What economists are not, and what they should do

Most Americans aren’t very good with numbers, and the hucksters and charlatans of the world sure do take advantage of that.  Among the chief hucksters and charlatans are the politicians, and circulating around their camps are the economists.  I don’t trust economists for the simple reason that they use numbers to fool people, rather than determine the truth.

By training, I am a professional navigator.  That includes a bit of math, a bit of astronomy, a bit of meteorology, and a lot of practice.  Navigators today don’t have to sweat the stuff that we used to have to sweat.  The first time I made landfall on Japan, as an apprentice in 1969, we weren’t really sure where we were until we got a radar return from the coast.  Navigators who learned under those conditions learned a very high respect for blunt truth in observation and calculation, and the consequences of, shall we say, “supplementing” the truth.

Here is a brief history of mathematics, science, and economics.  The first thing that people had to figure out was when to start migrating north for the summer or south for the winter.  A bright fellow noticed that during the year, the sun would rise and set progressively farther to the right (or left), until it rose or set as far to the right (or left) as it was going to get, and then start back the other way.  And that if he noted which way the sun was moving, and how far along it was, he could predict when to start the migration.  His predictions proved accurate and reliable, and the people came to trust him.

Time passed, and people discovered how to grow crops on purpose.  But they needed to know when to plant their seeds.  So now, instead of guiding the migration to new hunting grounds, this fellow determined when to plant the seeds.  And his predictions proved accurate and reliable, and the people came to trust him even more.

So now the people sought fertile land, by the river, and the crops flourished.  But every year the river flooded, so the people needed a way to figure out where their borders were after the river went down.  So they went to the fellow who had been telling them when to plant their crops, because they trusted him, and he scratched his head.  But he went to work on this new problem, and he invented geometry, and his answers were accurate and reliable, and the people came to trust him even more.

So civilization continued to progress, and then they sailed across the ocean, and then they built a bridge, and at each step, the fellow’s descendants solved the problems of civilization, and they used algebra and trigonometry and calculus and did their work with instruments and numbers.  And the instruments and numbers gave the right answer so reliably that when they didn’t, when a bridge collapsed or a locomotive exploded, everyone was astonished and the person who made the mistake never got to build another bridge or locomotive.

So finally, when all the really important problems were solved and people had nothing else to do, they started wondering why some countries and some people were prosperous, and others weren’t.  And the people who studied the economy were called economists, and they thought and pondered and discussed, and when they thought they understood what was going on, they wrote about it.  But they didn’t dare use numbers, because they knew that they couldn’t possibly use numbers to describe something as huge and fuzzy as an economy.

But as the general population themselves became worse and worse with numbers, their respect for numbers (and anything expressed in numbers as fact) grew.  So the “economists” realized that if they wanted to be taken seriously, they needed to sprinkle some numbers on their work.  So they concocted some fantastic arithmetical constructs that superficially looked like something from science or engineering.  Like so:

Now that looks like something that would give an answer as dependable as a prediction of the strength of a bridge or the power of a locomotive.  But of course, it’s not.  If a navigator placed the safety of her ship and crew at risk on the basis of such indeterminate information, they would deserve to be sent ashore for good, if they should somehow manage to reach port.

So the economist says “GDP grew by a miserable 1.7% in the second quarter, blah, blah, blah” and everyone listens.  Then, later, we have to revise the actual growth figure for the second quarter.  And then we don’t know what the number really was, and we probably never will.  But that doesn’t matter because it’s irrelevant.  The real problem is that even if we knew exactly what the GDP was, we still wouldn’t know what it means.  But because the “economists” express their theories with such certainty, and so neatly package in numbers, we nod our heads and act as though we’ve learned something.  And of course the “economists”, being as jealous of their position in society as anyone, are in no rush to explain to us that their supposed facts and alleged figure actually do nothing else but conceal the underlying truth that beyond the most basic principles understood for centuries, today’s economists have no more idea what is going on in the economy than an astrologer understands celestial mechanics.

So other than tie themselves into burlap bags with a big rock and throw themselves into the ocean, what should “economists” do?  They should think, they should examine, they should ask questions, they should debate with each other, and when they think they have an explanation of why the economy is so bad, they should write it in an article, with no numbers or symbols or equations.  Just an explanation, like Adam Smith would have written, of what’s happening and why.

I am so glad I got that off my chest.  Thanks for reading.  And may God continue to bless America!

Why it’s impossible to “go back”

I believe that it is beginning to dawn on a wider segment of Americans that this recession is like no other before it.  If you look at the depth and length of previous recessions, from the standpoint of unemployment and recovery, you will see that it’s taken longer to recover from each successive recession.  It’s not perfect, but it’s a definite trend:  http://www.ritholtz.com/blog/wp-content/uploads/2009/02/job-losses-post-ww2.png.  Add today’s chronic crisis in the world’s financial systems, plus a widespread and highly effective radicalization of  politics, and it’s clear we’re on the brink of great changes.  There are three possibilities.

First, this period of simmering, bubbling uncertainty may stretch out for quite some time.  As long as there are currencies that continue to be available and accepted for commerce, we could keep stumbling along for a decade or a lifetime like this.   This is the future in the face of policy gridlock.

Second, we might pass through these times and enter the future.  This will be a future not like the present or the past.  I can’t begin to predict what this future will look like, but I can state what it won’t look like.  It won’t look like the past, because we Americans cannot go back to the past.  I will explain why.

I will divide “the past” into four rough eras, for the sake of analysis and explanation.  First, there is the recent past, which extends backward from today to an era that spans the 1970’s.  The recent past might have begun as late as 1980, or as early as 1970, or somewhere in between.

What I will call “post-War” was the period from the end of WWII until some point in the 1970’s.  It might have been as short as 1945-1970, or it may have extended all the way to 1980.

The third period is simply “The War”, WWII.  This has now become actual history (occurred before most people alive today were born, and no longer in the personal experience of many citizens’ parents).  It is impossible for most people today to imagine the period from 1941-1945 (for Americans, 1939-1945 for many others, and 1933-1945 for the most unfortunate).  World War Two was unlike anything that has come since, it is completely outside our experience or ability to comprehend.

Finally, the fourth period I will draw on is “The Depression”.  This period of American history actually began in earnest in 1930 or 1931, but I will use the stock market crash of 1929 as the beginning point and our rapidly escalating war industry in 1941 as the end point.

Of the four periods, the one that most people use as the model for a desirable and well-functioning economy is the “post-War” period.  The American Dream was created, realized, and enshrined during this 1945-197X period of history.  This is the period that’s often held up as the model of prosperity, the target, the ideal.  This is the period we cannot go back to, and I’m about to explain why.

But first, I want to explain the current period, the three or four decades leading up to today.  Let’s look at what really happened during those decades.  President Nixon wound down the war in Viet Nam, opened diplomatic relations with China, took the US off the gold standard (http://en.wikipedia.org/wiki/Nixon_Shock), and was impeached.

Each of those was monumental in its own way.  Viet Nam continues to reverberate through the American political landscape and the American psyche.  Diplomatic relations with China were absolutely essential if we were to avoid a Cold War confrontation with them in East Asia.  Taking the US off the gold standard is now such a fact of history that it’s earthshaking impact is now accepted as normal.  And Nixon’s impeachment, regardless how guilty he may have been, was the point where populist anti-War counterculture bile splashed over into the political arena.  That political arena remains poisoned to this day by the Nixon impeachment and politico-cultural changes it wrought.  Today’s “elder statesmen” spent their formative years on opposite sides of those issues, so the earliest we can hope for the poison to leach out of the system will be when they pass from the scene.

Anyway, back to this brief analysis of the “current era”.  By the time President Carter’s term was over, the nation was in a real economic crisis.  This was not a cyclical crisis, it was a secular crisis: the United States was headed down the toilet, and there was no obvious way to fix that.  So President Reagan began the “current era” of our economy with tax cuts and deficit spending.  And he cut tax rates, and he borrowed and spent, and it seemed to work.  We expected it to work, so we saw what we expected, and the economy limped and lurched along.

George HW Bush tried some of that, and then went to war, and things briefly picked up, and then crashed back to Earth.

So Clinton got his chance, and after being drubbed in the 1994 elections, he worked with the Republicans to construct a stock market bubble, and it seemed to work splendidly.  We got a stock market of such inflated value that it has never fully recovered, a glowing “wealth effect” that taught Americans one valuable lesson: you don’t have to work hard to earn what you want, it’s easier and more fun to speculate your way to wealth!  But then, of course, the stock market crashed, tax revenues plummeted, George Bush continued deficit stimulus spending (remember the tax rebate checks and “go shopping!”), and finally took us to war.

At that point, with our economy absolutely straining at the safety harness, the federal government decided that since the stock market bubble had almost, but not quite, worked that they ought to create a housing bubble.  Which they did, and which inevitably burst, and in tandem with the banking deregulation enacted by President Clinton, then took down the entire financial system.

Since President Obama was inaugurated, we have tried all sorts of overt stimulus and support measures, and they haven’t worked because they couldn’t work.  “Cash for clunkers” stimulated the automobile market, while it lasted, and once the program wrapped up that market slumped back to pre-stimulus levels.  The “first time home buyer incentives” have been an even more stark failure.  We are at the end of a 30 year run by the federal government of trying to prop up the economy and generate an unsustainable prosperity for the American people.  The federal government is out of ammunition.

The middle class is contracting, the wealthy are becoming obscenely wealthy, and the poor are on a downward trajectory determined by the social and culture deterioration that underpins society.  So why can’t we go back to the post-War era?

There are two broad categories of reasons that we cannot return to the prosperity of the 1950’s and 1960’s.  The first category of reasons is that the world has changed outside our borders.  The second category of reasons is that we as a people have changed inside our borders.  Neither the world of today, nor the American people of today, will allow a return to post-War prosperity.

In 1945, almost the entire rest of the world lay in smoking ruins.  By comparison, the United States had the mightiest and most modern industrial plant in the world, agriculture that could feed entire continents, and all of the cool, latest technology (and what we didn’t have, we stole from the defeated Nazis).  American industry was able to operate without competition from abroad to fulfill the pent up demand of veterans returning from war, and emerging from the Depression.  Between 1945 and 1970, if you bought a pair of blue jeans, they were made in America, of American materials, by Americans.  Imports were rare and exotic.  That world where American industry can operate almost without competition no longer exists.

And we the people have changed since then, and just as dramatically.  As a people and a culture, we went through the Depression together.  We fought and won WWII together.  That was the last war that the rich and the poor fought in and died in together (it doesn’t matter if that is the literal truth, it is what people believed, and belief is reality).  Post-War America was built by the returning flood of servicemen and their wives who had grown up in harsh poverty, fought and bled and sacrificed together, and had no fear of attempting the impossible.  We were a people united by these experiences, bound by a social fabric that required rich and poor alike to make their contribution, and neither at the expense of the other.  We were “in it together”, unlike today’s “in it to win it” orgy of selfishness, petty greed, and jealousy.  That cohesive society and culture that built post-War prosperity no longer exists.

Anyone who claims that if we recreate selected surface accoutrements of the post-War era that we can recreate the underlying prosperity is making a false claim.  We could immediately return to 35% unionization and 91% income tax rates, and it would do nothing to improve our prosperity.  We cannot go back to post-War prosperity because the world and we the people have changed, and the historical forces of economies are taking over.  Post-War prosperity was a fluke.  It’s unfounded to believe that a strong and thriving middle class, a family that could have two cars and two indoor bathrooms on the wages of a working man, is sustainable or normal.

Historically, what the future holds for America is a tiny and fabulously wealth upper class.  A small, if substantial, middle class made up of doctors, lawyers, bankers, very highly skilled craftsmen, and small business owners.  And a very large lower class of transiently unemployed citizens who scrape by at a subsistence level.  That is what the world looks like, that is what history looks like, and anyone who thinks that America isn’t going to look like that needs to explain what is different about America or Americans that will have a positive influence on that outcome.

Now, with all that said, I have not given up on a bright future for America.  I believe that there is a good prospect that we Americans can pull this thing back from the precipice.  There are three things that need to happen for us to have that positive outcome.  Now, doing three things is not hard, but these three things need to be done simultaneously, and that’s not easy.

First, we need to get our government budgets on a sustainable and balanced footing.  Second, we need to rebuild the fabric of America, so that our people relearn the lessons of our parents and grandparents: actions have consequences, decisions lead to outcomes, with privilege comes responsibility, with benefits come obligations.  Third, because these first two would otherwise cause the collapse of the American economy, we need to Buy American, we need to be vocal and visible about Buying American, and we need to let the people around us know that the only status symbol that matters is a pair of jeans made in America, by Americans.  There is nothing else that can create jobs for Americans.  The rich can’t do it, the corporations can’t do it, the government can’t do it.  The only force mighty enough to create these jobs for Americans to sustain us while we rebuild our federal finances and recreate our social fabric is “We The People”.

G’day all, and may God continue to bless America.

A steakhouse style seafood entre …

… for cheap, at home, and easy!  I’m really sorry that I don’t have any pictures of this.  When I invented this last night I had no idea it would come out so good.  First, getchurself some of these:

I got mine at Costco, 12 burgers for $15.  To serve four people, get a pound of medium (31-40 count) shrimp, preferably the “ez-peel” type.  You’ll also need:

a bottle of dry white wine
1/4 cup cream (heavy, whipping, half and half, whatever)
1 tbsp finely chopped dill
a lemon, all of the zest and about half the juice
1 tbsp flour
1 tbsp butter (or butter substitute)
one generous pinch salt

If cooking the salmon on the grill, begin heating  the grill to medium-high.

Peel the shrimp and put the shells into a 2qt saucepan.  Cut each shrimp in half, place in a bowl, and return to the fridge.  Add 1/2 cup water and 1/2 cup wine to the shrimp shells in the saucepan, bring to a boil, and simmer for 15 minutes, poking the shrimp shells around occasionally.  Strain and reserve the stock, discarding shells.  Add the cream to the stock.

In the saucepan, melt the butter over medium heat.  When the butter bubbles, add the flour and stir until you have a very light (blond) roux, about 3 minutes.  Begin adding the stock/cream slowly, stirring constantly, to form a smooth mixture.  Once incorporated, lemon zest and juice, the dill, and a generous pinch of salt.

Take the peeled shrimp out of the fridge, get four salmon patties out of the freezer.  If you are going to use the oven to hold the cooked salmon, warm it to 160F.

Stirring constantly, bring the sauce to a boil and allow to thicken, 1-2 minutes.  Reduce heat and allow to simmer to reduce to a fairly thick sauce.  The juices from the shrimp will slightly thin the sauce.

Cook the salmon patties.  If cooking on an outdoor grill, use your GrillGrates (www.grillgrate.com) over medium-high heat (450-500F).  Place the frozen salmon patties right on the grates, lower the hood, and give them 4-5 minutes.  When the patties release easily, flip and give them about the same amount of time, for 8-10 minutes total cooking time.

Bring the salmon inside and place in warm oven (or cover), increase heat under the sauce to medium high, and add the shrimp meat.  Stir to combine and cook shrimp meat.  By the time the sauce returns to a low boil, the shrimp will be just about done.  When shrimp are pink all over, remove sauce from heat and cover.

Too plate, place a salmon patty on each plate, top with 1/4th of the shrimp and lemon dill cream sauce mixture.  Serve with the remaining white wine.  You can steam or microwave some broccoli or any other veggie that will compliment fish-lemon-dill flavors.  I cooked up some quinoa and put a scoop under each salmon patty for that “elevation” thing.  Dress with a sprig of parsley, and voila!  Glamor and good taste, at home, for cheap!

Cost
$5.00 4 salmon patties
$7.00 1 lb 31-40 ez-peel shrimp
$2.00 1 bottle Charles Shaw sauvignon blanc
$0.50 1 lemon
$1.00 half a container of fresh dill
$1.00 cream, flour, butter, salt
$4.00 broccoli and quinoa

$20.50 to serve four people a gourmet seafood entre with (tada!) a glass of wine.  Is that too cool, or what?  Five bucks a person for a healthy and nutritious, luxurious, fully flavored meal and conversation around the dinner table with family and friends.

G’day all, and may God continue to bless America!

PS: Next time I make this, I’ll post some pics.