Sweet Orange

According to Pulitzer Prize-winning columnist Thomas Friedman, one of the main problems facing the U.S. is an “I’ll-Be-Gone, You’ll-Be-Gone” attitude about our economy–and the environment. For example, he states that we have been using the same unsustainable accounting practices for both: We have been underpricing risk, privatizing gains and socializing losses, and this is why Bear Stearns and the polar bear are becoming extinct at the same time.

As Friedman sees it, the root of this problem isn’t solely with current government policies:

We don’t just need better government, we need better citizens….We need to make leaders understand you can ask me to something hard.

Friedman see much of the anger at our current predicament as “unfocused” and an unwillingness to make a shift away from the familiar but unsustainable practices that have lead to the current difficulties. Friedman says we are following situational values instead of sustainable values.

Goldman has been the poster boy for banks behaving by “situational values” - exploiting whatever the situation, or rules that it helped to write, allowed.–NY Times News Service

Now brace yourself, because here is an example of the type of immediate change that he thinks we should be willing to make for the long-term benefit: A dollar gas tax.

Forty cents would go to deficit reduction, 40 cents to health care (which would also help to reduce the deficit), 10 cents to subsidize those who can’t afford health care, and 10 cents to those who have to drive long distances.

As Friedman sees it, these measures would help to reduce the deficit, improve the health of the dollar because we won’t be sending $250 billion overseas, and correct an energy policy that is currently empowering some of the most corrupt leaders in the world.

OK, I know that a gas tax is a third rail in politics, and I imagine some of you are muttering some unpleasant words just at the mention of a gas tax. But as Friedman sees it, we cannot continue with an economy based on the expectation of continuous withdrawals without deposits.

Here are some other solutions that Friedman thinks will help our economy:

• Health care reform will allow us to compete globally.
• Investment in energy technology will allow us to compete in the predominant job markets of the not-to-distance future.
• Education in energy technology will allow us to build a better economy.

Sources:

• http://www.nytimes.com/2009/11/22/opinion/22friedman.html?_r=1&em
• http://www.charlierose.com/ (under Web Exclusives)

Thomas Friedman at Davos Economic Forum

According to Pulitzer Prize winning columnist Thomas Friedman, our problems in California are just a preview of the problems that the rest of the country will face. Friedman sees U.S. problems as stemming from the following:

• too much money in politics
• gerrymandering of political districts
• Internet use which “at its worst provides a home for every extreme view and spawns digital lynch mobs from across the political spectrum that attack anyone who departs from their specific orthodoxy.” He also states that “at its best, [Internet use] provides a check on elites and establishments and opens the way for new voices.”
• a permanent presidential campaign
• U.S. business community that has become so global that the business community does not feel  a commitment to local areas or even the U.S. as a whole

Friedman has also stated that much of our problems come from the failure of our leaders–and the public–to think and act for the long term. He calls this our “I’ll be gone, you’ll be gone” attitude toward the economy and the environment. According to Friedman, we have been using accounting practices for both our financial system and the environment that under price risk, privatize gain, and socialize losses.

For video interviews with Thomas Friedman, see Friedman’s New York Times webpage.

Sources: Thomas Friedman, “Advice from Grandma“; The New York Times; Charlie Rose

Following are some numbers that show how Americans have changed the way they look at debt–and not for the better. As these numbers show, age does not always result in cautious actions.

According to the Employee Benefit Research Institute, the percentage of Americans that were 65 to 74 and had housing debt were as follows:

• 1992–18%
• 2004–32%
• 2007–43%

And the Employee Benefit Research Institute also states that Americans in the 65 to 74 age group had the following median amount of debt. Both numbers are in the equivalent of 2007 dollars.

• 1992–$24,609
• 2007–$69,000

The 2007 numbers are the most recently available. As updated numbers become available in the coming years, we will see if we return to our past more prudent debt levels.

A few options exist: The economy improves; we learn our lesson and become more financially prudent. Or economic conditions improve; we develop a short memory and return to bad habits that queue ourselves us for another ride on the bubble wheel.  Or, finally, “the crisis of 2008 represents something much more fundamental than a deep recession” and economic conditions change to the point that we have no choice but to return to our more frugal financial roots.

Source: Tom Lauicella, “Pay Off Your Mortgage,”  The Wall Street Journal

GRAPH: THE FEDERAL RESERVE/MY BUDGET 360

Note: The quote is from NY Times columnist Thomas Friedman.

Once upon a time, in the 1930s (and part of the 1940s to be more exact), we had a depression. In fact, it was so bad that it wasn’t just called a depression; it was called “The Depression.” Along came this guy named Keynes who said I can fix that: Just have the government spend a lot of money; this will create jobs. With more jobs, people will once again have money to spend. The economy will recover.

Then enters President Franklin Roosevelt who said something along the line: Sounds good to me. So the government spent lots of money, but not as much as Keynes had thought was enough to solve the problem. Then along comes World War II, and the US government spent even more money. And, in fact, The Depression was no more. The Keynes spend-your-way-out-of-the-problem solution seemed to work!

So some thought this is a handy tool for preventing ups and downs in the market. When times are bad we can just spend a bit to tweak the economy back up. When times are good, we can cut back on spending (easier said than done).

This worked more or less until the 1970s when this thing called stagflation happened. Usually when employment is high, inflation is high and vice-versa. Not so with stagflation where we get the worst of both worlds. In the 1970s, the government spent, but unemployment and inflation both keep going up—an unusual and unpleasant combination.

The Keynesian model for handling a down economy didn’t seem to work anymore. This decades-old, preferred model for handling economic downturns became passé, and a  model that involves manipulating the money supply emerged. This model, in a modified form, came into full bloom during the Reagan administration and was the new preferred economic model for about three decades.

Tomorrow: more on manipulation of the money supply

This is Part One of a three-part series: A Little Story about our Economy
Part One: The Depression, Keynes, and Manipulating the Money Supply
Part Two: More on Manipulating the Money Supply
Part Three: Solutions?