Archive for July, 2011

Understanding the Economic Crisis

I posted much of this back in 2009, but given the circumstances I’d like to again note what the nature of this economic crisis is — and thus how the circus in Washington totally misses the boat and in fact is risks real economic collapse.

In 1980 the US economy entered its worst post-war recession, one that would last until 1983.  The pain was real — high unemployment, high interest rates to fight inflation, and major manufacturing sectors going out of business, most notably the steel industry.   Nonetheless, the economic fundamentals were not all that bad.  The US government had gone from total debt of 120% of GDP at the end of World War II to only 30% of GDP, budget deficits were small, and the US ran a current accounts surplus, meaning that we were a net investor in the world.   The US could have responded to that recession by saving the manufacturing sector and investing in national infrastructure.   Instead, the Reagan Administration made a series of bad decisions, starting a process that would yield increasingly unsustainable economic imbalances for the next thirty years.

First, the recession was ending in 1983 due to a dramatic drop in oil prices, which stimulated the economy.  The oil price drop also eased inflationary pressures, allowing interest rates to go back down.   All other things being equal, we were going into a clear recovery.  Yet the Reagan administration increased budget deficits radically.   Total debt went from 30% of GDP in 1980 to 60% of GDP by 1990.   This hyper-stimulated the economy, creating an illusion of economic prosperity — you can think of the country as the equivalent of a family whose costs are declining but yet spending beyond their income through increased credit card debt.

Starting in 1981 US debt climbed rapidly as the Reagan Administration decided deficits and debt were OK; the trend has continued except for the mid/late 90s

Second, believing in the free market, the Reagan Administration allowed industries like the steel industry and manufacturing jobs to die out, to be replaced by jobs supposedly fitting our comparative advantage.   It was thought these would be high tech jobs that would benefit our advanced economy, but it turned out to be mostly service sector jobs, often in the financial industry, which did not produce any goods.   We started consuming more than we produced, as our current account went into deficit.

A current account deficit (not to be confused with a budget deficit or debt) means that we take in more from the rest of the world than we put back.  For us, this was mostly a trade deficit.  You can’t do that unless this is financed by foreigners buying US assets — property, bonds, stocks, currency, etc.    In this case China, Japan, and the Arab world were willing to buy US bonds and currency.  They trusted the dollar and thought these were good investments.   More importantly we were purchasing goods from them, and they knew the money would cycle right back to their economy, bolstering their industrial sector.  For China especially this was a win-win situation — they get a stake in the US economy, and we use that money to buy their goods, further stimulating their economy.   At this point China has about $2 trillion of US assets, and the US relies on China to help finance the deficit.  If China wanted to, it could launch a crippling blow to the US economy.   That would hurt China too, but if you ever wonder why the US doesn’t ever really pressure China, this is the reason.

 

The current account deficit becomes a problem at 3% of GDP.  The US hit that by 1990 and it kept growing.   We kept consuming more than we produced.   Moreover, the country as a whole went into debtor mode.   Saving rates dropped, personal debt (credit card and otherwise) increased, to the point that now the country is about $60 trillion in debt if you take all sectors into account (with nearly $15 trillion of that held by foreigners).  Credit card debt alone is $1 trillion.  Savings rates hit zero in 2006.   Some economists sounded alarms over this, but the wealth illusion made it seem like savings were unnecessary.  Instead of having money in savings, we had it in stock portfolios (in the 90s) and real estate (in the 00′s).   That theoretically meant that we could dip into our wealth if we needed funds, and thus low interest savings accounts were irrational.

Yet the wealth illusion was built on bubbles.   First was the stock bubble, where people literally believed all they had to do to get rich was buy some stock and watch it grow.   We got addicted to the notion of something for nothing.   People were borrowing to buy stocks, knowing they’d earn enough to pay back the loan and make money.  It was quite literally too easy.   And in 2000 (over a year before 9-11-01) the inevitable occurred:  it crashed.   The tech-heavy Nasdaq collapsed, and stocks started reeling.   The current account deficit was up to 5% of GDP, and the only good news is that we briefly had small budget surpluses rather than deficits.

At this point in time a painful recession like that of 1980-83 might have been enough to correct the imbalances and force us to increase production to bring it in line with consumption (and balance our current account).   Yet after 9-11, the US decided that we could not let terrorism bring down the economy.  President Bush said the patriotic thing to do was to go shopping, interest rates were kept very low, and thus a new bubble formed, the housing bubble.

Again, a something for nothing mentality took over.   Making money on real estate became easy, people could borrow from the equity on their home to buy more property, knowing it would go up in value.   Or at times people would borrow against their home just to have a better lifestyle, invest in a company, or pay for college.   Again, a wealth illusion spurred greater consumption, and by 2006 the current account deficit reached a whooping 7% of GDP.   Budget deficits started to rise again as well, as a mix of tax cuts and war (I still cannot comprehend cutting taxes in a time of war) led to rising debt and deficits.

With the financial markets deregulated, bizarre financial products were put on the market.   Mortgages were bundled and sold, and then those bundles were rebundled and resold.   These ‘derivatives’ were wholly unregulated, and produced huge gains as people saw them as both safe (rated triple AAA), and rising in value by 10% or more a year.  The perfect investment!   To keep creating these derivatives for which there was so much demand, mortgage brokers stopped caring if their clients could pay, leading to fraud and a massive decline in lending standards.  This wasn’t because of the government, this was deregulated capitalism!

The housing bubble was so dramatically out of line with historical housing prices people should have expected a collapse!

When the housing bubble burst, this started a chain reaction.   Note: the bad mortgages or subprime sector could not alone bring down the economy.   If it wasn’t for how these got bundled up and turned into complex financial products, the housing bubble could have burst with containable damage; easy mortgages alone were not the problem.   Rather, these complex and little understood financial products came crashing down, bringing the entire financial industry with them.  Bear Stearns felt it first in March 2008, then the biggie came when Lehman brothers had to declare bankruptcy in September 2008.

By September 18, 2008 credit markets had seized completely, the financial system stood at an abyss.   That’s why free marketeers like Treasury Secretary Hank Paulson were forced to go for a massive government bailout, and why Alan Greenspan admitted he was wrong in trusting the market to “get it right.”

However, that is only the tip of the iceberg.   The imbalances in the US economy not only are unsustainable, but it’s clear that China and the rest of the world are no longer willing to continue to finance a completely out of balance US economy.   We need to start producing more, or we will be forced to consume much less.    Even as we try to stimulate the economy, we do so by increasing debt, now at about 90% of GDP, and likely to rise to over 120% of GDP by 2015.

This is why the US cannot afford this fiasco about the debt ceiling.  The imbalances are real, and with the US no longer seen as a safe investment, interest rates could skyrocket causing a downturn that makes the last few years look minor.   This could be as bad or worse than the Great Depression.     The cause has been debt (especially in the 80s and 00s) and de-regulation.   I won’t go into taxes here (click here for more on that), but tax cuts to the wealthy have led to a dramatic increase in the gap between rich and poor, while adding to the debt.   That needs to be fixed.

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Obama’s Big Mistake

In May President Obama should have made a forceful, definitive statement:

“There is some talk about making an increase in the debt ceiling a partisan fight.    That is unacceptable.   The debt ceiling is not about authorizing new spending, but about paying for what Congress already authorized.   If Congress doesn’t want the money spent, they should not put it in their budget — they cannot have their cake and eat it too.     The debt ceiling has been routinely raised whenever we need to borrow more to pay the bills run up by Congress.   President George W. Bush raised it seven times; President Reagan raised it 17 times.

So let me be clear.   I will only accept a clean increase in the debt ceiling.  I will not negotiate on this point, and I will veto any bill that attempts to connect the debt ceiling to other issues.   That would be playing Russian roulette with the American economy, allowing partisan bickering to put at risk our low interest rates, good credit rating and economic recovery.   However, this summer I call on Republicans to join me for a serious discussion on the future of the budget, with the goal of serious deficit reduction as soon as possible.   However, I will not tie that to the debt ceiling, or accept any legislation which does.”

Such a statement, clear and forthright early on in the process could have altered the way in which this discussion has played itself out.   First, real talk on budget cuts could be proceeding without an arbitrary deadline that does not leave time to really think about the implications of perhaps trillions of dollars of cuts in coming years.  Second, America’s economy would be safe from the severe consequences of default.   Finally, the US would not be in a position where the party in the majority in one of the chambers of Congress could use the potential for economic crisis as a way to ram its narrow agenda through.    The Republicans in the House are literally holding the US economy hostage.  It should never have come to this.

President Obama, by deciding he could negotiate and perhaps use this issue to pressure Democrats into accepting cuts, walked into a trap.   It is a trap that goes beyond him personally.   This sets the precedent for a party that does not have the votes to get something done through the usual process to find a way to use threat of real disaster to dictate their agenda to the rest of government.   Rather than trying to win in 2012 (both the Presidency and the Senate will be in play), they want to put a gun to the nation’s head and dare the Senate and President not to give in to their demands.

I’d expect that in a third world state or an emerging democracy in the former Soviet Union, but not in the US.  If politics sinks to this level, then the US is truly in severe decline.    Former Presidential standard barrier for the GOP John McCain lashed out at the House “tea party” Republicans, claiming they were irresponsible and in his words “bizarro.”  Other Republicans have also expressed horror at the events unfolding.   As Senate Majority Leader Harry Reid said, the GOP needs to go back to being the party of Ronald Reagan.   Reagan was an optimist who worked with people to convince them to go along with him.   The current gang in the House are bitter and angry, and want to use threats to get their way.

Speaker Boehner is an enigma.    The most friendly read on his tactics is he simply wants to strengthen his hand and show the tea party brigade that he’s fighting to get the most he can get.   Then when a compromise comes, enough Republicans will join with Democrats to pass it, even if the tea party folk demur.    But to do so in this manner and with this level of incompetence (you don’t announce a plan on national TV when you aren’t sure you have the votes) not only damages the country but hurts his own party — and his chance at keeping his majority.    He may really think he can ram this through, in which case he’s putting the dreams of the American people on the line.

It would be irresponsible for President Obama to give in on this, even if it means default.   The President simply cannot allow the House to dictate policy under threat of disaster.   If he gives in, then the political game sinks to a new low and could get much uglier down the line.   He should have never let it get to this point.

It’s probably too late to demand a “clean” debt ceiling vote.   He’s publicly urged compromise and it would seem erratic to shift now.   But it’s not too late to draw a new line in the sand and mean it.   Compromise that is bi-partisan means something that gets significant support from both parties.   That can happen, and I suspect will — though one gets the sense that process is getting a bit out of control and the principles aren’t really sure where its going.

When a compromise is finally reached, on signing President Obama must harshly condemn the whole spectacle as being an embarrassment to the American people.    He must take his share of the blame, and state that never again will he be party to some negotiation tied to an issue like the debt ceiling.   He must say in late July or early August what he should have said in May.    The US economy cannot be held hostage so that one group can get its way.    That is a threat to the very foundation of our democracy.   They should go through the normal legislative process, including making it an issue in the next election.

President Obama made a mistake opening the door to allow the issue to be used this way.  He must slam it shut, and refuse to open it again, not even a crack.

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14th Amendment a Serious Option?

President Barack Obama claims to have ruled out using the 14th amendment, and if you read the statements of his Press Secretary and the President’s own words, you’d be forgiven for believing that it’s not an option.

However, in politics you never look at just what the principles are saying, you look at what they are doing, and the potential impact of what they say.   For instance, President Obama clearly doesn’t want to invoke the 14th amendment.   But if he threatened to do so, the left wing of the Democratic party would mount a concerted effort to stop any negotiated settlement that includes significant debt reduction in the Senate.  Obama had to convince his own party that they did not have the 14th amendment as a fall back should negotiations fail.  That would be necessary to get them to vote for a last minute compromise.

This also suggests that Obama wanted to reach a “grand compromise” with significant budget cuts, and may still through back channels and secret talks be headed in that direction.   His public schedule has been empty, but full of private and unpublicized meetings.    Things are brewing, but we don’t know what.

The 14th amendment reads in part:  The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.   The President could say that the constitution by stating that the validity of the public debt should not questioned, requires that it be paid.   The only way to do that, and continue spending money the Congress voted to spend, is to raise the debt ceiling.   The interpretation is plausible enough to not be “over the top,” even if weak.

I do not think it is a winning argument.  Article 1, Section 8 gives Congress the power to pay debts and borrow money.  One could argue that Amendment 14 altered this by adding to the President’s power by saying the validity of the debt should not be questioned.  An historical read of this amendment, however, clearly weakens that claim — it is focused on the Civil period and its aftermath.   Nonetheless a literal interpretation (e.g., just the text, not historical context) at least creates an opening for that argument.

Some people claim that President Truman invoked the 14th amendment to raise the debt ceiling.  That isn’t true.  He used the amendment to integrate the military, but during his Presidency there was no increase in the debt ceiling.   In fact, since the debt ceiling was created in 1939 Truman is the only President not to have raised it.    Most have raised it five to seven times, though Ronald Reagan’s years brought 17 debt ceiling increases – not surprising since the Reagan years saw the biggest relative growth in debt in US history.

But for politics the issue becomes murky.    First, President Obama knows the constitution well, having taught it.  He may believe that it is his duty not to violate the interpretation he believes correct, and thus he may have already completely ruled out using the 14th amendment.   That would make him a politician of rare integrity, since for most the question of legality gets replaced by one of political realism — will it work, and can I get away with it.

To the latter, despite Republican calls for impeachment should he go that route (something that might actually help Obama in 2012), he can get away with it legally.   The Senate will never convict him if impeached, and at least until the Supreme Court rules, he could do it.    Could it hurt him in 2012?   That’s harder to say, and separate from the legal issue.   The President would frame it as a matter of leadership and doing what is necessary to protect America from Republicans who would be accused of threatening to do more harm to the US than Osama Bin Laden did on 9-11.   The Republicans would frame as a power grab by a leader who wanted to do things his way, regardless of the rules.   If the country believes the President, he’d win in 2012.   If the GOP convince the public he was out of line, he loses.

The GOP position now is weak due to the reputation the House has of extremism and refusing to compromise.   The GOP is in danger of looking as they did back in 1999 against Clinton when their over the top attacks backfired and helped the President increase popularity.   Of course, Clinton had a booming economy going for him, something Obama lacks.   If the Court ruled against him (something I would consider likely) that would aid the GOP argument and send a weakened Obama into the election.   In fact, if things got that bad Obama might give an LBJ like shock speech, announcing he would not seek the nomination due to the divisiveness of economic battles, perhaps opening the door for Hillary.   (That is not a scenario likely at this point!)

However, looking at the possibilities, it comes down to this: how serious is the threat to the economy, and how well can the US handle either a default, government shut down (which would come from using the available money to avoid default — a huge chunk of the government could not be paid for), or downgrade in the bond rating.   If the threat is serious, the President might decide that it’s worth risking his re-election on doing whatever possible to avoid that outcome.    He could try to couple that with a renewed effort to get significant spending cuts passed to get a debt limit ceiling raised (for longer than six months — which would do no good, really).   If that got passed before the court ruled, it would be worth it.   But more things could go wrong for the President than right, under that scenario.

On the other hand, new voices calling for invocation of the 14th amendment might have a political aim.   If this option once again appears plausibly in the Presidents arsenal, House Republicans (especially moderate Republicans) would realize that their capacity to force the President to do their biding by holding the economy hostage declines.   This would create a real push for an alternative deal that saves face for everyone and avoids clear winner/loser scenario.

Politically, Speaker Boehner has staked everything on his plan, and the drama of getting his own party support it sends a message to the White House and Senate — this is as good as you can get, we had to work to get this!   President Obama has vehemently opposed setting a rehashing of this chaos six months from now.   If either one gets their way completely, one comes away wounded.   Neither will accept that, making a stand off likely.    However, if McConnell, Reid and other power brokers can figure out a face saving deal that can pass and cannot be seen as a clear victory for either side, that will resolve the crisis.

So is the 14th amendment a serious option?   Yes, but only as a last resort, and perhaps not even then.   If it comes to that, it’ll be a very entertaining year in politics coming up, but that would not be good for the country.

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Bush and Obama’s Deficits: the Real cause

The above graph was printed in the Washington Post in Ezra Klein’s column.   What it says may shock you.  For all the talk about Obama wanting to massively increase government spending, it’s clear that the real drag on the budget these days comes from programs passed during the Bush Administration.    The graph does not just include Obama’s spending in his first two years, but projects it outward.    The only way to get spending under control is to undo things done during the Bush Administration!

Add to that the fact that the biggest debt increases happened under Republican Presidents — Reagan and Bush the Younger — and the whole narrative of this being a big government problem caused by the Democrats falls apart.

Now, don’t get me wrong.   I’m not trying to blame the Republicans.   There is too much blame being thrown around.   In many ways the debt spiral has been a cultural phenomenon, as Americans became hooked on consumption and credit, with private debt and credit card debt growing faster than government debt.    In our system you don’t get an economy this dysfunctional without it being a bi-partisan effort.

The blogger “From my inkwell” hits the nail on the head when he indicates that this is really a problem relating to values.   Coincidentally netflix happened to deliver the second Wall Street movie “Greed never sleeps” this week, and we finished watching it Tuesday night.    One thing clear in that world of high finance portrayed a bit caricature-ish but reasonably accurately by Oliver Stone, is that values don’t matter.   It’s a game.

The moral philosopher Adam Smith, embraced by libertarians who often never actually read what he wrote, did not think markets were magic.   Absent a system of ethics and values, markets can easily fall apart because people with inside knowledge can use that to manipulate the game and essentially steal value from others.   They don’t need weapons, they don’t need crude physical force, all they need is an advantage, knowledge and resources.

In 2008 we had an economic crisis caused by a greed induced orgy of marked endorsed insanity.   Mortgage backed securities, considered safe “AAA” bonds, were being manufactured and sold at an unprecedented pace.  The reason for the subprime debacle was not government, but private banks demanding more mortgages that they could bundle into bonds and sell to unsuspecting dupes (like people saving for retirement or municipalities for their firefighters).   Mortgage brokers, unrestrained by ethics, ignored the ability of the buyer to pay back the mortgage and approved insane loans — someone making $30,000 a year could get a $750,000 mortgage.

When this lead to a housing crash and a near collapse of the world financial system, the “dupes” took the loses, but most Wall Street players stayed in the game.    Insider politicians figuratively slept with the Wall Street big shots who are now making record bonuses and posting obscene profits just two years after this great swindle.   And on Main Street?   Well, recession and fear rule.   No values.   No ethics.  Just greed and the market.

It’s not that markets are evil.   It’s more that markets reflect the people who are in them.  If unethical folk driven by pure self-interest make up the market, then you’ll get a system devoid of morality.  The rich will make out big time, average folk will suffer.  The problem in our society now is not so much what policies the government makes, it’s one of ethics.

Yet most Americans are ethical.  Most work hard, care for others, give to charity, and recognize that they are part of a community, connected to others.   But they aren’t the ones with the wealth and power.   They aren’t the movers and shakers, the ones “playing the game.”  Also too many of us, including myself, have gotten caught up in the game of over valuing material possessions and not really thinking about the ethical, environmental and human consequences of our actions.  Pollution, exploited foreign workers, and a growing current account deficit are abstract and invisible, it’s easier to consume.   As MAD’s Alfred E. Newman would say “what, me worry?”

Which gets us back to the budget debate.   Republicans and Democrats have it wrong.  It’s not about whose plan to choose, it’s about embracing a different set of values.   One value is simply to live within our means.   That doesn’t mean never running budget deficits.   We installed a geothermal heating system this June, and we had to borrow to do so.  We’ll have it paid off in less than two years, but debt itself isn’t bad.   Most Americans have a home mortgage and car payments, after all.   That’s why a balanced budget amendment makes no sense — sustainable debt for a good cause makes sense.

But in the “something for nothing” mentality of the last thirty years debt became structural.  That has to change.   It will involve raising some taxes, but also cutting a lot of spending.   With all due respect to my friends on the left, unless the public becomes convinced that higher tax rates are acceptable, spending cuts are necessary.   They should be humane, fair, and involve a restructuring of programs to achieve their goals rather than a heartless slashing, but we need as a society to embrace the idea that government debt needs to be sustainable.

More than that, though, we have to give up the mentality that consumption is “good for the economy.”   Advertisers have created a load of  “artificial needs” (or wants) that people strive to fulfill, usually on credit.   Capitalism is excellent at producing value, but it needs to be shifted ethically to creating opportunities for those who have not, including the third world.   This means finding a way to be productive rather than focusing on mindless consumption.

President Obama gave a good speech Monday, but he needs to broaden his approach.   We need to talk about values, what it means to be part of the American society.   If not, then we’ll keep bickering our way into decline.   There is no magic fix.  Government can’t simply bring back the rah-rah days of hyperconsumption of the 2000’s.   We all have to look inside and recognize that values matter — be it on Wall Street, Main Street, or Capital Hill.

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Obama vs. Boehner

As John Boehner was leaving from giving his response to the President’s speech on the debt, he was heard to say “I didn’t sign up for mano-a-mano with Obama.”  Even he knew that his speech was small minded and weak compared to the President’s appeal to the public.

Regardless of who you think is right on the facts, Obama won the rhetorical war Monday night.   After admitting that the debt was a bipartisan problem resulting from not living within our means, he described the situation like the average American would:

“This is no way to run the greatest country on Earth. It’s a dangerous game that we’ve never played before, and we can’t afford to play it now. Not when the jobs and livelihoods of so many families are at stake. We can’t allow the American people to become collateral damage to Washington’s political warfare…Yes, many want government to start living within its means. And many are fed up with a system in which the deck seems stacked against middle-class Americans in favor of the wealthiest few. But do you know what people are fed up with most of all?

They’re fed up with a town where compromise has become a dirty word. They work all day long, many of them scraping by, just to put food on the table. And when these Americans come home at night, bone-tired, and turn on the news, all they see is the same partisan three-ring circus here in Washington. They see leaders who can’t seem to come together and do what it takes to make life just a little bit better for ordinary Americans. They’re offended by that. And they should be.  The American people may have voted for divided government, but they didn’t vote for a dysfunctional government.”

Speaker Boehner’s short five minute rebuttal was red meat for the tea partiers, using one liners like “Obama wants a blank check.”  Never mind that the money has already been appropriated by Congress and Obama isn’t asking for more spending.   It was partisan, put blame on Obama, and essentially gave a performance that looked like the kind of thing most Americans, especially independents, are sick of.

Don’t get me wrong.  I like Boehner and Obama both.  I think one reason Boehner’s performance was poor is that his heart wasn’t into the speech.    It had to be written before they knew what Obama would say, so it was full of blame for the Democrats and claims that Obama was unwilling to make cuts.   But that was in direct contradiction to what the public had just heard from the President:

“Let’s live within our means by making serious, historic cuts in government spending. Let’s cut domestic spending to the lowest level it’s been since Dwight Eisenhower was President. Let’s cut defense spending at the Pentagon by hundreds of billions of dollars. Let’s cut out waste and fraud in health care programs like Medicare — and at the same time, let’s make modest adjustments so that Medicare is still there for future generations. Finally, let’s ask the wealthiest Americans and biggest corporations to give up some of their breaks in the tax code and special deductions.”

I daresay that if Obama is serious about this — and I suspect he is (much to the dismay of many in his own party) — then most Republican rank and file would be thrilled.    Yet the reason major cuts can’t happen is because Obama wants revenue enhancements — eliminating tax breaks and other so called loopholes — as part of the solution.  It would only touch the wealthiest, and amount to only 15% of the spending cuts.

In that the GOP is playing a dangerous game.   The gap between the middle class and the wealthiest Americans has been rising.    The budget cuts and poor economy will cause continued and increasing pain among the poor and working class.   Pain may be a metaphor, but in this case it’s also real — families will see their lives fundamentally altered in ways they would not have imagined just a few years ago.   The argument that the wealthiest shouldn’t pay part of the price, given they’ve gained the most in the last 30 years (while the bottom 60% haven’t even kept up with inflation), will lose its appeal.    When times are good the Republicans can say “they’re playing class war” and most people recoil.  When times are bad, there very well could be “class warfare.”

Right now we’re at an historic point.   We have a Democratic President who says we need severe budget cuts in order to stay solvent and be able to adapt to the demands of the 21st century.  He’s taking on the left of his own party to make that case.   He says we need structural reform of medicaid and medicare.   He is calling for deep cuts in domestic spending.   And all that Boehner can do is give a partisan speech and reject the package because the tea party wing in his own party won’t accept any new revenues?

Obama won the rhetorical war on Monday night with a call for citizens to contact their representatives and urge them to compromise (apparently the Congressional websites crashed from heavy volume right after his speech.)    Boehner vowed to try to win a partisan war to avoid tackling the issues and put off the question to another day.   His “super Congress” idea probably won’t yield anything not already discussed, it just buys him cover from the tea party faction of his own party.

I believe Boehner is better than that.   He knows not making an historic compromise now will threaten the American dream and risk putting the US on a path towards further dysfunction and severe economic crisis.    He has a good chance to win the partisan short term war and get his plan passed — but that might cause him to miss out on the long term compromise that’s needed to really get the country on the right track.    It’s time to put political posturing aside and make an historic compromise.   The economic future of the country is on the line.

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A Game of Chicken With the Debt Ceiling?

When I was 16 a friend of mine challenged me to a game of chicken.   I had my 1963 Chevy Bel Aire, he had a 1966 Chevy Nova, both old cars.   He described the game — we’d go to a parking lot, start driving toward each other at high speeds, and the first to veer away would lose and have to buy the other a pizza and root beer.    After thinking it over we decided not to, and just went for the pizza.

In a game of chicken the key to winning is to convince the other person you are actually crazy enough to keep going straight ahead even if it means a potentially fatal head on collision.   The other person, realizing that his or her opponent might actually refuse to swerve will ‘chicken out’ and swerve away first, losing.   Two top quality players will wait until the last possible second and both swerve away in time to narrowly avert a crash.   That’s exciting!

Right now in Washington it appears  something analogous to a game of chicken is taking place.   The Republicans, in control of the House but neither the Senate nor the Presidency, what to use the debt ceiling issue to push through legislation that they would otherwise have no chance to pass given their relative lack of power.    The President, recognizing that the House needs to pass something, has tried to broker a compromise, promising significant spending cuts in exchange for both letting the Bush tax cuts expire and closing some loopholes.

Many Republicans, especially those in the Senate and probably House Speaker John Boehner, recognize that this is a good deal for them.    The cuts are significant, the revenue increases minor (still far below what taxes were after Reagan’s tax cut) and the people most upset are Obama’s own liberal base.   Take this deal and the GOP might be setting up a split in the Democratic party.

Speaker Boehner, however, has a problem with his own party — many of them seem to believe that compromise is a lack of principle, and they should stand firm.   So what if the government defaults — most of them don’t like government anyway!    Going into 2012 with the Democrats potentially threatening to take back the House, Boehner doesn’t want a Republican civil war, so he has to get a deal acceptable to his majority.

President Obama’s efforts to negotiate a deal went far, but ran into a barrier when the “Gang of Six” put forth their ideas.  This group of moderate/conservative Democrats and Republicans apparently had more revenues in their plan than Boehner and Obama had been talking about.   Politically, Obama now realized that to get a plan past the Democratic Senate he could not be closer to the GOP side than the Gang of Six was.   He had to increase the new revenues in his compromise plan, causing Boehner to walk out.

Realizing that the Senate rather than Obama was the big hurdle, Boehner sat down to work out a deal with Senate Majority leader Harry Reid.   After all, just as the Republicans in the House want something they can support, the Democrats in the Senate aren’t going to sign on to a partisan Republican bill.   Yes, the House has to pass it, but so does the Senate — and then it has to be something the President can sign.

Sunday night those meetings broke up without a positive conclusion, causing markets in Asia and Monday morning in the US to go down, fearing that the world’s largest economy and major super power might become insolvent.   Symbolically, this would mark the date when the US officially lost its perch as the world’s dominant power.   The potential chaos this could cause in markets scares even the most seasoned investors and bankers.     No one wants this, and some of the biggest donors in the GOP have sent a message to Senate Minority leader McConnell and Speaker Boehner that this would be catastrophic for the US.

Headlines Monday morning told of the talks breaking down, Boehner accused Reid of not bargaining in good faith, and Reid shot back that the Republicans want it “their way or the high way,” unable to compromise.   Meanwhile both the Treasury department and the Federal Reserve are working on contingency plans of what to do if the US defaults, silent about the specifics so as not to cause more market speculation.

To me this looks like a high stakes game of chicken.  Both sides know a head on collision would be potentially fatal to the US economy.     The Democrats come into this a bit stronger.   Besides having both the Senate and the Presidency, they’ve successfully cast this as the Republicans trying to simply get their way, unwilling to compromise.   Indeed, most Democrats in the House believe that compromise proposals out there already give too much to the GOP, they’d prefer the President to be less willing to compromise.

With time running out to reach an agreement to have it passed and signed by August 2nd, the two cars are racing towards each other.   Reid and Boehner stare coldly at each other as they step on the gas, determined to get the other to swerve first — to give in to their demands.   The analogy isn’t perfect.   To “swerve at the same time” they have to find ways to craft a compromise that each side can accept, even without enthusiasm.   There could be some creative flourishes (agree to consider a Balanced Budget amendment later?) or symbolic victories that can allow each side to “save face” for the concessions they make.

It appears the GOP would like to have the debt ceiling raised for a short period, to bring the issue back around election time.   That’s risky for both them and the Democrats.   It also could get a very negative reaction from markets.  The Senate probably will not back down on that — at least not in the form of  the GOP would prefer.

My prediction is that they will “swerve at the same time,” an argument will be made, each side will claim they gave up more than they wanted to, but it was necessary for the good of the country.   They’ll then say that if the voters strengthen their side in 2012 they’ll be in a stronger position, and this will become a campaign issue.   President Obama will hail the compromise, and this bit of political theater will pass.

Then again, sometimes in a game of chicken the two cars crash, even if both drivers realize too late that they’ve waited too long and try to swerve away.   Small miscalculations can have devastating consequences.   So now is the time that Reid and Boehner have to show they’re competent to steer their parties vehicles in this high stakes game.

Though as entertaining as this is, one has to wonder if this really is the best way to obtain compromise and help the country out of an economic crisis?

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One With Everything?

Picking up pizzas at a local market I watched as the woman in front of me, exceedingly fat though otherwise attractive, paid nearly $200 for a couple cartons of cigarettes.   Wow!   I was contemplating how glad I am I don’t smoke as I walked out with the pizzas, and saw the woman go into her car with someone I presumed was her mother.  The mom was also extremely fat, and the car had a handicapped parking symbol hanging on the mirror.   Starting my car I said to myself, “life could be a whole lot worse, I could be one of them!”

Then a thought came to me.  Maybe I am.   I spent the ride home having a conversation with myself about that philosophical possibility.    What if every person or every entity we encounter (or perhaps exists in history) is part of the same larger whole?   What if we are one with everything, even though we experience reality as separate beings?

This isn’t a new idea.   Eastern religions and neo-Platonist thought (especially Plotinus) put forth the existence of “The One” which was essentially that.    We experience difference and separation because we operate from different perspectives.    Moreover, it’s really not that hard to envision how that could be.

We know that space-time is an entity that seems to have come “into existence” at the big bang.   What’s outside space-time cannot be imaged.   Our minds are so shaped by the idea of space and time that to imagine something outside of it — existing in no space at no time — is impossible.   That doesn’t mean nothing can exist outside space-time, only that it is beyond even our wildest imagination to figure out what it would be like — I defy anyone to craft a vision of reality that includes neither space nor time (and since space-time is one thing, having just one means you have both).

So if some kind of entity (for lack of a better term) existed beyond space time, it could create a space-time universe.   Space-time allows one to experience reality as separate chunks.   Instead of being “everywhere all the time” (again, we can’t imagine that outside realm) you can experience reality in discrete places at discrete times.   Every location in space-time is different, often distant and not visible to other such locations.   If an entity outside space-time created space-time in order to experience such difference, then it’s perfectly logical to assume that it could operate from multiple perspectives to experience reality in diverse ways.

What the “self” (a discrete space-time entity like us) experiences seems to be all we know because we are focused on this perspective.   Some part of our brain or mind has to concentrate itself into this moment of space-time with laser like precision in order to be immersed in this reality, the world of space-time.   If any part of what we are knows about the greater whole (should this fanciful theory be anywhere close to accurate) it would be deep in our unconscious, expressing itself with symbols or intuitions.   To use a crude analogy, it would be like how each cell in our bodies (or every thought and memory in our heads) is separate and distinct, but still part of each one of us individual space-time creatures.

This isn’t that hard to imagine.   But what does it mean?   For instance, is Anders Behring Breivik, the right wing fundamentalist Christian who acted in a very non-Christian manner yesterday to explode a massive bomb in Oslo, Norway, really a part of me?    Well, I can imagine that.   That part of me who in a fit of anger would want to lash out (Send a missile into that car ahead of me that just cut me off!   Let that irritating politician from the other side be drawn and quartered!   Take a stadium of Nazi war criminals and make them suffer!), would simply be acting out on such an impulse.   The layer between a fantasy of violence and the act of violence is immense and meaningful, but one can easily imagine circumstances where it can disappear — we read about it every day.   In the right conditions, any of us might be pushed to the limit.   Its not that these folk are fundamentally different from us, but that they turn impulses we easily restrain or even repress into reality.

In fact, if we look deep inside and recognize our weakest and strongest moments, our wildest fantasies, curiosities or disgusts, we would have to admit that something in our minds connects to the very best and the very worst of all humanity has experienced.    Almost all of us can avoid murder, rape, and grotesque perversions of humanity at its worst;  most of us are unable to attain the goodness, calm nature and joyful serenity and help/love of both self and others that defines humanity at its best.   But if we search inside, isn’t there a stray thought, impulse or moment of extreme weakness where we can imagine at least the possibility of doing evil?  It’s in us, somewhere — good and evil.

That doesn’t mean the “one with everything” theory is correct, but we can imagine it could be.  In fact, I submit it is more congruent with what we know about modern physics than a purely materialist vision of reality.    But if we take seriously the possibility, what would that mean?   What does it mean that I am really part of the same entity as those cigarette smoking extremely large women in that car (and why do fat people tend to drive slow?)

The ethical implication would be that whatever I do to others, I do to part of myself.   It might also mean that my larger self (Ueber-Self?   All that is?  Pan-God?) grows and improves as humanity grows and improves.  Perhaps the purpose of this existence (these existences) is to, divided out into space and time, work on learning and improving what we are.  If that’s the case, life isn’t just about self-improvement, but also about working to create a better world.   Each individual self can only do a little, but can make a difference.   Ethics, then would be about making choices that help others learn (be it learning to be more self-reliant and responsible, or overcoming a violent angry nature) as well as ourselves.

Of course, we could just be here to have fun — a kind of cosmic virtual reality game like I’ve started to imagine in my quantum life posts.   In that case, a key is not to get sucked into living a life that one doesn’t love and appreciate and to figure out how to make the most of a situation.

I suspect it’s a mix of both.  Our goal to learn and improve probably has meaning beyond that which we can imagine, but can be seen at least symbolically by what seems “good” and “evil” in this life.   There seems to be considerable agreement on the basics of those concepts.  The goal to enjoy it probably speaks to how we have to attain a kind of self-mastery in order to take responsibility for our own choices and lives before we can truly play a positive role in making the world a better place.   Moreover, there do seem to be different types of people — doers, thinkers, followers, leaders, sufferers, perpetrators…perhaps people are in roles reflecting particular parts of the larger self, with different goals and possibilities.

Or maybe not.   Driving home, smelling pizza on a warm summer day with the windows down, it does feel like I’m one with everything.  A sense of connection overwhelms the since of difference.   But that all could be fantasy.   Lacking certain knowledge of what this world is about — what life really means —  seems to be an inherent part of life as a mortal human.   The good news is that this leaves us free to speculate and play with ideas, no matter how unlikely or strange!

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