Sunday, May 14, 2006

The Cart Before the Horse

If you have any doubt about how important asset prices have become to our economic health and ultimately our national security, read this.

Anyone else remember when the stock market was merely a manifestation of underlying conditions, and not the means to a political or fiscal end?

13 Comments:

Blogger copy editor said...

How about deploying the National Guard to the border for a brief augmentation of the Border Patrol as a political end?

Do you think the dividend tax rate is so important to the GOP because it helps the Dow 30 and S&P 500? Those green arrows make people feel better.

5/15/2006 11:39 AM  
Anonymous Kevin Wohlmut said...

Somehow we as a nation have convinced ourselves... (a process starting slowly back around the 1980s but picking up a lot of steam in the late 1990s)... that if we just pay ourselves enough phony paper currency in exchange for doing the things that bankers and tech geeks think are cool anyway, then we are creating wealth and enriching ourselves (maybe even the world).

This just makes me tear my hear out with rage. Because whenever I suggest that we could just as easily pay ourselves to feed the hungry, heal the sick, or rebuild public infrastructure -- if those happened to be our national priorities -- educated people patiently explain to me over and over again that communism died in 1988... rather than helping me figure out how we might actually shift our priorities.

5/15/2006 1:43 PM  
Anonymous George said...

Kevin, do you tear your heart or any other body parts out over baseball player's salaries? or Oprah's? (I'm guessing you do- this must be hard on your heart...) The part of the Google insider's riches that went to the state *will* feed the hungry, heal the sick, or rebuild public infrastructure. (Mostly heal the sick, not so much infrastructure.)
Before you can do these good things, you need to generate the wealth that it takes to do them. Somebody values Google enough to pay for the eyeballs it captures. I get a little cranky about fiat currencys and money-shuffling deals too, but the laws of economics, though they are not quite at the level of the laws of physics - are still operative.

5/15/2006 10:29 PM  
Anonymous Kevin Wohlmut said...

Well, umm, I do actually grouse about baseball players' salaries (tho I haven't actually researched Oprah's salary because I never bother to listen to anything she says)... Frankly I think there ought to be a maximum wage, just like the minimum wage, but I'm under no illusions that other Americans are going to join me on that one anytime soon.

But, George, I think you are missing the larger point here -- I think TCR might agree with me most of the way, altho perhaps not take it as far as me -- the things we Americans have been basing our economy on for the last decade or more are in defiance of those "laws of economics" of which you seem so enamored.

When CEOs like John Snow and Tom Freston are paid ever-increasing bonuses while driving their companies into the ground -- when providers of life-critical commodities create artificial shortages in order to jack up prices -- it has nothing to do with the laws of economics, only corruption. This is not "wealth creation". Yet the GDP increases. When Americans spend twice as much on health care as the rest of the civilized world, only to reap generally poorer results, that is not the "invisible hand" -- that is the visible hand of lobbyists. Yet for everyone who checks into the hospital with emphasyma, the GDP increases. When house prices increase 25% every year in defiance of underlying conditions, this is not equity nor value, this is a bubble of empty air. Yet the GDP increases.

What we are basically doing is inflating our own currency by allowing it to become coupled to nebulous economic wankery while moving it away from products and jobs of tangible value. The "all-knowing, all-wise market" (i.e. the mass of easily hoodwinked consumers) goes along with this charade because they see -- and bogus economic statistics are weighted to reflect -- how a select few (CEOs, insurance companies and lobbyists, certain homeowners, derivatives speculators) manage to get obscenely rich off of this fictitious wealth, without actually doing real work, and everyone thinks they will be the next ones to grab a piece of the fictitious pie. Something for nothing: can you blame them? But as TCR keeps reminding us, this system is on shaky ground now. Maybe it'll collapse, maybe it won't. But we'd do well to think seriously about its foundations.

My original point (if you're still with me after running my mouth off) is that these "laws of economics" are only the rules of a game which we have all agreed to play. As you apparently concur, they are not laws of physics; they are a human invention -- and as such, we can change them (if we wanted to) instead of just abdicating all intelligence and control and drooling over how many zeroes there are in our GDP. Money is a symbol which we agree on, not an actual object. Money is the scorekeeper, not the game itself. I don't know if a big crash is really imminent, but from the evidence TCR often cites, it sure looks like this round of the game might be coming to an end. Maybe next round we might have more fun and play a little longer if we treat things like food, medicine, and infrastructure as intrinsically valuable, rather than something that must be 'justified' by first selling enough junk bonds and pop-up ads.

Your comment that we must "generate wealth" with mouse clicks on Google "Before" healing our sick, only reinforces my observation that health, infrastructure, and the public well-being are not our national priorities. Why can't they be? How would that hurt us? Changing our strategy like that seemed to work pretty well for America the last time it was tried, after the previous crash.

5/16/2006 2:00 AM  
Anonymous George said...

Kevin, you make a lot of good points regarding our economic system. I am largely in agreement with you. Health care is something of a special case in that the amount that we could spend on it is essentially unlimited. A large part of present health care spending is not "economically" justifiable, i.e. expensive care in the last couple years of life does not allow the recipient to return to the work force to recoup the cost of care. Obviously, there is more to life than can be expressed on a balance sheet.

I used to work in big Pharma R&D. I can tell you that coming up with new drugs takes a lot of money. Not as much as Big Pharma Liars claim it does, but still a lot. Medical device technology is amazing, and amazingly expensive. I could go on.

We could scale our military down to what we actually need to defend our territories rather than General Motors' "way of life". Then we could use that money to easily provide basic health care for all Americans. Probably the entire Western Hemisphere, for that matter. But we still would not be able to pay for all possible health care for everyone. (e.g. lung transplants for 85 year old three pack a day smokers...) We would still be stuck with making heartless decisions with people's lives, because we don't have infinite money.

5/16/2006 10:53 PM  
Anonymous Kevin Wohlmut said...

I think we're getting much closer to agreement. Although I feel strongly about health care and other "compassionate" services, my main point in my original comment was that it seems like the majority of the U.S. economy, or at least the engine of it, seems to be based on chicanery of varying degrees. Speculation, derivatives, currency arbitrage, labor arbitrage, the latest high-tech frivolities, grossly overpaid entertainers, CEOs, and lobbyists. The flip side of this observation is that, while we shower tax breaks and prestige on the high-finance speculators and money-grubbers, the average Joe who manufactures a tangible product is rapidly disappearing as his job migrates around the world. The average John who simply does a service and gets paid for it -- whether that's your basic health-care worker or auto mechanic -- cannot take advantage of these sophisticated loopholes, and gets reamed. If you started out with a certain pot of money, and devoted all your time to preserving it, cultivating it, protecting it, shielding it, investing it -- theoretically you would pay almost no taxes whatsoever.

Certainly there's a place for investment and high finance, but we need to reverse these incentives. If only we could devote all that scheming energy that goes to chicanery, towards doing something compassionate (and of tangible, lasting benefit -- such as infrastructure or health care) instead.

If we did re-orient our societal priorities towards those who create lasting benefits, like I suggest... obviously we would still run out of money and time in some cases, and as you say "be stuck making heartless decisions with people's lives." But I can't help but imagine there would be a lot of synchronicity benefits and compassionate economies of scale, which would reduce the overall level of misery compared to the way it is now. So much of our economy seems devoted to squeezing a few marginal percentage points past the point of diminishing returns... while core values are neglected.

In the area of health care, for example, I suspect that if the bulk of the population wasn't trying to compete in the high finance arena -- if the simple act of going to work and doing your job well was considered honorable, rather than owning stock and moving up the management ladder -- there would be a heck of a lot less stress, more time for exercise and relaxation, and a lot of the health care problems would vanish right off the bat. If we emphasized simple prevention and health maintenance instead of exotic pills and high-tech fixes, we'd obviate the need for a lot of expensive treatments and research. But we do not do that today, because there is no way to make money off of prudent prevention; the only way to make a lot of money is treatment after the emergency, when the customer is desperate and will pay anything.

Our economic priorities are wrong, and the "laws of economics" led us to this point. We need to rewrite those laws, since unlike the laws of physics, they are a human invention.

5/17/2006 12:01 AM  
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