February 2011 Archives

     Like the ol' Bloviator, you may have happened to surf across a tumultuous scene of protest and confrontation last week only to discover that this was no recap from Cairo or Bahrain but a live report from Madison, Wisconsin. If so, you might have been moved as he was to ask, "What the hell is wrong with this country?" Thanks to a heads up from New York Times columnist David Brooks, the OB has actually found someone who makes a pretty decent stab at answering this fairly daunting and complex question. Tyler Cowen , a prolific writer and blogger, is what might be called a "cultural economist" at George Mason University. Cowen's new e-book, The Great Stagnation, points out that up until roughly the middle of the twentieth century, the U.S. economy was able to feast on a quite nutritious cornucopia of "low-hanging fruit." (The OB advanced a similar argument way back in 1984 in an essay titled "Why the New South Never Became the North," and at a few points here, he makes bold to supplement what is already a very persuasive argument by Cowen.)

     Any listing of this "low-hanging fruit" must include abundant free or extremely cheap land, critical and conveniently situated raw materials such as fossil fuels and iron ore, timely technological advances such as the introduction of the Bessemer process in steel production, the Westinghouse air brake for the railroads, the mechanical reaper, the internal combustion engine, the telegraph, telephone, radio, etc. There was also the critical European population surplus that fed the stream of immigrant labor in the late nineteenth and early twentieth centuries. This almost miraculously rich combination nourished a dynamic, competitive economy and society where innovation was encouraged and rewarded, and though the pie was hardly sliced into equal portions, it was growing fast enough that the size of each portion still increased from generation to generation, including the slice that could be allotted to an increasingly pervasive and involved government sector. By the 1950s, however, we were getting close to gnawing the low-hanging fruit down to the rind without having developed new food sources sufficient to sustain what had been a remarkably long and, the Great Depression notwithstanding, relatively uninterrupted period of growth.

     It would be another generation before signs that we had hit a growth rate plateau became apparent. As Cowen points out, while median family income more than doubled between 1947 and 1973, it grew by only 22 percent (in adjusted dollars) over the next thirty years. If, he notes, this figure had continued to grow at the 1947-73 rate, median family income would be around $90,000 today. Generations of commencement speakers, including the OB himself, who have argued that the payoff from a society's investment in education is as close to a sure thing as you can get might rightly be taken to task, given the fact that despite our more than doubled per-pupil investments, math and reading test scores for 17 year olds have not changed since the early 1970s. There is a similar discrepancy in health care, to which we devote 15.5 percent of the GDP as compared to 8.5 percent in Japan, where life expectancy is 6 percent higher and infant mortality is more than 60 percent lower.

     Meanwhile, the share of U.S. patent applications from foreign sources has risen from just under one-third in 1972 to just over one-half in 2009. (OB's stats, not Cowen's.) For all the hustle and dynamism that we associate with the Internet, there is no escaping the fact that, taken as a group, Google, Face Book, Twitter, and eBay employ just a shade North of 38,000 folks. Who among us could get along without at least one iPod, but fewer than 14,000 workers are needed to keep up with demand for this signature device, and here we must consider how many jobs - and businesses - have been lost to the advent of digital music downloads. The Internet has clearly made our lives more interesting, but so much of what it offers us at this point is either free or dirt cheap; so it has thus far been less of a force in expanding our economy than we might have envisioned.

     One larger point here that we have doubtless all heard before is that the United States has ceased to be a leader among "producer" nations. The OB is hardly the first to complain that far too much of our wealth is accumulated these days in the simple trading of pieces of paper. One hardly has to feel driven to form a support group for the assorted chieftains of the S & P 500 companies to feel that it sounds one hell of a discordant note when the combined salaries of this whole bunch don't add up to the total take of the head shysters of the top twenty-five hedge funds. Clearly, at this point the quest for wealth is not leading to the expanded and improved production of vital goods that is our best hope of revisiting those golden days when the rich, fat fruit hung low. As Cowen points out, most contributions to overall productivity today come from simply cutting loose the less productive workers rather than figuring out how to make all of them more proficient.

     Here's a surprise. Our two major political parties have responded to overwhelming evidence of "the great stagnation" by offering us more of the same. The Republicans favor more and more tax cuts, which are an easy sell to the voters but ultimately mean little in view of the GOP's lack of, uh . . . will when it comes to cutting government spending that might benefit its constituency in the slightest. I've yet to see one shred of real evidence that slashing taxes to stimulate the economy actually manages to increase government revenue in the long run, but it will damn  sure get the national debt up and going. The Democrats, on the other hand, are still peddling their familiar redistributive strategy that would shift more taxes toward the more affluent and supposedly direct  more income and government spending toward the poor. This approach may deliver some brief economic boost as lower-income groups exercise their increased capacity to consume, but even the OB, surely no friend of the rich and famous, has to wonder if this approach isn't getting pretty near the end of the string when the top 5 percent of American earners are already paying 43 percent of all our taxes.

     Although Democrats don't want to hear it and Republicans don't really want to do anything about it, the bottom line is that our government is way too expensive for a nation where real median family income is growing by only .15 percent per year.  Government was much more affordable back when we were still plucking away at that low-hanging fruit, but now not only is it too pricey, but, be we rabid lefty or righteous righty, we simply expect too much from it. If anything, the same is even truer still of our economy, whose realities we have been unwilling to confront for much too long. Cowen argues that it was our extreme overconfidence, a sometimes buoyant but ultimately burdensome legacy of the old low-hanging-fruit days, that led us to the precipice whence we plunged in 2008. How else could we have managed to convince ourselves everything was fine when we were reduced to stoking our economy by extracting the equity from our homes to the tune of 11.5 percent of GDP in 2005? (Compare this to slightly under 3 percent in 1993.)

     We professors are typically a whole lot better at identifying problems - not to mention causing them now and then - than at offering solutions. Cowen tries to be relatively optimistic, but the business of increasing productivity and fostering innovation is now globally competitive, and we can hardly anticipate our rivals' assistance in regaining our one-time advantage. Instead of empty promises to get us, as good ol' Pres. Harding might say, "back to normalcy" in a heartbeat, in addition to figuring out ways to make things better, our stellar politicians would be well advised, Cowen thinks (and the OB agrees), to summon the gumption somehow to tell their constituents that what we're seeing now is likely to be "the new normal" for some time to come. Be sure to Twitter me up when that happens.

The Ol' Bloviator realizes that he has been indulging in some heavy petting of his peeves here lately, and he chooses to chalk this up to our God-awful weather rather than the onset of old age, although he is fairly certain that Ms. OB would dispute this point.  It seems that he is getting especially fractious on the matter of word usage, perhaps because he sees ungrammatical and obfuscatory language as a sign of a society coming intellectually and morally unhinged.  What set him off this time was this story about a young woman who describes her actions in getting soused,  driving the wrong way on a busy highway and causing the deaths of two innocent people as "a horrible decision."  At face value, this assessment should be a finalist for the Understatement Hall of Fame except that it probably should not be taken at face value because clearly she did not, as old Mr. Webster understands decide,"come to a resolution in the mind as a result of consideration" before acting as she did.  She simply got drunk and engaged in criminally irresponsible behavior that produced tragic consequences and would have been no less criminally irresponsible if those consequences had somehow been avoided.  In this case, the young lady has already done some hard time in the pokey and, to her infinite credit, she  is now dedicating herself to at least keeping others younger than she from doing what she did, even if she is doing so in language that seems to mitigate--if not trivialize it.  For other examples, there's an Ohio woman's response to the report that a friend of hers had robbed a bank and then sped away with his six-year-old daughter in the car with him:  "People make bad decisions."  Then there's the ardent Tennessee fan who described a football player's actions in observing a hold up and then jumping in a getaway car where police supposedly found drugs as the young  student-athlete's " 2nd bad decision on record."  The first, by the way, was apparently failing a previous drug test.  Finally, let's look at that virginal paragon of virtue, Miley Cyrus who bemoaned her "bad decision" after being caught on video taking a big long pull on a bong allegedly filled with salvia.  (The OB confesses at this point that he did not realize this particular herb had such potency, and he hopes sincerely that this new knowledge will not lead him to make a  you-know-what  by raiding his neighbor's front yard and enjoying a toke or two himself.)

What it all boils down to is this:  Describing everything from armed robbery to sexual assault to shoplifting as a "bad decision" amounts to putting them in the same category as wearing a polo shirt to a first-time meeting with an uptight potential client or, as the OB regrettably did, buying a chunk of Delta bonds on the supposition that such a big, busy airline could never go under.  The appeal of this  together inappropriate conflation is that it blurs the distinctions between behavior that anyone not raised by wolves surely knows is morally wrong and behavior that is simply ill-advised, or premised on fallacious information or assumptions.

You may feel that the OB is being particularly harsh (not to mention narrow-minded and a trifle tight-assed)  in taking this stance, but let me assure you that when it comes to both bad decisions and bad behavior,  his record  gives him no choice but to be all for forgiveness .  However, if we want to assess the effect of repeatedly describing the latter as the former in order to make it seem more forgivable we need only consider how many times we've heard the phrase "series of bad decisions" used in the same sentence with the likes of Charlie Sheen and Lindsay Lohan.

This morally-freighted shift in syntax is only slightly less troubling to the OB than today's utterly casual employment of suggestions of superior virtue or faith as a marketing tool.  When he heard that something called "Integrity Bank" had failed, he felt sorry for the shareholders, of course, although he couldn't help but think that the poor souls should have known better.  The OB would never have ventured into that establishment to use the restroom, much less make a deposit that actually went in the vault.  When he's looking for a building contractor and runs into one who touts his own faith and talks about how "blessed" he is, the OB knows it's back to the Yellow Pages for him.  After all, when he and Ms. OB were building their last domicile, the electrician, a self-styled evangelist who was not the least bit shy about quoting Scripture or invoking the Good Lord, was unfortunately the least dependable of all the subcontractors by far.  He had sworn, however, that he would be there on a particularly critical occasion  when some of the other subs needed to get together with him in order to continue what they were doing.  Suffice it to say, the day crept by and he never showed.  The next time I saw him, I asked why he had not come, and he allowed that the Lord had spoken to him and told him to attend a "Promise Keepers" rally instead. 

Then, of course, there's the locally famous cheerleader coach who was recently hauled into U.S. District Court,  where she pled guilty to two misdemeanor counts of failing to file an income tax return on more than $1.2 million in gross revenue she got from UGA cheerleading camp.  Here's another strikingly "bad decision," especially for someone whose bio on the Fellowship of Christian Athletes Cheerleading website says her favorite quote is "Live your life in such a way that when your feet hit the floor in the morning, Satan shudders and says.... "Oh No....she's awake!!"   Apparently the IRS isn't as easily intimidated as old Beelzebub.

             As if things aren't bad enough already, what with the Bulldogs having gone 6-7, the governor doing his damnedest to starve higher education in this state, and a winter that I wouldn't wish on the most obnoxious Yankee I ever met, now the Egyptians suddenly think it's time for them to start showing their fannies. This is one of those cases where the overheated media coverage makes you want to simply grab the remote and see how the "Real Housewives" are getting along. In reality, of course, although you may know more than you think you need to know about what's going on over there, you don't need to know much to know that it has all sorts of potentially ominous ramifications for us. My friend Greg and I were speculating just this morning about whether sinking a single ship in the Suez Canal would put gas at $10 a gallon. (In discussions such as this, of course, the overriding reality is that 90 percent of the things that could happen in that part of the world are likely to cause gas prices to go up, in much the same way that either a late spring cold snap or a warm February are going to make orange juice more expensive.) This is definitely one of those cases where the simplest disruption of a distant routine threatens our own routines and livelihoods in a major way.

            This is hardly the first time that the Suez Canal has been a strategic pawn in a crisis with truly global implications. I remember sweating bullets back in 1956 as a fretful nine-year-old thoroughly convinced that there was a mushroom cloud in my future when Egyptian President Gamel Abdel Nasser seized the canal, which at that point accounted for two-thirds of the oil shipped to Europe. Nasser had gotten fairly cozy with the Russkies, and when Britain, France, and Israel attacked Egypt, it looked like the Big One might really pop. Some heavy-duty behind-the-scenes bullying by the United States succeeded in getting the Brits, French, and Israelis to stand down, but, shades of the likely outcome of what's happening right now, in the eyes of many Egyptians at least, we were lumped with the bad guys while most of the credit went to the Soviets.

            My friend Joe is our running group's resident expert on the Suez Canal, and he tells me that oil now accounts for only 18 percent or so of the traffic through it, and the New York Times, which I trust a lot less than Joe, says that what flows through the canal and an accompanying pipeline amounts to only 4.5 percent of the world's oil supply. That doesn't sound like much, and experts say there is a sufficient backup supply to handle any short-term interruption in the canal's operation. However, anything more protracted could be a problem because a shortage of any magnitude in the world oil market can produce almost exaggerated consequences, especially with growing Chinese demand for oil cycling somewhere between exponential and totally out-of-control. Moreover, any oil bound for the United States that can't be taken through the Suez Canal must take the scenic route via the tip of Africa, adding about 6,000 fairly expensive miles to the journey. Though, ironically enough, part of Egypt's problem is that  it has actually become a net consumer rather than producer of oil, the fear is that the turmoil in that country is likely to spread to neighboring places like Saudi Arabia, which is currently the third largest source of U.S. oil imports.

            It might seem something of a saving grace that the radical Islamic crowd doesn't appear to know exactly what to make of the Egyptian situation, in that the anti-Mubarak crew is less concerned about having a secular government than simply having a sorry and corrupt one. The problem for them is not so much that westernization has polluted their culture or faith but that it has failed to make them prosperous. This is not exactly a situation tailor-made for the jihadists whose main message is "get right with Allah," while, in so far as they have an economic philosophy, it would seem to run along the lines of "Take an ol' cold 'tater' and wait."

            The puzzlement among these lunatics is fairly apparent in this attempt to recruit young folks to come to Egypt and join their cause:

"Hey, brothers, the fall of Egypt's tyrant is a fall of the earth's tyrants. . . . This is the time to slaughter the cow."

Say what?

            In reality, the principal opportunity for the jihadists in this case seems to lie primarily in the turmoil and distraction this whole thing has generated, making it a great time, for example, to do something constructive, like blowing up the Arish-Askelon gas pipeline supplying Israel. Still, a power vacuum is a power vacuum, and an empty throne an empty throne. The key for them is finding a way that "Jihadists may then leap on that throne."

            The Obama administration's awkward attempts to two-step themselves away from the dead-but-don't-know-it-yet Mr. Mubarak speak once again of the pitfalls of an age-old American practice of tying ourselves to foreign leaders on the basis of how loudly they profess their love for us and dedication to our interests, regardless of how detestable they might be as human beings, much less heads of state. The old "He may be an SOB, but he's our SOB, " as FDR is reported to have said of Rafael Trujillo in the Dominican Republic, works only so long as you can count on keeping a succession of such U.S. friendly SOBs in power. Once the chain is broken and folks are done wee-weeing on the last SOBs grave, their resentment toward the United States is easily exploited by anyone who clearly hates our guts. Does swapping the Shah for the Ayatollah Khomeini come to mind here? Or just for you real old-timers, Fulgencio Batista for Fidel?

            Liberal optimists are in full-throated exaltation of this Egyptian demonstration of the irrepressible human desire for democracy, but although I suppose you can eat a ballot, I don't recall ever hearing of anyone surviving on a steady diet of them. Tourism is not sufficient to sustain prosperity in nations far smaller than Egypt, but 6 percent of GDP is 6 percent of GDP, and even as we wring our hands over this crisis, the rustle of people scratching the Great Pyramids off their bucket lists is deafening. Egypt is already one of the top recipients of American foreign aid, and it's hard to see that changing, even as our "unfavorables" with the Egyptian people rise in tandem with the assistance we provide.

            It's hard to know what's the best we can hope for here, outcome-wise. At the very least, a big boost in gas prices is a surefire recovery killer if there ever was one. What's that I hear? The mobs are actually mussing up Anderson Cooper's hair now? This is starting to look r-e-a-l-l-y bad. We may even have to trade the Yukon in on a Prius.