Have Nots or Have Yachts

It seems to me that the ideological knee-jerk defense of the rich by Libertarians and Republicans ignores some important points. The same can be said for the ideological knee-jerk attack on the rich by Democrats. Neither is helpful. 

I have been wanting to write on this for some time, but it has been difficult for me to articulate the two different principles the Bible has on wealth. In fact I promised to do this over one year ago. As I type this, the first of several blog entries I am planning on the subject, I am not sure how I will handle the various scriptures. Although obviously if I did not have a general idea I would not be starting. 

The Bible has no problem with the wealthy, and in fact insists that both rich and poor are to be treated the same. Here are three scriptures that fit in well with my personal libertarian template. (As a reminder, I am using the word template to describe a world view, a way of looking at things.) 

“The rich shall not give more, and the poor shall not give less, than the half shekel, when you give The Lord’s offering to make atonement for yourselves.” (Exodus 30:15 RSV)

“You shall do no injustice in judgment; you shall not be partial to the poor or defer to the great, but in righteousness shall you judge your neighbor.” (Leviticus 19:15 RSV)

“My brethren, show no partiality as you hold the faith of our Lord Jesus Christ, the Lord of glory. For if a man with gold rings and in fine clothing comes into your assembly, and a poor man in shabby clothing also comes in, and you pay attention to the one who wears the fine clothing and say, “Have a seat here, please,” while you say to the poor man, “Stand there,” or, “Sit at my feet,” have you not made distinctions among yourselves, and become judges with evil thoughts? Listen, my beloved brethren. Has not God chosen those who are poor in the world to be rich in faith and heirs of the kingdom which He has promised to those who love Him?” (James 2:1-5 RSV)

While this seems obvious to us, in the ancient world this was not expected. The Hammurabi code, for example, held that the rich should pay less when they had damaged a poor person. The Bibe does not teach this. This is what the Bible means by an eye for an eye—treat each person the same.

While it seems obvious that every person should be treated equally, this is not so obvious to some in modern times either. There was a scene from the recent Batman—Dark Knight Rising—where Catwoman and her buddy (there were gay overtones) are looking at a destroyed apartment. We see a broken picture of the family that used to live there. Catwoman is visibly upset. She says, “A family used to live here.” Her crime partner says, with glee, “Yeah!” The very fact that someone might have something she did not have filled the woman with anger. 

But on the other hand we have these two scriptures. The first, Isaiah 58, asks why God does not seem to be answering their prayers even though they fast. 

^3-5Well, here’s why:

   The bottom line on your ‘fast days’ is profit. 
   You drive your employees much too hard.
You fast, but at the same time you bicker and fight. 
   You fast, but you swing a mean fist.
The kind of fasting you do 
   won’t get your prayers off the ground.
Do you think this is the kind of fast day I’m after: 
   a day to show off humility?
To put on a pious long face 
   and parade around solemnly in black?
Do you call that fasting, 
   a fast day that I, God, would like?

 ^6-9”This is the kind of fast day I’m after: 
   to break the chains of injustice, 
   get rid of exploitation in the workplace, 
   free the oppressed, 
   cancel debts.
For some reason these posters do not include the previous verse about feeding the hungry. What I’m interested in seeing you do is: 
   sharing your food with the hungry, 
   inviting the homeless poor into your homes, 
   putting clothes on the shivering ill-clad, 
   being available to your own families.
Do this and the lights will turn on, 
   and your lives will turn around at once.
Your righteousness will pave your way. 
   The God of glory will secure your passage.
Then when you pray, God will answer. 

   You’ll call out for help and I’ll say, ‘Here I am.’  

I preached on this scripture, back when I spoke regularly, about once a year. Isaiah 58 is in fact a basis for much of the way I look at the Bible. 

Ritual, while important, is not crucial. Far more important is action. In particular this scripture is saying what good does it do to fast, when you force your employees to fast because you abuse them? Often, when I pay for an electronic gadget, I think on this scripture. 

In addition we have this scripture from Luke 12:

15Speaking to the people, he went on, “Take care! Protect yourself against the least bit of greed. Life is not defined by what you have, even when you have a lot.”

 ^16-19Then he told them this story: “The farm of a certain rich man produced a terrific crop. He talked to himself: ‘What can I do? My barn isn’t big enough for this harvest.’ Then he said, ‘Here’s what I’ll do: I’ll tear down my barns and build bigger ones. Then I’ll gather in all my grain and goods, and I’ll say to myself, Self, you’ve done well! You’ve got it made and can now retire. Take it easy and have the time of your life!’

 ²⁰”Just then God showed up and said, ‘Fool! Tonight you die. And your barnful of goods—who gets it?’

 ²¹”That’s what happens when you fill your barn with Self and not with God.” 

How do we reconcile these two principles? I hope to show you. 

American Junkies

I do not think that many in the “hard money” school understand that cutting government spending in the short term will harm the economy. By definition, a part of GDP is government spending.

 GDP = private consumption + gross investment + government spending + (exports − imports), or

 

So in a 15 trillion dollar economy if government spending goes down by the amount of the deficit, 1.3 trillion, the economy contracts by 1.3/15, or by 8%. This will not be good. But before we reject cutting the deficit we need to consider what will happen if we don’t.  

I predict 2 to 7 years left. Our economy since 1913 is like the heroin addict injecting more and more heroin to get the same high as his body becomes used to the drug. The Federal Reserve, with the exception of the Volker years, gets the US economy out of the doldrums by bigger and bigger deficits. Sooner or later there will be an overdose. Isn’t it better to go off the junk, even if it is painful? Isn’t pain better than death? Make no mistake—economic death is where we are headed. 

In this election cycle there are three approaches. 

Obama is in denial. Like the relative who notices the various signs of heroin abuse, weight loss, erratic behavior and so on, but denies that there is a problem, Obama is ignoring all the signs of an imminent collapse of the system. I suppose it is possible that the observable signs will stop, but as long as the behavior continues, so will the effects. Death is the ultimate outcome. As I have been saying, quoting George Shultz, what can’t continue won’t. 

Romney, by adopting a version of the Ryan plan, seems to be advocating the methadone approach. 

Methadone is useful in the treatment of opioid dependence. It has cross-tolerance with other opioids including heroin and morphine, offering very similar effects and a long duration of effect. Oral doses of methadone can stabilise patients by mitigating opioid withdrawal syndrome. Higher doses of methadone can block the euphoric effects of heroin, morphine, and similar drugs. As a result, properly dosed methadone patients can reduce or stop altogether their use of these substances.

By using methadone, the heroin addict can gradually wean themselves off heroin. This approach has the deficits continue but they get gradually smaller as spending growth is ratcheted down. 

The Governor Johnson approach, Johnson is the libertarian candidate, is to, to continue my heroin analogy, go cold turkey. Cut spending by 43% immediately and get the pain over with. Only after this is done can the economy grow. Sometimes “cold turkey” works, but it is very risky for the patient. Close supervision is needed. 

My own approach is between Romney and Johnson. Yes I know that is a fourth approach, but I am not running for office, and no one is really interested in my approach. I would cut spending by a lot, but less than Johnson. I would increase taxes by letting the Bush tax cuts expire.  Then, to avoid the crash, I would have a very large quantitative easing for several years. Yes, I, as a “hard money” guy am proposing printing a lot of money. I am ashamed. But we do not live in an ideal world of theories. We live in a real world and need to be pragmatic. 

My guess is that since all politicians are liars that Obama will actually adopt the Romney approach when he is reelected. If Romney is elected he will cut spending even more than he is saying. What about Johnson? The only way Johnson can get elected is if Romney and Obama get caught in bed together with a goat. 

I realize this is very optimistic. It is possible that Obama is in fact as clueless as he appears. One of my favorite sayings is “Never underestimate the power of stupidity.” Surely Obama and Romney can’t be that stupid? Surely? 

Remember the old Chinese Curse? 

May you live in Interesting Times. 

Meltdown

This is part one of a four part CBC documentary on the economic crisis of 2008. It tells the story on a more personal level. A lot of the "players" in the crisis are not nice people. It has all the advantages and disadvantages of being written by the Canadian Broadcasting Company. In particular it confuses the free market system with our current sustem, they are not the same. 

The Canary in the Mine

Before we had modern air detection devices for mines, the miners would carry a canary into the mine. If the air was bad and the canary died, the miners could leave and save their lives. 

While this is an overused cliché, sometimes the old clichés are the best clichés. 

Looking around the economy I see plenty of dead canaries. Here is one from the Wall Street Journal:

The U.S. Postal Service on Thursday reported a $5.2 billion quarterly loss and said it was nearly out of cash and likely to exhaust its government credit line in coming months.  

The agency said the loss was its widest since it began releasing quarterly financials in 2007. But Postmaster General Patrick Donahoe said the Postal Service would do whatever it takes to maintain its operations, even if that means defaulting on a second multibillion-dollar retiree obligation in as many months. 

How can a monopoly lose this much money? 

One reason is that the Post Office is required by law to fund the retirement of postal workers—really in a sense pre-fund the workers' retirement. But only about 50% of the loss seems to be from this source. 

While the Post office should fund its retirement benefits every year, pre-funding 75 years of retirement over 10 years does seem excessive. It should fund the annual increase in obligations every year, like other government agencies. Oh, wait a minute, that is not true. 

This brings us to my main dead canary for the day. While the budget deficit is reported as 1.3 trillion, in fact it is much larger. The unfunded liabilities of the government keep growing. How large a deficit are we really running? No one knows. I have heard estimates that it is ten trillion a year. I doubt it is that large, but who knows? The only way to know is if you have a crystal ball and can predict future unemployment rates, future interest rates, and so on. In any event, it is clear that the true deficit is two or three times as large as is admitted under modern bogus accounting rules.  

A good example of what I am talking about is Part D Medicare. Bush rammed it though the congress. The main argument I heard in favor of it was that the Democrats had a worse version of it. Right. Bush, with one signature, added ten trillion to the unfunded liabilities of Medicare. I will not be pushing “like” on Bush's Facebook page anytime soon. This may be the single worst act of any president ever. 

About once a month at my house I have to sweep a dead bird off my back porch. I have very large windows and the birds think that the window is open. Get your broom ready folks, for soon the canaries will be dropping like flies. 

What will be the effect of the total unfunded liability of Medicare? We will find out in 3 to 7 years when the government defaults. 

House Prices Rising?

The following Wall Street Journal video implies that since Warren Buffet, billionaire investor, is buying housing products, you should too. Maybe. But what the video does not mention is that Buffet owns insurance companies. Insurance companies must invest in order to get an acceptable rate of return. That is how they make their money. Housing may be the cleanest dirty shirt right now. 

Note that the video does not mention what I think is the key issue for housing, interest rates. Interest rates are being kept artificially low to prop up the economy. What is going to happen when they rise? Oops.