Ruminations, February 22, 2009

An attitudinal shift

When our government was a right-of-center one under President Bush, it was acceptable for critics of his administration to oppose the war in Iraq but still support the War in Afghanistan.

Now the government has shifted to the left and so have acceptable attitudes. The war in Iraq is over for the most part (yes, still some mopping up but there is an independent democracy there) so it has now become acceptable to oppose the war in Afghanistan. Newsweek is referring to the war in Afghanistan as “Obama’s Vietnam.” Columnist Richard Reeves and former Senator Fritz Hollings (D, SC) have asked, “Why are we in Afghanistan?”

Whether or not you agreed with George Bush, we all kind of understood where we were and the reasoning behind it. The current shift to the left is a whole new world.

An economic shift

There is a tendency to continue doing what one has always done – especially if it has proved successful in the past — and to focus on the short run. A sort of psychological inertia, if you will, keeps us moving in the same direction even when a shift may make more sense.

Throughout the 20^th century, the United States economic model has operated on the principle that home ownership drives the economy and makes the rest of the economy successful. So we configured ourselves to that model.

Presidents have measured their success by the increasing number of homeowners. Generous tax deductions were built into the tax codes for home buyers. And the climbing market price made the home an investment vehicle.

As real estate close to urban centers became scarcer and scarcer, we built expressways so that the land further out would become more accessible. This action required families to acquire additional cars since the sprawl of communities did not lend itself readily accommodate to mass transit and that drove the automobile industry. Then too, urban shopping areas with their restrictive parking became undesirable and suburban shopping malls complemented the move to suburban homes.

This model also supported the construction industry to build these homes, expressways and malls. Owning a home in the suburbs was not sufficient and homes became larger and larger as people were encouraged to move from “starter” homes to larger ones. The housing market helped push the appliance and furniture industries that cashed in on a larger and larger home market.

While home ownership did create more conscientious citizens this model at the same time created the inner city where home ownership was undesirable and conscientious and upwardly mobile citizens would move out. That was a price our society was willing to pay.

Seeing the prosperity that tended to accompany the move to the suburbs, the political hierarchy reasoned that a way to reduce poverty was to encourage, via policy and economic incentives, those on the economic margins to also move into home ownership. The mortgage industry was coerced to lending to those who could marginally qualify for a mortgage. One aid to financing these marginal mortgages was to wrap the mortgages into financial instruments that the financial industry could trade and be absolved from the few mortgages (so they thought) that could default.

Our economic model has now been pushed to the breaking point and our ability to fix it is a question.

At the crossroads of our economy, we are faced with a dilemma: Do we continue to support the existing economic model or do we move to a new one? Continuing to support the existing model is the easiest because it has evolved over a long period of time, we know how it works, the infrastructure is in place, we are familiar with it and we know what to subsidize. At the same time, it is, perhaps, the most precarious choice, because subsidizing growth in that model may be an ongoing and expensive proposition that will be unsustainable. The other choice is a new amorphous model with no concrete suppositions to support it.

In the long run, a free-market approach to pulling back governmental interference and letting a new economic model evolve may be the best choice. That choice would not be without economic pain however, and we are all averse to economic pain. The short-run/current model solution may be the only choice we are wiling to take because, as economist John Maynard Keynes observed, “in the long run, we are all dead.”

Waste not, want not

When the CEOs of the auto companies arrived in Washington for hearings, they were roundly castigated for flying to the capitol in private Lear jets. At a time when taxpayers are shelling out billions to keep those CEOs’ organizations afloat, it seemed to be the height of insensitivity to use those taxpayer funds for expensive personal transportation.

Last week, another chief executive flew on a private Boeing 747 to a symbolic meeting. President Obama flew to Denver to sign the stimulus bill. At a time when taxpayers are shelling out billions to keep this chief executive’s organization afloat, it seemed to be the height of insensitivity to use those taxpayer funds for expensive personal transportation.

Oh well. I guess chief executives are just out of touch with us common folk.

Picking cherries in Connecticut in February

Like most states, the state of Connecticut is having trouble agreeing to a budget. Governor Jodie Rell (R) has submitted a budget to the Democratic legislature and doesn’t like the way that the legislature is picking her budget apart.

Governor Rell said of the Democrats, “They’re cherry picking – literally.” Literally? In Connecticut? In February? They’d have more success nit picking, figuratively.

Quote without comment

Barack Obama, writing of bipartisanship in his 2006 book,The Audacity of Hope: “Genuine bipartisanship assumes an honest process of give-and-take, and that the quality of the compromise is measured by how well it serves some agreed-upon goal, whether better schools or lower deficits. This in turn assumes that the majority will be constrained — by an exacting press corps and ultimately an informed electorate — to negotiate in good faith. If these conditions do not hold — if nobody outside Washington is really paying attention to the substance of the bill, if the true costs . . . are buried in phony accounting and understated by a trillion dollars or so — the majority party can begin every negotiation by asking for 100% of what it wants, go on to concede 10%, and then accuse any member of the minority party who fails to support this 'compromise' of being 'obstructionist.’”

Robert J. Kulak

West Hartford, Connecticut