A note on happiness...

America stands for, and is willing to defend by force if necessary, the Constitutional guarantee of "life, liberty, and the pursuit of happiness." Never has a more Lockean creed of personal achievement and sheer self-actualization been thundered than in America--my home. What was it that we all were so sick and tired of being deprived of anyways? I mean we had it pretty good, right? Thousands of miles away from King George; fresh earth to till; forests teeming with game; and finally the chance to do whatever we wanted with the fruits of our labor. So what was the big deal?

Taxes. We all got upset that we had to pay taxes on stamps one day but hadn't had to the day before and were never given notice nor had any say. In short, there was no one to lay blame on for this and we had no recourse to kick the idiot out who had let this happen to us--meaning a politician who represented "our interests." Colonial Americans were so upset by this atrocity that they had to kick the whole group of those red-coated thieves out. America to this day still stands tall and proud of the fact that its overarching desire for freedom came from the fact that we were sick and tired of having money taken away from us without due process of law.

Two hundred thirty-some years later, and almost eleven trillions dollars in debt, the U.S. still proudly holds on to those ideals. So why am I writing a note about happiness? Because it was in our pursuit of each individual's happiness that got us into this mess. Consider defense spending projects. Whether you know this or not, most big ticket defense projects are built in as many different Congressional locations as possible. One part is built in one district, another is built in a different one. If you vote against a defense bill you are voting to cut jobs in your own district--which means you are in for trouble come re-election. So they just keep adding more and more dollars to the defense budget each year and the numbers keep rising. I am far from a believer in small military and I will say that now. However, it is important to understand that we need to modify our spending priorities on constant upgrades and new systems for EVERYTHING. We cannot predict which wars will happen and where they will take place that is true...but I find it hard to justify the astronomical costs of some defense projects that will likely never see the light of day. However, the defense contractors that are driving that agenda are simply pursuing their own happiness--getting contracts. More specifically the bonuses that come with getting the contracts. Is the politician to blame for wanting to keep jobs in their district by supporting the defense projects? Is the worker to blame for wanting to have a good paying job so their kids can have adequate dental care, money to take a modest vacation, braces, and afford to live in a decent house and put aside some money for retirement so they don't have to be a burden on their loved ones?

All of these people are pursuing the small happiness-es that come from our system that our government was founded on. And that way of life is currently under attack. Unless we wake up and realize that at some point enough is enough then we will all go down with this ship together. I don't think that it is the government's job to do this. I personally believe that you cannot, and should not legislate most behavior--I believe in small government. Society must at some point police itself with norms and morals. The government can pass laws all that it wants but those laws can change in a matter of short years. The type of change that I am calling for will take decades to come about.

Last night I read through the entire text of the house-passed version of the stimulus bill. I read all 647 pages (the pages don't have very much text, it's a shorter read than you think) and I came away from it thinking that I had just read the 2008 1/2 budget for the United States of America. I don't see how, short of the transportation and housing issues, that this bill was in any way related to job creation. Rather it was more about keeping more government and municipal workers employed--but in areas that did not make a great deal of sense to me. I didn't entirely understand the hundreds of millions of dollars that were going to the Arts. Funding for the Arts is important, I agree, but shouldn't that funding be in the actual BUDGET?

We take all of our hopes and dreams and put it on one bill, the stimulus package, and believe that it will be the beginning of a new day. Maybe it will. But from what I read I don't entirely see how this will create three million jobs. Government agencies throughout the Bush Administration had been complaining of cutbacks on federal spending. Also the cost of fully implementing all of the post 9/11 changes had been passed on to the states. So, if anything, the job creation would be simply creation of jobs that had been previously eliminated or not fully funded. On the other hand I will say that growth of any kind is better than none at all. Hopefully, we can get some happiness created in the short term. But remember that the national debt now is far too large and it is exceptionally difficult to believe that continual borrowing, especially in this climate, is likely to continue as before. The capital market environment simply won't allow it. Also, there are so many other countries that are borrowing right now. Why should the U.S. be guaranteed funds when others are just as worthy?

We all live in a capitalist system, and in that system we all are trying to get our own happiness. The spirit of free market enterprise that caused the colonials to rise up over taxes and representation is rooted ultimately in a question of fairness. And so now we are living in a world gripping tight to the question of what is fair? Would the continued U.S. dominance of the capitalist system be fair? Probably not anymore...we lost that privilege when we couldn't keep our eyes on balanced budgets or going to decent priced schools. No, it will be a larger group of countries that will be making the decisions in the future. To this idea I give credit to Paul Kennedy, who wrote The Rise and Fall of the Great Powers. Simply put, the world is too large for one country to have total control. The happiness of one pales in comparison to the happiness of the many. We can all thank Jeremy Bentham for that maxim.

Of course that is just one man's opinion. Be well dear reader

--A Wise Man in the East

The end of the debt-cycle?

I was often criticized for having unfathomable ideas.  One of the most interesting that comes to mind is my American Defense Policy professor in undergraduate once told me that there is no way the U.S. would build the Ballistic Missile Defense system because of the ABM treaty...which I thought we would pull out of.  I wrote this in a paper and got seriously downgraded on it.  He found that argument to be unreasonable.  Why does this matter?  Because, as Margaret Thatcher once said after the Falklands, "the unnexpected often happens and we should consider it as an option always."  The US ended up pulling out of that treaty by the way, and I expanded the idea into another argument and was still downgraded; but more for formatting reasons.  My point still stands--accept that everything around you is impermanent and can change when you least expect it.  In short:  Be prepared if at all possible.

And so we come to today's entry...debt.  The U.S. has been buying debt from many nations for the last decade at a staggering pace.  The National Debt of the United States is currently over 10 trillion dollars.  That's right, 10 TRILLION.  The day I left my job on Capitol Hill the debt was at 9.5 trillion; and this was six months ago.  In the last two days two things of such monumental importance happened; but few people outside of Budgetary and economic circles will be able to come to grasp with the concept for years to come.  

First, China has said that it is reluctant to keep buying U.S. debt.  All those checks that were sent out last year to "stimulate the economy" were borrowed largely from Japan and China.  Japan is in as bad a financial mess as we are right now so they do not have the capital reserves to lend and China is tired of buying U.S. bonds that have a near zero return on their investment.  Also, China is worried about America's long-term ability to repay.  And finally, China is worried that the Obama Administration is going to come through on its campaign promises and start what most people will soon be calling a "trade war" between the Democrat controlled House, Senate, and Administration and the Chinese government.  We will all wait and see what happens next.

Second, President-elect Obama finally did what few Presidents before him had done and told the people what we are facing.  Many Administrations, at least the Clinton and Bush ones were famous for this, would exaggerate the preliminary budgetary numbers to make it look like they had done more to help the economy at year end.  So if we were looking at deficits they would make them look bigger initially and then show how they had done amazing things to "correct" the problem before the end of the year.  If Mr. Obama is doing that fine--but if you look at the actual numbers they are that bad.  We will be looking at trillion dollar deficits for a decade.  Remember the U.S. just pumped 5 trillion dollars into the global financial economy that it didn't have.  Where do you think that money is going to come from if Japan is broke and China, with the largest amount of reserve savings in the world, refuses to lend?  Many people say it is unwise to just "print more money" but it would appear that is what we have been doing.

I will offer a position that is not my own but I have heard being said in some circles in the incoming Adminstration:  If not now then when?  Many people have been sitting back for years watching the debt climb and hoping we would do something about it before it was too late--we didn't.  America kept spending; Congress kept borrowing; our credit ratings kept falling.  And here we are.  Times will be hard for a long time to come.  I have to believe that we can make it.  Many are saying this is the end of the American Empire.  They said that in the early 1980's as well, by the way.  I don't know if this is it.  But remember we are an "accidental empire" as some British historians have called us.  We got to be this strong because after WWII no one else had the industrial capacity to make goods on the scale that we could--all our competitors were ravaged by war.  We had to know that the playing field would even out sometime.  Capital flows to where the best and safest environment for it to grow is.  Right now that place is East Asia.  The sooner we come to accept that the better.  Right now we have to worry about getting our own house in order.  Thomas Friedman borrowed from Charles Kindleberger when he spoke about how "buying manias" drive people to do risky behavior in bubble times.  We all got sucked into being lawyers, hedge fund managers, and financial advisors.  We all thought that Ivy League educations that cost hundreds of thousands of dollars in Law and Finance would get us all rich. But that was just the modern day "tulip bulbs."  Now the Chinese are trying to get into the Ivy League (who on average have way better scores in Math and Logical reasoning than their American competitors) and are balking at the high price-tag.  Why would they pay that much if they can't make the amount necessary to afford the monthly payments?  Expensive educations that you cannot afford are irresponsible, in their opinion.  We forgot that lesson somewhere...but with rising tuition costs how could we stop it?  Not everyone could go overseas to cheaper colleges that offered an education that was just as good.  America got duped, and the high-value Chinese talent are now going elsewhere.  The news in the West will be picking up on that trend fairly soon.

America should have been pumping out useful technical degrees.  I'm not saying that the other degrees aren't important.  However if you have a society with a lawyer for every sixteen people you have issues of labor/skill imbalance.  Years from now people will be looking back on today and wondering what were we thinking these last fifteen years?  Why didn't we work on the more pressing issues like balancing the budget rather than procrastinating until the whole thing fell apart?  And the answer is because we, like my former professor, couldn't fathom that change can happen.  We as a country couldn't see that the "new economy" of services and finance could not support a country of our size and maintain such a high standard of living.  America bet the wrong way, that's all; and by doing this ignored the budget problems we assumed would correct itself over time.

Be well dear reader.  We have a long road ahead of us.

--A Wise Man in the East