terrorism, but must we only focus on one issue at a time? In our jobs and in our personal lives, we are expected to multi-task all the time. Why is it that only in the political arena do we consistently see concentration of all efforts on 2 or 3 partisan issues at the expense of virtually blacking out all others?
Let us think about this in relation to the war. The debate that has raged for the past almost 4 years now has centered almost exclusively on whether we should have engaged in this conflict on principle. There has been astonishingly little talk about what the war is literally costing us in terms of cold hard dollars. I have heard it mentioned almost as a throwaway comment by pundits, almost as an afterthought once they finish making all of their points. “Oh, and by the way, it’s costing us a lot of money.”
Why has the question of how we are going to pay for this not been brought to the front and center? I think it largely stems from the fact that although we have spent billions on this conflict, we have opted to not raise taxes so the cost has not been passed on to the average American. To my knowledge, this has never been attempted before. We are witnessing a grand new experiment in government fiscal policy. The strategy is that as long as we keep the taxes low, we can keep growth high and thus the additional debt will not burden us. To me, I see this as a dangerous precedent. This is a “grow at all costs” mentality. To see the ultimate disaster scenario played out you only need to look as far as the Enron scandal, where once the company began hitting rough times it did anything and everything to keep income coming in so they could hit the next quarter’s earnings and hide the debt problems. I am not saying this is a likely scenario for the government, only that it is a situation that is likely to bring more harm than good and also has the potential to be a real powder keg.
Whether you are for or against the war has no bearning on this issue. These questions need to be asked and answered. If someone came to you and said, “Buy this house.” You would naturally ask, “How much does it cost.” It is doubtful that you would accept the response of, “Oh, don’t worry about that now. We’ll figure it out later.” I am just saying that we as American taxpayers should not accept that as a response now.
Now I’d like to wrap this up by bringing up some parallels to the consumer debt I discussed in Part I. Much like too much debt limits your options as an individual, so too does too much debt as a country. Sometimes maximizing profit today is not the answer. Private companies spend millions on R&D divisions that are not expected to generate any immediate short-term revenue, but they recognize that without innovation their long-term prospects are bleak. Being saddled with too much debt can severely limit our ability to do this, in much the same way that an 18-year old with $5000 in credit card debt is compelled to go out and get a job today rather than enroll in a university that will end up resulting in a far more profitable future. In addition, when you are dependent on fiscal growth you are far more likely to run into very difficult ethical dilemmas. For one large example, look at the oil industry. Setting aside the issue of greenhouse gases, it is still widely acknowledged that there is only a finite amount of oil left in the world and that if current usage remains constant (side note: it is actually increasing) it is likely to run out within the next century. Clearly then, it makes economic sense to invest today in the exploration of alternative energy sources so that we are in a position to be both a worldwide industry leader in whatever the next dominant energy source turns out to be as well as to ensure that we continue to be able to supply ourselves with the energy necessary to maintain our standard of living. Yet how do we accomplish this when a number of our most profitable companies are dependent on the high profits of the oil industry? How do we go further into debt exploring technology that, if successful, will ultimately displace one of our largest cash-cows? Further, right now OPEC prices all barrels of oil in US dollars. That means that no matter what country purchases a barrel of oil, they first obtain US currency to do it. This has the effect of keeping demand for our currency very high and creates a natural floor that keeps the value of the dollar from sinking too far (simple supply and demand; since the whole world needs oil there is constant demand for the dollar). How do we transition to a new energy source without losing that huge safety net? Further, do we want OPEC to have that threat of pegging oil against another currency (or, more likely, a basket of currencies) over our head? How does that affect our national security?
I could go on and on, but I won’t (I know; I already did). The point is that a problem that has such a deceptively narrow focus has an unfathomable amount of effects that ripple throughout the country in both anticipated and unanticipated ways. Remember that for years the ultimate fear was that the Cold War would explode into a War of the Super Powers and that only one side would be left standing. But ultimately it was not brute force that brought down the Soviet Union; it was a critical failure to manage their economy. More Americans need to pay closer attention to the fiscal policy of their government and let our leaders know that it’s an issue that’s important to them. Debt is not an inherently bad thing. It is a weapon. It serves an absolutely essential purpose but also needs to be constantly evaluated to ensure that is not being put towards an ultimately self-destructive end.
But really, I guess the previous four thousand or so words can best be summed up with the following 29:
“And to preserve their independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude.” – Thomas Jefferson
Sources:
Today's national debt figure comes from: http://www.brillig.com/debt_clock/
Historical national debt statistics come from the Bureau of the Public Debt at : http://www.sbu.gov/opd/opd.htm
Historical GDP info was obtained from the Bureau of Economic Analysis at: http://bea.gov/bea/dn1.htm
Tuesday, December 05, 2006
Meeting of the National Procrastinators Association has been postponed
While I am being too lazy to either finish my thoughts on the national debt as well as the promised thoughts on The Origin of Wealth, I will instead offer a couple of quick things that have peaked my interest over the last few days:
On the front page of the Wall Street Journal today, there is a reference to an article in another section under the headline "When Drinking at Work is OK." Go ahead and crack open those beers and whiskey bottles, ladies and gentleman, and have yourselves some holiday cheer! And when someone looks at you funny, just inform them that you are just trying out a revolutionary new technique you read about in the WSJ.
As a Bears fan, I realized that my faith in QB Rex Grossman has plummeted so much that I found myself actually being nervous that he would screw up the simple task of hiking the ball and taking a knee on the final two plays of the game Sunday. Is it just me, or does Lovie Smith's insistence that Rex would remain the Bears starting QB sound a lot like Bush saying that Rumsfeld would remain the Secretary of Defense a week before he got fired?
Christy and I saw the movie "Deja Vu" last Friday, and all throughout it I had the strangest feeling that I'd seen a movie that was this shitty before. Seriously, as long as your IQ is lower than your shoe size, it is an enjoyable film. However, if you spend even a fraction of a second thinking about it, you discover that the entire thing makes absolutely no sense. It does have Denzel though, and who doesn't like him?
Anybody else find this picture funny?
On the front page of the Wall Street Journal today, there is a reference to an article in another section under the headline "When Drinking at Work is OK." Go ahead and crack open those beers and whiskey bottles, ladies and gentleman, and have yourselves some holiday cheer! And when someone looks at you funny, just inform them that you are just trying out a revolutionary new technique you read about in the WSJ.
As a Bears fan, I realized that my faith in QB Rex Grossman has plummeted so much that I found myself actually being nervous that he would screw up the simple task of hiking the ball and taking a knee on the final two plays of the game Sunday. Is it just me, or does Lovie Smith's insistence that Rex would remain the Bears starting QB sound a lot like Bush saying that Rumsfeld would remain the Secretary of Defense a week before he got fired?
Christy and I saw the movie "Deja Vu" last Friday, and all throughout it I had the strangest feeling that I'd seen a movie that was this shitty before. Seriously, as long as your IQ is lower than your shoe size, it is an enjoyable film. However, if you spend even a fraction of a second thinking about it, you discover that the entire thing makes absolutely no sense. It does have Denzel though, and who doesn't like him?
Anybody else find this picture funny?
Thursday, November 30, 2006
Fiscal Inferno (Part I)
Note: After working on this for a couple hours, I have come to the conclusion that this is too large of an undertaking for one discussion. Hence, I will be dividing it into 2 parts.
While I had meant to work on the aforementioned recap of The Origin of Wealth, I was unexpectedly sidetracked by Bill Clinton and the national debt. As I realize that might sound a little strange, I will explain. Over the past year, I have found myself on the opposite end of a number of discussions whereby certain individuals have made the claim that Bill Clinton was a great president and might even rank as one of the greatest presidents. Now, I should confess that through most of Clinton’s presidency I was a card-carrying member of the Young Republicans and thus never liked the guy. Actually, come to think of it they never did issue us cards, but “card-carrying member” sounds so much more official than just “member”. But I digress. Anyway, as I started to craft a counter-argument I found that all I could seemingly remember about him was the Lewinsky scandal that dominated the last 2 years of his presidency. I knew that I had legitimate reasons for not liking him at one time, so I decided I would re-apprise myself of the specifics. I did not want to read his autobiography 1) because I really didn’t care much about his life before the presidency and 2) I certainly wasn’t looking for a Clinton love fest. On the other hand, I didn’t want to pick up something written by a right wing extremist with an ax to grind who filled the pages with half-truths and unsupported accusations. I ended up settling on The Survivor because it was written by respected Washington Post journalist John F. Harris and carries an endorsement from both liberal historian Arthur Schlesinger Jr. and conservative Fox News correspondent Brit Hume. I am actually not quite finished with the book yet, and all I will say for the moment about how my prior opinions of Clinton stacked up against the realities in retrospect is that, predictably, it is a mixed bag. Some of the things I despised about him are still clearly evident, while on some other things he looks better than what I initially gave him credit for. But that is a debate for another time. I bring it up now only because as I was reading there is extensive talk on how one of the main foundations Clinton ran his 92 campaign on was that he was a “New Democrat” and strongly supported a balanced budget and a reduction to the national debt. Further along in the book, Newt Gingrich enters the picture with the famous “Contract with America” and he and the 94 Republicans also campaigned on a platform of fiscal responsibility and successfully orchestrated one of the greatest Congressional swings in history in the 94 election. Finally, I also recalled that somewhere around 96-97 we had supposedly balanced the budget. And then . . .nothing. Either we had solved the problem (unlikely), or people stopped caring (more likely), or talk of fiscal responsibility just wasn’t resonating with the voters anymore (quite probable). Sure, I have heard politicians and pundits make reference to the deficit and discuss it from time to time, but it just seems that neither party has maintained it as part of their core platform.
As a matter of practicality, I can see how this happened. Beginning around 1996, the dot com boom started to take off and it seemed like everyone couldn’t help but make money. It was pretty hard for the next 4 years for anyone to be taken seriously with a doom and gloom approach to fiscal matters when the economy was roaring and the Dow was setting records on an almost daily basis. Plus, with all the money everyone was making (including businesses as well as consumers), the government tax revenues were also higher then ever. I remember reading about how Congress had supposedly “balanced the budget” in 1996. Democrats and Republicans had been at a stand-still over the next budget. The Republicans want to keep taxes low but that would mean the Democrats having to cut some additional programs. Then a new report showed that the economy was growing faster than expected and there would be more tax revenue which would allow the taxes to remain where they were and still provide enough money for the programs the Democrats wanted. I don’t know why, but this just struck me as funny. In the end, neither side compromised; they just found more money. That let them both able to claim victory and announce that they had succeeded in balancing the budget. The old axiom of “give and take” in politics no longer seemed to apply; it had been replaced by “find and keep”.
In any case, the dot com boom busted in 2000 and I do believe we would have heard a lot more talk in the 2002 elections about a return to fiscal responsibility. But of course, before we got there 9/11 happened and suddenly fiscal matters were not at the forefront of anyone’s mind. Fast forward a couple of years and now the only time you hear about the deficit is in reference to “how much the war has cost us.” In other words, the deficit is being used to draw negative attention to the war, not the other way around. So, since not a lot of people seem to be talking about the debt as an issue unto itself, I will.
The issue of the national debt really resonates with me because it is one of the main issues that first got me involved in two of the areas I am most interested in today: politics and economics. Back in 1996, when talk of a Balanced Budget amendment to the constitution was still being bandied about, I was interning for a State Representative and had just become a Young Republican (I even read Newt Gingrich’s book To Renew America). At the same time, I was taking my first class in Economics and was finding it fascinating. The idea of a fiscally responsible small government that was for free markets, staying out of people’s lives, and generally believed that “the best government is the one who governs least” really appealed to me (as an aside; when I think back on this I find myself asking, to paraphrase Michael Moore’s paraphrasing of a great film, “Dude, Where’s My Party?”). It also seemed to me that traditional economic theory supported this line of thinking as well: the government’s place was to make sure markets worked as efficiently as possible. This meant that its prime focus should be to keep the citizens safe from enemies both foreign and domestic so that they would be free to do what they do best: be consumers.
I will begin my discussion of the specifics of the debt with the basics. If you already know them, skip ahead.
So what the hell is the national debt? Obviously, it is money that the government owes. Who does it owe it to? In a word, everyone. About 40% the government owes to itself (that is, one part of the government owes it to another part). The remaining 60% is privately held. For the private portion, the government’s typical choice of debt instrument is the Treasury Bill (for short-term debt) and government bonds (for long-term debt). Each is simply a promise to pay back the face value of the bond at a specified date in the future in addition to periodic interest payments. Hence, every time the government issues a T-Bill or bond it is increasing its debt, and every time it pays one off at maturity it is reducing the debt. Bonds and T-Bills are sold to businesses, individuals, and other governments all over the world. There are also probably as many other ways the government can get itself into debt as there are days in the year, but this rudimentary understanding of it will serve for our purposes.
So why is the debt bad? Well, let’s just say that the above represents the beginnings of my education on the subject from a theoretical perspective. My real understanding of debt in practice came from my own personal experience during college. College is a wonderful place because of the freedom young adults are afforded for the first time in their lives. In addition to the freedom to drink yourself stupid and arbitrarily decide your classes have been cancelled for the rest of the week, for me this also included the freedom to rack up a sizeable amount of credit card debt. I remember one particular stroke of less-than-genius which hit me about 6 months before I was to graduate. I was about $6000 in debt but was completely flat broke. As I contemplated accepting another credit card with a $2000 limit, the little angel appeared on my shoulder and said, “John, if you get that card and max it out you’re going to be $8000 in debt. You don’t have $8000.” But then the devil appeared on my other shoulder and said, “John, you’re already $6000 in debt and you don’t have that, so what difference does it make?” I called and authorized the card the next day and had it maxed out before I graduated. Now what I want to highlight here is not my awesome irresponsibility (though I admit that is fully on display) but how easy it is to simply take on more debt once you have made the decision to become a debtor. Most people, if given the choice, would prefer not to be in debt. Further, for those not presently in debt the idea of it is as unpleasant a prospect as having a root canal. But once you are in debt and are managing it, it suddenly doesn’t seem so bad to take on more. If you have no debt and you are thinking about spending $800 on a new tv and $1200 on a weekend in Vegas but you don’t currently any disposable income, you will likely bristle at the thought of racking up $2000 in credit card debt and paying $100 per month for the next 24-30 months (depending on your APR). However, if the debt you currently have already is forcing you to make payments totaling $400 per month for the next 2-3 years, is it that much worse to be making an extra $100 in payments per month if it gets you the things you really want today? Basically, it’s all about relativity. The jump from $0-$100 a month is huge, while the jump from $400-$500 doesn’t seem as large. So I believe it goes with the government. While the debt was small, I believe we had a careful eye towards keeping it down. However, once the debt started to rise and the country didn’t collapse, it suddenly didn’t seem like such a bad idea to keep adding on to it, especially if it got us what we wanted today (in the form of tax cuts and new programs instead of tvs and vacations). So what’s the problem? Well, actually, for the individual as long as they continue to progress in their career and increase their earning power year over year, there is no problem. If you always make your monthly payments and continue to make enough money so that your debt-to-income ratio stays below certain key thresholds, banks and credit card companies will continue to offer you more and more money. Your raw debt is going up but at the same time your ability to pay the debt is going up too, so everything is all good, right? Yep; till the day comes when the economy tanks and you get laid off and only make a fraction of what you used to at your old job. Or if you decide you want to change professions but the industry you want to go into doesn’t pay as well. Or if your wife is pregnant and ends up having triplets instead of the one you were expecting and the rest of your expenses go far higher than you forecasted. You get the idea. And if suddenly you stop being able to make your minimum payments you are in for some pain. And I’m not talking mild discomfort. I’m talking prison-style abuse. If you have ever heard an investment banker or retirement specialist speak, they often talk about the “miracle of interest”. It means that as interest adds on to your principle savings, the interest rate for the next period will now apply to the new, larger amount and compound it. The result is slow growth at first and then progressively it spirals into bigger and bigger growth till you end up with over $1,000,000 in your 401(k) by age 60 (hopefully). Unfortunately, the spiral also works the other way too, and if your debt is at a sufficiently high enough amount when you start defaulting, there will be no slow growth period as with the start of a retirement account. It can get very obscene very quickly.
I am not arguing that debt is inherently bad. On the contrary, I think credit is a wonderful thing. But it’s like alcohol. When used responsibly, it can become a wonderful enabler and allow you to do things you couldn’t do otherwise (like dance on tables and throw flaming couches off balconies). However, when used irresponsibly, it can literally ruin lives.
So with all of that framework in place, in Part II I am going to go into the details of where the current debt situation in this country stands and what I think it might mean for us over the next 10 years and beyond. Has the US government been a positive financial role model and set us on a path towards fiscal stability? Here’s a hint: No.
While I had meant to work on the aforementioned recap of The Origin of Wealth, I was unexpectedly sidetracked by Bill Clinton and the national debt. As I realize that might sound a little strange, I will explain. Over the past year, I have found myself on the opposite end of a number of discussions whereby certain individuals have made the claim that Bill Clinton was a great president and might even rank as one of the greatest presidents. Now, I should confess that through most of Clinton’s presidency I was a card-carrying member of the Young Republicans and thus never liked the guy. Actually, come to think of it they never did issue us cards, but “card-carrying member” sounds so much more official than just “member”. But I digress. Anyway, as I started to craft a counter-argument I found that all I could seemingly remember about him was the Lewinsky scandal that dominated the last 2 years of his presidency. I knew that I had legitimate reasons for not liking him at one time, so I decided I would re-apprise myself of the specifics. I did not want to read his autobiography 1) because I really didn’t care much about his life before the presidency and 2) I certainly wasn’t looking for a Clinton love fest. On the other hand, I didn’t want to pick up something written by a right wing extremist with an ax to grind who filled the pages with half-truths and unsupported accusations. I ended up settling on The Survivor because it was written by respected Washington Post journalist John F. Harris and carries an endorsement from both liberal historian Arthur Schlesinger Jr. and conservative Fox News correspondent Brit Hume. I am actually not quite finished with the book yet, and all I will say for the moment about how my prior opinions of Clinton stacked up against the realities in retrospect is that, predictably, it is a mixed bag. Some of the things I despised about him are still clearly evident, while on some other things he looks better than what I initially gave him credit for. But that is a debate for another time. I bring it up now only because as I was reading there is extensive talk on how one of the main foundations Clinton ran his 92 campaign on was that he was a “New Democrat” and strongly supported a balanced budget and a reduction to the national debt. Further along in the book, Newt Gingrich enters the picture with the famous “Contract with America” and he and the 94 Republicans also campaigned on a platform of fiscal responsibility and successfully orchestrated one of the greatest Congressional swings in history in the 94 election. Finally, I also recalled that somewhere around 96-97 we had supposedly balanced the budget. And then . . .nothing. Either we had solved the problem (unlikely), or people stopped caring (more likely), or talk of fiscal responsibility just wasn’t resonating with the voters anymore (quite probable). Sure, I have heard politicians and pundits make reference to the deficit and discuss it from time to time, but it just seems that neither party has maintained it as part of their core platform.
As a matter of practicality, I can see how this happened. Beginning around 1996, the dot com boom started to take off and it seemed like everyone couldn’t help but make money. It was pretty hard for the next 4 years for anyone to be taken seriously with a doom and gloom approach to fiscal matters when the economy was roaring and the Dow was setting records on an almost daily basis. Plus, with all the money everyone was making (including businesses as well as consumers), the government tax revenues were also higher then ever. I remember reading about how Congress had supposedly “balanced the budget” in 1996. Democrats and Republicans had been at a stand-still over the next budget. The Republicans want to keep taxes low but that would mean the Democrats having to cut some additional programs. Then a new report showed that the economy was growing faster than expected and there would be more tax revenue which would allow the taxes to remain where they were and still provide enough money for the programs the Democrats wanted. I don’t know why, but this just struck me as funny. In the end, neither side compromised; they just found more money. That let them both able to claim victory and announce that they had succeeded in balancing the budget. The old axiom of “give and take” in politics no longer seemed to apply; it had been replaced by “find and keep”.
In any case, the dot com boom busted in 2000 and I do believe we would have heard a lot more talk in the 2002 elections about a return to fiscal responsibility. But of course, before we got there 9/11 happened and suddenly fiscal matters were not at the forefront of anyone’s mind. Fast forward a couple of years and now the only time you hear about the deficit is in reference to “how much the war has cost us.” In other words, the deficit is being used to draw negative attention to the war, not the other way around. So, since not a lot of people seem to be talking about the debt as an issue unto itself, I will.
The issue of the national debt really resonates with me because it is one of the main issues that first got me involved in two of the areas I am most interested in today: politics and economics. Back in 1996, when talk of a Balanced Budget amendment to the constitution was still being bandied about, I was interning for a State Representative and had just become a Young Republican (I even read Newt Gingrich’s book To Renew America). At the same time, I was taking my first class in Economics and was finding it fascinating. The idea of a fiscally responsible small government that was for free markets, staying out of people’s lives, and generally believed that “the best government is the one who governs least” really appealed to me (as an aside; when I think back on this I find myself asking, to paraphrase Michael Moore’s paraphrasing of a great film, “Dude, Where’s My Party?”). It also seemed to me that traditional economic theory supported this line of thinking as well: the government’s place was to make sure markets worked as efficiently as possible. This meant that its prime focus should be to keep the citizens safe from enemies both foreign and domestic so that they would be free to do what they do best: be consumers.
I will begin my discussion of the specifics of the debt with the basics. If you already know them, skip ahead.
So what the hell is the national debt? Obviously, it is money that the government owes. Who does it owe it to? In a word, everyone. About 40% the government owes to itself (that is, one part of the government owes it to another part). The remaining 60% is privately held. For the private portion, the government’s typical choice of debt instrument is the Treasury Bill (for short-term debt) and government bonds (for long-term debt). Each is simply a promise to pay back the face value of the bond at a specified date in the future in addition to periodic interest payments. Hence, every time the government issues a T-Bill or bond it is increasing its debt, and every time it pays one off at maturity it is reducing the debt. Bonds and T-Bills are sold to businesses, individuals, and other governments all over the world. There are also probably as many other ways the government can get itself into debt as there are days in the year, but this rudimentary understanding of it will serve for our purposes.
So why is the debt bad? Well, let’s just say that the above represents the beginnings of my education on the subject from a theoretical perspective. My real understanding of debt in practice came from my own personal experience during college. College is a wonderful place because of the freedom young adults are afforded for the first time in their lives. In addition to the freedom to drink yourself stupid and arbitrarily decide your classes have been cancelled for the rest of the week, for me this also included the freedom to rack up a sizeable amount of credit card debt. I remember one particular stroke of less-than-genius which hit me about 6 months before I was to graduate. I was about $6000 in debt but was completely flat broke. As I contemplated accepting another credit card with a $2000 limit, the little angel appeared on my shoulder and said, “John, if you get that card and max it out you’re going to be $8000 in debt. You don’t have $8000.” But then the devil appeared on my other shoulder and said, “John, you’re already $6000 in debt and you don’t have that, so what difference does it make?” I called and authorized the card the next day and had it maxed out before I graduated. Now what I want to highlight here is not my awesome irresponsibility (though I admit that is fully on display) but how easy it is to simply take on more debt once you have made the decision to become a debtor. Most people, if given the choice, would prefer not to be in debt. Further, for those not presently in debt the idea of it is as unpleasant a prospect as having a root canal. But once you are in debt and are managing it, it suddenly doesn’t seem so bad to take on more. If you have no debt and you are thinking about spending $800 on a new tv and $1200 on a weekend in Vegas but you don’t currently any disposable income, you will likely bristle at the thought of racking up $2000 in credit card debt and paying $100 per month for the next 24-30 months (depending on your APR). However, if the debt you currently have already is forcing you to make payments totaling $400 per month for the next 2-3 years, is it that much worse to be making an extra $100 in payments per month if it gets you the things you really want today? Basically, it’s all about relativity. The jump from $0-$100 a month is huge, while the jump from $400-$500 doesn’t seem as large. So I believe it goes with the government. While the debt was small, I believe we had a careful eye towards keeping it down. However, once the debt started to rise and the country didn’t collapse, it suddenly didn’t seem like such a bad idea to keep adding on to it, especially if it got us what we wanted today (in the form of tax cuts and new programs instead of tvs and vacations). So what’s the problem? Well, actually, for the individual as long as they continue to progress in their career and increase their earning power year over year, there is no problem. If you always make your monthly payments and continue to make enough money so that your debt-to-income ratio stays below certain key thresholds, banks and credit card companies will continue to offer you more and more money. Your raw debt is going up but at the same time your ability to pay the debt is going up too, so everything is all good, right? Yep; till the day comes when the economy tanks and you get laid off and only make a fraction of what you used to at your old job. Or if you decide you want to change professions but the industry you want to go into doesn’t pay as well. Or if your wife is pregnant and ends up having triplets instead of the one you were expecting and the rest of your expenses go far higher than you forecasted. You get the idea. And if suddenly you stop being able to make your minimum payments you are in for some pain. And I’m not talking mild discomfort. I’m talking prison-style abuse. If you have ever heard an investment banker or retirement specialist speak, they often talk about the “miracle of interest”. It means that as interest adds on to your principle savings, the interest rate for the next period will now apply to the new, larger amount and compound it. The result is slow growth at first and then progressively it spirals into bigger and bigger growth till you end up with over $1,000,000 in your 401(k) by age 60 (hopefully). Unfortunately, the spiral also works the other way too, and if your debt is at a sufficiently high enough amount when you start defaulting, there will be no slow growth period as with the start of a retirement account. It can get very obscene very quickly.
I am not arguing that debt is inherently bad. On the contrary, I think credit is a wonderful thing. But it’s like alcohol. When used responsibly, it can become a wonderful enabler and allow you to do things you couldn’t do otherwise (like dance on tables and throw flaming couches off balconies). However, when used irresponsibly, it can literally ruin lives.
So with all of that framework in place, in Part II I am going to go into the details of where the current debt situation in this country stands and what I think it might mean for us over the next 10 years and beyond. Has the US government been a positive financial role model and set us on a path towards fiscal stability? Here’s a hint: No.
Wednesday, November 29, 2006
As promised, some random stupidity
I just finished an excellent book about cutting edge economic theory that I think is really interesting even if you are not a business geek. It's called The Origin of Wealth by Eric Beinhocker. Some of you more astute individuals might notice that the title is a juxtaposition of 2 of the most influential books written over the last 250 years (Adam Smith's The Wealth of Nations and Darwin's The Origin of Species). All I will say for now is that it is a very appropriate title. I am hoping to put together a short summary of what I found most interesting and revealing about it, but while I am working on that here is some random stupidity inspired by the Christmas season:
The 10 Least Popular Christmas Songs
10. Something's Coming Down the Chimney (And I don't think it's Santa)
9. Frosty the Illegitimate Love-Child
8. Rudolph Gets a Rifle
7. Nuclear Winter Wonderland
6. O Holy Shit!
5. Jingle Bells Palsy
4. Must Be Lactose Intolerant Claus
3. The Night the Elves Unionized
2. Christmas Coup d'Etat
And Finally:
1. White Christmas (as sung by Michael Richards)
The 10 Least Popular Christmas Songs
10. Something's Coming Down the Chimney (And I don't think it's Santa)
9. Frosty the Illegitimate Love-Child
8. Rudolph Gets a Rifle
7. Nuclear Winter Wonderland
6. O Holy Shit!
5. Jingle Bells Palsy
4. Must Be Lactose Intolerant Claus
3. The Night the Elves Unionized
2. Christmas Coup d'Etat
And Finally:
1. White Christmas (as sung by Michael Richards)
Monday, November 27, 2006
Give peace a chance
I think the most appropriate thing to begin with is the article that I just read which finally motivated me enough to get on here and post. It is certainly not a major news story, but it is indicative to me of a growing trend in the U.S. today whereby common sense is being slaughtered and maimed at an unprecedented rate. You can read the whole story here if you wish (http://news.yahoo.com/s/ap/20061127/ap_on_re_us/anti_peace_sign_4) but for those pressed for time (and if you are why in god's name are you reading this?) I will summarize: A homeowner's association in Colorado is threatening to fine a woman $25 a day for displaying a Christmas wreath that is in the shape of a peace sign. Read that again if you have to. The association sent her a letter saying that residents were offended by it and that the board "will not allow signs, flags, etc. that can be considered divisive." Say what? The symbol for peace is offensive and divisive? Really? Maybe I have just missed the boat on this one. I decided to turn to our good friend Webster and see which of the many definitions for peace might conjure up these feelings of animosity.
Definition 1: A state of tranquility or quiet. - Hmm, seems innocent enough.
Definition 2: Harmony in personal relationships. - Who doesn't like that?
Definition 3: Freedom from disquieting or opressive thoughts or emotions. -Kinda seems like the opposite of divisive. Let us pause to reflect on the irony.
Definition 4: A pact or agreement to end hostilities between those who have been at war or in a state of enmity. - Ding, ding, ding!
So it all comes back to the war. Really, it all comes back to people being offended when they think others are displaying anti-war feelings. This leads to several questions. First, if a word or symbol has several definitions and only one of which can be considered offensive, does it then become offensive in all cases? Is it the responsibility of the individual displaying the piece to clarify their intentions? Why is it that the act of displaying a Christmas symbol (which is a Christian symbol) is not considered divisive but advertising one of the core tenets of that religion is? Actually, let's set aside all of those questions and just ask this: isn't peace a good thing? I mean, ultimately whether you are for the war or not, Republican, Democrat, Libertarian, Green Party, etc. aren't we at least unified by that? I'm pretty sure that if you asked President Bush if he wants peace in the Middle East he'd look at you quite oddly and answer "yes" in the same tone as if you'd asked him if he knew how to speak english. Isn't that supposed to be the main thing that separates us from the terrorists that are trying to kill us? I always thought that whether or not we liked the idea of getting into the war, we could all agree that the best case scenario was a peaceful resolution as quickly as possible with the least loss of life. If we don't have that as a common foundation, then I don't know what we have. Perhaps I am making too much out of this, but for the last 10 years I have signed pretty much every personal e-mail correspondence "Peace" before my name, because I believe that peace is one of those ideas that is just unilaterally good. Inner peace, outer peace, it's all good. It transcends partisanship, race, ethnicity, and pretty much any other thing you can think of that is divisive. The only things it doesn't transcend are hate and anger, and that's the problem. Peace really doesn't have a chance against hate and anger. And that's too bad.
By the way, by far the most hilarious thing about the article is this line; "some residents also believed it was a symbol of Satan." That is just priceless.
OK, I promise the majority of my posts will not be in such a hippy mold, and I further promise to infuse them with not just a little bit of ridiculous thoughts and idiocy as well. Until then:
Peace.
Definition 1: A state of tranquility or quiet. - Hmm, seems innocent enough.
Definition 2: Harmony in personal relationships. - Who doesn't like that?
Definition 3: Freedom from disquieting or opressive thoughts or emotions. -Kinda seems like the opposite of divisive. Let us pause to reflect on the irony.
Definition 4: A pact or agreement to end hostilities between those who have been at war or in a state of enmity. - Ding, ding, ding!
So it all comes back to the war. Really, it all comes back to people being offended when they think others are displaying anti-war feelings. This leads to several questions. First, if a word or symbol has several definitions and only one of which can be considered offensive, does it then become offensive in all cases? Is it the responsibility of the individual displaying the piece to clarify their intentions? Why is it that the act of displaying a Christmas symbol (which is a Christian symbol) is not considered divisive but advertising one of the core tenets of that religion is? Actually, let's set aside all of those questions and just ask this: isn't peace a good thing? I mean, ultimately whether you are for the war or not, Republican, Democrat, Libertarian, Green Party, etc. aren't we at least unified by that? I'm pretty sure that if you asked President Bush if he wants peace in the Middle East he'd look at you quite oddly and answer "yes" in the same tone as if you'd asked him if he knew how to speak english. Isn't that supposed to be the main thing that separates us from the terrorists that are trying to kill us? I always thought that whether or not we liked the idea of getting into the war, we could all agree that the best case scenario was a peaceful resolution as quickly as possible with the least loss of life. If we don't have that as a common foundation, then I don't know what we have. Perhaps I am making too much out of this, but for the last 10 years I have signed pretty much every personal e-mail correspondence "Peace" before my name, because I believe that peace is one of those ideas that is just unilaterally good. Inner peace, outer peace, it's all good. It transcends partisanship, race, ethnicity, and pretty much any other thing you can think of that is divisive. The only things it doesn't transcend are hate and anger, and that's the problem. Peace really doesn't have a chance against hate and anger. And that's too bad.
By the way, by far the most hilarious thing about the article is this line; "some residents also believed it was a symbol of Satan." That is just priceless.
OK, I promise the majority of my posts will not be in such a hippy mold, and I further promise to infuse them with not just a little bit of ridiculous thoughts and idiocy as well. Until then:
Peace.
To blog or not to blog . . .
Yes this is the first real post of what surely must be the least hyped, anticipated by no one, non-event in history. The launch of blog #1,549,442 by Random McTalentless, who somehow thinks that someone other than him wants to hear about the voices in his head.
So I probably have been kicking around the idea of having my very own blog since, oh, a few minutes after I first found out what the hell a blog was. But I am inherently lazy and never found sufficient motivation to get one started, and then before I knew it everyone had a blog, or a My Space page, or their own website, or a ham radio, carrior pigeon, semaphore code, etc. So then it was "well, I can't do that now, because EVERYBODY's doing it." I guess it is some ridiculous form of counter pop-culture impulse inside me that chooses to only selectively rear its head at the strangest time. At the same time, I suppose I always thought that if I was ever gonna spend the time to write about something, I would be better served working on one of the four novels I have begun but yet to get past page 10 on. At any rate, in the end I decided that even though it is completely unnnecesary, and even though few people are ever gonna read it, and even though my time is probably better spent doing other, more productive things, I like to write, and I want to do this, so I'm gonna do it. I'd like to also insert here the generic entry on how I will be looking to modify and improve how the page looks over the coming months and I will eventually get around to explaining why I named this blog what I did, and so on. But since I have been thinking for 3 weeks about how best to introduce this blog and came up with exactly nothing I am just gonna cut the backstory short (Too late!) here and just start.
So I probably have been kicking around the idea of having my very own blog since, oh, a few minutes after I first found out what the hell a blog was. But I am inherently lazy and never found sufficient motivation to get one started, and then before I knew it everyone had a blog, or a My Space page, or their own website, or a ham radio, carrior pigeon, semaphore code, etc. So then it was "well, I can't do that now, because EVERYBODY's doing it." I guess it is some ridiculous form of counter pop-culture impulse inside me that chooses to only selectively rear its head at the strangest time. At the same time, I suppose I always thought that if I was ever gonna spend the time to write about something, I would be better served working on one of the four novels I have begun but yet to get past page 10 on. At any rate, in the end I decided that even though it is completely unnnecesary, and even though few people are ever gonna read it, and even though my time is probably better spent doing other, more productive things, I like to write, and I want to do this, so I'm gonna do it. I'd like to also insert here the generic entry on how I will be looking to modify and improve how the page looks over the coming months and I will eventually get around to explaining why I named this blog what I did, and so on. But since I have been thinking for 3 weeks about how best to introduce this blog and came up with exactly nothing I am just gonna cut the backstory short (Too late!) here and just start.
Tuesday, October 31, 2006
Subscribe to:
Comments (Atom)
