Healing - or just business?

Recently The George Washington University Hospital mailed me an eight page full color entitled “Health News”.

The title was about as misleading as it could be.

Providing real news about health issues is useful, but this was not news. Excluding the small part of the back page used for my address, the entire publication consisted of advertisements for services offered by the hospital. Six pages were devoted to surgery and physical therapy for back and neck pain, one page to listing upcoming “seminars” which were clearly designed to drum up business, and the remaining two thirds of a page offered membership in their ‘Senior Advantage’ program (whatever that may be) as well as breast cancer screening with the latest and greatest [really expensive] technology.

Infomercials on television are clearly labelled as 'Paid Programming'. This publication was nothing more than an unidentified advertisement designed to sell expensive procedures and services. All it will really do is contribute to the current excessive consumption of medical products and services.

Perhaps the idea of doctors as healers, above all else, is naive and old fashioned. Sadly, the current situation seems to be that most organizations and individuals are in the health care business for financial reward.

Really low interest rates

Interest rates are extraordinarily low and the Federal Reserve is keeping them that way. Yesterday the Fed lowered the target rate, otherwise known as the Federal Funds Rate, for overnight interbank lending to 1.0%.

The commentariat talks about the help that low interest rates provide to commercial and individual borrowers but largely ignores a group that suffers severely from interest rates significantly below the rate of inflation. That group is composed of savers – many of them elderly – who wish to avoid risk and who keep their money in FDIC insured bank accounts, money market funds, and certificates of deposit.

It is not just individuals, either, that are being punished. Many small businesses, clubs, condominium associations and other non-profit organizations have cash reserves which may be needed at short notice (liquidity) and safe (FDIC insured). The interest rates offered to these groups can best be described as pathetic.

Low interest rates transfer wealth from the prudent and thrifty to borrowers - some of whom are far from prudent.

Worse, everyone has agreed to pretend that all interest is real income, on which tax can justifiably be levied, when a large part of it is merely compensation for the declining value of money.

Since governments tax the nominal return, rather than the real (i.e. in excess of inflation) return, the result, except in extraordinary times, is a distorted wealth tax - rather than an income tax - with rates that increase with the inflation rate. So, in addition to the destruction of wealth caused by inflation, savers incur real tax bills on phantom income.

We may hope that Federal Reserve Chairman Ben Bernanke has learned from the mistakes of his predecessor. His objective must be to return interest rates to a normal level as soon as the present panic has ended. Since it is unlikely that the "geniuses" of Wall Street have learned any long term lessons, the risk of yet another asset price bubble is high if he does not.

The conviction of Senator Stevens

There is little doubt that Senator Stevens (R - Alaska) is a nasty piece of work who deserves everything that he is going to get. His conviction, on seven counts of felony corruption, is an outrage but not the only one.

That the voters of Alaska should have elected and re-elected such an obviously corrupt person is the first outrage. As citizens and voters we have a duty to our country to reject those whose sole objective is to raid the Federal treasury for our parochial benefit. We have all too few Senators and Representatives who are willing to act in the interests of our country as a whole.

Senator Stevens's relatively minor crime of lying on his financial disclosure forms is, I suspect, only the tip of the iceberg.

That, however, is not the point.

Think about the prosecution of Al Capone who, in 1931, in spite of his long history of racketeering and violence, was tried and convicted of the relatively minor offense of tax evasion because prosecutors were unable (or unwilling) to address the real crimes. Mr. Capone was also a person who deserved everything that he got but, as in the case of Senator Stevens, the outrage is that the power of the state is used to "get" an undesirable rather than to seek real justice.

A third issue in the trial of Senator Stevens is prosecutorial misconduct. Withholding potentially exculpatory evidence and encouraging false testimony, as happened in this trial, is another outrage.

The founders of our nation had little trust in the government's ability to wield power. We, in our turn, must constantly demand that the government's use of power conform to both the letter and the spirit of the Constitution.

Thomas Jefferson warned us about granting too much power to government:

"A government big enough to give you everything you want, is strong enough to take everything you have."

Theodore Roosevelt, were he still alive, would have understood Senator Stevens:

"When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty'."

Voting for a warmonger?

Those who consider that John McCain, if elected President, will be a warmonger should consider his experience.

His war (Vietnam) began as a pilot, insulated from the particular horrors of ground combat and able to sleep between sheets each night. It ended with five years as a prisoner of war enduring, without a break, torture, untreated wounds, and solitary confinement for longer than most of us can imagine.

This simple statement sums up his philosophy:

"War is wretched beyond description, and only a fool or a fraud could sentimentalize its cruel reality."

The last President with a real understanding of war was Dwight Eisenhower. His aversion to war was as real as his determination to defend the interests of the United States. War was to be avoided but never to be ruled out if truly necessary.

I believe that Senator McCain will, if elected, follow this same path.

Surviving the financial storm

As we try to make sense of economic conditions - now and in the future - there will be more than enough comments and advice from the pundits.

My only advice is that a high degree of scepticism is warranted. After all, these are the people who failed to see that a bubble existed and that it would burst - sooner rather than later.

These words from economist John Kenneth Galbraith are worth considering:

"The only function of economic forecasting is to make astrology look respectable."

Enough said!

Medicine and the market

There are a number of conditions necessary for a market to operate effectively. Among them are these:

• there is a provider who is paid and a buyer who pays;
• the buyer has as much access to relevant information as the seller;
• the costs and benefits associated with the goods or services in question are reasonably clear and available to the buyer.

On November 4, Arizona voters will be asked to approve a Constitutional Amendment (Proposition 101) which is designed to prevent, in Arizona, the implementation of a possible future National Health Service, as in the United Kingdom, or a single payer system as in Canada.

Proposition 101's premise is that the market is the most efficient way to allocate resources. The current financial crisis, however, casts considerable doubt on such a belief.

The exact text is this:

ARTICLE II, SECTION 36. Because all people should have the right to make decisions about their health care, no law shall be passed that restricts a persons freedom of choice of private health care systems or private plans of any type. No law shall interfere with a person or entity's right to pay directly for lawful medical services, nor shall any law impose a penalty or fine, of any type, for choosing to obtain or decline health care coverage or for participation in any particular health care system or plan.

Leaving aside the dangers of writing policy, rather than process and organization, into a constitution, there is little in the way of a working market for medical products and services:

• patients, who are purportedly the buyers, do not pay for the majority of the goods and services delivered by the sellers: insurance companies and government (Medicare, Medicaid, Veterans Administration and TriCare) are the primary payers;
• the uninsured pay little for the care provided through emergency rooms. Costs are shifted to those who can pay.
• few patients have the information, or the ability, to evaluate the merits of any proposed course of treatment.
• the more that sellers "do" to the buyer, the more that they get paid.
• doctors' actions are driven partly by remembered knowledge which may no longer be accurate or complete, partly by patient demands - fueled by direct to consumer advertising, partly by self interested desires for higher incomes, partly by "conventional medical wisdom", partly by fear of tort lawyers, and all too rarely by scientific evidence.

Proposition 101 is intended to perpetuate the present dysfunctional system. Arizona voters should vote 'No'.

The current payment system is largely socialistic - not free market - because it relies on pre-paid medical care plans rather than insurance (a catastrophic, high deductible, plan is real insurance), on government payments, and on cost shifting.

Market failures come about when one person (the doctor or seller) decides what is to be done to a second person (the patient or buyer) who has inadequate information and knowledge to evaluate the proposed course of action. Asymmetry of information is a primary cause of inefficient markets and leads, with few exceptions, to overpayment by customers. Any used car salesman from the pre-Internet era will attest to that!

(In the interests of full disclosure, I did sell used cars - and learned many interesting lessons - for a while in 1971.)

The biggest reason for market failure, however, is that a third person (government or insurance company) pays but has little to say about the cost effectiveness and value of the proposed therapy. Since patients do not pay, they have no financial incentive to seek out the most cost effective treatment. When insurance companies deny reimbursement for treatments that they consider unnecessary or ineffective, they are universally condemned for their heartless behavior.

Politicians who maintain that a free market system can address the woes of the present medical care system are either uninformed, lying, or merely stupid. Our present system is broken and, in the long run, unaffordable. There are surely good reasons why every other civilized country has a universal health care system. Almost all of them - Canada is a notable exception - permit private payment.

The need for leadership is critical. Perhaps, Senator Obama or Senator McCain (whichever is elected next week) will dare to challenge the conventional wisdom, the sterile ideology, and the special interests. Medical care costs will, sooner rather than later, swallow our economy. This must be a priority for our next President.

I may be naively optimistic that either of these two politicians will challenge the special interests over the structure of a sector that accounts for approximately one sixth of our economy. The American model, unfortunately, delivers worse results than the much less expensive and more effective, but "socialist", European models. Given, however, that Senators Obama and McCain appear to be men of intelligence and integrity, we can hope.

At my age, I have little at stake in the decision. I will likely be in another place before the crisis reaches its full flower. I do, however, feel a moral obligation to the next generation, so I will continue to encourage. Others may describe it as nagging, but I beg to differ.

A curiosity of colors

In most countries, the color associated with left wing or socialist political parties is red. Blue is the color most often associated with right wing and conservative parties.

Why, then, do political commentators in the United States refer to Republican majority states as 'red' and Democratic majority states as 'blue'?

Given the Republican Party's hatred of communism and disdain for socialism - even the social democratic version found in Europe - why would it accept being tagged with the color made infamous by the Soviet Union and the People's Republic of China?

Definitely a head scratcher!

The evolution of language - Machiavellian

The meaning of language evolves and the term Machiavellian is now used to describe politicians, and others, who engage in underhanded and manipulative behavior.

Niccolo Machiavelli's http://tinyurl.com/hvct3 most famous work 'The Prince' was published in 1532. Although embodying a realistic and cynical approach to power, it was not an instruction book for self serving or gratuitous political manipulation. While it is certainly a primer on gaining and keeping power, most of the book offers critical lessons on the practicalities of governing.

Senator Obama promises us 'change' and Senator McCain offers 'reform'. The one that is elected will need to understand the realities that prompted Machiavelli to write these words:

"And one should bear in mind that there is nothing more difficult to execute, nor more dangerous to administer than to introduce a new system of things; for he who introduces it has all those who profit from the old system as enemies, and he has only lukewarm allies in all those who might profit from the new system."

Strategic thinking...

Too many politicians - and business people - engage in very sloppy thinking driven by emotion and preconceived ideas. What is really needed is a thoughtful consensus on where we want to go before we try to decide what to do.

Lewis Carroll, in the classic 'Alice in Wonderland' defined the problem better, and more succinctly, than any of the management gurus who opine on strategy:

"Alice came to a fork in the road. 'Which road do I take?' she asked. 'Where do you want to go?', responded the Cheshire cat. 'I don't know.' Alice answered. 'Then,' said the cat, 'it doesn't matter.

If you don't know where you are going, any road will get you there."

Enough said!

More on sailboat racing...

I cannot think of a better lifetime sport than racing sailboats.

The enormous number of different boats that can be - and are - raced, means that, with appropriate changes of equipment, and some applications of cash, it is possible to compete effectively until one is really very ancient.

Part of this is because sailboat racing requires both physical and mental talents. As the boats get bigger, crew members must specialize. Those whose physical skills are not what they used to be are often very welcome for their understanding of weather, tactics, and rules.

And, so long as you don't insist on being the boat owner, the cost of racing is not high!

As I have previously discussed, I am a double leg amputee. I am still an active racing sailor (aged 62) and intend to continue for many more years. As a person with a significant disability - at least according to conventional medical wisdom, one of the really important things is that I can compete against able bodied sailors, under the regular rules of the sport, with no quarter given - or asked.

I just don't know of any other sport that permits this. Wheelchair basketball players are superb athletes but effective competition in the able bodied world, against even a modestly competent High School JV team on its feet, is impossible. Basketball is a sport in which lack of height is too important to be overcome. Without legs, competitive golf becomes really difficult: for those with spinal cord injuries, it is all but impossible.

In sailing, however, we can win if we are good enough. This is proven by three World Champions in the [open single-handed] 2.4 Meter Class http://www.inter24metre.org/ in the past twelve years. At the time of their victories, one was an arm amputee, one had Lou Gehrig's Disease (ALS), and the third Friedrich's Ataxia. There have also been several winners of open events in the Sonar Class. Those are only a few of the successes of sailors with disabilities competing against the world.

To borrow a slogan from the PGA Tour: "These guys [and gals] are good."

If you are interested in more information, try checking out these sites:

International Association for Disabled Sailing (IFDS)
http://tinyurl.com/IFDS2008
US SAILING - Council for Sailors with Disabilities
http://www.ussailing.org/swd/
Sonar Class Association
http://www.sonar.org/

Manwhile, sail fast and, if you haven't tried it yet, come and join us.

Sailing and sailboat racing

For the past three days I have been in Florida attending the annual meeting of US SAILING (http://www.ussailing.org). Mostly we are focused on sailboat racing, which is an Olympic - and Paralympic - sport, but there is a significant part of our work that just involves getting people out on the water.

That I should choose to spend my leisure time racing a form of transportation that clearly became obsolete when James Watt invented the steam engine might seem strange. But no stranger, perhaps, than the activities of those who use a variety of sticks to propel a little white ball into a very small hole located hundreds of yards from the starting point. That sport, of course, is golf!

Whether we race, cruise gently from here to there, or venture out into a too-large ocean in a too-small boat, these words written by Kenneth Grahame in the classic children's book "The Wind in the Willows" http://tinyurl.com/6lt38z sum up, better than anything that I can write, the reason why we do it:

“There's nothing . . . absolutely nothing . . . half so much worth doing as simply messing around in boats” .

Too good to be true...

An old adage, ignored by too many, is that if something seems to be too good to be true, it probably is. The latest example is "Joe the Plumber" who, after an encounter with Senator Obama over taxes, became the poster boy of the McCain-Palin campaign.

Now it turns out that "Joe" isn't a real plumber and owes nearly $1,200 in back taxes to the State of Ohio. Not exactly a prizewinning poster boy!

Senator McCain, and his advisers, should have been much more cautious when faced with an opportunity that really was too good to be true.

A brief break from pandering

After listening to part of the Presidential candidates' debate, and reading the entire transcript, I have a question.

What was Senator Obama thinking when he made this statement during the Presidential Candidates debate on October 15?

"But what is absolutely true is that, once we get through this economic crisis and some of the specific proposals to get us out of this slump, that we're not going to be able to go back to our profligate ways.

And we're going to have to embrace a culture and an ethic of responsibility, all of us, corporations, the federal government, and individuals out there who may be living beyond their means."

That politicians should ever suggest that Americans are less than perfect, and may not be able to 'have it all - right now', has become so politically incorrect that few dare to say so. Then, in his response to the final question about education, Senator Obama went on to commit another monstrous political incorrectness:

"But there's one last ingredient that I just want to mention, and that's parents. We can't do it just in the schools. Parents are going to have to show more responsibility. They've got to turn off the TV set, put away the video games, and, finally, start instilling that thirst for knowledge that our students need."

Thank you, Senator, for those moments of honesty and leadership.

Sadly, nothing that Senator McCain said came close to those remarks.

Education and Prosperity

The mix of jobs, and the skills required, in the U.S. economy is now such that most high school graduates - let alone those who drop out - can no longer aspire to a comfortable middle class income.

As a result, higher (college/university) education has become a necessary precondition for most well paying careers - and for many modestly paid ones as well. Unfortunately, higher education is both overpriced and not very responsive to student needs. For the list price of an undergraduate education at Harvard University, for example, to be $50,000 per year is extraordinary. That most of the teaching is delivered by ill paid graduate teaching assistants is outrageous.

While teaching should be the primary mission, it is a low status activity. Faculty members, with a few honorable exceptions, focus on research and regard teaching as beneath their dignity.

Nothing much has changed since Adam Smith penned these words more than 200 years ago:

"The discipline of colleges and universities is in general contrived, not for the benefit of the students, but for the interest, or more properly speaking, for the ease of masters."

Another quote worth considering comes from John Ciardi:

"A university is what a college becomes when the faculty loses interest in students."

It will take years to change the culture but change is critical.

Leadership

U.S. Marines have a saying: "lead, follow, or get out of the way".

Are you listening Senators McCain and Obama? Congressmen and Congresswomen? Senators? Politicians at all levels?

Voting for Senator McCain

According to press reports and opinion polls, the McCain-Palin campaign is running well behind that of Obama-Biden. In a current Washington Post - ABC News poll, Senator Obama is ahead by 53 - 43 percent among "likely" voters. Even if that is reduced to account for the "Bradley" effect (the tendency for people to say they will vote for a black candidate while having no such intention), the prospects for Senator McCain's election are beginning to look poor.

Include me among the very disaffected McCain supporters although I am not yet on Senator Obama's side of the ledger.

I live in Virginia, which is now a swing state, so my vote should be important. I describe myself as an old fashioned Republican who believes in strong defense, economic conservatism, and social tolerance. Having some eduction as an economist, I have grave reservations about totally unfettered markets although substantial and intrusive government control is equally unpalatable.

If it is true, as reported in the current issue of Time Magazine, that Virginia GOP Party Chairman Jeffrey M. Frederick compared Senator Obama to Osama bin Laden, it is an outrage. (For those who have not seen the reports, Mr. Frederick is quoted as having said that Obama and bin Laden both have friends that bombed the Pentagon.)

Governor Palin, aside from her inexperience and lack of knowledge of both international and national affairs, is playing a major part - directly and as a cheerleader - in the barrage of negative attacks. That pit bulls, even those with lipstick, can be dangerous to their owners should be well known.

If Governor Palin were to withdraw from the ticket - no matter how feeble the excuse - the likelihood that I would vote for McCain would rise significantly. However, if Senator McCain really wants my vote, his campaign must drop the negative attacks and return to discussing policies. Leadership is Senator McCain's greatest strength and the primary reason to vote for him. Leadership also includes taking "pander" off the menu.

Maybe Senator McCain just doesn't care about my type of Republican. For the sake of our country, and the Republican party, I hope not.

At the moment, I am undecided but leaning slightly to McCain. Odds on my vote are are 25% McCain, 70% stay home, and 5% Obama.

Freedom and Security

As we approach the Presidential election, there is little doubt that the current financial crisis is the most important topic. In all of the discussions, however, the impositions of the state, in the name of "security", are being neglected by the candidates.

Freedom must take priority over even the economy. If the candidates are serious about leading - as opposed to just getting elected - they should discuss their approaches to balancing the inherent, and unresolvable, conflicts between security and freedom.

These words spoken by Louis Brandeis, Associate Justice of the United States Supreme Court from 1916 to 1939, should be in the forefront of our minds:

Experience teaches us to be most on our guard to protect liberty when the government's purpose is beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding.

Senator McCain and mortgages

Senator McCain wants taxpayers to help “homeowners” who are behind on their mortgage payments and facing foreclosure. This help would consist of the government acquiring, at face value, unaffordable mortgages which then, presumably, would be restructured at a significant loss to the taxpayer.

It is bad enough that the majority of these troubled mortgages were taken out by the greedy and irresponsible: they deserve much of what is happening to them. Far worse is that Senator McCain is proposing to make whole the overpaid, incompetent, idiots who lent the money in the first place or, later, bought the toxic securities allegedly backed by these mortgages.

So, pray tell, what is to become of real homeowners who saved their money, made a substantial down payment, and have been, faithfully and honestly, making payments every month? Is anyone offering them any help? Why do I ask? The answer is a resounding "no".

Senator McCain knows about responsibility and honesty. He should be upholding the former standards of the now derelict Straight Talk Express. Many of us who pay our bills - and our taxes - on time have become truly disgusted by his pandering to the incompetent, to the greedy, to the irresponsible, and to the corrupt.

Financial Panic

Is there a leader in the country who can address the financial panic? Who will address the causes of the nightmare?

Looking to President George W[orthless] Bush is fruitless. He is the lamest of lame ducks - even though his successor has not yet been elected.

If anyone is to restore calm to the markets, it will have to be the Presidential Candidates who have yet to get beyond platitudes, partisan attacks - aka mudslinging, and ideological accusations. We need someone to step up and tell us the truth. That is the definition of a leader.

Peggy Noonan, in her column in the Wall Street Journal (a subscription site but almost worth it just to read what she writes http://online.wsj.com/public/article/declarations.html) quotes Senator Tom Coburn (R-OK) who is one of the fiercest opponents of out of control spending:

"Neither party has clean hands. Or rather, both parties have dirty hands. Here is the truth, spoken by the increasingly impressive Sen. Tom Coburn: 'The root of the problem is political greed in Congress. Members . . . from both parties wanted short-term political credit for promoting homeownership even though they were putting our entire economy at risk by encouraging people to buy homes they couldn't afford. Then, instead of conducting thorough oversight and correcting obvious problems with unstable entities like Fannie Mae and Freddie Mac, members of Congress chose to . . . distract themselves with unprecedented amounts of pork-barrel spending.' That is the truth."

Ms. Noonan goes on to say:

"Why would anyone trust either [Presidential] candidate to help dig us out of this if they can't speak frankly about what got us into it?

One had the sense this week that our entire political class is playing Frisbee on the edge of a precipice, that no one is being serious enough, honest enough, that it's all too revved, too intense, and yet too shallow."

It is hard to put it better.

Fools and the financial crisis

When trying to understand the current financial crisis, ignore greed: that is a given and doesn't change much from one century to another.

The purpose of regulation is to restrain greed, at least partially, while protecting us from excessive folly. This time there was too little regulation and much of what was in place was poorly designed.

The ultimate causes of the financial crisis were the actions of fools:

• individuals and families who bought more home than they could afford.
• the same people who did not have the knowledge or common sense to refuse outrageous and risky mortgage terms.
• the same people who knew that the terms of their mortgages were outrageous and risky but took them anyway believing (hoping?) that they could refinance later.
• the bankers who forgot that cash flow is the source of loan repayment and that the assets which secure loans are merely safety nets to be used in case of default.
• the bankers whose credit standards fell lower than a cheap whore's underwear.
• The Wall street geniuses who created one way bets but forgot that these bets are supposed to make them the winners - always - and never the losers.
• The ratings agencies (Moody's, S&P, Fitch) who tried, and failed, to turn manure into roses and fooled us all for a while.
• All of us who ignored the smell of rotting manure and trusted the ratings agencies for too long.
• The speculators who traded funny paper (their name for it was toxic waste) without understanding what they were doing other than just trying to profit from price changes rather than investing in true value.
• The speculators who bought this toxic waste - securities built on borrowed money - with more borrowed money until the whole system was so fragile that a barely perceptible breeze could, and did, bring down the house of cards.
• And more and more and more...

There is no question that all of these characters should suffer the consequences of their actions. The problem is that inflicting a suitable, and well deserved, level of pain is likely to blow up the rest of the economy.

So, holding out noses, we are forced to bail them out. While we do so, however, we must think about the future and these words written by Herbert Spencer, an English philosopher who lived from 1820 - 1903, are worth considering:

"The ultimate result of shielding men from the effects of folly is to fill the world with fools."

Presidential Debate

After reading the transcript of last night's Presidential debate, it is clear that the strategies of both candidates were nearly identical: don't answer the question and spend as much time as possible parroting campaign talking points. That is partly the nature of the so-called debates so there is nothing really new here.

As the financial crisis gets worse, however, we could have used some constructive thoughts for future policy. The closest that either came was Senator McCain's proposal for the Federal Government to take direct action to restructure troubled mortgages. That is a good enough idea to be worth discussing although there are many serious drawbacks. If it is done, however, the taxpayer must become a partner in the property and share in any appreciation.

Both avoided any serious discussion of sacrifice, of the responsibility that consumers and borrowers must accept in creating the conditions that lead to the current financial crisis, of entitlement (Social Security, Medicare and Medicaid) reform and changes that are needed to make the health care system both affordable and effective. Too much time was spent on tax cuts that just are not going to be possible and increases in government spending that are likely to be irrelevant or unaffordable.

There is a substantial fraction of the American people who believe that we deserve to have it all - now. That is a world view that can only be described as an hallucination rapidly turning into a nightmare. Sacrifices will be necessary as we recover from a more than twenty year debt-fueled spending binge.

Can anyone out there spell H-A-N-G-O-V-E-R?

It is also time for Senator McCain to stop talking about earmarks. We all know that they have exploded out of control during the current administration. We also know that they are a symptom of the intellectual and moral corruption of the Congress but there is a limit to the amount of time that should be spent on $18 billion of expenditures in a $2.9 TRILLION budget.

What does Senator McCain propose to do about the intellectual dishonesty and moral corruption exhibited by the majority of our elected representatives?

Pander - Pander - Pander is not the way to go.

At least the candidates were civil and refrained from throwing mud at each other. Be thankful for small mercies!

Confidence and the financial system: buyers and sellers

The financial system depends on confidence that money owed will be repaid and, when repaid, will be worth the same as it was when it was lent. These are key issues behind the current finacial crisis.

An even more basic requirement is that sellers have confidence in the means used by buyers to make payment so that, in their turn, the sellers can become buyers.

If you doubt that the financial system - and the real economy - runs on confidence, just go to the supermarket. Pick out some food, pass over some green pieces of paper with an intrinsic worth of "not much", but printed by the government, and you can leave with your food. No one will arrest you for theft.

That is where the confidence comes in: the store believes that it can exchange these nearly worthless bits of paper for labor or electricity or more food to sell tomorrow.

The problem comes when business or individuals lose confidence that these bits of paper can actually be exchanged for something useful. Then, the value of the currency falls, prices rise, and inflation takes hold.

In Zimbabwe, a beautiful and potentially rich country now ruled by an incompetent tyrant, no one believes that a piece of paper that says 200 million Zimbabwe Dollars has real value. Last week, that piece of paper might have bought a loaf of bread: this week not even that. Annual inflation in Zimbabwe is 40,000,000% and the economy has collapsed.

On the other hand, at least for now, an equally worthless piece of paper that has the words 'THE UNITED STATES OF AMERICA", "FEDERAL RESERVE NOTE" and "ONE DOLLAR" printed on it will buy more than 200 million Zimbabwe dollars.

Confidence is everything: without it our economy collapses or is forced back to the inefficiencies of using bullion (coins or bars, representing - even having - value) made from gold, silver and other precious metals. Worse, a shortage of coins will leave us exposed to the astounding inefficiencies of barter.

One of the reasons for our great wealth is the reduction, to almost nothing, of the costs of everyday transactions. Paper money and numbers in a bank's ledger are far more efficient, and cost far less to keep and transfer, than metal coins.

Let us all hope that confidence is soon restored.

Advice for the man who will be President

This quote from Thomas Jefferson is something that both Presidential candidates would be well advised to heed:

"I place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt."

Failure to live within our means - and to insist that our government does likewise - is the greatest single cause of the current financial crisis. That means we, and the government, must reduce spending, while increased taxes are a real possibility.

An honest candidate will tell us about his preferred policies and the methods by which he will achieve the objective of a long term budget surplus so as to pay down the national debt. A dishonest candidate (so far both are accumulating dishonesty points at a rapid rate) will shuffle and avoid the question.

Talk about cutting waste, fraud, earmarks and abuse is intellectually dishonest when defense, Social Security, Medicare, and interest on the national debt account for over two thirds of government outlays.

Interest on the national debt is untouchable, unless we want to create an even greater financial crisis than the present one. After seven years of war in Afghanistan, and five years in Iraq, with no end in sight, our armed services need major expenditures to restore them to their previous strength.

We can reduce some discretionary expenditures but the new President will have to face down the special interests, including government employees, who might lose jobs or funding to which they consider themselves entitled. The likely savings will not be nearly at the levels implied by the candidates.

That leaves Social Security, Medicare and taxes.

It is time to level with the American public. We are adults, even though politicians find that hard to believe, and will sacrifice for our country if those who wish to lead us will only make the case.

Regrettably, our politicians resemble no one so much as Robespierre who, while at a social engagement during the French Revolution, spotted a mob rushing down the street. As he left, he is alleged to have said: "there go my followers - I must go lead them."

Public opinion polls are the modern mob. Our politicians must have the courage to defy the mob, and to trust their own judgements, even if the result is electoral defeat.

Cash and Confidence

On the back of every U.S. dollar is the motto “In God We Trust”.

Given the way that the credit markets have frozen up, perhaps the U.S. Treasury should consider changing the motto. Before the advent of credit cards, many country stores would have a sign that read:

In God We Trust. All others pay cash.

Enough said.

No principles in the House

The $700 billion bailout passed the House yesterday by an overwhelming margin. After the Senate had loaded the bill with special interest tax breaks and spending (see also “pork”), a large number of Representatives seemed to find it easy to abandon the “principles” which caused them to vote against the bill on Monday.

They should be ashamed, faces blazing red, as they creep out of town to attend to their first (only?) priority which is to get re-elected.

Are there no limits to the lack of leadership in Washington DC?

Qualified to be Vice President?

Governor Palin, Republican nominee for Vice President recently said: "It's time that normal Joe Six-Pack American is finally represented in the position of vice presidency."

Although Joe Six-Pack American has many admirable qualities, including a commendable failure to be too clever by half, they do not include the knowledge and experience to serve as Vice President - let alone become President at a moment's notice.

Once, the risk of an unqualified Vice President becoming President might have been acceptable. Now, however, the Vice President, whose job was described by Vice President John Nance Garner (1933 - 1941) as 'not worth a bucket of warm piss', is a major power in the Federal Government. Current Vice President Richard Cheney's role is different only in degree, but not in kind, from his predecessors Walter Mondale, George H.W. Bush and Al Gore.

After reading Governor Palin's remark, two names came to mind: Judge G. Harrold Carswell and Senator Roman Hruska (R - NE).

And who are they?

Following President Nixon's 1970 nomination of Judge Carswell to serve as an Associate Justice of the Supreme Court (he was not confirmed), Senator Hruska, speaking on the Senate floor, defended Judge Carswell in the following terms:

"It has been held against this nominee that he is mediocre. Even if he is mediocre, there are a lot of mediocre judges and people and lawyers. They are entitled to a little representation, aren't they? And a little chance? We can't have all Brandeises, Cardozos and Frankfurters and stuff like that there."

Governor Palin's experience resembles nothing so much, albeit without the gross corruption, as that of Vice President Spiro T. Agnew who served as Baltimore County Executive (equivalent to being a Mayor) and then two years as Governor of Maryland before being selected as President Nixon's running mate.

Let us hope for a better outcome this time.

On political parties...

I am a Republican.

At least, I used to be a Republican.

I want to be a Republican.

Until the Democrats get their act together (which is not likely in the near term) it is impossible to be one of them.

It's really hard being a Republican when the party stands for out of control spending and borrowing, intolerance, incompetence, and whose elected officials have been morally and intellectually corrupted by power. The Democrats stand for tax and spend, promiscuous license, just as much incompetence, and are equally corrupt.

Both parties are absolutely even when it comes to intellectual dishonesty, pandering, outright lies, and actions or votes whose sole purpose is to make a partisan political point rather than attempting to solve some of the very real problems that we are suffering.

This isn't the country that I admired enough to become, first, an immigrant and, then, a citizen.

It is sad to think that we may have the leadership that we deserve rather than the leadership that we need. It is long past time for us to return to the old fashioned values of hard work, thrift, honor and service to our country. We must also demand the same from our elected representatives.

Vote against any incumbent who does not measure up. Earmarks, abuse of seniority and the relentless quest for campaign contributions must be rewarded by retirement.

Vice Presidential debate - a major problem

The debate between the Vice Presidential candidates will take place tomorrow night at 9:00 p.m. Eastern Time.

Gwen Ifill, managing editor of "Washington Week" and senior correspondent for "The NewsHour with Jim Lehrer.", will be the moderator. The problem is that she appears to have a major conflict of interest.

Ms. Ifill has written a book, to be published on January 20, 2009 (Inauguration Day). The title is "The Breakthrough: Politics and Race in the Age of Obama". Check here for Ifill's book as advertised on Amazon.com.

If Senator Obama is not elected President, sales of Ms Ifill's book will clearly be lower than if he is defeated. Why, then, is she moderating this debate when she has a financial interest in making Governor Palin look even less qualified than she is?

We rely on journalists to hold politicians to account. But journalists, if they are to be credible, must live by the same standards to which they, and we, should hold politicians. If they do not, unethical politicians, regardless of the truth, will feel free to claim that the media are biased and out to get them.

Ms. Ifill's ambitions seem to have overcome her ethics. She should, as a service to our country, withdraw as moderator of this debate.