Reporting Live from the Ground Zero Bleacher Seats in the Mega Bubble

                                                                              An Earth Manifesto publication by Dr. Tiffany B. Twain  

                                                                                                                                       October 16, 2008

Read all about it! -- Here is the real scoop relating to Big Picture perspectives of the global economy and its complex but more or less comprehensible underpinnings.  Heightened systemic risks threaten the economy today, and unprecedented government bailouts are taking place, so it is valuable to understand the background of what is going on. 

There are many kinds of bubbles that profoundly affect human societies.  There are speculative economic bubbles;  there are longer-term bubbles of empire-building and decline;  and there is the Mega Bubble, an all-encompassing bubble of rapid human population growth that is spiking toward a crescendo of over-consumption, resource depletion, ecological harm, and biotic extinctions.  There is also another kind of bubble, a bubble of perception and ideological worldviews.  This kind of bubble is similar to a White House bubble, though much larger in scope, as described by former White House Press Secretary Scott McClellan in his book What Happened: Inside the Bush White House and Washington’s Culture of Deception.  Such bubbles of perception float high above us, and they require clear thinking and open-mindedness for us to transcend.  Ironically, they often require a crisis to bring them into clear focus.

An inquiry into the nature of these bubbles is important.  In 1920, the British author H.G. Wells wrote: "Human history becomes more and more a race between education and catastrophe."  These words are highly relevant today.  Much can be learned by studying the mega trends of the past century, and economic booms and busts, and the causes and consequences of inflating economic bubbles and their devastating bursting.

An ancient Chinese proverb, which is a curse as much as a blessing, asserts, “May you live in interesting times”.  We sure do live in interesting times!  We live in an age of great global challenges and associated strife and turmoil.  The complexities surrounding this volatile state of affairs are extensive, so comprehensive understandings of their interconnected causes and effects, and broad scope, are greatly needed.  To help provide this, the perspectives and opinions of some of the most prominent economists in the world are presented and evaluated herein, including those of Adam Smith, John Maynard Keynes, Milton Friedman, John Kenneth Galbraith, George Soros and Alan Greenspan.  The result is this valuable ‘Cliff Notes’ version of economic developments and understandings, as applied to the extraordinary circumstances in the world today. 

Economic Insights

The collective expression of the needs and desires of the 6.6 billion human beings on Earth in late 2008 is reflected in aggregate economic activity.  Statistics measuring this activity are watched closely by economists and investors and commodity speculators, as well as by pundits and politicians.  Work, productivity, trade, consumption, entrepreneurial activities, investments, debt, interest rates, and the ownership and accumulation of assets and wealth are aspects of people’s self-interest that shape our societies and institutions. 

The world’s economy is basically an enormous and diverse marketplace that is driven by supply and demand for raw materials and products and services.  Laws and regulations define the economic system and channel people’s activities.  These rules thus profoundly influence the aggregate use and management of resources like fuels, building materials, minerals, agricultural lands, fresh water, forests, fisheries, income, capital and labor.  Economic activities originally involved primitive barter systems that have evolved into highly complex systems in which incomprehensible quantities of resources are utilized and allocated and traded.  Modern international trade involves enormous flows of money, and our American consumerism has been causing record trade deficits that send large amounts of money abroad.  These funds need to be recycled back to us, and it is precisely these capital flows that have been severely disrupted in the early autumn of 2008 as capital markets have frozen up and some investment banks have gone into bankruptcy and arcane ‘derivatives’ markets have become shaky.  More on this when Phil Gramm’s banking deregulation ploys are discussed below.

The capitalist economic system has out-competed and triumphed over centrally-planned economies, so the study of capitalist economies is most important for understanding what’s happening in macroeconomic trends today.  This capitalist economic system is an integral part of the way we manage and use resources. 

Knowledge of human nature and basic economics is needed to understand what’s really going on, and why, in our modern world.  Let’s consult with Adam Smith, the “father of economics”;  Adam Smith was a famous Scottish moral philosopher and political economist who wrote The Wealth of Nations in 1776, a book that was the veritable manifesto of free market capitalism and free trade.  Freedom was in the air in 1776, and the ideas of Adam Smith were embraced by those who wrote the Declaration of Independence on July 4^th of that year.  This freedom movement by American colonists was provoked by the objectionable and opprobrious aspects of the British Empire’s mercantile system and its levying of taxes without fair representation. 

Adam Smith’s book was essentially dedicated to improving the welfare of the common man, not just to benefit merchants or the nobility.  Adam Smith’s most famous theory was that an “invisible hand” benevolently guides private decision-making toward the best and most efficient outcomes for the whole of society.  This invisible hand was one of self-interest, not of some deity.  In the 232 years since the publication of The Wealth of Nations, many developments and events have taken place that shed light and clarification on the theories of Adam Smith.  One of the most significant ironies in the history of ideas is that Adam Smith’s book has been used by the industrialist class as a justification for selfishness, and NOT for seeking to remedy the scandalous social ills that resulted from industrialization.  Adam Smith felt that the wealth of a nation is measured by the productivity and living standards of ALL of its people, not just by its total accumulated wealth or the wealth of its elites.  I personally struggle to see how a system that encourages outlandish profiteering from people’s ill-health or fraudulent activities or wars of aggression can create any sort of acceptable common good.  More about that later, below.

Speculative Economic Bubbles

Markets have cyclical aspects in which periods of economic expansion alternate with periods of contraction.  Deep psychological forces affect these periods of growth and contraction.  Both overly-exuberant confidence and excessively-insecure fears strongly affect consumer demand and spending and investment behaviors. 

Economic bubbles seem to be a natural expression of human propensities.  Risk-taking and speculative ventures are key aspects of entrepreneurial activities, but they can also lead to economic bubbles when credit is too easy, or regulation and oversight are too lax, or perverse incentives or too much stimulus is created.  The larger a bubble gets, and the longer it is inflated, and the more ‘irrational exuberance’ that arises, the more risky the bursting of a bubble becomes. 

This was cogently demonstrated in the astonishing and historic plan brokered in late September 2008, in which the U.S. federal government made a commitment to spend $700 billion on the ‘toxic debt’ of banks in order to keep the economy from collapsing.  It is an amazing and ironic development, really:  the bubble of economic fundamentalist ideologies has burst, and our anti-regulatory, anti-big-government leadership has embraced what is basically the most “socialistic” remedy since the days of the Great Depression.  We are basically socializing huge amounts of cost and risk, though we are steadfastly clinging to that wonderful tonic of privatized profits.  It’s a mess!

Systemic risks arise when rules and regulations and easy credit and tax policies encourage too much speculation.  There are always people who game every system by leveraging debt or exploiting loopholes or perpetrating fraudulent scams.  There are also sophisticated people who work tirelessly to get laws changed to benefit themselves or their cohorts.  Some, like enthusiasts for anti-regulatory doctrines, create innovative new products and services and complex financial instruments like ‘mortgage-backed securities’ that can be exploited by wily schemers to make big profits. 

Systemic risks mount when clever schemes are accompanied by inadequate transparency or oversight.  This not only makes the system vulnerable to collapse, but it also eventually can force the federal government to bail out speculators and investors.  Big costs and risks to taxpayers are involved in the historic bailouts that are being initiated today.  And in light of urgent needs to do something, it is probable that narrow vested interest groups will once again grab big benefits at the expense of the public, just as contractors have done in Iraq and in the aftermath of the Hurricane Katrina calamity and in many other ‘shock doctrine’ disaster-stoked opportunities. 

The devil is in the details, and experts familiar with the issue of what price the government should pay for bad assets will understand that if the bailout is wrongly handled and poorly managed, this could turn into a boondoggle and fail to forestall an international economic recession.  Fire-sale prices for bad mortgages, for instance, will not adequately benefit lending institutions to free up capital and credit, and purchases at “hold-to-maturity” value could end up costing taxpayers untold amounts of money. 

The economic strategies utilized by federal and state governments are generally focused on creating jobs and facilitating the accumulation of wealth and increasing consumption.  When there is too much regulation and overly-restrictive trade protectionism, economic growth is jeopardized.  On the other hand, risky conditions also arise when economic activity is stimulated too strongly or regulated too little.  Assets become overvalued in speculative bubbles, and when the bubble eventually bursts, either suddenly or in slow-motion, the established order is threatened.  Deflating bubbles can cause economic growth to slow down and tip into recession or depression, creating widespread social hardships.

The real estate bubble that is deflating today has been caused in part by easy credit, stimulated speculation, and overly generous tax incentives for capital gains on home sales and mortgage interest deductions.  Expansionary monetary policies by the Federal Reserve caused too much money to chase after too few assets, and this led to record inflation in housing prices.  All of this occurred in a climate of lax regulation that had been facilitated by the repeal of the 1933 Glass-Steagall Act.  Inadequate oversight accompanied this deregulation of Wall Street and the mortgage and banking industries.  In this regard, today’s problems are similar to those of the 1929 bursting of the Roaring Twenties stock market bubble that led to the severe depression of the 1930s.  There are also distinct parallels to the costly Savings and Loan debacle in 1989 that sent the U.S. economy into a serious recession in the early 1990s. 

These episodes involved speculative impulses where people bid up prices to levels that exceeded intrinsic values.  This is true for periodic real estate and stock market bubbles just as it was true of one of the original speculative bubbles in history, the “Tulip Mania” of seventeenth century Holland.  During the 1630s, trade in tulips gave way to trade in promissory notes, and Dutch speculators drove up prices of tulip bulbs to absurd levels.  Prices finally collapsed early in 1637, and the bursting of this speculative bubble had serious consequences not only for speculators, but for the wider economy as well.  Michael Pollan’s creative and fascinating perspective on this topic is entertaining and worthwhile reading;  check out his provocative book, The Botany of Desire: A Plant’s-Eye View of the World. 

“Tulipomania” can be seen as a kind of morality tale about worldly temptation and greed and get-rich-quick schemes to which people ruinously succumb.  It is a tale of money madness that informs as well as cautions, and its illumination can help us understand the historical context of investment scams and their nature.  Using this knowledge, we should be able to create better practices and more transparent and sustainable systems.  This will give us prudence in our regulation and oversight of complex modern forms of speculation that affect the lives of so many people. 

Dutch trading schemes of the 17th Century were early forms of futures contracts.  As such, they were precursors to widespread commodities futures trading, and much more recently to oil futures speculation and speculative activities related to new-fangled financial instruments.  Such stimulated speculation contributes to negative outcomes like market volatility, commodity price inflation, spikes in oil prices, and speculation in mortgage-backed securities that has resulted in hundreds of billions of dollars in losses and dangerous instability in credit markets worldwide.  These issues will be thoroughly investigated below when former Senator Phil Gramm’s role in the Commodity Futures Modernization Act is scrutinized. 

The famous South Sea Bubble of 1720 is another economic bubble that occurred because of a debt scheme that involved fraudulent claims and wild speculation.  The South Seas Company was an English trading company that was granted a monopoly in the slave trade from West Africa to the Americas.  Nice -- the slave trade!  The South Seas Company was actually created as a clever scheme to fund the debt of the English government in the wake of the War of the Spanish Succession.  Speculative frenzy in the company’s shares was hyped-up so much that they increased 1000% between January and August of 1720.  Then in September, the gig was up and the bubble burst.  The share price collapsed back to near its original value, ruining many investors and speculators.

Another infamous swindle involved the legendary Charles Ponzi, a charismatic rogue known for having “launched the most famous and extraordinary scam in the annals of American finance”, according to Mitchell Zuckoff in his book Ponzi’s Scheme: The True Story of a Financial Legend.  Charles Ponzi was an Italian immigrant who created a “rob Peter to pay Paul” scheme that became a national sensation of feverish speculation in Boston in 1920.  Some people got spectacular returns on their money;  Ponzi promised a 50% return on money ‘invested’ every 45 days -- DOUBLE YOUR MONEY IN THREE MONTHS!  This was sheer audacity!  Thousands of ‘greater fools’ were duped by preposterous claims of what Charles Ponzi claimed were profits related to exchange rate differentials on trading in “international postal reply coupons”.  This led to confidence in this get-rich-quick scheme, but it was really a fraud that was -- Duh! -- far too good to be true.  When the speculative fever finally broke in August 1920, the bubble collapsed and Ponzi’s company and affiliated banks became insolvent, and thousands of people lost their money.  The government of that era, notably, did not intervene to cover the losses. 

The ‘dot-com’ bubble was another classic speculative episode.  Once again there was a plausible story that was hyped up, and gullible people believed the hype.  Many will remember the narrative of this “new economy” in the late 1990s in which potential growth of high tech companies was touted and stock prices were driven up to astronomical valuations.  Stock market analysts fabricated stories about the glowing prospects of these companies because they had growing market shares, even though their business models may not have had any realistic hope of making profits.  Investors were cautioned by Alan Greenspan, the Federal Reserve Chairman at the time, who warned investors about ‘irrational exuberance’ even as he helped to create the bubble with low interest rates, deregulatory collaboration and low requirements for margin borrowing that facilitated the purchase of stocks using risky leveraging.  As the bubble gained steam, the high-tech-heavy NASDAQ market average quickly went from 2,000 to 3,000 to 4,000 to 5,000.  Speculative over-valuations were apparent, but analysts talked of engaging in “momentum plays”.  Greater fools were to be found in abundance, so the word was to buy stocks that were going up, valuations be damned, because they are going up!  “Don’t miss out!”  Smart insiders played the game and then cashed out on the speculative bonanza before the crash, but millions of investors were burned when the NASDAQ finally began its fall and lost over 75% of its value.  Trillions of dollars in equity evaporated from October 2000 to the end of 2002, and many dot-com companies went out of business as the bubble burst. 

The dot-com bubble crash posed a great risk to the entire economy for a number of reasons.  One of these was that the “wealth effect” of equities appreciation had hyper-stoked consumption, and when this strong stimulus to demand faltered, it appeared that consumer spending would drop precipitously.  The Fed shrewdly transferred the bubble into an even riskier, broader, and more extensive bubble -- in real estate -- to keep stoking the consumer fires.  This was accomplished by the tactic of cutting interest rates to almost zero, effectively flooding the market with cheap credit, and it made real estate into another wealth-effect bubble of assets that were becoming over-valuated.

Many grotesque side effects are correlated with this immoderate economic stimulus.  Oversized and energy-wasteful McMansions became the norm for homes built in many areas of the nation.  Suburban sprawl and fuel-inefficient SUVs proliferated, and the infrastructure of cities and public transit were allowed to deteriorate.  The wealth effect of rapid real estate inflation allowed home equity debt-financing that further stimulated extravagant consumption.  The appreciation in home prices was clearly a speculative bubble, but those who did not buy real estate were the ones who for years were disdained as greater fools.  Renters were regarded as being stupid to miss out, and tough luck for advocates of to affordable housing and homeless persons! 

Meanwhile many risky subprime loans were made to get more buyers into the market, and prices ratcheted up even higher.  Underwriting standards for mortgages were weakened, and lenders and brokers used predatory banking schemes and fraudulent activities to get homeowners into high-cost mortgages.  Large numbers of these loans were then packaged into hyper-risky ‘mortgage backed securities’ and marketed to investors worldwide, with deceptive collaboration from rating agencies.  By October 2008, more than $500 billion in losses and write-downs by banks around the world have taken place because of this bursting bubble, and the international economy is reeling. 

Privatization and Folly

Disciples of economist Milton Friedman and his Chicago School ‘hurrah’ about privatization and deregulation, as if they are the panacea for all social ills, but doggone if it doesn’t turn out that privatization sometimes makes social and ecological problems much worse.  Rather than promoting positive and salubrious goals like lower costs, ,greater efficiency, better management and improvements in the overall welfare of the people, privatization often results in excessive fees and price gouging and a spike in no-bid contracting.  Instead of greater efficiency and better management, private equity deals and leveraged buyouts often result in cuts in wages and benefits and pensions and jobs.  Companies are thus not managed more efficiently, but instead an income transfer takes place from ordinary employees to executives and middlemen and insiders and investment bankers. 

Privatization can also facilitate unfair cronyism and incompetence, and contribute to inadequate monitoring and less accountability and increased fraud.  Privatization of government functions creates big opportunities for corporations and unethical individuals to swindle taxpayers.  Privatization also helps give giant corporations more power, and this can have highly negative effects on society.  Privatization can result in trends toward an anti-democratic rule by the few.  This is not desirable!

The financier and philanthropist George Soros has written a book titled The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.  He writes about the “super-bubble”, and astutely analyzes its causes, as discussed above:  easy credit, deregulation, excessive leveraging, the globalization of financial markets, and excessive risk undertaken in speculative activities related to housing and equities and mortgage-backed securities and financial derivatives.  Soros notes that deregulation initiatives were undertaken to unleash financial markets in accordance with flawed and shortsighted doctrines of market fundamentalism.  He asserts that these activities are a primary cause of this destabilizing economic super-bubble.  Even this brilliant investor George Soros lost money trying to predict what would happen with volatile markets, for investors tend to herd together and buy things that are going up and sell things that are going down, making it seem like irrationality reigns supreme.

According to columnist and author Robert Kuttner, “The cycle of ignoring lessons of history is speeding up.  It took more than four decades for American capitalism to forget the lessons of the great crash of 1929 and begin repeating the same abuses.  It took less than four years to forget the lessons of the crash of 2000.”  This valuable observation is made in a compelling book whose title reveals the bottom-line problem of many of the challenges we face:  The Squandering of America:  How the Failure of Our Politics Undermines Our Prosperity.

Rather than endlessly stimulating consumption and creating risky bubbles in the process, we should strive to create sound economies based on strong and fair fundamentals:  good management, innovative ideas, productive workers, shared prosperity, a fair underlying structure of vigilantly-enforced rules, prudent risk-taking, smart capital investments, reasonable debt leveraging, proper allocations of resources and a long-term orientation. 

Growth at any cost is not desirable.  We should stop providing bubble-creating perks that are heavily skewed to benefit high-income earners.  Mortgage interest expense deductions and overly-generous tax breaks for real estate capital gains should be made fairer for all.  We should more strongly control predatory lending practices and other forms of mortgage shenanigans and misrepresentations.  We should prevent clever lawyers for vested interest groups from being the ones who write provisions of laws that create loopholes and complex ‘financial innovations’.  These steps would help prevent the gaming of the system, and they would reduce incentives for more marginal forms of risk-taking and profiteering that so often prove to be destabilizing and detrimental to the common good.  Let’s keep these ideas in mind when shrewd plans for privatizing Social Security are pushed again by ‘conservatives’, as discussed in detail near the end of Beam Me Up, Scotty!

The Mega Bubble

Great innovations in technology and communications have been taking place in recent decades in nations around the globe.  These innovations, together with unprecedented demographic and ecological challenges, are profoundly affecting the economies of human societies worldwide.  Simultaneously, inflation in the cost of food, rents, commodities, oil, gasoline, electricity, water, college education and medical care are threatening people’s well-being and general prosperity.  In the mean time, stimulated bubbles in real estate and stock markets are deflating, with the prices of many homes and equities falling more than 20% in the past year.  These developments are contributing to fear and insecurity in people’s outlooks, and to longer working hours and negative savings rates and declines in standards of living for hundreds of millions of people worldwide. 

To create optimum solutions to the daunting problems we face, it is necessary to gain a clearer comprehension of the systems we use in managing resources, and of the rules that underlie our economies, and of the deeper context of natural systems and natural resources upon which our well-being depends.  The number of human beings has grown so large that humanity has become a significant force in nature, and our collective activities are extensively altering the land, rivers, wetlands, forests, oceans and atmosphere of our home planet.  Most of these kinds of change are detrimental to us and other species of life.  This state of affairs in not sustainable, and cannot be judged overall to be a good thing! 

This rapid swelling of human-caused change can be seen as a Mega Bubble.  Our species has survived for well over 100,000 years, but it is only in the last century that our impacts have had such an overarching influence in the biotic realm.  The primary reasons for the relatively sudden intensification in our impacts can be traced to the Agricultural Revolution, which allowed human numbers to begin a sustained growth, and then to the Industrial Revolution, which has revolutionarily extended our life spans and simultaneously provided a burst of consumption and of the production of wastes, pollutants and toxins.  Our activities are threatening to overwhelm the ability of natural systems to provide for us and to absorb our wastes.

Industrial civilization and market economies are powered by fossil fuels, which we are quickly depleting.  This cornucopia of stored fossilized energy from the Sun has allowed us to grow record amounts of food and to create enormous quantities of consumer goods and to build great cities, factories, water works, highways and air transportation systems.  It is a colossal irony that the use of this convenient and unique high-energy resource is poisoning the atmosphere, fouling the land and waters, and causing ominous changes in the Earth’s climate. 

We are faced with the stark reality that our Mega Bubble is on the verge of bursting.  The resources upon which our success has been predicated are being used up, and we are damaging the life support systems upon which we depend.  The canary in the coal mine of this bursting bubble is the evidence of widespread extinctions of other species of life that are being caused by our activities. 

So here we are caught like a deer in the headlights, desperately trying to figure out what course of action to take to avoid whatever on-rushing threats are rapidly approaching.  Our brains are bundles of nerves, alert, sensitive and aware.  They desperately seek security in a fundamentally insecure world, a world that is quite mysterious -- and yet curiously knowable.  We are intelligent creatures, capable of reflection and foresight, and good at solving problems, yet we are susceptible to illusion, denial, propaganda and self-deception.  We are particularly vulnerable to manipulation by marketers who know human nature well enough to find clever ways to sell us stunning quantities of stuff, as well as to exploit our hopes and fears, and hijack our emotions so that we act in ways that are all together crazy.  This situation urges us to see the world from new and more enlightened perspectives, but we are too busy feathering our nests, watching out for #1, striving to make ends meet, competing, showing off, trying to fit in, seeking to belong, embracing odd ideological worldviews, and enjoying a thousand indulgences while dealing with a multitude of petty annoyances.

Still the ominous headlights approach, and we need someone to lead us to safety.  Our leaders unfortunately are so plugged in to our economic system and the motives of influence peddling and profiteering that they make things worse rather than courageously helping solve the critical global challenges we face.  Under these circumstances, better ideas and understandings and reforms to our systems are imperative.  The Earth Manifesto is full of incisive perspectives and coherent prescriptions for better ways forward.  I highly recommend that readers ponder the ideas it contains!  For detailed guidance on ways that we can make our world a better place for ourselves and our descendants, check out “One Dozen Big Initiatives to Positively Transform Our Societies”, and the “Progressive Agenda for a More Sane Humanity”.  The main vested interest in these ideas is the well-being and survival of our species. 

We ultimately depend on the health of the ecological systems that support us, so we should resolutely cultivate clearer understandings about how our lives are interconnected and interdependent with these natural systems.  To make our civilizations fairer and more indefinitely sustainable, we need comprehensive prescriptions for saner activities and behaviors and policies.  The Earth Manifesto contains such ideas, and they are achievable because they take human nature into account as well as clear-eyed understandings of the course and causes of historical events.  These ideas have been assembled from the thinking of a wide range of the best minds in the world.  They are ideas that could help guide us through these tricky times, and hopefully bring our errant human hot air balloon to a safe ‘soft landing’.  We need to become more active participants in creating a positive future, and not just in being selfish spectators and greedy speculators.

The Important Aspects of “Supercapitalism”

Small and medium-sized businesses and large corporations are the principal institutions of our extensively manipulated “free market” system.  All of these institutions need to be well-managed to prosper and survive.  Likewise, the entire system must be well-managed in order to ensure broadly shared prosperity and greater security for individuals, as well as soundness and stability for the system.  Governments have a large role in this vital responsibility. 

Several primary vulnerabilities afflict our economic system: (1) the risks associated with the bursting of stimulated bubbles, (2) extremes of inequality, and (3) corruption and fraudulent activities.  Good management and responsible oversight are necessary to ensure that these threats do not cause the whole system to falter or collapse.  For our society to be secure and egalitarian, we need a more robust democracy in which the influence of financial elites is more definitively limited.  Public debate and public policies must be focused on broadly distributed prosperity.  Greater-good goals must be elevated to the top of political agendas.  We must commit ourselves to a significant expansion and strengthening of the middle class, and to reducing the concentration of wealth and the growing disparities of income and wealth in the world today.

We cannot continue to allow our representatives to be manipulated by small segments of society that want to get them to implement policies that create big perks and privileges for financial elites at a heavy cost to everyone else.  We can no longer accept heedless attitudes of the privileged toward the common good.  We need to be careful not to let narrow interest groups externalize enormous costs onto society. 

Professor and former Secretary of Labor Robert Reich discusses in detail a distinct conundrum of human behavior in his recent book Supercapitalism.  As consumers, we generally want good deals and cheap prices.  Yep, this is why CostCo and Wal-Mart have been so successful.  In our roles as investors and speculators, we want the best possible returns on our investments.  Yep, this is why Wall Street has grown so powerful.  Money talks!  As citizens, on the other hand, we want to have important things that are often contrary to what we want as consumers and investors:  we want healthy communities and social justice, for instance.  We want good quality affordable public education and a fair shake for workers.  We want reasonable access to health care for all.  We want at least a minimal social safety net, and retirement security, and safeguards of our liberties, and equitable institutions, and peaceful coexistence, and clean air and water, and protected public lands, park, open spaces, wildlife refuges and wilderness areas.  And we want a stable economic system with credit available at a fair price. 

In other words, as consumers and investors we DO NOT want products and services to contain all the costs of a healthy society, because we want prices to remain low and profits to be high.  As citizens, however, we DO want prices to include the fair and sane treatment of workers, communities and the environment.  Over the last few decades, things have gotten better for consumers and investors in many ways, but much worse for citizens.  This must be changed.  Barack Obama, being a progressive, offers a much better hope than John McCain of helping make such changes.

The citizen societies found in democratic republics strive to reach a consensus of what priorities and objectives are proper.  Rational debate and cooperative agreements are needed to reach a sensible consensus and to define broad goals.  Once defined and elaborated, these overarching goals need to be effectively conveyed and strongly emphasized and clearly encouraged in all public policies.  There is a natural lack of agreement on almost every aspect of public agendas, so it is important for us to seek this common consensus on issues.  The best way to clearly and accurately comprehend complex issues is to reconcile opposing opinions.  As Alan Greenspan, the economist and former Federal Reserve Board Chairman wrote in his book The Age of Turbulence in 2007, we should regard compromise as “the price of civilization, not an abrogation of principle.”

Rules of law represent the current values we collectively hold.  They are the result of a reconciliation between our innate moral sense of justice and propriety, on the one hand, and the success of vested interests in gaming the system to private advantage, on the other hand.  Our representatives in Congress and the executive branch and judicial system are striving continuously to balance this sense of what is proper with other powerful competing influences that work tenaciously to exploit people and resources and the government treasury for advantages and personal gain and short-term profit. 

The Opportunity Cost of Improper Priorities

In a democracy, we should try to establish a farsighted general prosperity that is consistent with sustainable existence and peaceable coexistence with others.  But our spending priorities are all too frequently corrupted into narrow objectives that are inconsistent with the general prosperity and the greater good.  When we look at the detail of our national budgets, we see the true priorities that are being established by spending authorizations.  Big picture evaluations of budgets reveal how distorted and misguided our spending priorities are, and how significantly they differ from avowed national goals.  There is an opportunity cost to making huge allocations of taxpayer dollars to wars, for instance. 

“Opportunity cost” is one of the most basic concepts of economics.  When we make commitments of vast sums of money to wars and military occupations and bombers and munitions and nuclear submarines and aircraft carriers and far-flung armies and outmoded Cold War weapons systems, we reduce the amount of money available to finance other priorities.  The opportunity cost of spending so much on the military is a critical shortfall of financing for addressing a wide variety of vital domestic issues.  Instead of fighting wars, we could be fixing our deteriorating infrastructure, investing in energy independence from imported oil, improving mass transit, reforming our costly and unfair healthcare system, making higher education more affordable, retraining people for new jobs, ensuring retirement security, putting in place bold peace-building initiatives, creating fairer trade, and acting to protect the environment.  Better priorities! 

Fair trade is a better plan than unfair “free trade”.  Trade protectionism is a constraint that is not desirable in the greater scheme of things, though there are many good arguments, pro and con, on various aspects of this complex issue.  Trade should be mutually economically advantageous, and it should also be socially and environmentally responsible.  Trade agreements need to ensure that nations play by roughly reciprocal rules, and that intellectual property rights are respected, and that labor rights and environmental protections are included.

The most perverse form of protectionism is not that of trade, but that of privilege.  The well-being of our nation is threatened by an over-emphasis on defending the privileges of the rich and powerful and hyper-greedy speculators.  Privilege protectionism is a much bigger and more costly problem than the kinds of protectionism that are decried by conservatives, such as environmental protections or the protection of those who have worked and paid payroll taxes and are now collecting Social Security and receiving Medicare benefits.

Being a student of human nature is valuable not only for understanding economic bubbles, but also for understanding the compulsions that drive our nation toward war and a so-called “Bubble of American Supremacy”.  Author John Steinbeck noted while on an expedition to the Sea of Cortez during World War II that naturalists study animals and find that various species have highly specific habits and traits.  “But we do not objectively observe our own species as a species, although we know the individuals fairly well”, he writes.  “If we used the same smug observation on ourselves that we do on (other life forms), we would be forced to say, with the information at hand, ‘It is one diagnostic trait of Homo sapiens that groups of individuals are periodically infected with a feverish nervousness which causes the individuals to turn on and destroy, not only his own kind, but the works of his own kind.’”  Steinbeck calls this a human “murder trait”.  He writes provocatively, “So far, the murder trait of our species is as regular and observable as our various sexual habits.”  Hmmm …

The lessons we should learn from understanding our aggressive impulses is that we need to have smart and proactive rules and institutions in place so that we can thwart imperialistic aggression wherever it arises.  We need to elect strong and fair-minded statesmen rather than reactive politicians who continuously seek power or glory or personal and crony advantages.  And we need sensible policies and regulations and oversight and enforced accountability to ensure the greater good. 

The Value of Historical Clarity

It is easiest to see the Big Picture when we place things in larger contexts.  History provides such overviews.  History consists of official accounts of “what really happened”.  The first draft of history is the daily news that is reported by journalists on television and in newspapers and on the Internet.  In reflecting on facts and events and opinions, various versions of history evolve as explanatory spin and blogs and magazine articles and books arise to interpret the news.  With the passage of time, more wide-ranging details are revealed and trends become clearer.  Actions and their consequences are more expansively evaluated, and wiser perspective is gained.

Historians Will and Ariel Durant spent their careers studying and writing many books about world history, including their eleven-volume The Story of Civilization.  Then, before they died, they wrote a gem of a book titled The Lessons of History.  In it, they summarized big picture perspectives that they had gained from their long lucubration.  They noted that historians derive illumination from understanding present conditions, and seek better guidance for judgments and policies, and try to identify safeguards against “the rebuffs of surprise or the vicissitudes of change”. 

Readers who give close consideration to the ideas of historians like the Durants find provocative observations about human nature and motives and the lessons that can be learned from history.  For instance, the Durants observed in their Lessons that the concentration of wealth in societies occasionally reaches too much of an extreme, and this critical point requires either sensible legislative redistributions of wealth to be enacted -- like progressive tax reforms -- or risks will radically escalate that destructive discontent will cause instability, violence or revolution, which generally destroy wealth rather than redistributing it.

All historians have their own biases and revisionist slants, so it is a good strategy to cultivate clear thinking and to critically and carefully evaluate the broad forces that underlie events.  We live in a bubble of our own individual worldviews, a bubble that floats within the larger collective narrative of the grand sweep of global activities and human history.  Perspectives are all intimately subjective, so it is preposterous to suppose that one’s own way of seeing the world is certainly more accurate than anyone else’s.  This is why respectful debate and clear-minded thinking and listening to others who have different opinions is important in achieving a reasonable consensus and in formulating better priorities in our societies. 

The Bubble of Burning Oil

Saddam Hussein committed one of the worst environmental crimes in history when he had hundreds of oil wells in Kuwait set aflame during his ignominious retreat from Iraq’s military occupation of that oil-rich country.  The politics of oil and the circumstances involving our addiction to fossil fuels present grave challenges to human civilization.  Demand for oil is reaching the point where it will outstrip supply as we reach a peak in the mining production of oil on planet Earth.  This is perhaps the most serious of limiting factors that loom large on our human horizon.  The inexorable depletion of fossil fuels presages dramatic economic turbulence and social ferment in coming years.  The growing harmful impacts of greenhouse gas emissions that are caused by burning huge quantities of fossil fuels represent the most far-reaching environmental dilemma that the human race has ever faced.

Modern human civilization has been powered and enabled by fossil fuels, so impending shortages pose severe economic consequences that will radically alter our societies.  In addition, climate changes caused by human activities are accelerating the negative impacts of our addiction, so we clearly need bold new policies to deal with these challenges.  Those who deny these facts are in the same category of foolhardiness as those who denied the predictions of Peak Oil made by Marion King Hubbert in the 1950s.

Hubbert was a geological scientist who studied trends of oil exploration and oil production and consumption.  He predicted in 1956 that the United States would reach a peak of domestic oil production around the year 1970.   Many people scoffed at his prediction, yet sure enough, oil production in the U.S. peaked in 1971, and has declined ever since.  Hubbert was astute at extrapolating trends.  Such methods of analysis help give us a better idea of where our collective and cumulative activities are leading us.  Historical trends can reveal implications for our future and lessons that can be gleaned as to what our best courses of action may be. 

It turns out that the total reserves of oil ever found in the United States have been about 225 billion barrels, and we have already used up more than 90% of these resources.  We only have about 22 billion barrels of oil left, which is a mere four years supply if we were not supplementing our resources by importing oil from other nations.  Considering the increasing cost of imported oil and the national security implications of our dependence on fossil fuel imports, it is obviously time for us to invest in the development of a different and safer energy regime. 

The revolutionary new policies that we need must emphasize conservation and efficiency of fossil fuel usages rather than wasteful ones.  ‘Green taxes’ levied on the price of every barrel of oil we import would be the best way to really kick this process into gear.  It would be easy to figure out a non-regressive way to put such green taxes into effect by giving rebates to those most adversely impacted.  And some of the proceeds should be used to invest in a necessary transition to renewable alternatives that will supplant fossil fuels.  Even the conservative ‘Swift Boat’ oil billionaire, T. Boone Pickens has embraced the need for alternatives.  He adopted the “Pickens Plan” to produce substantial amounts of electricity from wind turbines and to use natural gas to power vehicles.  His plan may be full of holes and hot air, but he is “putting his money where his mouth is” by stimulating debate about what the best plans should be to reduce our addiction to foreign oil.  More drilling is NOT the answer, because it does not address the problem quickly or meaningfully, and it does not cope with correlated problems associated with greenhouse gas emissions and the costly impacts of climate change.  See the Apollo Alliance’s Ten Point Plan for Good Jobs and Energy Independence for powerful ideas about steps that we should be taking in this regard at ApolloAlliance.org.

Similar statistical techniques to those employed by Hubbert have been applied to world oil production and consumption trends in order to forecast when Peak Oil will take place for the entire globe.  The best guess is that Peak Oil will happen in the next decade or so.  This is one compelling reason why oil prices have spiked so dramatically here in 2008.  Doubters of Peak Oil should be cautioned by the story of Hubbert and the vindication of his forecast AND by the error of those who scoffed at his predictions in the 1950s.

Curiously, the noun “economy” has another meaning, which is “the careful or thrifty use or management of resources.”  It is a significant irony that our capitalist economic system relies on the stimulation of resource consumption in such ways that our activities are far from careful or thrifty, or precautionary.  The drive to create jobs and income and wealth for growing numbers of people overwhelms concerns about sustainable usages of resources.  But it is a basic fact of ecology that we cannot squander resources indefinitely, or with impunity.  The profligate use of non-renewable resources like fossil fuels is an unsustainable approach to managing the economy.  Powerful forces like giant oil corporations dominate our political system, striving to maximize such wasteful usages, and the ‘oil guys’ in the White House do not help with this situation.  But we can no longer afford to ignore better and more farsighted plans for managing resources.

NOW, before we completely deplete planetary oil reserves, NOW is the time to take advantage of the last half of the world’s known oil reserves to help develop and implement the transition to cleaner and safer energy alternatives.  NOW is the time to use fossil fuels to make necessary investments in the creation of a new renewable energy regime and the infrastructure that it will require.  NOW, while there are still adequate supplies left, NOW is the time to use fossil fuels to manufacture such things as wind turbines, solar panels, fuel cells, and electric cars. 

Even the Dalai Lama, the perceptive, broadminded, wise, and eminently decent Buddhist spiritual thinker, once said: “In order to accomplish important goals, we need an appreciation of the sense of urgency.”  Think about this.  The Dalai Lama is one of the most philosophically calm people on Earth, and yet he communicates the fact that it would behoove us to give close and clear consideration to cautionary ideas, and to heed them, and to be bold in taking action to accomplish important goals. 

E. F. Schumacher observed in his 1973 book Small Is Beautiful that we should treat fossil fuels as capital resources to be wisely invested, and not as income to be spent.  This change in attitude and treatment would automatically cause us to conserve fossil fuels, and to put some of the profits obtained from using up these irreplaceable assets “into a special fund to be devoted exclusively to the evolution of production methods and patterns of living that do not depend on fossil fuels.”

No matter how desperately and aggressively we drill for more oil in the Western states and Alaska and in wildlife refuges and offshore, within 30 years more than two-thirds of the remaining reserves of oil in the world will be in Middle Eastern countries.  Yes, right there where we are making enemies with our heavy-handed imperialistic economic and military policies!

The interests of peoples in other nations are rarely given the respect they deserve, despite the mutuality of our common interests.  It seems to me that a Golden Rule mutuality of respect is the most emotionally intelligent and socially wise way to treat others.  This is true in both interpersonal relationships AND in our foreign policy dealings with others.  Likewise, ecological considerations of what is healthy for the balance of natural systems need to be respectfully considered, rather than being overlooked or ignored or denied.  Sure we have hectic lives;  sure our economic systems are short-term-oriented and myopically centered on selfishness.  When we recognize these facts, we see that it is imperative for us to redesign our systems to create more wholesome outcomes by taking into account our best knowledge and using more properly focused incentives.

The financier and philanthropist George Soros writes: 

“The primary purpose of political discourse is to gain power and to stay in power.  Those who fail to recognize this are unlikely to be in power.  The only way in which politicians can be persuaded to pay more respect to reality is by the electorate insisting on it, rewarding those whom it considers truthful and insightful, and punishing those who engage in deliberate deception.  In other words, the electorate needs to be more committed to the pursuit of truth than it is at present.”

This is a compelling idea, but when one thinks about such things as John McCain’s proposed “gas tax holiday” idea, and the growing demands for potentially damaging offshore drilling for more oil, it seems that honesty is not exactly what the American public seeks.  We want expediency.  We are easily swayed by simplistic plans that ignore more comprehensive understandings.  For instance, in considering the issue of a “gas tax holiday”, we see that federal gasoline taxes are needed to pay for building and modernizing and maintaining our nation’s highway system.  The 2005 Report Card issued by the American Society of Civil Engineers rated the nation’s infrastructure with a “D” grade.  That’s failing, to me -- our infrastructure is literally crumbling!  The civil engineers estimate that we need to spend $1.6 trillion in the next five years to fix our roads, bridges, water systems and other critical public systems.  We should at least be required to pay as we go when we drive our cars, so that we will be investing in our national infrastructure instead of letting it fall apart as we use up the remaining supplies of oil on Earth. 

In the eight month period from November 2007 to June 2008, the price of gasoline skyrocketed, causing Americans to drive 50 billion fewer miles compared to the same period a year earlier.  This translates to a reduction in the amount of gasoline burned of almost 4%.  Federal gas taxes are a mere 18 cents per gallon of gas, or about 4% of its cost.  Yet this tax generates billions of dollars for the maintenance of roads and bridges.  The decline in gasoline sales has caused a shortfall of $3 billion in the federal highway trust fund this year.  The “gas tax holiday” proposal would further reduce the amount of money available to maintain our highways and bridges.  Instead of this politically calculating and shortsighted proposal, we actually need wisely targeted ‘green taxes’.  In other words, we need policies that are intelligently formulated, not merely populist short-term-oriented expediencies. 

How many more bridge collapses like the one in Minneapolis in August 2007 will it take to drive this point home?  We must demand that our legislators and the occupants of the White House choose better paths forward, and stop using the borrow-and-spend scheme to stimulate the economy and give perks to insiders and finance wrong-headed solutions to our problems.  Such gambits cheat people in the future by saddling them with ever-growing mountains of debt.  The Department of Transportation reports that there are more than 150,000 bridges in the United States that are either “structurally deficient or functionally obsolete”.  This is a serious liability!  It is also a crucial metaphor for the failure of our political system, whose structure is becoming ever-more glaringly deficient and functionally retrogressive.

An analysis of recent Republican offshore oil drilling proposals reveals them to be similarly foolish in using deceptive arguments and misleading information.  Google “Pensito Review about Closing Enron Loophole” for perspective on the folly of claims that oil drilling will reduce gas prices.  We need wise plans with quicker effects that are long-term oriented, not just popular but short-term oriented plans.  We need policies that are fiscally and socially and environmentally responsible.  We need honest leaders who fully understand issues, and who can articulate the truth and the whole truth to citizens.  And we need proper regulation and oversight of markets and speculative activities to make sure we avoid future economic bubbles such as the ones that are dramatically destabilizing our economies today. 

Bubbles of Perception and Ideology

Supposedly good intentions often lead to bad outcomes that are not entirely unpredictable.  We should listen carefully to opposition voices for kernels of validity in their points of view.  We should analyze and debate ideas fairly before we enact new regulations, and before we eliminate existing regulations.  We should be nimble in changing course when it becomes obvious that current policies are contrary to the greater good.  There are, after all, many sides to truth, and the most accurate ideas result from “the fullest and freest comparison of opposite opinions,” as John Stuart Mill once wrote.

There is a Mega Bubble, in the biggest context, which is the ‘whole enchilada’ of agricultural, technological and industrial revolutions that have facilitated an extraordinary increase in the number of human beings on Planet Earth.  The Mega Bubble includes all the economic bubbles and resource usage bubbles, and also a big bubble of misperception.  This is an all-encompassing version of the disingenuous and even self-delusional “White House bubble” that Scott McClellan writes about in his insight-filled book, What Happened: Inside the Bush White House and Washington’s Culture of Deception.  When enveloped in such subjective bubbles of perception and ideological certitude, it is difficult to see things clearly or objectively.

This Mega Bubble is much larger than just a narrowly circumcised way of thinking or an ideological discrepancy in worldviews or a period of speculative excesses.  It is larger than ephemeral economic blips, for it is a transformative step in human civilization.  The Mega Bubble is a stage in the evolution of life on Earth when one species -- Yay for us! -- has become dominant.  But we have unfortunately developed tunnel-vision hubris, and we think everything is about us.  Consequently we are acting with such myopia that we are failing -- Boo, hiss! -- to figuratively see the forest for the trees.  We are failing to live in sustainable ways.  This must inevitably change, and it will, whether we take steps to cushion its blows, or not.

Numerous are the risks we are collectively taking through our daily activities.  For deeper understanding, check out the fourteen overarching gambles that humanity is taking, as explored in Chapter #38 -- The Bet Situation of Comprehensive Global Perspective: An Illuminating Worldview.

The Follies of Phil Gramm

Controversies surrounding gambles and speculation and deregulation may seem arcane relative to the existential challenges of the Mega Bubble.  Everything is interconnected, however, and here is a fascinating perspective on actions that have seriously harmed the international economy in the name of ideological certitude.  Consider the actions of former Texas Senator Phil Gramm that have contributed to wild risk-taking, speculation, predatory banking, mortgage shenanigans and other foolish financial activities.  This story may be less scintillating than the scandalous story of Charles Ponzi and his swindles, but it involves much more money and larger, more scurrilous and more damaging schemes that are being exposed by the financial crisis on Wall Street today.  Gramm’s deregulatory zeal did not merely involve simplistic get-rich schemes;  it helped create an electricity-market fraud that cost Californians of billions of dollars, and also speculative oil futures trading scams that have roiled energy markets, and an unregulated derivatives and mortgage securities schemes that have put our entire economy at risk. 

Phil Gramm was the Republican chairman of the Senate Banking Committee in December 2000.  He pulled a sly legislative maneuver by attaching a 262-page ‘rider’ called the Commodity Futures Modernization Act to an 11,000 page federal government omnibus spending bill.  When the whole kit and caboodle was signed into law, the Act was barely studied or debated.  The Act deregulated financial markets.  It was written by Gramm and banking industry lobbyists to free markets from regulation and oversight.  The provisions of the Act are turning out to be extremely costly for Americans and investors worldwide. 

Phil Gramm was one of the senior economic advisors to John McCain until just after he made this comment about the economic recession:  "You've heard of mental depression; this is a mental recession."  Gramm added that "We have sort of become a nation of whiners …”  Gramm implies that if only we would all cheer up and go shopping with more enthusiasm, and borrow and spend some more, everything would be better. 

So the recession is psychological, huh, Phil?  Let’s see, at the time Gramm said this, home foreclosures were up 50% from the prior year, real wages had been declining, unemployment was spiking, and the costs of food, electricity, gasoline, heating oil, education and health care had been skyrocketing for years.  The dollar had declined in value precipitously because of our imprudent debt-financed fiscal policies.  Home prices are declining, and stock prices had plunged by 25%, indicating that they were in shaky ‘bear market’ territory.  Gee, and it only SEEMED bad?  What virtual reality is this?  (Let ‘em eat cake?).  Things have gotten dramatically worse since then, making Gramm’s allegations preposterously poorly prognosticated.

Phil Gramm’s insensitive gaffe eliminated him from the McCain campaign, since it was politically incorrect as well as remarkably dumb for him to blame Americans for attitude problems who are the hardest hit by failing Republican economic policies.  His remarks were so egregious that they now bring closer attention to Gramm’s ignoble record and the entire laissez-faire scams of market fundamentalism and the dangers of poor regulation and inadequate oversight. 

Market fundamentalists actually do not want free markets -- they want markets rigged to their own personal advantage and benefit.  They want privatized profits and socialized costs and risks.  Rigged economic rules, together with regressive changes in taxation and trickle-down economic policies and privatization gambits and debt-stimulated consumerism and domineering insider influence and deregulation and heavy spending on the military -- all of these things together have resulted in a GUSHING UP of wealth to the richest Americans.  They have also created dangerous systemic risks that threaten to cause even more serious instability and hardships for the average American.  This is disaster capitalism at work, and it is pathetic! 

The Commodities Futures Modernization Act contained an “Enron Loophole” that exempted energy trading from regulatory oversight, and this allowed Enron Corporation to game the energy trading system so that in the six months after this provision was signed into law, California suffered dozens of rolling electricity blackouts.  Enron used energy trading practices that were grotesquely manipulative, and it engineered artificial shortages to game the market and unethically make excessive profits.  The cost of energy for Californians TRIPLED as Enron and other energy companies gouged Californians to the tune of $40 billion in electricity costs.  Enron was Phil Gramm’s largest corporate contributor, and Enron also employed his wife Wendy, who was on its Board of Directors.  Wendy had curiously been the former chair of the federal Commodity Futures Trading Commission.  Despite these conflicts of interest, the Gramms have never been forced to pay the piper.  Enron subsequently collapsed in a scandal of serious improprieties and enormous proportions.  And Wendy Gramm had been on the Board’s Audit Committee, and gee, she never suspected a thing?  Maybe ideological anti-regulatory convictions have a bizarre side effect of blinding believers to scandalous accounting improprieties! 

The Enron scandal episode shows once again that the institutional bribery and influence peddling that characterize our electoral and legislative systems are inimically poor ways of operating and governing.  This is a provocative reason that we need publicly–financed Clean Elections AND Congressional ethics reform.

There is even worse news relating to the Commodities Futures Modernization Act, for it has allowed hyper-speculation and the manipulation of oil futures trading markets.  The law has thus been one of the factors that have led to extreme volatility in oil markets this year.  According to June 2008 testimony before a Senate Committee by Michael Greenberger, the former director of Trading and Markets for the Commodities Future Trading Commission (the government board that oversees commodities markets):

“Yes, overnight [closing the Enron Loophole] would bring down the price of crude oil to get at least a 25 percent drop in the cost of oil and a corresponding drop in the cost of gasoline. Some people estimate 50 percent.”

Here was a suggestion that might have allowed an immediate and dramatic reduction in the price of oil and reduced inflation with the stroke of a pen, and done so without increasing the risks of oil drilling spills.  It simultaneously offered the possibility for far-sighted legislators to implement smart green taxes on oil consumption that could help address many of the critical budget issues we face today.  But, NO, Congress has not acted on this, primarily because Republicans are obstructing such reforms.  Since these words were written, oil prices have plunged from a high of almost $150 per barrel to about half of that, due to declining demand and fears of a deepening international recession.

The Phil Gramm story gets more unsavory.  Gramm was instrumental in getting the Gramm-Leach-Bliley Act passed in 1999, the law that repealed the Glass-Steagall Act of 1933.  That banking law was passed during the Great Depression to prevent banking conglomeration and future economic collapses.  It prevented conflicts of interest that exist between depository lending and investing banking goals, and established controls on speculative activities and reduced opportunities for banks to get involved in risky and fraudulent actions.  Phil Gramm’s help in getting financial markets deregulated has been a contributing factor to the growth of power abuses by investment bankers and risks associated with financial institutions taking unwise gambles with highly leveraged debt.  Bigger risks resulted that are involved in new financial instruments like mortgage-backed securities.  These are risky home mortgages that were bundled together into snappy-sounding ‘securities’ and then aggressively marketed to investors all over the world, with the collaboration of excessively rosy assessments by credit rating agencies.  When rapid home price appreciation inevitably reversed course from the stimulated 1997-2006 bubble, homes began to be foreclosed upon, and a meltdown in subprime loans began.  This has escalated into an international credit crisis that has led to trillions of dollars in losses. 

This fiasco was caused in large part by deregulation and inadequate oversight of financial institutions.  It has created dangerous financial instability worldwide.  Merrill Lynch, for instance, sold off $31 billion dollars worth of mortgage-backed securities in August 2008 for a mere $7 billion.  Merrill Lynch was subsequently forced to sell itself to Bank of America on September 15^th, the same day that the 158-year-old financial services firm Lehman Brothers declared bankruptcy.  Lehman was a victim of the mortgage meltdown and of highly leveraged debt risks that it took in a once-lucrative gamble to make bigger profits.  Losses like this have eroded many people’s savings and investments.  Nice going, Phil!  Shouldn’t you be forced to wear an ideological dunce cap in public -- or be sent to jail?

For a clear, entertaining and simplistic explanation of how the mortgage crisis developed, check out the entertaining piece on the Internet called The Subprime Primer.  This cartoon explains things in clever images -- just keep clicking on each screen as the various stages of the scheme-y swindle are explained.  The cartoon makes it clear what was involved in the whole mortgage fiasco from the sale of real estate and the granting of mortgage loan to the activities of banks and certified public accounting firms and ratings agencies, and then on to investors and pension funds and the average person.  The Subprime Primer’s broad categories are:

   At the Mortgage Brokers …

     A Few Weeks Later, at the Bank …

       Let’s See What the Smart Guys At the Investment Bank Are Doing …

         Let’s drop in to see the Accountants …

           Gee, We Never Saw It Coming -- at the Norwegian Village Pension Fund …

                “Fuck you!”                 “Fuck you!”                        

                    The End

The person who sent me the Subprime Primer sagely noted, “This would be funnier if it was fiction.”  Can’t we all just get along -- and strive to emphasize greater good goals?

An Aside Concerning Legal Justice

Let’s switch hats, and think honestly about a related issue:  legal justice.  Millions of people’s lives have been traumatically upset by being arrested for committing the supposed sin of smoking or selling marijuana.  Our nation has been involved in this punishing war on drugs for many decades, and in many ways it has been a proxy war to arrest black people and “leftists.”  Countless other people, mostly women, have been busted for violating our puritanical prohibition against prostitution, because God supposedly is vehemently against the sin of the “world’s oldest profession”, at least according to fire-and-brimstone preachers, who God purportedly talks to upon occasion.  In the mean time, others hob nob in the highest circles, wallowing in their rectitude and freedom, enjoying their wealth and power gained from sometimes dastardly deeds and often guilty of crimes against humanity or war crimes or zealous underhanded shenanigans that have caused great financial losses to hundreds of millions of outsiders.  We  figuratively throw the book at the petty criminals -- “three strikes, you’re out!” -- but then we let scoundrels who make grievous miscalculations or perpetrate outright frauds off the hook and reward them with bonuses and champagne and high status.  Apparently the magnitude of the injustices they cause is so lofty, and the scope of their wily skullduggery is so vast, that they are above the law, protected by custom and veils of deceit and the black-robed establishment.  Is this liberty and justice for all?  In my own particular bias, I am thinking here of people like Phil Gramm and George W. Bush and Dick Cheney and Donald Rumsfeld, but feel free to substitute the name of your own candidate for worst-person-of-the-world award into this perspective!

The Integral Derivatives of Deregulation

The 2008 credit crisis has rapidly grown worse than the bursting of the housing bubble.  It has gotten worse than mere gargantuan losses incurred by investors who bought risky mortgage-backed securities.  It has even gotten much worse than the collapse of the investment banks Bear Stearns and Lehman Brothers and the financial disruptions that led to government takeovers of Fannie Mae and Freddie Mac and the insurance giant American International Group (AIG). 

Now the entire global financial system is shaky.  The underlying reason for this is that transactions used to insure the recycling of trillions of dollars in trade have frozen up.  Relatively arcane financial instruments called “derivatives” are crucial to the orderly movement of trade dollars, and these derivatives have become much riskier.  Derivatives are financial instruments that derive their value from the value of other securities.  They come in many types:  common ones include interest rate hedges and commodity futures contracts, and credit default swaps.  These derivatives were created to allow owners of assets to pass the risk of owning the assets to someone else.  Credit default swaps are a $50 trillion market that are essentially forms of insurance against bad loans, and once millions of loans all started going bad at once with the bursting of the real estate bubble, epic losses have come to threaten the entire economy.  Derivatives are extensively used in international commerce to facilitate global money flows, which are many times greater than the entire $15 trillion annual U.S. gross domestic product.  Without the assurances provided by derivatives, global trade might be seriously hampered.

There has been very little regulation or oversight of markets in derivatives, thanks once again in part to Phil Gramm and the Commodity Futures Modernization Act.  Speculators have gotten into the act, and leveraged their gambles, and this has made the very hard-to-understand derivatives market even more vulnerable.  Fixing this market for derivatives will be difficult, and the goal of finding a fix does not have strong enough vested interest proponents, so the chances are that it won’t happen in an optimum manner, according to investment advisor Jim Jubak.  Stagnant economic growth is likely to result.

Why is the deregulation of financial markets having such disastrous and ominous results?  Because deregulation allows greed and corruption to gain sway.  The abandoning of good regulation and oversight of financial activities has opened the door to manipulation of markets and speculative over-leveraging and fraud.  We need to educate all of “the smartest guys in the room” about why the creation of economic bubbles and the facilitating of leveraged risks is a bad idea for the American people in the long-term! 

The desperate steps that the government and the Fed are now taking to address these problems are, to too great a degree, MORE OF THE SAME.  We are in the position that we must protect the system, lurching from crisis to crisis, even though it involves kicking the ball down the field to be dealt with later when circumstances are likely to be even more dire.  These moves may well prevent a more disastrous collapse of the financial system, but economists say that high costs will eventually be incurred in the form of some combination of slower economic growth, higher taxes, higher debt, higher inflation, higher interest rates, a weaker dollar and/or greater financial turmoil.

The too-big-to-fail rationale and associated government bailouts for banks and institutions like Freddie Mac and Fannie Mae may turn out to be ill-advised as far as taxpayers are concerned.  Absurdly under-regulated hedge funds are going bust at an alarming rate, a sad echo of the costly 1998 collapse of a hedge fund run by Long Term Capital Management.  When we allow Big Money to manipulate markets and our political system without adequate regulation or oversight, the results are costly.  They increase systemic risks and result in astounding amounts of ‘corporate welfare’.

We need to understand the impulses that created the first Progressive Era a century ago when Theodore Roosevelt undertook “trust busting” to remedy the scandalous social ills associated with unfettered industrialization and the economic concentration of wealth and power.  Maybe we should simply act to prevent corporations from getting too big to fail!

As an aside, the tax policy related to huge incomes of hedge fund managers is absurdly askew.  Hedge fund managers sometimes make hundreds of millions of dollars in annual income.  These individuals make incredible sums of money, but are taxed at capital gains rates, which are much lower than the tax rates paid by working people.  This loophole is grotesquely unfair and regressive, and it reveals the pathetic depths to which politicians fall in groveling to narrow special interest groups.  This loophole should be plugged up SOON.  This should be one step in honestly addressing the challenges related to the largest national budget deficits that have ever been incurred in world history.

The Optimistic Scenario -- Positive Aspects of Economic Recessions

An economic recession, curiously, can have a silver lining.  It can actually be healthy in some regards.  It forces businesses to be more competitive and less wasteful.  It makes people re-evaluate their consumption and spending habits, so it can lead to healthier perspectives and behaviors.  It theoretically forces the government to become less bureaucratic and wasteful.  The current economic slowdown and dramatic increases in the price of gasoline are beginning to change the dynamics of work and leisure travel, and of suburban sprawl, long commutes, heavy traffic, gas guzzling SUVs, the use of mass transit, monster homes and other dysfunctional aspects of our society.  Gas-saving “staycations” have come into the common vocabulary this year, and maybe more people will spend time going for walks outdoors or reading, which would be a potentially positive development.  Check out the list of great books that have been a formative influence in the ideas of the Earth Manifesto;  they are summarized on Part Five on the Home Page under Recommended Reading for a Broader Understanding and Appreciation of the World.

There even may be a silver lining in the enormous cost of wars, because it could well prove to be a far more powerful influence in ending our wars and military occupations in the Middle East than the failure of the disingenuous ideologies that started them.  It took eight years of the Soviet’s Union’s occupation of Afghanistan before the high cost bankrupted Russia and caused the Soviet empire to crumble, so it will be interesting to see how much longer our U.S. economy can withstand the military overstretch and high cost of fighting wars in the Middle East.  I personally can’t wait to see people rise up and say ENOUGH, Neoconservatives! -- We do not want more of what you’re selling at such a high cost.  Our imperial strategies seem to be motivated by arrogance, and its underlying motives are base.  They involve chicanery and immoral profiteering and the sacrifice of the lives of our “troops”, who are recruited from a pool that generally has poor options in their lives.

Hard times eliminate some of the absurdities of unwise business expansion and wasteful inefficiencies and redundant efforts and the froth and inflationary pressures of boom times.  Unfortunately, workers and poor people are generally the ones who are impacted most severely by economic hard times.  In good times this group lags behind, and in bad times unemployment increases and many people fall through the cracks.  Such is the nature of capitalism.  It seems to me that it should be a goal of our societies to ameliorate such conditions and the impacts on the most vulnerable and severely affected people in both good times and in bad.  There are 100 million Americans who have a net worth of $10,000 or less.  We cannot ignore their plight in good conscience just because they have little power or influence.  When the Titanic sank in the chilly waters of the North Atlantic in April 1912, the lower classes may have been locked below deck, but a kind of chivalry prevailed in which women and children were helped to lifeboats -- not just the rich guys.

Anyway, back to the topic at hand.  Honest leadership and bipartisan cooperation do not appear to be on the verge of materializing in human societies, so all words herein that recommend we seek such things can be taken with a grain of salt.  They are a form of quixotic tilting at windmills, and you may feel free to roll your eyes and indulgently skim over them.  How about those St. Louis Cardinals!?  Lovely weather we’re having!

Knowledge has become unmanageably and inscrutably vast, and distractions abound.  Economic strife and gain possess us in the maelstrom of daily circumstance.  Indulgences beckon.  Mythological Nepenthe subtly seduces the mind toward forgetfulness.  The airwaves are filled with seductive and rancorous voices, and confusion reigns rather than clarity.  Both civility and understanding are elusive.  Yet it is critically important for us to accurately understand what is happening.  When we see the Big Picture in life, we have a better chance of developing larger and healthier perspectives.  This can provide us with more positive and sustainable ways forward.  A focus on the things that really matter can help us to make better choices.  And we can achieve more sensible and realistic ways of seeing the world if we strive to be clear, thoughtful, honest, open-minded, introspective, enthusiastic and hopeful.

 “Analysis belongs to science, and gives us knowledge;  philosophy provides a synthesis of knowledge for wisdom.”        

          --- Historian Will Durant

Alan Greenspan was one of the most powerful men in the world during his long tenure as the Chairman of the Federal Reserve Board, so his deliberations and decisions had great import.  In The Age of Turbulence, he says that the statutory mission of the Fed is to put in place the monetary conditions needed for “maximum sustainable long-term growth and employment”.  He also says that the economic goal that is the most fundamental to long-term prosperity is the control of inflation.  Skeptics say that the Federal Reserve’s strategy is to create just enough inflation to slowly erode people’s purchasing power and keep real wages stagnant, and that the Fed is thereby imposing a hidden tax on people.  This is a strategy that also shrewdly makes debt repayable in the future with cheaper dollars, so it serves to encourage unwise deficit spending.

In any case, I believe that a corollary to Greenspan’s perspective on inflation is that deficit spending is stimulative, so it automatically causes an inflation premium in high interest costs compared to what would pertain without the high government debt.  Therefore, moving toward a more balanced budget could well prove to be important to our long-term well-being.  A sound budget would bring down long-term interest rates because it would reduce inflation expectations, making our economy healthier.

Large amounts of deficit spending have the insidious effect of crowding out funding for investments in the private economy, so they distort investment flows and undermine the economy.  Increased interest costs on higher amounts of debt threaten to create a spiral of rising deficits that make future financial crises more risky.  Excessive national debt also hampers the flexibility of the federal government to deal with natural disasters and economic downturns and other crises. 

People generally don’t understand the full implications of the fact that money that is borrowed at 5% interest will cost 100% of the amount borrowed EVERY 15 YEARS or so, over and over again, even if the principal is never repaid.  For all these reasons, we would be wise to rein in our propensity to excessively borrow-and-spend, and to forsake the short-term orientation of our weak-willed expediency to spend more than we are willing to tax. 

I propose a wise Fiscal Responsibility Act in One Dozen Big Initiatives to Positively Transform Our Societies.  This plan would balance the budget within three years of its enactment.  Dare we even think about trying it?

Improvidence, n.  Provision for the needs of today from the revenues tomorrow.     

                                                                                            --- The Devil’s Dictionary, Ambrose Bierce

John Maynard Keynes was a British economist during the Great Depression and World War II who proposed macroeconomic ideas and advocated deficit spending by the government during recessions to stimulate economic growth and job creation.  But he also advocated budget surpluses during times of an expanding economy to reduce the national debt and minimize inflation.  Our leaders have recklessly been indulging in deficit spending all the time as a strategy to advance their narrow short-term goals and to benefit financial elites.  This shortsighted strategy is proving to be a fatefully poor plan. 

Increasing government spending every year may be a peachy-keen clever plan for some constituencies in the short-term, but it is a foolish expediency that cannot be sustained.  Why?  Government activities are often more inefficient and wasteful than private ones, because they are subject to less competitive pressures.  When government spending is increased, more taxes must be assessed and/or more debt must be incurred.  This can stifle economic activities and weaken the dollar.  Eventually this shrewd gambit will likely cause significantly more problems than the short-term benefits gained by the spending. 

One basic strategy that Republicans have used to gain and maintain power is by cutting taxes, which is popular and clever because nobody likes to pay taxes.  Big business, furthermore, strongly supports this strategy because one of the easiest ways to increase their net profits is to get the government to reduce taxes they are required to pay.  Neoconservatives consider the government to be the biggest problem we face, but since it is unpopular to cut social programs or scrimp to balance the budget, Neocon leaders have championed debt-financed policies that involve irresponsible borrowing and spending.  This allows those in power to make LOTS OF PROFIT for themselves and their supporters and friends, and if the scheme happens to bankrupt the government in the process, then it has the cynical advantage that it may prevent liberals from currying favor from voters by spending more money on social programs.  Yes, this is convoluted, but Oh, so brilliantly and inimically cunning! 

Grover Norquist is one of the leading right-wing strategists in the United States.  He has coordinated ideological conservatives and corporate elites and lobbyists to promote radical ideas that are proving to be devastating to the American economy.  His main goal is tax cuts targeted to benefit high-end earners.  He also eagerly supports deregulation, vouchers for private schools, and the privatization of Social Security and Medicare.  He avowed in 2001 that he wanted the federal government to be cut down enough “to get it down to the size where we can drown it in the bathtub."  These things could turn out to be foolhardy and irresponsible!  Norquist has been ethically discredited through his affiliation with Jack Abramoff, the lobbyist who has been convicted of conspiracy to corrupt government officials, so he does not deserve the outsized influence that his special interest ideas have had in our government. 

Alan Greenspan, when questioned about tax cuts that John McCain is proposing in an attempt to win the 2008 election, said on Bloomberg Television that “I'm not in favor of financing tax cuts with borrowed money."  Greenspan’s perspective seems like one of the biggest no-brainers I’ve ever heard, and I wish that all economists and politicians would stand up and deliver the same prudent message.  Even though it is a BAD plan to borrow money from future generations to enrich the wealthy today, we have been doing exactly that since Ronald Reagan took office.  Now that the resulting tsunami of debt and instability is finally starting to severely impact our nation, we see that our imprudence is severely limiting our options, so it is time to take remedial action.

There are two sides to every story, according to an old adage.  There are good and valid purposes for government activities, but there are also aspects of government that are bureaucratic, wasteful, and overly intrusive.  Some day, and better sooner rather than later, we will be forced to take the government to task like a smart businessperson would, and begin to reduce bureaucracy and waste, and force the government to balance its budget.  And we should also demand that the government respect people’s privacy rights, and ensure greater fairness of opportunity, and avoid starting wars, and promote the best interests of We the People, rather than of corporate entities.  When these reforms are undertaken, clear bipartisan priorities must be in place so that we eliminate sweet deals for entrenched interest groups and corporate welfare rather than those things that are essential to the general good.  For greater insight into the proper roles of the government in our lives, see the essay, Freedom: Utopian Idea and Unifying Objective.

I find it curious that conservatives were traditionally risk-averse, but they now seem to be led by those who eagerly take risks no matter what the consequences.  Conservative leaders, for instance, incautiously reject the Precautionary Principle that states:  “Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.”  Conservative politicians often fervently deny the anthropogenic contributing factors to global warming and climate change;  they deny the risks of our addiction to fossil fuels;  and they deny our real motives for the war in Iraq.  They help Big Oil, Big Coal, and Big Nuclear get gargantuan subsidies.  They underfund and obstruct smart movements toward conservation and efficient uses of energy resources and the development of renewable alternatives to fossil fuels, and they strive to avoid addressing serious issues like global climate change. 

It is astonishingly how shortsighted our big-brained species can be.  Numerous canaries are figuratively dying in many coal mines, yet the politicians in power continue to cherry-pick scientific knowledge, distort public information, and obstruct progress toward smarter planning and policy-making that is oriented toward the longer-term.  Instead of taking steps to solve problems and work with others who want to make the world saner, fairer and more livable, they resolutely pursue their domination strategies, their deceptive ruthlessness, their ideological charlatanism, and their short-term oriented gaming of the system for narrow advantages. 

Laissez-Faire Capitalism, Inequality and Associated Problems

According to Alan Greenspan the greatest strength of the U.S. economy is its remarkable resilience.  Our economy has built-in tendencies and mechanisms to absorb disruptions and to self-correct and recover.  The Federal Reserve performs a delicate balancing act between lowering interest rates to allow easier credit, thus stoking economic growth and fueling inflation, or raising interest rates and making credit too tight, which can lead to increased unemployment and recessionary influences and heightened social unrest. 

Those who have a keen eye for irony might smile knowingly in reading observations made by Greenspan in The Age of Turbulence.  He basically says that central planning is a failure, and there is good evidence to support this point of view.  But doesn’t this cast some curious questions about the wisdom of central banking itself?  The Fed is a central planning regulatory institution in a market economic system that is antagonistic to both central planning and regulation.  Go figure!  Even market fundamentalist Milton Friedman was in favor of abolishing the Federal Reserve System, so more thought needs to be given to the Fed’s role in our economy.

The $700 billion bailout that was designed in a rush during the week of September 22, 2008 gave the Treasury Department an unprecedented amount of power.  How can we trust that former banker Henry Paulson’s plan will actually be fair and responsible to taxpayers on Main Street, as well as to beneficiaries on Wall Street?

Advice given by bankers is generally good for bankers, but has often turned out to be disastrous to government, business, and the people in general.  This sounds like the punch line to some sad joke … but the joke is on us!  Maybe Libertarian Ron Paul can clarify.  He too has called for the Federal Reserve to be abolished, saying that he opposes “the boom and bust monetary policy” of the Fed because it victimizes middle and working-class Americans.  Regulators in general tend to lag behind technical complexities of new innovations in financial markets, so whoever is in charge of overseeing and supervising financial markets needs to be more on the ball.  Financial regulators should give a higher priority to policies that are fiscally sound.

Alan Greenspan says: “… the verdict on central planning has been rendered, and it is unequivocally negative.”  His verdict, in contrast, on free market capitalism is far more positive, although he does acknowledge there are serious chinks in the armor of capitalism like the damages done to the system by corporate malfeasance and other forms of fraud.  He even once noted that when consumer impulses are manipulated by seductive advertising and clever marketing, materialistic compulsions can be seen to “trivialize life by promoting superficial and ephemeral values”.  Maybe we should re-evaluate extraordinary encouragements to “Shop ‘til you drop”! 

Many other weaknesses in our capitalist economic system have become apparent over the years.  This is why so many reforms have been required.  These weaknesses and problems include unethical monopoly business practices, the mistreatment of workers, price gouging, predatory banking, public debt shenanigans, unfair cronyism, corrupting impacts of influence peddling, insider conflicts of interest, product misrepresentations, employee coercion, unsafe working conditions, discrimination, the obsession with growth no matter how harmful the ecological consequences, the externalizing of costs related to environmental damages onto society, dastardly intrigue, imperialistic aggression, amoral exploitation in the wake of disasters, and heightened risks of instability due to bubble economics.  We obviously can’t crow too loudly about how wonderful our system is!

Laissez-faire capitalism does have an Achilles’ heel, according to Alan Greenspan.  This dangerous vulnerability is INEQUALITY.  In the Gilded Age era of the late 19th century, Mark Twain decried rapid increases in economic inequality, and what has been called “the great barbeque".  The outrageous concentration of income and wealth in those days eventually sparked a reaction and a vast reform movement.  The unjust distribution of the rewards of market capitalism increases social stresses and risks of social turmoil and despair and violence.  As disparities in opportunities and income and wealth increase between the hyper-privileged and everyone else, these extremes exacerbate social status differences and threaten to disrupt the long-term prosperity that should be our national goal.  It also increases the risks that authoritarian drives will strengthen to protect the privileges of the powerful and the wealthy, and to defend the unfair status quo, thereby depriving people of democratic fairness and their civil liberties.

Real wages after inflation is taken into account have not increased much since 1980.  This is partially because big corporations have gutted labor protections, and unions have been busted, and workers have been intimidated.  This has weakened the labor movement and allowed many businesses and politicians to largely ignore the interests of workers.  Collective bargaining tends to level the playing field, to some extent, on which businesses and workers struggle.  One of the most distinct effects of the growth of corporate power in the political process since 1980 has been the suppression of the collective bargaining power of workers.  Better balance is required in this regard!

All issues are complex, and unions have certainly been given a bad name by today’s dominant establishment ideologies.  Unions are like corporations in that they are sometimes poorly managed or led by corrupt officials, but that does not diminish the overarching fact that collective bargaining is an aspect of free markets that makes the system fairer.  The imbalance between labor and capital has reached too great an extreme.  Legislation before Congress known as the Employee Free Choice Act would assure employees the right to join a union.  This is a fiercely contested issue because of the combination of worker inequity that pertains today and the contrasting power of corporations that oppose changes to the sweet system that allows gargantuan profits to be made at the expense of working people.  Passage of the Employee Free Choice Act is being obstructed by Republicans in Congress and their corporate lobbyist allies, but it arguably is one way to restore a fairer balance to the distribution of the rewards of economic productivity.

Golden Rule fairness principles are at the heart of our democratic republic, while increased inequality is fundamentally contrary to these principles.  It could scarcely be clearer in light of the financial meltdown of 2008 that we need the right kind of rules and transparency and oversight, not the ideological laissez-faire right-wing kind!

Superior Moral Justifications and Creative Destruction

A basic tension exists between freedom and equality.  The more freedom a nation allows, the less the equality that results.  This is the essence of YOYO economics;  “you’re on your own” -- and the rich get richer!  On the other hand, the more equality a nation strives to create, the more constraints must be placed on liberty and the privileges to accumulate wealth and garner perks.  Balance, I say!

In the biggest picture understanding, the critical shortcomings of capitalism and the terrible dislocations caused by “creative destruction” make it necessary for capitalist systems to be more prudently, fairly and transparently governed.  Greed and shrewd shenanigans and materialistic compulsions are natural aspects of human behavior and thus of capitalist economic systems.  Recognizing this, we should design our social institutions and government and laws so as to prevent corruption and fraud and unethical schemes from being used to game the system and gain unfair amounts of power and privilege.  And, equally importantly, we should structure our economic and political systems so that extremes of inequality do not arise and persist and get worse and worse.  

As American economist John Kenneth Galbraith once observed,

“The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is the

     search for a superior moral justification for selfishness.”

The Sky Is Not Falling -- Or Is It, Rapture Believers?

No one knows all the answers on how best to manage the economy, and particularly not conservatives whose stubborn authority-obsessed attitudes often gain control.  They have run our country into the ground over the course of the past eight years.  Every nation struggles with its own challenges, and no matter how fervently we embrace any particular set of ideological convictions, we are not omniscient or supremely wise.  Given this fact, humble and progressive policies and earnest efforts to attain the greater good is the best we can achieve.

Breathe deep and relax, and look at the Big Picture.  The sky is not falling.  The world’s economies are resilient, and there will be a silver lining to the transformations involved in current economic developments.  When we get through this unsettled period, we will have been forced to change things so that we will likely eventually be in better shape, in a collective sense.  In any case, it is counterproductive to cultivate “doom and gloom”, just as it is risky to be irrationally exuberant during periods of speculative excesses.  These words are not meant to minimize the severe effects that this period of turmoil will have on the people who will suffer the most, who are the poor, the unemployed and those who lose their homes and down payments when their homes are foreclosed upon by banks.  Some safety net provisions should be made for these people if we honestly want to be a nation of both liberty and justice for all. 

All crises represent “danger” as well as “opportunity”, as the two Chinese symbols representing the word “crisis” attest.  The current economic crisis is presenting us with a moment of opportunity to be able to make big, positive and necessary changes that have so far been politically unfeasible.  Transitions are underway that will wring out some of the wasteful spending and squandering of resources and unwise speculation.  Corrective demands will result in hopefully more sensible regulation and oversight.  Actions will be taken to emphasize what we need to do to ensure that our market economies self-correct.  It is likely that revolutionary changes will be forced on us all, ones that will alter our behaviors and consumption patterns and the structure of our societies.  Ultimately this will be a healthy development, for it may cause us to transform our economies into ones that are more likely to be sustainable. 

Or will we once again just ‘kick the ball down the road’ and defer problems until another day?  Certainly the recent gimmicky California budget that was passed almost 3 months late is pathetically shortsighted, and the $700 billion bank bailout about to be implemented by the federal government has a high probability of mainly benefiting narrow interests at taxpayer expense.

Wiser plans would call for “green lending initiatives” to be instituted at the mortgage lending giants, Freddie Mac and Fannie Mae.  These initiatives would help the market achieve more energy-efficient designs instead of rewarding suburban sprawl and the building of absurdly large McMansions that are so wasteful of energy and forests and building materials.  We eventually need to do things like this anyway;  and the sooner the better!  We could simultaneously implement better ideas that would motivate the building of more affordable housing. 

Hyper-partisanship and corruptly underhanded methods of competition tend to distort goals and subvert overarching priorities.  Compromise and consensus are needed to formulate fairer laws.  Stubborn ideologies, deceitful marketing and domineering governance are contrary counterpoints to fair and intelligent decisions. 

Under the current Bush administration, for instance, the common good has been subverted largely because radical conservatives took charge of economic policies and pushed through top-end tax cuts, corporate deregulation, subsidies for big businesses, expanded government subcontracting, unprecedented levels of deficit spending, political cronyism, effective assaults on labor organizing, ‘free-market’ but broadly unfair trade policies, and rollbacks of protections for consumers and the environment.  The results have been heightened Gilded Age inequalities, the largest budget and trade deficits in our nation’s history, corporate crimes and scandalous improprieties, financial instability, increased systemic risks, stagnant ‘real wages’ for most workers, a worsening of healthcare inequities, and billions of dollars given away as perks for giant corporations in such industries as Big Oil and Big Pharmaceuticals.  As a result of these irresponsible policies, our national economy is now dependent on the trust and good will of Chinese, Japanese and Middle Eastern central bankers to finance our national debt.  Developments like these have seriously lessened our national security!

As George W. Bush’s term approaches conclusion, the economy and financial condition of the federal government are deteriorating.  In July 2008, the White House upped its estimate of the 2009 deficit to a record high $482 billion, and that does include about $80 billion in war costs -- or any of the bailout costs authorized in recent weeks.  In its policies, the Bush administration has chosen from Ronald Reagan’s menu of ideological beliefs.  Reagan first served up the same policy cocktail -- and got similar results, according to one blogger, even including the corporate plunder that culminated in the collapse of the savings and loan industry and federal bail-out of the late 1980s, which cost taxpayers more than $100 billion at the time.  In any case, the next president will be constrained by the enormous size of the deficit and national debt, and Americans may live to regret that George W. Bush has mortgaged the future with such rash policies.  We’ve seriously limited our options, foolishly backing ourselves into a tight corner.

Conservative policies are arguably flawed by design.  They are inherently oriented toward allowing elite segments of society to gain and maintain power and privilege, and toward facilitating profit-making no matter how much this damages the public good.  Conservative tactics utilize people’s fears and insecurities in a “security racket”, which is a cynical strategy that miscasts morality, disdains government, and champions laissez-faire free market fundamentalism in order to give more influence and privileges to property owners and rich people and giant corporations at the expense of the rights and best interests of the people.  This security racket tends to encourage warfare and create a culture of divisiveness, corruption, deception, inequality and waste.  Conservative ideology effectively promotes aggressive foreign policies and imperialistic interventions that often turn violent.  It also incidentally perpetuates a host of other negative influences like anti-environmentalism and unjust profiteering in credit card company usury and discrimination in healthcare insurance.

Facts and arguments can be persuasive, even when they are deceptive and spurious.  Conservative framing has been remarkably successful, but in many ways this success has come at the expense of the greater good.  Check out ‘Making Sense 2008’ at the website OurFuture.org to more clearly understand the important issues facing Americans during the upcoming presidential election.  This site provides ideas about the best progressive solutions to many issues.

Economic activity is curiously tied rather intimately to the psychology of consumers and investors.  Trust and optimism and confidence in both job security and asset values drive the economy.  Investment euphoria and greed help stimulate materialistic consumerism and create speculative bubbles.  Countervailing fear and insecurity and lapses in confidence create conditions where people withdraw from normal participation in everyday commerce.  Fear can thus have a negative ripple effect on economic activity, causing economic stagnation, runs on banks, bursting bubbles, increased instability of the financial system, recessions or even economic depressions.  This is one reason that George W. Bush urged Americans to go shopping in the unsettling aftermath of the 9/11 terrorist attacks. 

Periods of rising asset values create greater liquidity, and this encourages lenders to make increasingly risky credit decisions.  Conversely, when asset bubbles like the housing and stock market bubbles deflate, a liquidity crisis arises that can threaten the stability of the entire economy.  This necessitates costly government bailouts, usually of powerful entities like corporations and banks and the well-connected.  The government is far less accommodating to poor people and those who lose their jobs and homes, and to those who have little power, even though they are the ones who are generally hurt most by the economic retrenchment that accompanies a bursting of economic bubbles. 

The View from The Bleacher Seats

The whole experience of being in the bleacher seats is entirely different from that in luxury boxes, let me tell you!  Ha!  Note that wise words are often spiced “with a seasoning of humor, not only because wisdom is not wise if it scares away merriment, but because a sense of humor, being born of perspective, bears a near kinship to philosophy;  each is the soul of the other.”  (Thanks to Will Durant, whose book from which this quote was taken, The Story of Philosophy, begins with almost poetic insights.) 

The most intelligent course of action, in any case, regarding economic bubbles and bailouts, would have been to implement smart and proactive approaches in the first place by establishing an economic structure designed to prevent such crises from arising.  Sensible policies, regulations and oversight are desirable, in other words, while an anything-goes free-for-all in which small elites benefit the most is socially undesirable.

There are probably more varieties of regulation than there are of taxes, which themselves are startlingly numerous.  Taxes and regulations are generally good for creating jobs for accountants, bureaucrats and lawyers -- but many regulations are pathetic when gauged against what is best for society as a whole.  Regulations can be somewhat accurately categorized into one of two broad camps.  There are those of the merely red-tape variety that are onerous, partisan, narrowly targeted, unfair, foolishly bureaucratic, and contrary to the greater good.  And there are those that are wisely conceived, effectively administered, just, and consistent with the overarching priorities that our citizen societies should clearly define.  Let’s find a way to figure out which is which, and honorably CHANGE our systems accordingly!

Engineering a Shrewd Disaster

It is instructive to ponder how our leaders have contributed to today’s housing bubble and the related subprime loan debacle and the liquidity and foreclosure crisis.  Tax breaks for home ownership were put into effect decades ago in the form of interest expense write-offs on home loans.  Then in 1997, a generous $250,000 exclusion from capital gains taxes was enacted on the sale of homes that have appreciated in value.  These policies stimulated speculation and housing profiteering and  the ‘flipping’ of homes.  Such tax breaks for home ownership, together with lax lending practices and easy credit and subprime loans, have caused one of the most fundamental of human needs, i.e. shelter, to spiral in cost. 

Enormous appreciation took place in housing prices from 1997 to 2006, averaging more than 15% per year in some places.  Rents have also gone up significantly faster than the inflation rate.  Thus, by making homes a speculative investment vehicle, we have caused the cost of a basic necessity to spiral in price.  This is an unintended consequence that is now turning out to be a significant hardship for millions of people.

Despite the rapid increase in home values in the past 10 years, it is an astonishing fact that the average amount of equity Americans have in their homes has steeply declined.  Consider the facts:  the ratio of home equity to home value was 85% in 1945.  This telling ratio declined to 65% by the mid-Sixties.  Just after Ronald Reagan became president in 1980, a steady decline began and America was cajoled, not reluctantly, into the less than brilliant value of borrowing to spend.  Millions embraced borrowing and consumerism as never before. 

In the summer of 2008, this home equity ratio reached a record low of less than 48%.  How could this be, in light of the rapid increase in home values from 1997 to 2006?  All those years of eye-popping, cock-crowing home price inflation, and the average American has less to show for it than ever.  Why?  The reason is simple:  people have taken the equity out of their homes faster than their homes went up in value.  They borrowed and borrowed, and then borrowed some more.  The economy was stimulated by this ’wealth effect’, and appreciating assets were used like an ATM.  Borrowings were encouraged through persuasively-promoted home equity lines-of-credit.  Now that the inevitable correction is taking place in the inflated prices of homes, consumers and homeowners and renters are being hung out to dry.  The economy is imploding and we are now paying the piper for this over-stimulated bubble of housing speculation, deregulation, consumerism and debt.

Is borrowing a boon?  Or is it our nemesis?  Are we stumbling because of an addiction?  Are the hyper-usury interest rates on credit card now catching up with us?  Many Americans are ‘maxed out’, and this state of affairs threatens not only the foolish and the profligate, but all of us. 

An examination of the Bankruptcy Law passed by Congress in 2005 reveals that its provisions are cozily bank-friendly.  This legislation was written by banking industry lobbyists, so it is no surprise that its provisions are wreaking terrible hardships on people for the short-term benefit of the banks.  Half of those who declare bankruptcy do so because of medical costs they cannot afford.  The blame for this lies partially with our health insurance system, which is broken and unfair.  Like pushers of drugs, banks have gotten us hooked, and the withdrawal symptoms are proving to be severe.  While we have made it more difficult for the average person to declare bankruptcy, we have made it easier for banks and financial institutions and other corporations.  Too big to fail -- bail ‘em out!  This is consistent with our corporate welfare ideology that essentially privatizes profit and socializes risk.  As a national policy, this is madness!

The Fundamental Purpose and Social Irresponsibility of Incorporation

There are two principal legal purposes of corporations:  (1) to maximize profits for owners and shareholders, and (2) to minimize the amount of legal liability to which the management and owners are subject.  Think about this.  It is manifestly absurd to give entities that are so narrowly focused so much power and voice in our societies.  In intense competition, corporations strive to externalize costs of pollution and toxic wastes and worker healthcare upon society.  In pursuing their selfish goals, corporations act in ways that are regarded as pathologically insane in individuals.  The treatment of corporations as having rights equal to individuals with regard to such things as Due Process and Equal Protection clauses of the Constitution gives amoral corporations too much power.  They routinely abuse this power at the expense of workers, communities, the environment, peaceful coexistence, and a sustainable future.  As usual, there is truth in the satirical definitions of Ambrose Bierce’s Devil’s Dictionary:  “Corporation, n.  An ingenious device for obtaining individual profit without individual responsibility.”

Make no mistake about it:  the interests of banks and other corporations are NOT the same as the best interests of the whole of society.  The fact that our political and economic systems allow profit to be privatized and risks to be socialized can be clearly seen in the instance of the costly bailouts of Savings and Loans in the late 1980s.  The collapse of more than 700 Savings and Loan Associations in 1989 was caused by inflation, mismanaged deregulation and fraud. 

Now in 2008, after new bouts of deregulation, many financial institutions and banks have made bad loans and gambled on risky mortgage-backed securities, and new bailouts are taking place that will have an unknown but likely high future cost to taxpayers.  One look at the Bear Stearns fiasco in March 2008 and the Freddie Mac and Fannie Mae mess in August 2008 confirms that sensible regulation and adequate oversight should have been kept in place to keep our institutions honest and flexible and sound.

The Failure of Politics and Where We Go from Here

Many politicians play the “blame game” in our nation’s capitol.  It is my goal to transcend regular politics and the tunnel-vision perspectives that characterize so much bombastic opinion, and to provide clear conceptions herein of What’s Happening Now -- AND of what to do about it.  My basic conviction is that a clearer comprehension of history and of what is going on right now in our societies can help us to move forward into a brighter, more sustainable future. 

Both major political parties are highly culpable in creating the dilemmas in which we find ourselves, so we should demand that they both change in fair-minded ways.  It seems obvious that Republicans have blown their chance to rule by turning in a terrible performance in the past eight years, so we must now elect a Democrat to be president, and demand that he (Barack Obama!) make the big changes that are needed. 

A valuable first step is to reduce the influence of corporate money in our political system by creating publicly-financed Clean Elections.  Some of the best returns on investment in history are the billions of dollars that giant corporations receive for their mere millions given in political contributions.  This is costly to taxpayers and those who will be obliged to pay interest on the national debt, so we must change our election system to reduce the influence of huge corporate entities.  The interests of the people will be better served after such a change, and their future security will be more sensibly protected.

Adequate regulations and oversight must also become top priorities to make our market capitalist system fairer.  Forward-thinking priorities should be established through a process of respectful debate and the seeking of an intelligent consensus.  Balanced budgets that are consistent with these national objectives should be put in place every year.  Once we get started, we may find that change is quite good -- and far better than the status quo, which more than 80% of Americans now see as misguided.

We should strengthen protections of the environment and the natural systems that support us.  We should invest in better public education, and find fairer and more effective ways to integrate skilled immigrants into our communities.  We should take into account ecological considerations and precautionary principles in all of our public policies.  We should stop encouraging population growth.  We may still be able to prevent the series of implosions that could result in the serious faltering of our human Mega Bubble.

Since one of the main purposes of this essay is to give closer consideration to the nature of economic systems, consider this:  While capitalism has quashed centrally-planned economies, we should not deceive ourselves into thinking that we have anything resembling free markets or an ideal system.  Our economic system has actually adopted many features that are more socialistic than they are democratic and laissez-faire capitalistic.  The military, the police, the fire department, the post office and numerous government agencies are public sector entities, not private sector ones.  Central banks control the money supply and monetary policy.  A vast bureaucracy is in place that has extensive and often opprobrious red tape and taxes and regulations.  Corporate subsidies are widespread.  The public sector has increased its share of the economic pie at the expense of the private sector in recent decades.  Government intervention in people’s lives both here and abroad is far-reaching.  A questionably benevolent 21st century Orwellian “Big Brother” is watching over citizens in many ways.  And more people are in prisons in the U.S. than at any other time or place in history.  Surely we could make a better system by altering the status quo!

In conclusion, we have a pronounced need for a powerful new narrative in human affairs.  For decades, conservative narratives have dominated American society and emphasized traditional values, strength, individualism, self-reliance, hard work, war heroics, no-surrender right-or-wrong patriotism, religious faith, us-good/them-evil moral absolutism, trust in authority, loyalty whether right or wrong, and the blaming of liberals for social problems.  Lost in this compelling but retrograde and fear-exploiting narrative are the complexities of cultural diversity, of economic and social justice, of Golden Rule rights of others, and of truth and even honesty.  In the face of accelerating technological and demographic changes in our societies, we need to be more flexible and adaptive, not more closed-minded or stubbornly reactive or oblivious like proverbial ostriches that supposedly stick their heads in the sand.

Patriotism, it seems to me, has been co-opted by right-wing conservatives.  But their leadership has done great damage to America, and it is NOT patriotic to support leaders who abuse their power and damage their country.  Patriotism should strive for higher ideals and better, fairer, less corrupt, more sustainable and more progressive governance.

I personally feel that we need to elect a new leader as President who is capable of articulating and facilitating the far-reaching changes that our situation demands.  Barack Obama offers much greater hope in this regard than John McCain, who just seems “out of it”.  He didn’t even seem to know how to google!  Ideological blinders and slavish adherence to ideas like those of Phil Gramm and the failing regressive economic policies of Ronald Reagan and George W. Bush and neoconservatives would lead to a disastrous future. 

John McCain’s principal but unprincipled hope is to play the fear card.  He was attacking Barack Obama as lacking “experience” until he came up with the thinly-experienced Vice Presidential candidate Sarah Palin.  Experience was a kind of Republican code word that is synonymous with the defense of the status quo.  This unfortunately means that it stands for inegalitarian pandering to the privileged, and regressive tax policies and endless war and red-ink-stained expediencies and ill-advised energy policies focused heavily on oil drilling.  McCain was once opposed to George W. Bush’s tax breaks that primarily benefit rich people, but he now advocates extending these breaks indefinitely.  “Experience” also seems to target strategies aimed at using fear to divide and conquer people and to divert their attention from more important issues.  Experience stands for continued aggressive militarism, and Machiavellian subterfuge, and arrogant American supremacism, and stimulated “What’s the Matter with Kansas” culture wars.  What we really need is statesmanship and diplomacy and cool honesty and true justice and social fairness and bold change for a better future.  John McCain’s “Straight Talk Express” is derailing!  It has careened off course into Orwellian deception.  It has become like George Orwell’s book on authoritarian government, 1984, where War is Peace, and Ignorance is Strength.  Good riddance to these failing ideas and policies!

There is a lot to be done to make this world a better place, and many more wisely comprehensive ways of looking at things.  Let’s get started!!

    Truly,

       Dr. Tiffany Twain

Postscript

Will Durant dedicated The Story of Philosophy to his wife, fellow historian Ariel Durant, with the following words, which I summons as a dedication to readers:

Grow strong, my comrade … that you may stand

 Unshaken when I fall;  that I may know

   The shattered fragments of my song will come

     At last to finer melody in you;

     That I may tell my heart that you begin

       Where passing I leave off, and fathom more.

Imagine me up at the top of the Hannibal city park at Lover’s Leap with its panoramic views of the Mississippi River and the Illinois shore across the river, a slender gal alternately standing with arms akimbo or sitting cross-legged, absorbed in conponderations about weighty topics, and feeling some of the satisfactions of philosophy.  I find myself reminiscing with a smile about all the rich experiences I’ve enjoyed in my lucky life … and yet here I sit now at a keyboard, thinking, typing, imagining, and hoping …