Thursday, June 30, 2011

Greece Crumbles But U.S. Will Pay

So roughly $8 billion of the IMF bailout of Greece will be paid for by the U.S.

One problem: we don't have the money.

Which means we will borrow it.

Which means our kids will pay tomorrow so Greek workers can retire at 50 today.

Actually, that's quite analogous to what's happening with public sector unions in the U.S. right now.

(Best recent SNL joke: "You know what Greece's #1 export is? Hard working Greeks.")

Monday, June 27, 2011

Keynes Schmeynes

Note: the following was my rebuttal to a letter written to my local paper by one Robert Schewior, Ph.D., who took issue with my congresswoman's call to cut government spending in the name of economic growth. Dr. Schewior stated that every Econ 101 student knows - knows - that increasing government spending increases a nation's wealth. Uh huh.

Father of a Thousand Textbooks, All Wrong

Robert Schewior - Ph.D., Economics - wrote a rebuttal last week of Nan Hayworth's call to cut government spending to save our economy. It's a good thing Dr. Schewior told us about his credentials otherwise I'd have to dismiss his argument as tired academic tripe.

No wait, I'm going to do exactly that. His arguments are thoroughly discredited Keynesianism, the sort of nonsense no one takes seriously anymore outside of faculty lounges and the Obama administration. In fact, I went back to college to teach as an Adjunct Professor of Economics (there, slipped in my own credentials!) just to debunk this sort of nonsense, the sort of intellectual gruel that was force fed to me as an undergraduate. This edifice of 20th century economic thought fell to pieces the moment you left campus, but no one seemed to notice.

(Hey, wait, my parents paid good money for that degree! Well, I had a lot of fun, anyway, and I figured out pretty quickly that my economics profs would have trouble running a lemonade stand.)

Dr. Schewior, being a good Keynesian, believes that there's a simple, immutable formula that says the more money the government spends, the higher national income will rise. There's even a multiplier effect! If this were true, I submit that Greece wouldn't need a bailout and the old Soviet Union would have been the richest country on the planet. Hoover and Roosevelt boosted government massively and yet the Great Depression lasted a decade. Japan keeps spending and spending and remains an economic basket case. Even George Bush tried a dose of Keynes in 2001 and 2008 in the form of rebate checks, to no effect. And now Obama has tried one of the most massive Keynesian experiments in human history, the trillion dollar stimulus, and the economy has worsened. Doh!

The ever-dwindling number of Keynesians miss an obvious point: the money has to come from somewhere. The three options are print it, tax it, or borrow it. Printing it causes inflation. Taxing it means the private economy has less to invest and spend. Borrowing it, the most popular option, crowds out private borrowing and creates a liability our children must meet. Any way you slice it, government can't create wealth, and it can't stimulate the economy. "Aggregate demand," as the economists like to say, remains zero.

Actually, less than zero; government spending is a net drag on the economy. Think about it, when was the last time the government allocated money better than the private sector? The Obama stimulus is a great example. All that was stimulated was more government, not any sort of real investment. Government, at all levels, used the trillion dollars to go on a hiring binge, creating even more liabilities down the road in the form of pensions. How many bridges do you see being built? How many roads repaired? Government, remember, is run by politicians, and they never spend money without first considering its vote-buying potential.

Nan Hayworth has it exactly right: we need to decrease the size and scope of government if the economy is to grow again.

Don't let your kids major in economics if you value critical thinking.

Saturday, June 18, 2011

What Happens When your Town Truly Runs Out of Money

No more people to tax, no subsidies, no bailouts. Welcome to Central Falls, RI, also know as the Island of Mayor Moreau. A glimpse into our future unless public pensions - teachers, cops, everybody - are curbed. Misery for all, but mostly the teachers and cops.

Read about it here.

Friday, June 17, 2011

The Real Reason Anthony Weiner Had to Resign

Bill Clinton and Anthony Weiner: compare and contrast.

  • Both were involved in sex scandals with young women, although Clinton's actually involved real sex, in the Oval Office no less
  • Both lied about their activities at some length, although Clinton lied under oath

Arguably, President Clinton's actions were more deplorable, if that's possible, than Weiner's, and yet only Weiner had to resign.

Here's why:

The pictures. Weiner making 80s porn-face. This is in-your-face ickiness, and there's no way to dance around it. The left can rationalize just about any sex scandal but they can never, ever, brook such an egregious violation of taste.

Bill Clinton is very fortunate to have lived his political life in the pre-digital era.

Sunday, June 12, 2011

Why Political Sex Scandals Aren't Just About Morality

The Digital Weiner

Let's say we lived in a world where there was zero personal judgment of others. Anything goes, particularly where matters of sex are concerned. (We could call this world "France," but we'll leave that for another day.) What we do behind closed doors is nobody's business, period.

Morality, is, after all, a relative judgment, and if no one is getting hurt, we shouldn't care.

One often hears this argument from people when a politician with whom they are sympathetic is caught with his zipper down. I remember this chorus was particularly loud during the Monica Lewinsky follies, but Republicans occasionally make excuses for their guys, too.

The problem is that when politicians fool around, people are potentially hurt, and those people are you and me. No, I'm not talking about the uncomfortable ickiness of having to explain what the headlines are talking about to your eight year old. No, I'm talking about hard matters of policy, because if we did live in this world, there would still be a reason that politicians, in particular, should be held to a different, higher, standard. A practical, non-moralistic standard, and one I have been arguing for years. Kyle Smith, in today's New York Post, was the first columnist I have seen mention it.

The reason is called extortion, for any politician who fools around, particularly when they are leaving a digital trail, has set themselves up for it.

Don't think it's likely? I argue that it's already happened. What else can explain why this person...

...didn't fire this person...

The Kennedys hated J. Edgar Hoover. Bobby, in particular, had strong feelings, and running the Justice Department, he was forced to work closely with Hoover. Hoover had actively supported Nixon in 1960 and was arguably a tyrant, having run the FBI as his personal fiefdom since its founding. Why didn't JFK simply fire Hoover?

The answer is one of two things. The first possibility is that Hoover, undoubtedly possessing evidence of JFK's and RFK's varied affairs, was blackmailing the administration. The second is that the Kennedys simply feared that Hoover had the goods. Either way, America had to live under an unchecked, tyrannical FBI director for longer than it should have, all because the Kennedys couldn't keep it in their pants.

There you have it, an actual real life example of why the personal behavior of politicians matters.

And now we are in the digital age, where evidence is so much easier to obtain. Think about it: ack in the day, someone had to sneak around with a camera and catch you in the act. That required real work.

Now, we have emails, texts, tweets, and digital photographs, each potentially damning and impossible to control once the "send" button is hit.

And how much easier, today, is it to set a "honey" trap. Even just ten years ago, the services of an attractive girl would have been necessary, and she would have had to be willing to bed the target. Today, all you need is a photo!

How? Simple. Just follow these easy steps:

  1. Find a picture of a random hot chick on the internet.
  2. Create a fake facebook or twitter account using the picture of the girl.
  3. Start friending politicians and flirting with them online.
  4. Steer the flirtation in a sexual direction (assuming the pol doesn't do it first).
  5. Inform the politician that he will vote a certain way on a crucial bill or he will be exposed and his career ended.
Do you know how easy this would be to do? I'd be shocked if it wasn't happening already. Consider that a woman recently discovered that her ex-husband was trying to hire a hit man to kill her by creating a fake facebook account (as a slutty looking high school girl) and friending the ex. He's on his way to jail.

Don't get me wrong, I think character in one's personal life does matter, and there are plenty of politicians who manage to keep to the straight and narrow. Fidelity is not unheard of, and we should desire it in our leaders. But there are plenty of people, mostly liberals of a more libertine bent, who don't put much stock in this argument. Fine, that's their prerogative. But I can only assume that they don't think extortion is a desirable course of events. Extortion is not a moral position that one is for or against, it's just a dangerous potential subversion of the democratic process.

Here's to hoping we can start holding our leaders to a higher standard.

Friday, June 10, 2011

The Palin Fixation

Thousands of emails from Palin's term as Governor are about to be released, and the media is swooning. The Washington Post and the New York Times are going so far as to enlist their readers' help so they can root out the good stuff faster. Rest assured, they will find quotes that will make her look bad, particularly if taken out of context. Think about it, how would you like your entire email history scrutinized by people who hate you and have a platform from which to project that hatred? None of us would hold up very well. Trust me, this will be the "big story" that knocks Weiner out of the headlines.

All this is quite fascinating. Sarah Palin has not announced she is running for office, nor will she. And yet the media feels they must traipse around the country following her every move. It's beyond a fixation, more of an obsession. Call it Palin-oira.

When Palin was selected as McCain's running mate, the mainstream media sent 40 full-time reporters up to Wasilla, Alaska to turn over every possible rock. How many reporters do you suppose were sent to Indonesia, Hawaii, or Chicago to vet the presidential candidate from the other party?

To my knowledge, none. Barack Obama was accepted as a matter of faith, and thus we elected a man with virtually no resume about whom less was known than any president in our country's history.

Frankly, this misappropriation of media assets is a gross dereliction of duty. The Fourth Estate is meant to play a vital roll in our democracy, one of skeptic and fact checker. That the mainstream media now only sees this roll as one meant to be applied in only one direction is as sadly obvious as ever.

With Palin, they desperately hope she will run, and they are getting played. That part, at least, I find amusing.

Tuesday, June 7, 2011

Bin Laden or Weiner - Burning Question

A friend of the Naked Dollar has posed this question:

Which photograph will reach the public domain first, the x-rated Weiner shot or the Bin Laden death shot?

Please weigh in. My money is on Weiner. (For the record, I'm talking about the full monty shot, not the jockey shot.)

As an aside, the current odds on Weiner resigning on intrade are 39%. This strikes me as low since it is now apparent he was lying even yesterday at his press conference.

Monday, June 6, 2011

Will Anthony Weiner Resign?

The short answer is not over his dead body. And, remarkably, there doesn't seem to be anyone out there suggesting he should.

Compare this, if you will, to the case of New York congressman Chris Lee. Remember him? It was only a couple of months ago he posted this picture on Craig's List:

And here is what Weiner sent out on Twitter:

So let's compare and contrast. Both men are married. Both were trolling for babes. Both showed remarkably bad judgment. And both photos make you throw up a little in your mouth. Weiner's photo is more pornographic.

When the Lee photo broke, there was instant pressure on him to step down from all quarters. Disgraced, he promptly did. It was the right thing to do, and it turned out to be costly for the Republicans as they lost the seat.

When the Weiner photo broke, the Congressman dodged, weaved, obfuscated, and lied. He continues to lie even now, thinking there is some magic escape if he can only find the right combination of words. Just today a story broke about another woman who apparently was exchanging x-rated photos with Weiner online. Does anybody think she's the last?

Weiner has committed a far greater sin here by lying, and continuing to lie. The cover-up is worse than the crime, or so the media always tells us. His picture is way more disgusting. Why is there no pressure on him to step down?

One side question for any women reading this: lots of guys seem to be sending around pictures of their pee-pees these days, specifically to women they are trying to bed. Has this ever, anywhere, anytime, actually worked? Don't you just say, "Eww, gross. What a pervert!" That would be my guess, but the sheer number of data points here would suggest it's working for someone.

Please weigh in.

3 PM Weinergate update: they're coming out of the woodwork now, and the pictures are getting tackier:

This is Tiger Woods now. They'll be a new girl every day. Wonder, now that his actual face is in some photos, if he actually fesses up. And if he does, how to explain the whole week of lying? 

4:30 PM Weinergate update: After the evidence becomes incontrovertible, Weiner comes clean...but doesn't see a need to resign.

Thursday, June 2, 2011

Wall Street's Image Problem

What are these guys actually doing?

I was up at Yale a few weeks ago talking to some undergraduates, and they were taking pot shots at the financial industry. The gist of it was that Wall Street was filled with a bunch of greedy paper pushers who add no value to society. They looked down on their classmates who hoped to enter Wall Street training programs.

On the first charge - greed - there may be some merit. After all, a typical investment banking job has brutal hours (100 weeks not uncommon), requires a high level of education, has a high wash-out rate, and, when you get right down to it, isn't that much fun. I sure as hell would want to be well paid to do something like that. In point of fact, I DID do something like that right out of college. You had no life. You were a slave.

On the second point - value to society - my undergrad friends are dead wrong, and this is where Wall Street has a serious image problem.

Quick - what does Wall Street make? Nothing, right? Nothing you can touch, for sure. But it does do two things, and it does them very well, at least most of the time. These things are both vitally important. Can you think what they are? If you can't, don't worry, you're not alone. The undergrads had no clue, and here's the thing: most people on Wall Street don't really know, either. They understand the job in front of them, but not the bigger picture, the good they are doing, intended or not.

One of my colleagues suggests they don't have to understand for Smith's invisible hand to work. Indeed, this might be true in a truly free market economy, but that's not what we live in anymore. If an industry can't justify itself to the broader public - if the value isn't made clear - that industry will find itself at the top of every regulator's and politician's hit list. This, in turn, raises costs and decreases the net value of the industry to society. I'm sure you can see a vicious cycle in this.

Still working out the answers? The first is - or should be - pretty easy. Wall Street allocates capital, moving it where it sits, unproductively, stuffed into proverbial mattresses, to where it is most needed, thus fueling economic growth by funding growing companies to produce things people want. Capital flow is savings turned into investments -- the grease in the wheels of our enormous economy and creates jobs. Without it, things grind to a halt.

Bankers and lawyers structure the offerings, syndicate desks determine pricing and allocate the risk across diverse intermediary firms, and salespeople place the securities with investors around the world. That, in a nutshell, is half of Wall Street.

The second is a bit trickier: Wall Street provides liquidity. Put simply, if you buy something you have a reasonable expectation that you can later sell it. This expectation makes one willing to pay a far higher price, thus enabling companies to raise far more capital, and more importantly lowering the cost of capital. This is no small deal. The first part - capital allocation - doesn't work without the second.

All those traders - maligned by the Yale crowd as being mere paper pushers and screen gazers - they are the ones making liquidity possible (along with their banks' balance sheets, of course). The thing is, if you asked a typical trader what beneficial role they were playing in the larger economy, he or she would likely stammer over the answer. And if he doesn't know the answer, how can someone outside the industry reasonably be expected to know the answer?

This is a problem, because like any industry, Wall Street, from time to time, runs into problems of its own creation. It did not, contrary to popular belief, create the debacle of 2008 or the current recession, but it certainly played a role. In times like these the problem becomes no one comes to your defense because they don't see anything on the positive side of the ledger.

The inherent invisibility of the product will always be a problem, because it's harder to understand what you can't see. The oil industry, a frequent Washington target, is at least understandable. Oil makes my car go and heats my home. Without it, I am stuck at home in the cold. liquidity? What's that?

In part, I blame our schools like Yale, because they're not teaching anything relevant anymore. But I also blame Wall Street. Its training programs never say what I just said in a few paragraphs. I went through the Salomon Brothers program back in the 80s, which was thought to be the top training program at the time, and none of this was covered. I could price a bond blindfolded at 30 paces, mind you, but talk about my role in the economy? Cue the stammering.

So, all you Wall Street senior executives reading this, perhaps you might set aside a mere few hours one day and explain to your trainees that they are not just little money-making machines, but they're doing the world some good. They may not care, but it's a start.