Thursday, January 6, 2011

Getting What We Deserve

I had a whole thing written up where I made some predictions for the coming year but I figured I could do that in one (rather long) paragraph.  Murphy's Law says that if something can go wrong it will go wrong.  There are so many things that can go wrong in the next year that I think it's almost inevitable.  The housing market is still a mess, and there is a huge inventory of homes that is only going to grow, putting more downward pressure on prices.  States and cities have huge budget problems, mostly because of unrealistic and unfunded pension liabilities to public employee unions.  They lack the ability to print money in order to avoid tough decisions, but the federal government will most likely take care of that for them somehow.  The European debt crisis is only going to get worse in 2011, which will lead to more instability worldwide.  The federal budget deficit of $1.3 trillion will not have significant changes, and unless the fed continues to buy bonds, interest rates will go up dramatically.  Higher interest rates will expose a lot of problems everywhere.  The fed has no plan to unload its balance sheet that has grown by many trillions of dollars in the past couple of years.  There is an oncoming explosion of student loan defaults on the horizon, which could start to blow up in 2011.   FDIC insolvency, big bank failures, skyrocketing energy and food prices, ad nauseum.  And even in the absolute best possible scenario, unemployment will still be above 8.5% in one year.  If any one of these problems occur in the way that I think is possible (catastrophe, not a minor problem), it'll domino throughout the whole economy and 2011 could be the year that it all hits the fan.  But enough of that.  In the end, we deserve to get it splattered all over us.

In the past few decades, Americans have come to have some unrealistic and conflicting expectations.  Once the federal government started to provide for people, as opposed to creating a situation where people are capable of providing for themselves, the demand to be provided for has exploded.

We want everyone who gets a terminal disease to live another 30 years.  We also want the government to keep our health care costs low.  Somehow.  Any way.

We cheer when government financial institutions guarantee loans so we can buy homes with no money down and low interest rates and then call on the government to help us out when we can no longer afford our homes.  Somehow.  Any way.

Nobody bats an eye when the federal government guarantees student loans that allow an 18-year-old to go $200,000 in debt so he or she can get a degree in Music Appreciation, Physical Education, or The Many Shades Of Concrete.  And then we want the government to help us with our debt problems when we can't find a job that pays a sufficient salary to repay our loans.  Somehow.  Any way.

When credit card companies charge 20% interest, and suddenly that $500 PS3 is costing you $5,000, we cry to congress to pass a law to keep them from doing it instead of --gasp-- saving until we can afford that stuff.  Then, when we have to get a payday loan at a pawn shop with even higher interest just to buy food or keep the lights on, we get pissed because credit isn't available and call on the government to help us out.  Somehow.  Any way.

We don't get upset when we spend trillions of dollars in order to fight never ending pseudo-wars, but get upset because we're trillions of dollars in debt and expect our government to fix the problem.  Somehow.  Any way.

We want the government to cure economic imbalances, but we want the medicine to taste good.

We twiddle our thumbs and grind our teeth while muttering "gosh, I don't like this but if they say we have to do it then I guess it's true" under our breath when the government props up a phony economy by giving trillions of dollars to corporations that made bad decisions and have no reason to exist anymore.  Then after we give all that money to people who we recognize as corrupt and greedy scumbags, we act shocked and appalled when they use that bailout money to buy themselves an island or 2 in the pacific.

We want unemployment benefits, welfare for the poor, food stamps for half of us, wars in the middle east, low house prices when we buy, higher house prices sometime after that, medicare, medicaid, social security, cheap food, high wages, retirement at 60, low taxes, billions of gallons of oil, no oil spills, rules and regulations on oil companies when a spill happens, low oil prices, safe airplane travel, convenient airplane travel, some cake, our government to feed it to us too.

At some point we started to act like children, expecting the government to provide for us, no matter what the costs.  Is it any wonder that we now have a government that treats us like children?  Entitled brats with no motivation to expend any more energy than what is absolutely necessary to get by.  We put as little effort into the system as possible, refusing to pick up a book and become educated on the issues, opting instead to trust those in charge (or worse yet, silently distrust them while sitting idly by) and let them do what they do.  Less than half of us vote, which, by the way, is the lowest possible form of civic participation, and the vast majority of voters refuse to participate at any higher level.  And then we complain when things go wrong, or more problems are created, or we find ourselves $14 trillion in debt with hundreds of trillions of dollars in unfunded liabilities.

The harsh reality is that we have a mountain of debt because we asked for a mountain of debt.  We wanted to live like millionaires on a $40,000 salary and we have done just that for a few decades.  Even those who are the most concerned about the debt problem don't want to have their programs cut.  Get our spending in order, but don't take away my medicare or social security.  Increase revenues to the government, but raise the other guy's taxes, not mine.  Fix the problems, but don't make it painful.

Because we had this mindset for so long, we have reached a point where any meaningful solutions MUST be painful.  Extremely painful.  But I don't think Americans are ready to face the pain.  We don't want to give up enough.  We would much rather hear lip service from those in charge and believe the illusion that that is enough.

In the coming months we'll see some very telling and symbolic actions in congress.  The 14.3 trillion dollar debt ceiling, set by congress, will be reached between March and May.  Some congressmen are threatening to vote against raising the debt ceiling, essentially forcing congress to cut any spending beyond what we have in tax revenue.  Cutting 1.3 trillion dollars a year in spending would force some very difficult decisions on congress.  Austan Goolsbee, Obama's top economic adviser, said that failing to raise the debt ceiling would be the same as defaulting on our debt and would be catastrophic for the economy.  In other words, if we don't go into more debt we can't pay off our current debt.  In even other words, he admitted that we're running a gigantic ponzi scheme.  Relying on new money to pay off the old money is the definition of a ponzi scheme.

He is right about everything, especially the catastrophic part.  Getting on sound financial ground would mean a lot of pain to a lot of people.  And because the people aren't willing to face that pain, congress will vote to raise the debt ceiling to protect its children from pain today and ensure that we'll face greater pain in the future.  Of course, we'll still want lip service and empty promises to make it feel like something is being done.  Many will vote to raise the debt ceiling under the condition that there are cuts in the budget.  And we'll probably see spending cuts, but those cuts won't be able to cause too much pain to the people so they'll be extremely insignificant.  We might see 50 or 70 billion dollars in cuts out of a 1.3 trillion dollar deficit.  To put it simply, they'll put a band aid on a gunshot wound because surgery would be too painful.  And it'll all be done because it's all we really want to bear.

People who study human behavior have found something interesting called the “discount rate”. The discount rate basically measures the sense of urgency with which people view problems and compare it to how far into the future those problems will occur. If you look at the chart you'll see that people are extremely short sighted. We tend to only react to problems that are happening or are on the brink of happening. Our sense of urgency decreases dramatically, to near zero, whenever something is not imminent.  We see this behavior all the time. Even when we hear a week in advance about a snow storm that is coming, most everybody rushes to the grocery store the day of the storm or the day before if they're ambitious. We simply aren't good at looking beyond the here and now. Carpe diem. I guess it's foolish of me to believe that, as a group, we would behave any different with our national debt crisis.  It would also be foolish to believe that we'll realize we need to make drastic changes before it's too late.  It might be too late already.

At some point our budget problems will fuel a currency crisis and congress will run out of ways to kick the can down the road.  Thomas Jefferson said that we needed a revolution every generation to keep the population from becoming complacent, apathetic and removed from the political system.  We're many generations overdue for a revolution.  When the currency crisis starts, so will our revolution.  Maybe it'll happen in 2011.  Maybe we can hold off until 2012.  I doubt we can delay the inevitable any longer than that, no matter how much we want to.  And it'll all be because we pay for what we feel we are entitled to today with money we hope we have in 10 years.  Worse than that, we stand in the face of this harsh reality and try to convince ourselves that we can keep the scheme working.  Somehow.  Any way.  If that doesn't sound like the mindset of a people that deserves to get splattered with shit from a fan, I don't know what does.