GloboMMT

Thought I’d check in after 5 years of hibernation. It’s been a remarkable run, right? Fear of a virus is racist, no wait it’s actually a global pandemic, J6, Russia invading Ukraine after apparently consulting a Magic 8 Ball, Epstein doing something or other with somebody or other, Twitter hating Musk so much that the company sued Musk in court to force him to buy it, the rise of Greta, the fall of Silicon Valley Bank, the Durham report, whatever Bud Light is doing, and so forth.

Except, not. It’s the same soup warmed over. Nothing has fundamentally changed. The world still works the same way it worked previously. Once you see that MMT is the funding mechanism for the global power structure, you can't unsee it. Strange and disconnected phenomena make more sense.

The tl;dr version is this: everybody saying that de-dollarization is imminent, that the petrodollar is the core of the current system, that the BRICS or SCO or whatever alphabet soup geopolitical group are introducing a new international financial system that will radically change global power, has a basic burden of proof to describe what the purported alternative actually is. Boil away the academese and there are only a small handful of choices for a different reserve asset to move away from the imperial quad of USD/GBP/EUR/JPY.

Really just four choices: the Chinese yuan/renminbi as a different national currency, the IMF SDR as basically a more official global union of empire+China, gold (or possibly gold+silver) harkening back to a more physical financial world, or bitcoin (embracing techno utopianism in all its futuristic glory). That’s it. No other concept, commodity, or country (or group of countries) comes close to having the transnational economic clout of DC and Beijing.

(As an aside, if you didn’t know that the Chinese and American currencies have been closely linked for years, stop and think about that. The first thing that an alternative system has to do is break that link…and deal with all the consequences that would occur if the yuan/renminbi actually appreciated meaningfully against the US dollar.)

Russia is the interesting exception that proves the rule, a country big and powerful enough to be mostly independent and yet what that means is Russia has comparatively little integration with the global financial system. As a simple example of scale, the niche blogging company that Sergey (Mikhailovich) Brin, who was born in the USSR (in Moscow no less), co-founded with Larry Page has larger revenue than the volume of trade between Russia and China.

As someone who has found himself at a rather unique intersection of business and public policy, history and current events, critiquing MMT (Modern Monetary Theory) from ‘the left’ rather than ‘the right’, from the perspective of someone who actually believes both parts of that disruptive and increasingly quaint phrase ‘limited government’, I have watched somewhat bemusedly as waves of sensationalist prognostication have crashed on rocks of reality.

One of the ways to rebrand the politicization of fiat currency has been the term multipolarity. Basically, the idea that it’s not just the US national currency that matters, but also national currencies from other important countries around the globe. This is especially popular among English-language commentators who carve out a niche that purportedly critiques US (or ‘Western’) imperialism. Yet coincidentally a common theme amongst them is that they are unable (unwilling?) to address the current economic power base of wealthy and connected insiders or offer a concrete proposal of an alternative international financial system that would actually change anything.

If we are trying to understand what is happening in the world - both for the existential value of truth itself and perhaps also a more practical value of feeling less overwhelmed by a seemingly chaotic world - then realizing that multipolarity is simply another iteration of the longer running MMT fad helps make sense out of that perceived chaos.

The short story is this: MMT/multipolarity defines the existing power structure. It is the funding mechanism that drives every policy American “progressives” and foreign anti-Americans claim to despise so much. It is how governmental and nongovernmental officials coordinate policy all over the planet. Multipolarity is not a change from the current international financial system but rather the continued operation thereof.

Look at who manages the Bank for International Settlements (BIS) and International Monetary Fund (IMF) as of May 2023:

BIS General Manager - Agustín Carstens (Mexico)

BIS Deputy General Manager - Luiz Awazu Pereira da Silva (Brazil)

BIS Secretary General - Monica Ellis (New Zealand)

BIS General Counsel - Diego Davos (Belgium)

BIS Head of Banking - Peter Zöllner (Austria)

IMF Managing Director - Kristalina Georgieva (Bulgaria)

IMF First Deputy Managing Director - Gita Gopinath (India)

IMF Deputy Managing Director - Antoinette Monsio Sayeh (Liberia)

IMF Deputy Managing Director - Kenji Okamura (Japan)

IMF Deputy Managing Director - Bo Li (China)

Not exactly a grouping of ordinary ‘Muricans with high school diplomas from Texas or Appalachia.

Hat tip to CJ Hopkins for inspiration for the title (GloboMMT). He’s been developing an angle on describing our current brand of trending authoritarianism as GloboCap, short for global capitalism. Personally, I think we’re so far removed from capitalism at this point that the word is unhelpful, but Hopkins’s turn of phrase has a lovely overall ring to it. Plus, it centers the reality of global coordination instead of the shell game of national competition.

What follows is my take on a longer version of the story. Buckle up (remember cars?) future archaeologists/alien overlords, it’s a lot to digest. But it’s worth it just in case you read the short story and are intrigued but don’t quite buy it. Or you’re stubborn and want Tom Cruise to yell show me the data a little louder.

For starters, here is a recent event that you can’t make up if you tried. It’s not a big, flashy scandal. Rather, it’s the pedestrian, mundane nature of it that is so illustrative. Leon Botstein, the President of Bard College in New York, Leon Levy Professor in the Arts and Humanities, and Chancellor of the Soros Open Society University Network (OSUN) received $150,000 from deceased pedophile Jeffrey Epstein (). But he only admitted this after the Wall Street Journal found out about it. Before, his story had been that he had solicited money from Epstein but was unsuccessful. Botstein simply forgot $150,000 in payments in 2016.

For any ordinary person, receiving $150,000 in one year from a well-connected financier would be a notable event. That is an amount greater than the entire net worth of the median American family. You’d remember both soliciting and receiving that much money for the rest of your life. But this is so common in higher ed and the world of global power that it is unremarkable to the people involved.

Bard is a particularly intriguing place because it’s both an institution with traditionally liberal/leftist interests and, simultaneously, a place with remarkable coziness with the existing power structure of the international financial system. Located in Annondale-on-Hudson, it’s less than 100 miles from Wall Street. The same Leon Levy whose professorship Botstein holds is also the namesake of the Levy Economics Institute of Bard College. That think tank has attracted arguably the main enclave of American academic MMTers, such as Senior Scholar Larry Randall Wray, Research Scholar Pavlina R. Tcherneva, and Research Associate Stephanie A. Kelton. The Open Society network funded website hosting for much of the University of Missouri - Kansas City’s old Center for Full Employment and Price Stability (UMKC CFEPS) working papers at Bard’s website.

Although interestingly, Wray’s classic - Working Paper 3 - isn’t available for public review at that site.  You have to know it’s from CFEPS and then use the wayback machine at the internet archive to find it. If you’re not an Econ nerd or otherwise familiar with that document, here’s an example of how MMT perpetuates the same assumptions, biases, and systems that the ruling class has used for decades. This quote comes from page 4 of the document published in January of 2000 when Wray (and some other MMTers affiliated with Bard) was at UMKC:

“For the sake of our discussion in this section, we will assume that the government's announced wage (BPSW) is $6.25 per hour…We will also assume that this is a "living" wage…”

One of my favorite jokes about economists from business school was to imagine that you’re marooned on a desert island and you discover a cache with lots of intact canned goods. Yay! Now, how do you open them? If you’re an economist, you assume a can opener.

All joking aside, these are the folks who have been pocketing cushy salaries in academia for decades while demanding that a reserve army of the employed be paid minimum wage using terms like Employer of Last Resort (ELR) and Job Guarantee (JG). In a remarkable coincidence, they don’t want the basic public sector wage to be applied to themselves. Nor do they propose that employees in the various imperial fiefdoms they proclaim to detest so much be paid minimum wage. Those workers, according to MMT, also deserve higher compensation.

To glimpse the story in basic math, as an example Wray was paid a salary of $106,630 by the economics department at UMKC in the 2008-2009 academic year in the heart of the GFC (Global Financial Crisis). According to Social Security Administration data that put Wray at the 94th percentile of all workers in the US economy(!).

MMTers still offer no explanation for why they should be paid so much more than child care workers or home health aides or food service workers or any of the millions of other employees (and prisoners) already making $15/hr (or less) or the potential additional millions they would add to public sector employment - but at a minimum wage, of course, because buffer stocks work so well at containing inflation, after all. Mostly they hope people don’t notice. Sort of like how the President of Bard College didn’t notice when somebody gave him $150,000 for no reason.

Then there’s the more global focused English-language anti-imperialists who don’t actually offer solutions to defund empire. Michael Hudson is a big name in this arena, especially the critique of “finance capitalism” as if finance is the only industry that’s bloated and predatory or that anything about global finance resembles market-based economics. He has spent decades generically decrying imperialism yet declines to offer concrete proposals for what areas of government spending and regulation he would actually cut.

As a concrete example, following are the approximate sizes of various parts of the official US economy (what’s captured by GDP, which of course is itself a flawed metric):

$1.3 trillion - financial services and insurance

$1.4 trillion - intellectual property

$1.9 trillion - nonprofit institutions

$2.2 trillion - durable goods

$2.5 trillion - food (combined on and off-premise categories)

$2.5 trillion - nondurable goods (excluding food)

$2.7 trillion - health care

$3.0 trillion - housing and utilities

$4.4 trillion - government (consumption and investment)

How can one look at that list and conclude that financial services is a unique problem in the economy, that the US doesn’t make anything anymore, or that the core macroeconomic problem is a lack of socialism because we don’t spend enough currency units on government? The numbers simply don’t tell that story. The story isn’t about aggregates, it’s about how we spend currency units. What do we get for the money?

Another great source of purportedly anti-imperialist multipolarity commentary is authors like Pepe Escobar at The Cradle. Shortly after the Russian SMO (special military operation) in the Ukraine in early 2022, Escobar excitedly posted about the game-changing nature of Russian gold, Chinese petroyuan, and Sino-Russian coordination to circumvent the US dollar:

“The Eurasian system will be based on “a new international currency,” most probably with the yuan as reference, calculated as an index of the national currencies of the participating countries, as well as commodity prices. The first draft will be already discussed by the end of the month.”

Except, not. Here we are 14 months later. There is no new international currency. And that notion of an index of participating countries and commodity prices is gobbledegook. An index of multiple national fiat currencies is an even more unstable concoction than using a single currency.

The Chinese ruling class, like they have done for decades, continues to partner with the ‘Western’ ruling class. There is far more alignment than disagreement between ‘the West’ and ‘the East’. Larry Fink, CEO of Blackrock (the asset management company that owns lots of proxy voting shares in all the other transnational companies that the multipolarists claim to decry), was not only allowed to visit China but was allowed to leave the country without arrest. More broadly, China has not issued an arrest warrant for a single major financial fraudster or war criminal from corporate executives to government officials to billionaire oligarchs. And here we are in 2023, and the Chinese yuan (and Hong Kong dollar) are still linked to the USD.

To critique empire, you have to offer an alternative. And the folks stuck in an MMT framework can’t (won’t?) extricate themselves from that framework. So here I am, as anti-imperialist as the next guy, yet paradoxically quite bullish on American empire for the foreseeable future based upon how the past five years have unfolded. Because even the multipolarity advocates who claim to dislike the current global power structure of the past 6+ decades can’t actually bring themselves to abandon it. As a systems thinker, that unwillingness to walk away from a system you don’t like fascinates me.

It’s like when retailers such as Walmart and Target created CurrentC and bad-mouthed the credit card companies. Yet they refused to take the obvious step of actually walking away from credit cards, continuing to allow customers to use them for payment throughout the comically absurd lifetime of the Merchant Customer Exchange.

That’s how powerful the current international financial system is. China isn’t doing what Hudson and Escobar and others say they want of creating a new system. Instead, China has spent considerable energy integrating into the existing global system, partnering with the BIS and working with the UN system of institutions including central players like the World Health Organization (WHO), joining the IMF SDR currency basket, and advocating for the UN Sustainable Development Goals (SDGs - a/k/a Agenda 2030). So long as Beijing and DC work together, there is no individual country or regional bloc that has meaningful influence to do anything about it.

You don’t need hippie tree-hugger perspectives to see it, by the way. Simply take publicly available data from the heart of the power structure, the CIA’s World Factbook.

If you break the world up into regional blocs, what becomes clear upon examination of the data is that South America, Sub-Saharan Africa, and the Indian Subcontinent (Greater India or South Asia or other preferred description for the area between SE Asia and West Asia) make up a large part of global population yet a small part of global finance*. In contrast, the empire+China accounts for approximately 66% of global GDP. Also 71% of global gold reserves and 100% of the IMF’s SDR basket. Think about that last one for a minute if you didn’t know that particular factoid.

Some time in the future, will the yuan and dollar float (or disappear) rather than being linked? Will China officially claim much larger gold reserves, or alternately, claim that empire doesn’t have the gold reserves it claims to have? Of course. But that’s a bit like pointing out that in the future, the continents as we know them today will collide again, swallowing up some oceans and creating others.

So, back to hibernation for another few years. Although, do wake me up if MMT/multipolarity/anti-imperialists explain what exactly the new global financial system is going to be and when it will arrive. Because this article from Escobar from April of last year typical of the de-dollarization hype hasn’t aged well, unless one defines ‘soon’ on geological time scales:

“You are at the forefront of a game-changing geo-economic development: the design of a new monetary/financial system via an association between the EAEU and China, bypassing the US dollar, with a draft soon to be concluded.”

*Update: Thought I'd post the numbers behind this for handy reference over time. CIA World Factbook data in GDP at Purchasing Power Parity (PPP) in constant 2017 dollars. IMF SDR basket as of 2022 weighted percentages. Regions are my categorization. EEZ is exclusive economic zone (waters outside national territory to which nations have certain economic rights). Gold ounces are the internationally claimed official reserves converted to troy ounces (it's all secret, so who knows of course what the actual numbers are, but until another nation challenges the figure, the official figure is the figure). Empire (the 'West' or 'NATO & Friends' or the 'Golden Billion' or whatever) is the sum of the first three groups. To make everybody super happy, I conveniently split the Ukraine 50/50 between Non-Russian Europe and Greater Russia. Three minor blocs are not listed here (Central America, Oceania, and Non-Imperial Lands, a sort of none-of-the-above for surrounded countries like North Korea).

Imperial Lands is the one non-geographic bloc. It's all the countries that would fit in a regional bloc but are more connected to an imperial institution instead. For example, Turkey one day in the future might have a serious enough dispute with Greece specifically, or Europe generally, that drives them from NATO. But until that day, Turkey isn't merely a minor periphery of empire pulled more to West Asia. Rather, it's been a member of NATO for 7+ decades, has NATO's second largest army, and houses facilities like Incirlik and land command.

NAFTA

• GDP - $25.4 trillion
• Geographic area - 21.8 million sq km
• EEZ - 20.2 million sq km
• Gold - 265.4 million ounces
• IMF SDR - 43.4%

Non-Russian Europe

• GDP - $24.4 trillion
• Geographic area - 5.6 million sq km
• EEZ - 29.3 million sq km
• Gold - 397.3 million ounces
• IMF SDR - 36.7%

Imperial Lands

• GDP - $13.3 trillion
• Geographic area - 11.5 million sq km
• EEZ - 20.8 million sq km
• Gold - 59.5 million ounces
• IMF SDR - 7.6%

Greater China

• GDP - $25.4 trillion
• Geographic area - 9.6 million sq km
• EEZ - 0.9 million sq km
• Gold - 64.7 million ounces
• IMF SDR - 12.3%

Greater Russia

• GDP - $5.4 trillion
• Geographic area - 21.2 million sq km
• EEZ - 7.6 million sq km
• Gold - 100.6 million ounces
• IMF SDR - 0%

Greater India

• GDP - $11.9 trillion
• Geographic area - 4.5 million sq km
• EEZ - 4.2 million sq km
• Gold - 28.1 million ounces
• IMF SDR - 0%

Southeast Asia

• GDP - $8.3 trillion
• Geographic area - 4.5 million sq km
• EEZ - 9.5 million sq km
• Gold - 23.6 million ounces
• IMF SDR - 0%

West Asia & North Africa

• GDP - $7.7 trillion
• Geographic area - 4.5 million sq km
• EEZ - 12.8 million sq km
• Gold - 49.1 million ounces
• IMF SDR - 0%

Sub-Saharan Africa

• GDP - $4.4 trillion
• Geographic area - 24.3 million sq km
• EEZ - 11.7 million sq km
• Gold - 5.6 million ounces
• IMF SDR - 0%

South America

• GDP - $6.5 trillion
• Geographic area - 17.7 million sq km
• EEZ - 12.3 million sq km
• Gold - 15.4 million ounces
• IMF SDR - 0%

Update 2: Over the past month there have been some great examples of the difference between the hype and the reality that is easier to see and understand once you see GloboMMT at work. Is it possible, theoretically, that the global power structure will radically change this summer? Of course, but it's highly unlikely given the incentives and relationships at play.

On the hype side, Pepe Escobar got all excited that in St Petersburg (an interesting international conference but one that has zero policy impact on global power/finance and is so deep in the globalism that in 2023 they still require healthy attendees to get COVID tests)

"...the world's new powers gather to upend the US-concocted rules based order..."

while Jim Rickards is getting even more excited about a BRICS meeting in August where, supposedly:

"This will be the biggest upheaval in international finance since 1971. It's taking direct aim at the dollar."

Contrast that with the reality of transnational public/private coordination where the head of state of China met with some random private citizen by the name of William or something while the IMF pontificates to African central bankers about yet more global alignment rather than pesky sovereign nations proposing their own sovereign things.

tech punditry and investment advice

I am obviously not a daily reader of MG Siegler's ParisLemon as I am commenting on something that was posted last week, which in mobile years might as well be last century. Anyway, the particular post is nerdspasm worthy - if you just so happen to be into both tech and finance.

Conveniently, I am.

Siegler links to Chris Dixon posting Warren Buffett's annual shareholder letter as CEO of Berkshire Hathaway (more specifically, the parts that are purposefully released PR-style for public consumption; the full letter is more detailed). Siegler's commentary reads (mostly)

Ask anyone why gold is so valuable and they’ll immediately tell you that it’s a rare commodity. And that’s true. But beyond its decorative value, which is minimal at best, what value does it actually produce? Very little.

Well, very little beyond selling it to the next fool who will pay more for it.

I don't know whether Siegler is casually interested or follows this more closely, but Buffett's letters are always fun fodder for the investment world and in particular the 2011 letter is quite remarkable. Indeed, this letter is darn near infamous.

First, Buffett yet again exemplifies that being a billionaire does not cause stupidity; it really is possible to be rich and maintain some touch with reality. Specifically, he acknowledges in the letter that he was wrong on housing finding a bottom. Contrast that kind of directness with how Manhattan financial firms operate, like Goldman Sachs Chief Financial Officer David Viniar giving his incoherent explanation of 25 standard deviation moves. Actually, don't contrast them. It will just make you cry (whether over math or the failing of our institutions, is in your hands). It's not that Buffett is always right, but that he puts his thoughts out there.

Second, Buffett has thrown himself in the midst of what has to be one of the greatest not-really-that-important controversies in the history of the internet. Except that if it's not important, why mention it?

And therein lies the rub. Warren Buffett is in the business of profiting off of information asymmetries. He wants to buy undervalued shares and sell overvalued shares. Warren Buffett, in other words, practices the art of the greater fool theory. He believes that fools exist at both ends, in fact! People dumb enough to sell him shares at below real value and people dumb enough to buy shares at higher than real value.

Once you see that Buffett is talking his book, in fact specifically referencing holdings like Coke and See's, the particular commentary on gold becomes even more fascinating. He needs people to put their money in financial assets because that's where he has leverage - political access, business contacts, legal resources, etc. Precious metals are a huge threat to that power base, not because they realize a return, but because they're not in the business of generating returns. Investing is incredibly risky. Saving is an entirely different endeavor - the whole point is to transport today's capital in a form accepted tomorrow, not to generate additional capital tomorrow. There are basically three types of precious metals investors: 1) conspiracy theorists/doomsday preppers, 2) savers, and 3) speculators. Note that while we colloquially use the word investing to describe this, none of these three types of activities are actually investing in the financial sense of the word. What's really dangerous is when people end up investing when they think that they are saving*.

(I of course do not give official financial advice, legal advice, tax advice, marriage advice, cooking advice...but personally, I am a big believer in investing in stocks. That is in no way inconsistent in also believing in saving in much safer vehicles that have nothing to do with equities, nor is it inconsistent with also believing in the value of diversity over concentration.)

It's the relationship between value and price that determines whether 'something' is a good investment or not. The utility of that something for some other purpose is irrelevant*. After all, if Buffett was simply a buy and hold forever investor, how come he sold all that Exxon Mobil stock he's so interested in talking about? If he is so focused on productive assets, why does he invest in companies that are so unproductive that they require government bailouts just to stay afloat?

So Siegler, if you really think gold has minimal decorative value, why is it so valued in jewelry? It rivals diamonds in popularity and global ubiquity even though the gold market lacks the monopoly equivalent of De Beers backing it.

And I would love to know where I can get a list of the companies that are going to be productive over the next decade. If this was known, if there were no risk, it wouldn't be investing. But perhaps most plainly, the greater fools theory simply doesn't make sense. If you bought something, that means you're the fool. The natural conclusion of this advice is to steer clear of the entire (secondary) equities markets.

Michael Dell went into the investment advice business in such a famous way that he singlehandedly demonstrated the importance of knowing when people are talking their books. If someone had shorted Apple and gone long Dell a decade and a half ago, they'd be bankrupt today. In fact, they would have gone bankrupt years ago.

*Note, there are huge incentives to confuse people about this, and not just in stocks and precious metals. The housing bubble was encouraged in no small part by the National Association of Realtors and the Federal Reserve pushing people to think of housing - something of value due to its utility as shelter - as somehow synonymous with the returns of investing and the safety of saving.

only banksters get tarps

Wow, I wish I had thought of that. Classic.

The absurdities of our system are absolutely gut-bustingly hilarious. The world is changing, or perhaps more accurately, has already changed. It really is as simple as David Graeber lays out.

“We are watching,” I wrote, “the beginnings of the defiant self-assertion of a new generation of Americans...

Qu'est-ce que le tiers-état?

baseball and wall street

I think the Occupy Wall Street crowd picked impeccable timing. The Yankees and Red Sox are both out of the playoffs. Detroit's the only team left even in the Eastern time zone.

With flyover country carrying the baseball battalion this year, might as well do something else. I'm sure this was an integral part of the planning.

Maybe a Cardinal will do some PR for Veterans for Peace. We could call it learning geography by protest. The corporate media in places like NY and LA might be shocked to learn we Midwesterners despise fraud and inequality and warmongering, too. Red and blue are for sports teams, not the Constitution.



Amendment I

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Amendment IV

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

government by dow 2011

So at work we were discussing some investment things, and it was mentioned that the stock market was down over 4 percent today. That's in one day.

I checked Yahoo Finance just now and yep, it's pretty bad.





'Government by Dow' has been a fun turn of phrase over the past few years, capturing government's capture of the common good by a much narrower set of interests on Wall Street. But when even Wall Street hates your policies, maybe it's time to rethink. Or at least ask, what is going on?

The day the 'grand bargain' a/k/a debt deal a/k/a CYA for cutting popular programs passed the House, the Dow fell from 12144 to 12132. Then on Tuesday, when it passed the Senate and Obama signed it into law, the Dow closed at 11867. Today, the Dow closed at 11384.

In chart form, the past five days look like this:



Wheeeeeeeeeeeeeee.

Enjoy the ride.

But, I know, whocouldanode that idiotic public policy is bad? Or maybe the efficient markets theory is wrong, and The Market isn't right that the debt deal is awful.

Wait, what's that about unstoppable force hitting immovable object again?

beat the streak

Barry Ritholtz has made me think of baseball. He highlighted information from Zillow about housing prices, specifically, an interesting tidbit that prices have fallen for 57 consecutive months.

60 years ago, Ted Williams and Joe DiMaggio embarked on two of the greatest feats in modern sports history. Williams finished an entire season with a batting average above .400, while DiMaggio hit safely in 56 straight games.

No hitter has been able to approach 56 since then.

pundit4sale

(P) Something that has fascinated me for several years now is how easily some Democratic pundits seem to shift their principles based upon how the wind blows from party leaders. In the short term, it does provide them significant cover in that it is difficult to discern whether they're bought off or honestly believe what they're blathering. But over time, the only value added Dems bring to the equation is inhabiting the reality-based world, in being interested in doing what works.

It's utter nonsense like this spewed by Matthew Yglesias last week - on a Think Progress blog, no less - that starts warranting comparisons to folks like Rush Limbaugh and Bill O'Reilly and Michelle Malkin. Yglesias is actively proposing that powerful people should be above the law. That's a direct assault on the Constitution, not to mention a market-based economy.

So here's the question. Is Yglesias bought and paid for, knowing that the rule of law is a good thing but being willing to shill for criminals nonetheless? Or does he honestly believe that poor people should go to prison for petty crimes while the rich and powerful should maintain their liberty no matter how heinous the consequences of their actions?

I'm obviously a little partial to the Heartland, but the one-two transpartisan punch of Bill Black at UMKC and Tom Hoenig at the KCFRB over the past couple years has been much more interesting than most of the 'liberal' commentary from Inside the Beltway about how we need to Protect the Financial Fraudsters for the Good of us All.

I eagerly anticipate wittiness from Yglesias in favor of the rule of law. Oh wait, just look to the Bush years.

Like this commentary on Attorney General Mukasey.
Or this one on Bush lawbreaking more generally.

Black's response is worth reading in full. And here is the underlying New York Times article from Gretchen Morgenson and Louise Story that set off Yglesias' defense of our rotten system. By the way, how's that for turnabout? The corporate media runs a big story highlighting a major problem, and the 'liberal' blogger Yglesias defends the status quo!

This is also a good place to tie in some commentary from Barry Ritholtz about another NYT article - yes, that's two positive references from me regarding the Times in the same post! Even as the overall US prison population has exploded, the Bush and Obama Justice Departments radically reduced annual referrals of white collar crimes for prosecution. You know, despite the mid-90s having no systemic domestic financial collapse, while a decade plus later, we confront Armageddon that Requires us to Give Rich People Money.

fun on the big screen

For a little pre-Oscars partying I've hooked up my laptop to Julie's TV. Pretty sweet.

So what's a guy to do with a screen 3x his laptop but play around some with Excel's pie chart creator? I mean, after using Office XP/03/04 for so long, 2010/2011 is practically fun to use.

I had been reading up a little bit about oil and budgeting and how speculation and sudden price changes impact personal finances, and there's nothing quite like seeing pie charts as big as your head. While I used to keep a detailed budget when first developing my own financial habits, after a few years now I'm comfortable in the gray(er) area of approximations and estimates. So in rough terms, I thought I'd try and match approximately what my budget looks like compared to the average household put together by John Lohman.

First, here's a snippet of the chart specifically on household expenditures:



I matched his categories and came up with this:



But that left me dissatisfied for a couple of reasons. First, 'other' is way too big a category. Second, this approach doesn't really help sort out what's variable and what's fixed. In other words, what could be changed easily, and what would require a radical departure from present living arrangements?

So a little more playing around in Excel led me to this:



It still has the Big One - housing - and it still has a few small categories of 2 or 3 percent. The improvement is there are now half a dozen categories of in between size that show how my personal expenditures might be changed were a sudden shock to occur. Changing the thermostat is a different degree of change than changing the address. Not traveling to Florida or Washington is a different degree of change than not having a car to drive to the grocery store and not ever going out to see a movie.

I would also use it as a reminder that things like oil shocks and peak oil aren't as big a problem as they are often hyped to be. We possess a variety of simple adaptations which would rapidly become widespread substitutes were there to be serious limitation on our access to cheap oil. Some of these are so mundane, like carpooling, telecommuting, four day workweeks, and bicycling, that we don't even think about them when contemplating high-tech solutions for the 21st century. Others involve a repricing of resources - like increasing the value of abandoned urban property relative to far flung suburban developments - while still others require more centralized, long-term planning, but they're well established technologies, like rail travel. It wasn't cheap oil that helped the Noth in the Civil War or enabled the original ecotourism of the National Parks. It was cheap transportation, and amidst all the fearmongering about the future, don't forget those are two different concepts.

Cheap oil won't last forever, no. But we have plenty of alternatives. Some of them are even improvements on how development has occurred over the past half century.

But of course, we're nowhere near that stage. Oil isn't getting more expensive for companies like ExxonMobil and ConocoPhillips. They're simply making larger profits. Funny what happens when you follow the money.

Or for one last chart, here's the war budget (just Overseas Contingency Operations, not the 'regular' security spending, which is 4x larger) next to the Amtrak budget:

deficit fearmongers expand deficit

(P/R) For the sake of all that is rational and sane, I feel the need to make a blanket statement that shows no mercy or compassion for concepts like nuance and shades of gray.

If you voted for the war supplemental - ie, money above and beyond the massively bloated amount of money already allocated to military excursions - you have zero credibility on fiscal responsibility. I don't want to hear you utter one word about deficits or debt. I don't want a peep about how Social Security will go bankrupt in a gazillion years or how the richest country in the history of the world can't afford healthcare for its citizens or how rich people paying the lowest taxes in the developed world pay too much in taxes.

You. Have. Zero. Credibility.*

*Of course, you've probably had slim-to-none credibility as is. But this vote helpfully renders the number a precise zero.

Stop talking about the deficit. Everybody knows it's irrelevant. Even you.

the SF Fed exists in another dimension

I have decided that aliens abducted the Federal Reserve Bank of San Francisco and replaced it with a drab building that could be anything but an illegal secret conspiracy aimed at controlling the world.

I find this the only possible conclusion after being thoroughly disappointed. The location is perfect; you hop off the BART and you are in the heart of the financial district, literally at the gates of the SF Fed. You just don't know it. There's no gleaming white marble and stone structure. No statue ideal for the casual picture. I have generally thought San Francisco to be a far superior city to Atlanta. But I may have to reorient my whole worldview now. They've got the western kingdom of the rulers of the free world holed up in a bunker.

You almost feel sorry for the suckers.

i have a new project

Let's get real, while it would be cool to eat lots of green leafy vegetables and workout every day for one year, that ain't happening. A few years ago, I made my new year's project about ties. Specifically, getting rid of them.

I've got a project for this year.

I want to see how many Fed branches I can get my picture taken in front of. I've actually kind of thought this through accidentally. You see, Doug's condo overlooks the Atlanta Fed. Julie's work is right next door to the St. Louis Fed. My parents happen to live within decent driving distance of the KC Fed. Julie's sister happens to live near the Minneapolis Fed. We happen to be visiting San Francisco this February. That's like half the list right there.

It'll be fun!

this is inappropriate

and way behind the times because it's a rerun but must be shared widely anyway.

Colbert's MILF comment about Dow 10,000 was absolute classic comedy.

Now that's a Market I'd Like to see Fluctuate.

toys

Excitement on the home front. New toys have come in. Now it's off to move things around, install some software, test everything, and hand things out. The laptop is going to my sister, and the desktop is off on loan to Julie. I think they must have expedited the shipping, because there was a problem with the credit card yesterday. Apparently buying stuff from all over the country set off Discover Card's fraud detection system and both Discover and MacMall called me. So I was a little surprised when my ground shipping that just went out yesterday afternoon was in my condo today when I got home from work!

P.S. To all our Fearless Leaders and Powers that Be: I am doing everything humanly possible to stimulate the economy. My roommate and I moved into a new condo. My little car has requested multiple expensive repairs. And now there is much shuffling of electronics to get to various peoples.

Now, please do your part! We need healthcare reform that eliminates the inefficiencies of the health insurance industry and ends the job bondage of employer-based healthcare. We need unemployment insurance that actually covers people who are unemployed, not just people laid off under certain limited circumstances. We need financial companies taken over, management fired, insolvent companies put through bankruptcy, decades-old regulations re-instituted, and new regulations implemented. We need, in short, policy aimed to benefit all Americans, not just a few.

/rant

Okay, optimistic Nate back. Yay toys!

finance jokes

You know things have gotten pretty bad when cartoons incorporating academic debates about inflation vs. deflation, wealth disparity, and the role of the Fed can be done so simply anybody can get the gist. Thanks to Jesse's for this.

pop quiz for the day

(R) So, you just walked into Finance 101 and the professor hands you a quiz.

Don't worry, it's not a bad dream! It's multiple choice, so you've got good odds. Much better odds than the ratings agencies seem to have of rating things.

The assertion that pricing for various financial products (stocks, commodities, derivatives, etc) is normally distributed (ie, bell curve, Gaussian, etc) is best described as

a. True
b. False

If you chose B, you're correct! (Note, if you wrote in choice c. So wrecklessly false that the regulators should be fired and the corporate executives prosecuted for threatening our national security, that answer would also be acceptable. Please be aware the NSA has been notified of your opinion, so they can forward that to Goldman Sachs, who is requesting that the FBI begin an investigation of you.)

I've been doing a little reading of book reviews to add some items to my Amazon wish list (hint, it's right here), and I have enjoyed the commentary mocking our esteemed Masters of the Universe (no, not this).

I've never excelled at the probability and statistics arena. Perhaps that's part of what makes it so juicily delicious that the guys who thought they did understand screwed up so royally. Being part of a tail, an outlier, one develops an appreciation for other outliers. The way I figure it, if you can recognize when the professor puts up the data points for the test that you're an outlier and calculate that your score was in the bottom 5% because you were over two standard deviations from the mean, that should mean you understand the material. But alas, I digress.

The point of this diatribe isn't to look back fondly upon those lovely two semesters of stats ('Quantitative Business Analysis' in the Olin lingo du jour). Rather, the point is to serve as a reminder that common sense is a bedrock principle for designing policies in the real world. The mathematics itself is rarely flawed. Unfortunately, real people have a tendency to apply math in ways where the real world doesn't match the academic assumptions. When this is done accidentally, it's sad enough.

When this is coordinated policy at some of the most powerful corporations in the country, it's infuriating. And dangerous, a threat to our welfare and even our democracy.

Perhaps the most skewered comment by an executive back in 2007 when all this was unfolding was offered by David Viniar, Goldman Sachs' Chief Financial Officer. See if you can spot the crazy.

“We were seeing things that were 25-standard deviation moves, several days in a row,” said David Viniar, Goldman’s chief financial officer.

He followed that with, oh, and the Kansas City Royals are going to win the next 5 World Series.

For the book review from Naked Capitalism on Lecturing Birds on Flying, click here. For some handy concise definitions and charts, Risk Glossary is very nice. For regulators/executives/both I'm not too fond of, see Hank 'the banks are sound' Paulson, Gary 'don't regulate derivatives' Gensler, Ed 'AIG bonus contracts are sacred' Liddy, or Lloyd 'we're fully hedged but put me in the meeting anyway' Blankfein.

And those are just the recent Goldman visionaries.

Don't even get me started on Robert 'see, Dems can represent corporate America, too' Rubin, Larry 'don't ask who paid me money when it looked like I was going to be close to the new President' Summers, Tim 'I couldn't possibly be responsible for anything, all I did was run the NY Fed' Geithner, or Ben 'at least I'm not Alan' Bernanke.

/(R) That does feel a lot better.

Now if we could just please have our trillions of tax dollars back please.

ac is working again

$1,200 later...

sigh

ten commandments for an economic resurrection

(P) A couple weeks ago, I wrote a detailed post emphasizing that we have options in restoring our financial system and our broader economy. We don't have to panic or accept bailouts of the very corporations that are responsible for our mess.

This morning, I'm posting a concise version that boils it down to the solutions. If you are interested in a more thorough discussion, here are the thoughts behind this.

Ten Commandments

for an

Economic Resurrection

"Human destiny will be what we make of it."

-- President Barack Obama in Prague

There’s a lot of concern about the current status of our economy. It leads to natural questions like

What, exactly, should we do about it?
Don’t we have to bail out these companies?
What alternatives do we really have?

These steps can be taken immediately to address our present situation:

1. Take over failed firms that are 'too big to fail'.
2. Break up non-failed firms that are 'too big to fail'.
3. Provide direct assistance to stimulate the economy.
4. Make the jump from a minimum wage to a living wage.
5. Use our public policy to save communities, not companies.

After these initial coping mechanisms, we can start addressing some of the broader challenges we face:

6. Re-connect wages and productivity.
7. Re-regulate industries like financial services.
8. Re-invest in our public commons.
9. Re-write our tax code.
10. Re-think our social and military policies.

Call your Senators and Representative to see what they think about bailing out people instead of companies.

the ppip roulette table

(P) Exciting news on the bailout front, we have some more details to chew on regarding the Public-Private Investment Program (ie, the Geithner plan). Essentially, the plan is for government to subsidize the purchase of assets owned by banks.

The plan is neither new nor much of a program. In fact, what was revealed is more like a slow leak of what's been leaking for weeks now about what exactly Geithner, Summers, and other economic voices in the Obama Administration have in mind. What's notable, to be blunt, is the continued lack of transparency about what exactly the ultimate goal is and how exactly the program will get there. It is also hard not to look at the evolution of this idea as being to become purposefully more convoluted and opaque as to make it increasingly difficult for citizens to understand what's going on; the program seems unnecessarily complex precisely for the purpose of masking what it does, and masking what could be done instead.

Before going on, let me add one caveat, and that is that this is easily remedied. Lack of transparency can be very easily addressed by being transparent. This has the additional benefit of being politically sensible as well as letting us analyze the policy outcomes.

But to understand the concept, we don't need to know exactly who will be allowed to buy assets or exactly how the subsidy will work or exactly what the strategic plan is two or three or five steps down the road. And to be honest, that's not where my interest or expertise lies. There are detailed explorations of this that are floating around places like naked capitalism and calculated risk from people who actually are experts about various economic topics.

What I think is helpful is a comparison to an activity that most people can understand. Essentially, the Geithner plan works like a roulette table. There are an equal number of red and black numbers, plus two green ones. [Interesting side note, the American table has two green numbers. The European roulette tables only have one, so the house odds in American casinos are basically twice those of similar European operations. That's a pretty good indicator of how Americans and Europeans differ on a whole range of issues related to risk and corporate control.]

One way to bet is to bet on a color. So say you put $1 down on black. If it comes up black, the house pays you a dollar. If it comes up red, you pay the house a dollar. This is roughly a coin toss, but the 'roughly' is how the casino makes money. Every once in a while, a little over 5% of the time, neither red nor black come up, because two of the numbers are green.

So if you think of this simple bet in expected-value terms, you would expect to earn a dollar about half the time on black, lose a dollar about half the time on red, and lose a dollar every once in awhile on green. In other words, your roulette bet is worth less than a dollar because you expect to lose a dollar more frequently than you expect to gain a dollar. The way that casinos get you to pay a price of one dollar for something that is worth less than one dollar is simple: they appeal to something other than rational, expected-value calculations. They make it fun to gamble. They promise the potential of a big gain. They convince your friends to bring you along on their excursions. Etc.

How does this relate? The core element of plan Geithner is the pricing mechanism. Geithner and Summers are making a very important bet, and like any bet, it's risky. The risk itself is what is costly. The bet is that the various asset-backed securities are priced incorrectly. PPIP is founded on the belief that these assets are priced artificially low; that their 'real' value is higher than current markets are pricing them. The plan is to have government pay private actors to bid on these assets. When the government subsidy is added to the market price, the purchase price will increase.

Here's the problem. On the roulette table, everybody agrees how many black, red, and green numbers exist. Markets, however, do not agree with Treasury and Fed officials about the ratio of black to red to green. Markets are currently pricing assets much lower than banks hold them on their balance sheets. Market prices suggest there are a lot of red numbers and not very many black ones; in other words, the odds of losing money on your black bet aren't close to a coin toss any more. Instead of an expected value of close to one dollar, your expected value has now dropped substantially, perhaps to 40 or even 30 cents on the dollar.

The logical question of a plan designed to leverage private investment is what the Treasury and Fed officials think they know that the very private actors they are relying upon don't know. Hence the need for transparency, for without it, this plan looks like a pretty straightforward transfer of taxpayer money to the banks, just as if the casino decided to remove half the black numbers from the wheel after you had already placed your bet.

basketball and bailouts

(P) When the girlfriend's out of town and there's the NCAA tourny on TV, what else is there to think about besides our current economic situation?

The message that I keep coming back to is to not panic. We have a variety of policy options before us, and we don't have to do whatever Fed or Treasury plan happens to be the focus du jour. It's really pretty remarkable the scale of the dollars we've put on the line for these actions, trillions upon trillions of dollars, and yet getting money for much more reasonable activities that have a higher bang for the buck is like pulling teeth. And asking who should pay for this seems to be out of the question entirely. Democrats seem happy to raise the debt ceiling or just flat out print money, while Republicans scream their hypocrisy scream when you point out that spending requires taxation to pay for it. When wealth is so concentrated, the rich are the only people with meaningful amounts of money sitting around to tax.

One of the key methods for persuading people to accept bad options is to convince them the situation is urgent and that better options do not exist, or more subtlely, that there's not time to implement better options. This is a universal principle, whether trying to sell the invasion of a foreign country or something right here at home. And, this is a nonpartisan principle. In our recent times, the GOP has certainly exercised the bulk of this activity, but Democratic officials have not been immune from abandoning calm, rational, thorough analysis to embrace a position that conveniently happens to benefit a major donor.

The dialogue around the AIG bonuses has been particularly interesting this week. The public outcry managed to happen in a way that overwhelmed the corporate messaging system. Talking points didn't get out fast enough, or consistently enough, to control the message. And it really created some fascinating consequences. Are bonuses a distraction, or do they focus attention on the problems? Is executive compensation a rounding error, or a core issue? When public officials talk about transparency and the public knowing where their money is going, what do they mean? Does the public not understand that AIG has been given an amount 1,000 times the recent bonus amount, or does the public get that and the bonuses are precisely the lightning rod for articulating anger at the whole situation? Does the public think AIG is a lone wolf, or part of a larger pattern of corporate abuses, a systemic failure that should be addressed? What was interesting about the pushback against the public anger was that the scale of the dissatisfaction was so widespread that the defenders of AIG couldn't get on the same page about their justifications. That is a tell tale sign that many of the justifications were simply excuses after the fact.

Now, I personally think the outrage is valuable. I think the public has been consistently upset about executive compensation in particular and corporate bailouts more generally. They were pushed on the people, not by the people. But, I do appreciate the truth in some of the positions concerned about the bonus story as a distraction. One of the legitimate observations is that just saying no to something isn't enough. You have to have alternatives. Ranting and raving can be emotionally healing, but you need to do more than just complain, otherwise, you're just being obstructionist. You've got to have something you advocate, something you believe, something you will defend against criticism.

What is not legitimate is claiming we don't have such alternatives. Alternatives are precisely what we have been advocating, whether the time frame is the past month, or past six months, or past year, or past two years, or past 8 years, or even farther back along the ascension of movement conservatism. We do not lack for alternatives. Indeed, people from all sorts of disciplines have all kinds of ideas about how to make a better system.

Last summer, I made the following observation about corporate bailouts

Taxpayers can bail out the losses. This should be an extreme example, but my guess is, this is the 'conventional wisdom' among the people who have influence in DC and what will end up happening.

Indeed, that's pretty much what we've done. We're transferring losses from management and shareholders to taxpayers. That governing philosophy so far has not changed.

But what could we be doing instead? Lots of things. They could have been in ARRA '09. They could have been in EESA '08. (Indeed, bits and pieces of these solutions have made their way into legislation.) They could have been implemented when we first started having problems that reached national attention in 2007. They could have been implemented before our economic problems became a national issue, back when the 'fundamentals' were sound, nevermind tens of millions of Americans looking on from outside the American dream.

One of the most sinister and malicious memes is that our problems are technical in nature, or that the 'experts' don't know what to do. I think one of the most important ways of being vigilant is to educate ourselves of the actual situation. An educated citizenry is an important bulwark of democracy, and it's an important component in combatting the narrative that we shouldn't trust lay opinions, or that Americans are too dumb; we should just leave decision-making in the hands of the deciders. The kernel of truth that makes this lie so powerful is that of course, we can't be certain about outcomes in the future. It wasn't impossible that Saddam Hussein had nuclear weapons in 2002. Rather, it was highly improbable. We don't know for sure that allowing homeowners to stay in their homes as renters would help the situation, but we have good reason to find it highly probable that would help. We can't be certain that the government can use its experience nationalizing smaller failed banks to handle the nationalization of larger failed banks, but we can reasonably infer a high probability of this being a better course of action for society.

Here are some things that various economists, architects, engineers, doctors, lawyers, teachers, custodians, plumbers, trash collectors, writers, and so forth suggest would earn a greater return on our investment than bailing out failed management teams at large corporations. And I think it's very telling that the specifics of these kinds of recommendations are never refuted. People calling for tax cuts or corporate bailouts simply don't respond when it's pointed out to them that things like unemployment insurance and food stamps have a bigger bang-for-the-buck. This doesn't mean we're all going to agree on every one of these points, or that we would all prioritize them similarly. Reality simply is messier than that. The point of evidence-based analysis is to replace ideology with focus on the core question of what works. For if the purpose of action is to solve the problem, then the best course of action is the best means of solving the problem. Opposition to what works is a direct sign of motives other than attempting to solve the problem purported to exist to justify the preferred solution. This recognition alone is not enough to create the political will for evidence-based policy, but I do believe strongly it's a necessary component.

In the immediate term, we should do things like this

1. Take over failed firms that are 'too big to fail'. After all, that's why we created the FDIC in the first place, because temporary nationalization is the most efficient means when normal bankruptcy proceedings are not an option. This applies to investment banks and insurance companies just as much as commercial banks.

2. Break up non-failed firms that are 'too big to fail'. It was a Republican president, Teddy Roosevelt, that we usually think of as 'trustbusting'. This is a nonpartisan, no-nonsense, proactive response. If a company is too big to fail, it is too big to exist.

3. Provide direct assistance to stimulate the economy, rather than provide direct assistance to stimulate financial transactions. This means, in particular, universal unemployment insurance, single payer health insurance, expanded TANF and Food Stamps, and so forth. By far, the two biggest causes of mortgage defaults are job losses and medical bills. You don't give banks money so they can afford to write off defaults, or give money to hedge funds to buy the financial instruments tied to the defaults. You give people money so they don't default in the first place. This concept is so basic that it calls into question the motives of people who distract from this core economic reality. Our economic problems, caused by wage stagnation, are causing our financial problems, not the other way around. The short-term solution is to provide a safety net for those out of work.

4. Make the legislative jump from a minimum wage to a living wage. We're already set to increase the minimum wage. Let's make that increase substantially larger. Will a tiny, marginal number of jobs be lost? Probably. That's why we're funding universal unemployment insurance and single payer health insurance. We need to transition away from the concept of a whole class of working poor. In other words, we are experiencing a wage crisis; that's what causes a credit crunch or housing crisis or liquidity trap or other terms floating around in our lexicon these past couple years. While most wage issues are more medium and long-term solutions, the minimum wage is something that could increase quickly to affect workers in the short-term.

5. Use our public policy to save communities, not companies; industries, not particular firms. Tools from changing bankruptcy laws to allow homeowners to stay as renters to using eminent domain to seize properties that banks are not maintaining are quite workable in a short timeframe within our legal framework. We already have bankruptcy judges and city inspectors and police doing evictions and so forth. Let's change some of the parameters of their work.

After these initial coping mechanisms, we can start addressing some of the broader challenges we face

1. Re-connect wages and productivity. This encompasses a variety of reforms like reducing exemptions to FLSA wage and hour guidelines, universal paid time off, meaningful progressive income taxation, increased worker protections (like EFCA for unions and whistleblower protections with substantive rewards for whistleblowers and fines for retaliatory action), and so forth.

2. Re-regulate industries like financial services. Obama has great rhetoric about 21st century financial regulation. Back when Clinton was building the bridge to the 21st century, the Congressional Republicans and his Administration successfully destroyed the old bridge from the New Deal era. But they purposefully never replaced it. From financial services to media to pharmaceuticals to telecommunications and on, we have a number of industries that need a new set of comprehensive regulations and oversight. These are industries that should be in private hands over the long-term, but they should play by public rules. Either the economic system is governed by democracy, or it owns democracy.

3. Re-invest in our public commons. Movement conservatism has been very successful at convincing some people that massive public works projects are un-American. And yet, the opposite is true. It's the abandonment of deferred maintenance and new investment that neither conserves our history nor builds our future. This is the bulk of Obama's budget outline, and it appears much of this might come to pass reasonably soon. These are the various infrastructure things like transportation (crumbling roads and bridges, subways, light rail, freight rail, passenger rail, etc), energy (wind, solar, etc), water and sewer systems, education, computers and broadband, parks, etc. There are countless professionals who have written detailed observations about how we can be bigger and bolder in our investments precisely to ensure a safer, healthier, more prosperous future.

4. Re-write our tax code, in particular, the Internal Revenue Code. Our tax code doesn't make any sense because it's written explicitly for the benefit of special interests. It no longer represents a roughly fair sharing of the national burden of paying for valuable programs. This is unfortunate because it is both inefficient (you really should be able to do your taxes on a postcard) and inequitable (we have basically destroyed progressive taxation with death by a thousand cuts). The vast majority of taxpayers should simply have to report their financial intake for the year, subtract a standard deduction, then calculate the taxes due. That's all filing income taxes should be for about 95% of natural persons filing taxes. Complexity should be the exception, not the rule. The various deductions, at base, are merely methods of shifting the tax burden from its progressive core philosophy to a more regressive reality. Even widely used deductions, like IRAs and home mortgage interest deduction, are still regressive, and they have interesting unintended consequences, too, like subsidizing the buying of bigger houses, which require more land and energy to utilize. With all the talk about McMansions and transportation and energy and suburbia and so forth, the National Association of Realtors works very hard to make sure we don't connect the dots between sprawl and the tax code.

5. Re-think our social and military policies. I separate this category because I understand things like ending the drug war (or more generally being 'soft' on crime) or substantially reducing farm subsidies or making meaningful cuts to defense budgets are somewhat controversial even outside of the religious and business right. They are some of the most difficult areas to get people to apply evidence-based reasoning. But it's really important to our peace and prosperity to reclaim the limited part of limited government, to end the racial and economic injustices that are inextricably caught up in these kinds of policies. I am a big advocate of reading the summary at the Drug Policy Alliance if you think the problem isn't that bad, or you think that criminalization is the correct policy response. I understand that it's politically quite difficult to change the madness of militarism, but I don't think that lessons the importance of trying.

We have the same options today we had last fall or last summer or last spring, or in 2007, and despite trillions of dollars more put on the line for corporate bailouts, we're still in the same boat. Indeed, if anything, people think our situation today is worse than any time in the past two years. We are a rich country, and we do not have to panic. We have good options available to us looking forward.

Let's try putting some real resources behind them.

P.S. I forgot to mention. Go Bears! Back to back D-III champions.

and the numbers are in

Well, if I've done the data entry in Quicken correctly, here's the excitement for my 2008 accounts. There's both a sense of suprise at just how large the drop is, but also, I must admit, a tad bit of excitement at just how not boring the year has been. We don't know exactly what longer term political shifts will result from the tumultuous nature of the economy at the end of the Bush Administration, but it seems clear that we're finally shattering the bubble that kept issues of poverty and hardship in our economy out of mainstream discourse.

Wages can only fall so much until the wealth built upon them, things like housing prices and corporate profits, fall in response. Capital and labor have some tradeoffs at the margin, but the point is that in the big picture, both rise and fall together. You can't have a rich ownership class and a poor labor pool functioning side by side in the same economy indefinitely because both inputs are important in creating wealth; either there's a positive feedback loop with one input investing in the other, or there's a breakdown, with the suffering factor dragging the other down with it. I'm keeping my fingers crossed, but I think homeowners, for example, are starting to realize that their home is only worth what some entry-level worker can afford to pay for it.

I'm generally in the optimistic camp, believing that the past year, far from upending basic investing principles, revealed just how important they are in trying times. Have an emergency stash of cash. Separate your short-term savings from your long-term savings. Don't expect variable asset prices (like real estate and stocks) to rise steadily every year. Have a plan that allows for extreme short-term fluctuations. Don't confuse speculation and day-trading with long-term investing. And most basically, save regularly and live below your means; how much is really an afterthought, something you can worry about once you've established that discipline.

There are public policy options that can help us restore an economic playing field that is more stable and more equitable and more productive than what we have now, but at the same time, there is also the individual responsibility of taking care of yourself, regardless of the barriers around you. Employers have essentially jettisoned the responsibility of retirement savings from their compensation packages for workers, and I think it's important to have both a societal response and an individual response to that dramatic change. It's too simplistic to simply blame other people for your lack of savings, but at the same time, it's rather dishonest to simply blame individuals for not saving enough while ignoring the larger policy changes that have suppressed wages and shifted risk from a collective nature to the individual.

So, for 2008:
My Roth IRA is down a nice 42.6%
My 403(b) [nonprofit 401(k)] is down about 38.4%
My 'Balanced' fund is down-only!-about 32.2%
And for good measure, my cash accounts made about 2.5%

Woohoo :)