Check out this chart:
This chart comes from today’s New York Times editorial section. I found myself mesmerized by it this morning. It makes painfully clear just how deluded our current debates about the deficit are.
Toward the top are many of the items pundits squabble about and hold up as ‘hotbutton issues’in political debate. Eliminating congressional earmarks, cutting foreign aid and letting the Bush tax cuts expire are all ample fodder for chatter on Fox News and MNBC. If this chart is any indicator none of them really puts a dent in the deficit. Even cumulatively.
Mid-way down the y-axis we see some loftier measures which are election killers for anyone backing them. Cut war spending entirely. Stop the Recovery Act handouts. Double corporate income taxes. These make a bigger dent, but still aren’t a panacea.
It is not until you get down to the draconian measures no one in their right mind would consider – shutting down social security or eliminating Medicare benefits – that we get any real chunk whittled out of the deficit. In fact, the smallest half-dozen ‘hot button’measures don’t add up to equal even the smallest of the four big, nasty measures.
This is our mess. Oh, but it gets worse, and here’s why.
It’s all symbols. Our entire financial system has made money symbolic – numbers on ATM statements and monthly reports. When you hand over cash, you feel yourself spend money. Cash provides a tactile sense of gain and loss that numbers on a paper slip anesthetize. I believe this abstraction of money and spending is partially responsible for the credit run up and subsequent crash. It’s easy to take on a 0% ARM and make interest-only payments assuming your homes value will only go up when there’s no discomfort involved in doing so. Easy that is until the bank comes to foreclose. Then as the anesthetic wears off, headlines begin talking about ‘pain’. Too little, too late.
Everybody Pays
A favorite novelist of mine, Andrew Vachss, wrote a collection of short stories titled Everybody Pays. It’s a great title. In two words it tells an immutable truth. Bills come due. Pay now or pay later but you will pay.
Yet we resist this reality. Worse, we enable this denial by masking the realities with symbols. Go out and ask someone what will happen if the United States just decides not to pay the federal deficit. What will be the specific outcomes? Most people have no clue. They’ve heard vague references to China or Saudi Arabia ‘owning’the United States. Hard to believe that when you look around at your neighborhood. Hard enough anyhow, that the conversation remains abstract.
We hear the economy will collapse and the dollar will go the way of the Mexican Peso. Also hard to believe, especially in a country like ours where most transactions are in dollars anyhow. It’d be different perhaps if we exchanged dollars for yen and euros regularly but short of overseas travel, few of us do and let’s face it, for all it’s ups and downs, the dollar has been a consistent currency. You can still go to Canada or Mexico and their money feels less valuable to us.
De-Symbolize
If I were sitting in government I might put some minds to work on de-symbolizing our situation. At the top of that chart it stipulates that we could eliminate the deficit if we charged a one-time fee of $4100 to every citizen of the United States. For my family of four that’s $16,400. That’s a big chunk of change. Like purchasing insurance, my life would not improve one measurable bit if I forked over that money. Which may be precisely why it’s not a bad idea.
Writing that check to the government would sting. Especially in this economic climate it would sting badly. That’s the point. We’re in the midst of a years-long Orwellian groupthink dream. We spend borrowed money and continue to think we can put off paying it back. It’s absurd. Maybe we’ll inflate another economic bubble to block our view of this reality, but for my part, I think it would better if we all faced the music sooner than later and all together.
The one time a year we people become acutely aware of our federal budget is on 4/15 when we submit our tax returns. Whether we’re writing checks or getting one back, that’s when our symbolic money economy comes home to roost. If for one year, every citizen in America had to write a painfully large check* I think we might do a lot of longterm good getting our heads on straight about the reality of money and spending. We’d also see some serious scrutiny of our elected officials and I’m guessing greater voter participation moving forward if only to avoid making that painful check-writing session and annual event. Making every citizen cough up four grand would basically piss the public off and maybe then we’d cut through the nonsense and get something accomplished. Every elected official, from both parties, would suddenly be in the crosshairs because if they didn’t work it out and every American had to write an unreasonable check again a year later, you can bet we’d see a lot of the ballast-quality people in office shoved out the door. And if that didn’t happen, at the very least the deficit would be gone (for the moment).
Of course as you might imagine this idea probably won’t catapult me into office any time soon.
*I want to note here I am knowingly glossing over the havoc such a measure would cause among lower income households. It is admittedly unjust to have someone with an HHI of $35K paying the same as someone with an HHI of $3.5MM. My intention here is to make a point all the while knowing the details of the implementation are far more nuanced than I am presenting.
Term limits would help. Why should someone be allowed to enter the senate as a first job (although you could argue that being a senator is not really a job) and stay there for 50 years? Each legislative action, each vote, is tainted by the overwhelming desire to stay employed. No one will ever touch Social Security, even though it is nothing more than a Ponzi Scheme of galactic proportions, Medicare is a cesspool, corruption rampant and fraud everywhere; no one knows the full extent. But these are politically untouchable topics. Even the suggestion of eliminating either means you lose your job. Because my son is disabled and technically an adult at 19, I’ve had the supreme pleasure of repeated visit to a Social Security office. Anyone that believes big government is a good thing, anyone that believes large goverment run programs can actually solve problems, I invite you to join me on my next visit. To borrow a Ted Nugent phrase, you get to see “Fedzilla” up close and personal. And it ain’t pretty. The entire Social Security system should be scrapped. Just shut it down. No one pays in any more, no one gets anymore, whatever assets there are should be distributed to current recipients until the balance is zero. Done. Will there be pain. Yep. Is there really any other choice? Nope. Will it happen? No way. The Ponzi Scheme will continue so that everyone can get reelected.
Beware of simple solutions to complex problems. They might feel good but have no history of really working.
Sometimes. By the same token when the mass population from the government on down chooses pleasant dreams and petty squabbling over urgent realities it may be time that we all grow up and take personal responsibility for our part in this mess. The financial system was designed to serve the population and it is increasingly holding it hostage. I’m surprised people continue to choose to allow this to happen. Fixing the problem means swallowing some tough medicine. My suggestion is that we do this now. It’s only going to get harder to swallow the longer we put if off.
It’s also worth mentioning that sometimes people use ‘complexity’as a manipulative tool (think Wall St.) or a means of hiding from their own personal responsibility (think the many people who ignored the knowledge they couldn’t afford to pay down a mortgage and yet signed on the dotted line anyhow).
Exactly my point. On the simplest level there is always a straight line from cause to effect. But the reality is that there are lots of intervening variables that impact that short trip. For instance, in the latest financial mess, Goldman was pushing all sorts of “to good to be true” mortgages on the market to people that were sold the American Dream and for the first time in history actually got to buy it. Unfortunately it was from deceptive persuasive purveyors that disguised the real details for their personal gain. So now, the suckers should just buck up and pay but they don’t have it, nor did anyone involved in the scam have any reason to believe they would be able to have what it took to meet their obligations. From where shall we rip it now. The sellers have fled. The dreamers are broke.
And oh by the way, Goldman, was also betting on the bubble exploding by insuring their exposure through AIG. Either way the market went, they profited mightily. Who in this scenario should just face the man and pay up. It is not simply a case of doing the right thing, it involves re-calibrating some ethics into the market, unwinding the perverted incentives to cheat, and understanding that justice is not always a point and shoot moment away.
The rage against the willingness to ignore the realities of the day are well founded. The difficult task is finding out how to fix a system that seems to rewards the delusion or at least does nothing to incentivize the confrontation. Populism demands that we act responsibly, but we fail to pass school budgets and still complain our kids don’t learn. We say cut all our taxes and yet still want paved roads. As you might say. you can’t have it both ways but it sure seems like an appealing proposition to most.
This got me thinking. I fully acknowledge a disproportionate amount of the blame for the mortgage meltdown sits with cunning, predatory and unethical business practices. However, I do not believe this is a clear cut predators/prey situation and in fact think that distilling it down to purely those terms does a disservice to the ‘suckers’involved. ‘Too good to be true’pricing is called that for a reason. If the ‘suckers’knew the contract and price was ‘too good to be true’but chose to do it anyhow what does that say about them? I prefer to hold all parties responsible for their piece (proportionate differences noted). The choice is for each individual to either take responsibility or push it off. The former can lead to change, the latter only delays finding a solution.
Corey – I’m not so sure that it is as disproportionate as you may think. Plus, in this thread there are only two players being discussed: the evil blood sucking Banks, and the poor blameless idiots that opened the junkmail and didn’t do what I did (throw it in the recycling bin). Times like this call for scapegoats, and evidently Goldman fits the bill. But there is another party that is up to their eyeballs in this mess: Congress. When Congress hauled the scapegoats in front of the cameras to give the public the whipping they wanted, they got to deflect all the attention from themselves. The roots of the collapse pre-date Lehman; the start of the firestorm was the uncovering of the house of cards that Fannie and Freddie were running. Back in 2005 the potential disaster looming was identified and recognized and four senators introduced the Federal Housing Enterprise Reform Act of 2005; this bill would have gutted Fannie and Freddie management and enacted more regulatory reform than is currently being considered for the banks (including risk based capital tests, minimum capital requirements, golden parachute and compensation restrictions, etc.). Dealing with Fannie and Freddie in 2005 (three years pre-Lehman)and enacting the type of reforms the bill entailed would have helped if not avoid the crisis altogether then lay the groundwork for wider regulatory reform. Of course, you didn’t get to read about this on page one of the Times, as the bill was sponsored by four republicans including John McCain, and never made it out of committee, having been shot down by democrats that were by far the largest beneficiaries of Fannie and Freddie lobbying dollars in Congress. But I digress. Those crafting this play have carefully set the scene and introduced the characters. Like most good stories, we are being fed a good guy and a bad guy. The bad guys are Wall Street and the Banks. The good guys are are the poor doe-eyed sheep that were led to the slaughter by the lenders, the guys making $35K a year that signed up for a $250K 1-year ARM and lived to regret it. A huge number of people actually believe this fantasy. No one asks what Congress was doing and what their part was. The Congressional Caesars trot out the bankers and throw them to the lions, giving the crowd what they want.
Hey, who needs sports??