The biggest obstacle to deficit reductions...

...lies not within the government or politicians, but with you. At least that's the case according to this Los Angeles Times report, which states that (emphasis mine):

Californians object to increasing taxes in order to pare the state's massive budget deficit, and instead favor closing the breach through spending cuts. But they oppose cuts—and even prefer more spending—on programs that make up 85% of the state's general fund obligations, a new Los Angeles Times/USC Poll has found. 

That paradox rests on Californians' firm belief that the state's deficit—estimated last week at nearly $25 billion over the next 18 months—can be squared through trimming waste and inefficiencies rather than cutting the programs they hold dear. Despite tens of billions that have been cut from the state budget in recent years, just a quarter of California voters believed that state services would have to be curtailed to close the deficit.

Yikes. In other words, Californians all recognize the danger of ballooning deficits and debt, but don't actually want to sacrifice any of their own benefits (or pay higher taxes) in order to solve the problem. Unfortunately, these strange delusions are not unique to California, but in fact run nationwide, according to a national NBC News/Wall Street Journal poll.

After being read a paragraph outlining some of the suggestions to reduce deficits over the next 10 years, as laid out by the chairmen of Obama’s bipartisan National Commission on Fiscal Responsibility and Reform, just 25 percent of respondents said the plan was a good idea.

Highlighting just how difficult this issue is:

- 70 percent say they’re uncomfortable cutting spending on Medicare, Social Security, and defense spending.

- 59 percent say they’re uncomfortable raising taxes on gas, limiting home mortgage deductions, and changing corporate tax rates.

- 57 percent say they’re uncomfortable raising the retirement age to 69 – over the next 60 years. The retirement age is currently 67.

Those who say they’re most uncomfortable with these suggestions — those who are against all three — make up a group of strange bedfellows who are rarely aligned on policy matters: core Republicans and Tea Partiers as well as blacks, Latinos, union members, and suburban women.

Among the most comfortable with these proposals (meaning they are for at least two of these three) are urban and suburban men with college degrees, Northeasterners, households making more than $75,000 a year, and liberal Democrats.

We live in strange times indeed when "Tea Partiers" and core Republicans oppose spending cuts, while liberal Democrats (and the rich) are in favor of them. The results of the latter study are so bizarre as to cast doubt as to the viability of ANY deficit reduction plan. Any spending cut or tax hike will apparently be vigorously opposed, but we all want our deficits to shrink. Alright, then.

A significant part of the problem derives from the ongoing rhetoric (championed especially by Republicans and Tea Partiers, but not unique to any party or group) that we need to "trim the fat" and cut the "wasteful, inefficient spending" in Washington. While inefficiency absolutely exists in government programs at both the local and federal level, it alone is not to blame for our runaway deficits--it's a red herring at best.

The fact is, our entitlement (and defense) spending programs go far beyond what Americans are actually willing to pay--we're good at asking the government to solve our problems, but absolutely brutal at actually sacrificing out of our own pocket when asked. That's why so few Americans signed up for the military post-9/11, a dramatic change from the flood of enlistments during the World War II era. Our growing debt is a difficult issue, but if we are going to solve our problems, the fixing starts not in Washington, but with us. Ultimately, politicians are simply a reflection of what we tell them to be; in this regard, they are representatives in the truest sense.

[Los Angeles Times]
[NBCChicago.com]

My true thoughts on the Tea Party

I've avoided writing this post for a long time, for various reasons. For one, I recognized early on that the Tea Party was an incredibly divisive issue--like religion, those types of issues are usually best left alone. There's no convincing the non-believers, and there's no possibility of de-programming the believers. But secondly, with the movement changing by the day, I was mostly curious to see it all play out before I wrote any post-mortems.

With election day now behind us, I think the Tea Party's legacy is well-established, even if its true impact on government may not be known for years (or decades). Unfortunately, I think its legacy is one more of disappointment than anything else.

Prior to the elections, Rolling Stone's Matt Taibbi wrote a particularly scathing piece about the Tea Party that I think is entertaining and worth reading, if brutally unbalanced. I won't be so hard on the Tea Party, if only because I'm more sympathetic to its "original" goals--primarily, that of restoring fiscal sanity to the federal government. But shortly after the movement's genesis, things went horribly off the rails, for reasons that I think are systemic within our two-party democracy as it has developed.

There is a growing distrust among the American public (myself included) of both political parties. In many ways, this is a healthy part of democracy, a feeling that George Washington himself once echoed. The problem is that any alternative to the two established parties tends to attract the whackos, the extremists, the anarchists, and essentially, the shouters. The extremists are hard to mute, and pretty soon they drown out the core message and hijack the movement. That's what happened with the Tea Party, with dramatic (and sometimes disturbing) results.

So what was the solution for the "original" tea partiers, once their movement had been hijacked by the fringe? Sell out. Distance yourself from the whackos, and align somewhat closely with one of the established, "safe" alternatives. Pretty soon you had the Tea Party, brought to you in part by the G.O.P. As fellow blogger Karl Denninger became fond of saying, the Tea Party morphed into the party of "Guns, Gays, and God", a far cry from the pure fiscal conservatism that was at the core of the movement.

Clearly, the platform that developed wasn't the original point of the Tea Party movement--the historical reference in the movement's name doesn't even make any sense when applied to modern-day political platforms. But I think it's pretty close to inevitable for any third party movement. That's troubling for me, and likely for anyone who identifies as an Independent, Libertarian, or anything other than platform-Democrat or platform-Republican.

I was disappointed by the Tea Party, but only slightly more so than I've been disappointed by both of our established political parties. Hopefully, some day soon we'll have a viable third party that can resist the shouts from the whackos out on the fringe.

From Venice back to Rome...

Now it's time to head back down to Rome, to take our flight back to the States (and reality). Tomorrow will be a travel day, then I'll be back in full force (in body, if not in mind) on Wednesday.

From Florence to Venice...

Now on to our last stop on our tour of Italy, Venice. With its ubiquitous canals and gondoliers, Venice is a city like no other in the world; I can't wait to see it. I've stayed at The Venetian in Las Vegas, but somehow I think the real thing might be just a little bit different... Have a good weekend, all.

Sacrificing friends post

I came across this article several months ago, but never got around to posting it or commenting on it. Since I'm clearing out the old backlog so that you'll all have something to read while I'm out of the country, this seemed like as good a time as any to finally post it.

Falling in love comes at the cost of losing close friends, because romantic partners absorb time that would otherwise be invested in platonic relationships, researchers say. 

A new partner pushes out two close friends on average, leaving lovers with a smaller inner circle of people they can turn to in times of crisis, a study found. 

The research, led by Robin Dunbar, head of the Institute of Cognitive and Evolutionary Anthropology at Oxford University, showed that men and women were equally likely to lose their closest friends when they started a new relationship. 

Previous research by Dunbar's group has shown that people typically have five very close relationships – that is, people whom they would turn to if they were in emotional or financial trouble. 

"If you go into a romantic relationship, it costs you two friends. Those who have romantic relationships, instead of having the typical five 'core set' of relationships only have four. And of those, one is the new person who's come into their life," said Dunbar.

So, we lose friends when we get married, which is in large part the result of personal choice. What I wonder is, what about the other side of the equation? In other words, what if we don't get married? We've all had friends who either became less fun or disappeared completely after entering into a serious relationship (or getting married). It's never fun, but according to this research, it's inevitable.

As our closest friends get married, how do we avoid finding ourselves on the "two close friends" chopping block? Are we destined to lose friends by the year, even if we don't get married, as our close friends gradually cut us off in order to spend more time with their wives (or husbands)? I certainly hope not, but I think it's worth asking.

It would be sad indeed if we were forced to choose between getting married on the one hand or living an increasingly lonely unmarried life on the other. Is that what this research suggests? I'd be interested to hear your thoughts...

[Guardian]

Happy Thanksgiving from The Crimson Cavalier

This is the first time I'll ever be out of the country for Thanksgiving... I'm glad to be on vacation, but I'll miss my favorite holiday. What a fantastically gluttonous, perfectly American holiday. Plus, it gives me an excuse to post my favorite cartoon of all time.

So, Happy Thanksgiving from Italy. Go Pats!

From Pienza to Florence...

Staying in Tuscany, but moving from the rural to the urban (sound familiar?), today we'll be driving up from Pienza to the ancient city of Florence, the birthplace of the Italian Renaissance. Home to Galileo, Machiavelli, Leonardo da Vinci, Michelangelo, and Donatello (but presumably not Splinter), Florence is one of the most visited cities in all of Europe. There are certainly worse places in the world to be spending my Thanksgiving...

Personal responsibility and the "nanny state"

I've never been a fan of laws that aim only to protect us from ourselves. I believe that in a free society, it is well within the bounds of government to provide incentives and disincentives which encourage "proper" behavior, but that it is beyond government's purview to explicitly ban specific behaviors (some obvious exceptions--like rape and murder--can of course be made here, but bear with me).

Unfortunately, it seems that more laws than ever are being proposed and passed that ban one action (or product) or another, thus removing the element of personal choice from the equation. For an example, witness Transportation Secretary Ray LaHood's recent statements regarding cell phone use in cars.

LaHood said using a cell phone while driving is so dangerous that devices may soon be installed in cars to forcibly stop drivers — and potentially anyone else in the vehicle — from using them.

“There’s a lot of technology out there now that can disable phones and we’re looking at that,” said LaHood on MSNBC. LaHood said the cellphone scramblers were one way, and also stressed the importance of “personal responsibility.”...

“I think it will be done,” said LaHood. “I think the technology is there and I think you’re going to see the technology become adaptable in automobiles to disable these cell phones. We need to do a lot more if were going to save lives.”...

“Am I on a rampage,” said LaHood, who has made distracted driving a top priority of his tenure, in February 2010. “Yes, I am, and why shouldn’t I be?”

Well, Ray, you shouldn't be because it's frankly un-American. As unpalatable as it may be sometimes, our nation is built on giving people the freedom to make their own choices, and allowing them to determine on their own what works and what doesn't. I certainly recognize the extreme danger of using cell phones (whether to talk or to text) while driving, but as usual, I'm more concerned with the principle than the specifics.

Secretary LaHood himself recognized the need for "personal responsibility", which has been in a precipitous decline over the past several decades. You don't create personal responsibility by legislating choices away from the people; quite the opposite, in fact. The more people rely on the government to save them from themselves, the less incentive they will have to make the right choices in the first place (or to deal with any developing problems on their own). Over-reliance on the government has been a key factor behind the disappearance of personal responsibility in America. 

Often, these types of policies and bans are quick-fix responses to avoid taking on more complicated issues. The fact is, distracted drivers existed on the road long before cell phones were prevalent, and they'll exist even if we do ban cell phones in cars entirely. We need to focus on the real problem--irresponsible, unqualified drivers--rather than their symptom, cell phone usage.

So, how do we do that? Simple. Severely punish drivers who are found to have caused accidents because they were distracted (by their cell phones or otherwise). One model that could be considered is Germany's drinking laws--the legal drinking age in Germany is 16 (for beer; 18 for hard liquor), but public drunkenness (not to mention drunk driving) is punished very harshly. In other words, we trust you to make the right decision, but come down hard when you do not. THOSE are policies that encourage personal responsibility; raising the drinking age to 30 or simply banning alcohol altogether would do the opposite. It's not often that we look to Europe for examples of how to govern, but Germany certainly has a citizenry that is responsible (almost obsessively so). 

If we are to return to the era of responsibility and self-reliance that once made America great, it must start with the way we legislate and punish undesirable behaviors. Ban very little, but punish irresponsible behavior severely. I think you'll be pleasantly surprised by the results.

[The Daily Caller]

Journalistic standards in the internet age

This op-ed from Thomas Friedman in the New York Times describes the latest (disconcerting) example of irresponsible "journalism" run amok.

On Nov. 4, Anderson Cooper did the country a favor. He expertly deconstructed on his CNN show the bogus rumor that President Obama’s trip to Asia would cost $200 million a day. This was an important “story.” It underscored just how far ahead of his time Mark Twain was when he said a century before the Internet, “A lie can travel halfway around the world while the truth is putting on its shoes.” But it also showed that there is an antidote to malicious journalism — and that’s good journalism.

In case you missed it, a story circulated around the Web on the eve of President Obama’s trip that it would cost U.S. taxpayers $200 million a day — about $2 billion for the entire trip...

The next night, Cooper explained that he felt compelled to trace that story back to its source, since someone had used his show to circulate it. His research, he said, found that it had originated from a quote by “an alleged Indian provincial official,” from the Indian state of Maharashtra, “reported by India’s Press Trust, their equivalent of our A.P. or Reuters. I say ‘alleged,’ provincial official,” Cooper added, “because we have no idea who this person is, no name was given.”

It is hard to get any more flimsy than a senior unnamed Indian official from Maharashtra talking about the cost of an Asian trip by the American president.

Yikes. As the son of a print journalist, I'm both privy and sensitive to the rapid deterioration in journalistic standards within the mainstream media. The instant news cycle that the internet made possible sparked an incredible arms race among media outlets of all types (traditional and new media), with an emphasis on getting the story up first, right or wrong. Essentially, get the scoop, and worry about verification later. If necessary, run a retraction the next day in a well-hidden spot.

Clearly, irresponsible journalism is nothing new (nor is journalistic ineptitude, irresponsible journalism's mentally challenged half-brother). But its apparently rapid growth reveals the dark side of the internet and its power to disseminate information. It's indisputable that the internet has made more information available to more people; it's the quality of that information that remains in doubt. Now, more than ever, it's become incredibly simple to put out flawed or simply wrong information, while hiding behind a voice of authority.

This dynamic has become much more obvious to me since I began writing this blog. I often approach posts on this site with a pre-determined view on things, and I've found that it's never difficult to find confirming evidence to back up my beliefs--in the internet age, it's often simply a matter of how low you're willing to stoop with regard to your "sources". I like to think of myself as a responsible blogger/"journalist", one who doesn't succumb to the temptation of compromising integrity for the sake of bolstering my point of view. But not all bloggers or journalists share my approach, and it only takes one to create a runaway story.

Just one well-placed blog post or website can lead to an avalanche within the mainstream media; traditional media outlets are incredibly sensitive to being "beaten" to a breaking story by an internet site, and they will often pick up anything that seems to have even a shred of credibility. Again, publish now, verify later. But sometimes, by the time that verification step comes along, the story has already grown a life of its own--often having been perverted along the way in a strange game of media "telephone".

The onus, unfortunately, is on us in the general public to verify stories from the mainstream media on our own, until they prove again that they are worthy of our trust. Some outlets are bigger offenders than others (you know who you are), but almost all are suspect as long as they are engaging in an arms race with the internet. Keep your eyes and ears open.

[New York Times]

From Rome to Pienza...

Today we'll be leaving Rome to head up to Pienza, a Tuscan hill town in the province of Siena (in the Val d'Orcia). Should be absolutely beautiful, and the only stop of our trip that isn't a major city. I'll be renting and driving a car from Rome through the hills of Tuscany, and hopefully not getting into any trouble along the way...as always, no guarantees.

Increased urbanity

Last week, as I was preparing for my trip to Italy, I wrote a post about the increasing immobility of the American labor force, and how it might be contributing to our continued recession (and stubbornly high unemployment rate). It got me to thinking more broadly about the changing face of American society, and the ever-increasing urbanization of our country.

In the early days of America (pre-industrial revolution), we were a primarily agrarian society, both in the North and the South. Things of course changed rapidly in the 19th century, culminating in the Civil War, which arguably marked the ultimate triumph of industry over agriculture in the United States.

The decades and centuries since have seen a relentless march toward urbanization, with our nation's rural roots largely fading into the background and the history books. For evidence, refer the following chart, which I put together with Census data culled from here and here (data from 1810-1840 was not available, so I smooth-lined the increase from 1800-1850, for the sake of comparison).

That's an increase from 5.1% of Americans to 79.2% of Americans in just two centuries; since 1920 alone, we have seen an increase of nearly 60%, from 51% to nearly 80% (and probably more, once the 2010 data is tabulated).

What has industrialization done to us? Has it ironically made us less flexible, less capable, and more dependent upon each other for survival? Have we become completely incapable of returning to our agrarian roots, or are we primed for a pullback on the above chart? Most importantly, with the internet making telecommuting possible, are we prepared to let any of our cities fail? Or is our inexorable march toward urbanization destined to bring us to 100%, regardless of the technology available to us?

In this interesting podcast, cities theorist Richard Florida wonders whether our cities themselves have become "too big to fail". It seems likely that our move toward urban lifestyle is in part to blame for our societal immobility, but are we ready to accept the urban blight that would almost necessarily result from a reversal in that trend? For now, it seems like we are willing to accept the devil we know instead of the devil we don't know.

For a capitalist society to function properly and achieve the progress that should be at its core, some creative destruction is not only inevitable but desirable. We must be willing to let dying businesses fail (hello, Blockbuster and the Walkman), and so too must we let dying cities fail. 

But just as we won't let General Motors or Citigroup disappear (but we did for some reason let Bear and Lehman fold...you know what, don't get me started), we also seem reluctant to allow cities to fail, or even to shrink. Cities themselves, when faced with crises (budgetary or otherwise), tend to respond by lowering corporate and personal income tax rates so as to attract industry and small businesses. This is in essence a devil's bargain, which solves nothing in the long run because it is inherently unsustainable. Cities have already begun declaring bankruptcy, and I have to wonder if more declarations are around the corner. 

The question is, how will we as a society (or, as a federal government) respond if and when they do? The answer to that question will have significant implications for the future shape of my chart above, and also for the future dynamics of the American labor force. Stay tuned.

Off to Italy...

Alright, folks, I'm off to Italy (with the little lady) for the next 10 days; I'll be back and posting regularly on December 1. I've tried to set up the blog to auto-post a few pre-written items while I'm abroad (at least one item per day), but I guarantee nothing. If you don't hear from me for a while, have a happy Thanksgiving and don't do anything I wouldn't do. Arrivederci!

For the first two days (plus a travel day) in Italy, I'll be in Rome, home of the Colosseum...

If you think the justice system in the United States is screwed up...

...wait till you see what they're doing over in Ireland (where their banks are getting weaker by the day). In one of the greatest newspaper (or blog) headlines of all time, "Naked Irish Sleepwalker Wins Libel Suit", the New York Times' Robert Mackey writes:

An Irish jury awarded nearly $14 million in damages on Thursday to a man who claimed that his former employers had slandered him by insinuating that he had made improper advances to a female colleague during a business trip.

The man, Donal Kinsella, insisted that he had been sleepwalking during a trip to Mozambique in 2007 when he showed up, naked, at the door of a female colleague’s hotel room three times in one night, The Irish Times reported.

He later filed suit against the mining company that employed him at the time because it had referred to the incident in a press release explaining why he had been asked to resign from the company’s audit committee, on which the same female colleague served.

I've really never understood how juries arrive at these ridiculous amounts for monetary damages, but this one seems particularly absurd, especially given the nature of the case. But wait... there's more.

During the trial, the court heard that Mr. Kinsella had also been drinking and taking painkillers on the night in question...

The jury’s award was by far the largest ever in an Irish libel case and it prompted the judge to pause and ask the jury to “correct me if I’m mistaken,” as he read the sum aloud, according to The Daily Mail. The Mail also reported that the jury had increased the award, “because the jurors felt that the cross examination of Mr. Kinsella by the company’s lawyers was too aggressive.”

A lawyer for the company described the award as “off the Richter scale” and said that it would be appealed.

Oh, come on... now we're punishing people (and companies) for defending themselves "too aggressively" in court? Ireland, you have officially gone off the deep end.

As for Mr. Kinsella, congratulations buddy. You're the first guy in history (that I'm aware of) to get paid for doing what most of us Irish people do naturally--getting drunk and being inappropriate. Well-played, big guy; you're an inspiration to us all.


[New York Times]

FAIL

I'm all for cross-promotion and creative marketing, especially in the world of sports. I think the NHL Winter Classic is one of the more clever marketing ideas to come along in a while, and it's been a great success for the league. The inaugural Winter Classic was one of the cooler events I've watched, and the tradition of outdoor hockey on New Years' Day is a cool one.

Coming off the success of the Winter Classic at Wrigley Field in 2009, the owners of the Chicago Cubs came up with a novel idea: why not invite two local Big Ten football teams to play a football game at Wrigley? Oh...

Only one end zone will be used at Wrigley Field on Saturday for the Illinois-Northwestern game because of safety concerns, the Big Ten announced Friday.

The east end zone is feet away from the right-field wall, and although there is padding, there was still concerns that injuries could take place. Northwestern coach Pat Fitzgerald had said he would have different game plans for the different end zones to avoid the possibility of injury.

When a team is on offense Saturday, it will be positioned to head to the west end zone.

"It was something we've all had some concerns about in regard to the closeness of the right-field wall at Wrigley Field, so a decision was made with both coaching staffs and the athletic directors of both schools and the [Big Ten] commissioner to start every offensive possession and go west," Illinois sports information director Kent Brown said on "The Waddle & Silvy Show" on ESPN 1000. "I think it's a student-athlete safety concern that is first and foremost, and we want to make sure there's no chance for somebody to run into that wall and get seriously injured.

"It's a unique twist to the game, but I think it's something all parties felt was the most fair."

Wow. Look guys, if your venue can't handle the event, don't host it. This is an embarrassment and a farce, and has to be considered a backfire on Cubs management.

This lack of planning is pretty brutal, and doesn't reflect too well on the Cubs' new ownership group. Looks like they won't get their wish of turning this into an annual event...


[ESPN.com]
(h/t Ted)

Clip of the Week

Well, the original video I had picked out for Clip of the Week, "10 Centuries in 5 Minutes", got pulled down before I could post it. Typical. To be honest, I'm surprised it took this long for it to happen to one of my clips.

So, to get the general idea of what was an awesome video, I'm posting two separate clips, which together show the incredible border changes that have occurred in Europe over the past two millennia.





A couple of things are striking to me about the videos, which despite not being quite as professional as "10 Centuries in 5 Minutes" are nevertheless mesmerizing. First of all, we tend to take stability (whether economic, political, geographic, or otherwise) for granted in the United States. Our borders here at home have remained essentially unchanged for generations, and the last 20 years (post-USSR) have been relatively stable in Europe and the rest of the world as well (the former Yugoslavia and Czechoslovakia marking exceptions). But things can and always do change; stability can be wrenched from us nearly without warning, with incredible implications.

But besides that, while watching the original video, I couldn't keep my eyes off of Germany (or the area that became Germany). For centuries, the northern portion of the former Holy Roman Empire essentially consisted of large swaths of unincorporated territory, with a few semi-organized kingdoms popping up here and there. Then Otto von Bismarck (one of the most fascinating and important statesmen in history, in my opinion) came along, and the rest is history. If you want the "short version" of the German story, just watch the second video clip by itself. It's pretty shocking to see how powerful a previous non-entity became in a very short time. The 20th century global story was largely dominated by Germany, which by any account of European history was the new kid on the block. Crazy.

Beware of GM

The big news in the markets today is General Motors' IPO, which raised over $20 billion in what will go down as the biggest IPO (or, in this case, re-IPO) in market history. The stock priced at the high end of its expected range, and it has traded higher since trading began at the New York Stock Exchange this morning. Along with it, just about all stocks are higher across the board.

It's been a cause for celebration for the U.S. government, which was able to drop its stake in GM from 61% to about 33% (ultimate cost to taxpayers is, of course, TBD). But some investors aren't sold just yet, and with good reason. From The Washington Examiner,

Why hasn’t anyone asked the company or its federal minders why they have from all appearances artificially created over $1 billion in U.S.-based EBIT (earnings before interest and taxes) through October by overstuffing its dealers with excessive levels of inventory?

According to the Wall Street Journal’s cheerleading Andrew Bary, the IPO is generating a great deal of fanfare. The Associated Press’s Sharon Silke Carty is decidedly less enthusiastic (“the world’s most charming used car salesman couldn’t cover up major concerns”), identifying four good reasons to for investors to sit the IPO out. One of them is that “Years of fuzzy math (are) still not fixed.”

From here, it seems that the company has created a unique category of fuzzy math: shipped-ahead profit.

Essentially, per FASB standards, car manufacturers are allowed to book revenues "when a vehicle is released to the carrier responsible for transporting it to a dealer and when collectability is reasonably assured." In other words, once a car is shipped out to a dealer, it's a sale for GM, regardless of if they've been paid or not. This is common industry practice, and nothing out of the ordinary, but...

As of the end of October, GM dealers in the U.S. were sitting on inventories of almost three months' worth of sales, up from the low-60s only five months earlier.

The dealer inventory build-up has occurred despite at least two factors that would normally dictate lower inventory levels. First, after eliminating Saturn, Pontiac, and Hummer, GM is down to four brands (Chevy, GMAC, Buick, and Cadillac). Second, the company has substantially reduced its dealership roster. Yes, the company did offer to reinstate 661 dealers earlier this year. But while the rebound in the number of outlets could explain an increase in absolute inventory levels, it doesn't explain why vehicles are sitting on dealers' lots 23-24 days longer than they were in May.

Is 86 days of inventory an abnormally high level? In ordinary circumstances, I would say so.

In other words, beware of GM. The increased level of reported earnings might not be a huge factor in inflating GM's IPO price, but it is a factor, and it may be indicative of more window-dressing behind the scenes. As a result, any taxpayers who cheered the return on their GM investment this morning by investing in its stock might find themselves wishing they hadn't a few months down the line. Be careful out there...


[The Washington Examiner]

On deficit reduction proposals

If you read this blog often, you'll know how concerned I am about ballooning government deficits and debt. I'm honestly not even going to bother linking you to all of my previous posts on the topic--they're easy to find. So my silence on the topic of last week's Simpson-Bowles deficit commission report probably strikes you as a bit suspicious.

It's not an oversight on my part. I wanted to give the report fair treatment and to wait until I had fully read through the 50-page report before commenting. But before I could do so, along came Pete Domenici and Alice Rivlin with a competing deficit reduction proposal of their own (worth a read), to add to the chorus. It already seems fairly clear that there will be more of these proposals than can reasonably be studied and commented on. I think this speaks partially to how serious the issue has become--and our recognition of that fact (which is good)--but also to how difficult and complicated it will be to solve.

One of the more illustrative items I've come across in the wake of the Simpson-Bowles report (and there have been many--here are a few of my favorites) was this interactive graphic from the New York Times, which is simultaneously fun and exasperating to play around with.

 

Like a similar tool which I used during my days as an undergrad economics major, it skews a bit toward the "raise taxes" side as opposed to the "cut spending" side (which is somewhat unsurprising from the New York Times). But that's partially a political reality.

Massive spending cuts are political suicide, since they give the impression that the government is playing favorites (or scapegoating). Tax increases, while unpopular, at least seem more fair--and tax increases on the rich are especially popular politically. Whether they're economically efficient or represent good government policy is another issue altogether.

I think that what tools like this really show is how careful we must be when initiating new government spending programs. They are difficult if not impossible (politically, at least) to scale back once they are in place, but it's equally difficult to raise taxes on the back end to support them. None of the choices in the Times' graphic is particularly palatable, and this is even before we start taking into account the potentially devastating budgetary impacts of an increased interest rate on our government bonds (which are especially acute when we start looking out to 2030 and beyond).

It's easy for politicians and voters alike to ask for and demand that government solve our problems, but we have to understand that it will eventually come out of our pocket--one way or another. As the Times graphic shows, even taxing the rich into poverty can't close our budget deficits. Eventually we all have to take a little pain. It will be interesting to see whose plan (if anyone's) wins out in the long run.

[New York Times]

Our increasingly immobile society

My wife and I are currently getting ready for a 10-day trip to Italy (oh yeah, note on that, the blog will be going on partial hiatus from Nov. 20 to Nov. 30...I'm trying to teach Blogger to auto-post a few pre-written blog posts, but given my semi-retardation when it comes to site administration, I can't guarantee anything), which reminded me once again how difficult it can be to shut life down for a bit and prepare to leave your home. Clear the food out of the fridge, board the cat at the vet, cancel the mail, call the bank to make sure our cards will work in Europe, tie up loose ends at work, do endless research (and run around in circles) trying to figure out how to avoid massive cell phone charges, make sure we've prepaid any bills that are due, I'm already getting exhausted just typing it all.

When it can be this complicated to leave on a vacation, it's easy to understand why so many people are reluctant to move from their homes. Our decreasing mobility is, in my opinion, one of the more unspoken but important factors behind our persistent unemployment. As Americans, we've become increasingly tied to our homes, partially as a result of government policies which promoted home ownership over renting. Only about 22% of Americans have passports, as compared to 71% in the U.K. (granted, it's not nearly as far a trip for someone to go abroad from London as it is for someone to leave, say, Tulsa, but that's still a huge gap), which only further indicates how little most Americans move around (I don't mean exercise, but that too).

This dynamic may be considered benign, but I believe that it's a contributing factor to our continued recession and stubborn unemployment rate. An article this summer in the Christian Science Monitor wrote that:

Geographic mobility was once an effective way for Americans to fight high unemployment and bring about a quick recovery. It helped employers better match their available jobs to the most qualified applicants. And it gave the nation an edge in global competition.

But now policymakers are stumped in how to reignite that old get-up-and-go spirit among workers and the jobless...

The reasons for a general American reluctance to relocate are many.

For one, with about half of the jobless now unemployed for more than six months, many have given up looking for work far from home or can’t afford a move.

Two, homeowners seeking another job don’t want to take a big hit on the sale of their houses in the current market even if they might be able to find a job in another state. In the last big economic downturn during the early 1990s, lower housing prices dampened labor mobility by 10 to 24 percent, according to one study.

Three, many of the jobless are staying put because of regular extensions of unemployment insurance by Congress and because of a hope that their jobs will come back soon. Meanwhile, government efforts to assist homeowners in avoiding a foreclosure – while humane in many cases – only add to the forces against greater labor mobility.

And then there is the demographic trend of aging baby boomers less willing to pull up roots, just one more fact that helps explain why the percentage of people moving between states is at its lowest rate in six decades.

Lowest rate in six decades. That's astounding, and it goes a long way toward explaining the inability of our labor market to bounce back. There's a significant body of research that indicates that worker mobility--not just across state borders but across international borders--is a key driver of global economic growth. But as Americans, we are becoming less mobile, not more mobile, even as technology enables us to work essentially from anywhere.

If our economy is to recover fully, I think that we will require a significant reconsideration of where we live and why. The onus is not only on individuals, but also on corporations, who can encourage and embrace the efficiencies that technology has offered us (telecommuting, e-conferences, desktop sharing, video chat, etc.). We don't all need to live in the same place any more, and we certainly don't need to stay there forever. But for now, that's exactly what we're doing. It's a tough cycle to break.

[Christian Science Monitor]

Quote of the Week

Alright. I'm cheating here. This week's Quote of the Week isn't really a quote, so much as it is a clip, with a quote that I pulled as an excuse to post the clip. But so be it. This is entertaining.

This week's Quote of the Week

"The printing money is the last refuge of failed economic empires and banana republics, and the Fed doesn't want to admit this is their only idea." -Little cartoon dude



The whole thing isn't totally fair, but it's amusing. The Fed is taking a lot of heat lately, deservedly so. That a clip like this has gone viral shows just how far the Fed's credibility has fallen.

New NYC taxis=government at its best?

Fresh off a weekend in New York City--which served as a fantastic reminder of everything I don't miss (and a few things I do miss) about living there--I was somewhat amused to read this story in the New York Times about the fight to replace the Crown Victoria as the crown jewel of the NYC Taxi fleet.

An icon of the urban landscape, the humble yellow cab is set to undergo an unprecedented face-lift — perhaps the biggest change to the city’s street aesthetic since licensed cabs were required to be painted yellow in 1970.

The Bloomberg administration on Monday unveiled three finalists in its competition to replace the current taxis, a mishmash of sedans, minivans and hybrid sport utility vehicles, with a single City Hall-approved model.

By 2014, when the first new vehicles are expected to appear, the city’s taxis will bear more resemblance to the oblong, obsolete Checker cab than the fleet’s current stalwart, the Ford Crown Victoria, which is to be discontinued next year.

All three competing designs, submitted by Ford, Nissan and the Turkish manufacturer Karsan, have the bulky appearance of a minivan. Gone is the cramped legroom of a hybrid car: these interiors feature generously sized backseats and, in Karsan’s case, a rear-facing drop seat to encourage conversation among passengers (that, or motion sickness). 

While I'm not totally sold on the results of the search--why are they all basically minivans, what does this mean for gas mileage, why not go with two models instead of one, etc.--I'm nevertheless intrigued by the process.

In a sense, I think this type of search represents government at its best. In (too) many arenas, we solve problems by creating large government agencies crowded with newly-hired government workers, and inefficiently throw money at the problem (think TSA). The result is often an irreversible structural increase in government spending, with questionable long-term benefits.

This program turns that dynamic on its head. The government puts out a massive incentive (in terms of a government contract), lays out its specifications, and leaves it to the open market to find a suitable answer. This approach is not only more democratic, it also encourages the free flow of capitalism and represents a more efficient use of taxpayer dollars. The costs of research and innovation are privatized (as are the profits), but the general public still benefits. The taxpayer pays nearly nothing for the right to see a better product (or program) put to use by the government.

Incentive-based programs are hardly a new concept, but it's somewhat rare to see the government use it widely (or wisely). Private individuals and organizations have used this approach for decades, with often transformative results--witness the Orteig Prize, which effectively launched the private air industry, and the Progressive Insurance Automotive X Prize, which encouraged the development of a 100-mpg car by providing a substantial cash reward.

To its credit, the Obama administration recognized the potential of these programs (and the power of the collective) by launching Challenge.gov, which provides an interface for existing federal agencies to offer cash rewards for solutions to their problems. A buildout of this type of program to consider a much wider scope would be beneficial to the U.S. government and its taxpayers, while retaining the government oversight that we typically expect and desire.

I think that for our most complex problems, this type of government/private industry hybrid is an absolutely essential tool, especially as we face increasing budgetary constraints at the federal and local level. The government cannot possibly provide the answer to all of our problems (certainly not efficiently), but it can use the power of the collective to provide incredible incentives to the private industry members who are best equipped to solve those problems. Doing so through these types of programs is democracy in motion, and it must be encouraged.


[New York Times]

Perfect timing, ESPN

It's turning into another sports-heavy day here, but so be it. Just after I hit "publish" on the Cam Newton story, I happened to flip my TV over to ESPN, serendipitously just as The Worldwide Leader was running a promotional ad pimping its "College Hoops Tip-Off Marathon", which will take place tomorrow. Perfect. If there's a centerpiece for the utter whoring of our student-athletes for corporate/institutional benefit, it's the ESPN Tip-Off Marathon.

The madness that is the Tip-Off Marathon began in earnest last year, with St. Peter's and Monmouth (titans of collegiate athletics that they are) tipping off at 6:00am in what was billed as the first-ever "breakfast basketball" game. Apparently Monmouth couldn't get enough of the whoring (excuse me, "national attention"), since they're back at it again this year in the same 6:00am time slot. This time it's Stony Brook, rather than St. Peter's, who has volunteered to be Monmouth's opponent (and to completely drop any pretense that their athletes are, in fact, actually getting an education in return for their athletic services rendered).

Notice how many of these games have corporate sponsors, then ask yourself again who really benefits from this marathon:

Of the 21 games on the primary schedule, at least 7 of them fall within what would normally be considered "classroom hours" (why couldn't this joke of a "marathon" take place on a weekend... oh right, football). Of course, if Stony Brook-Monmouth (or Robert Morris-Kent State, or Northeastern-Southern Illinois) doesn't quite suit your breakfast fancy, you can always tune in today to ESPN Classic, which is warming up for tomorrow's festivities by showing a marathon of re-aired games from the past 5 years. And it's a good thing, lest the shameless whoring of our student-athletes end at graduation (anyone want to watch that Gerard Phelan catch again?).

Whatever. Good work, ESPN (and every school who's involved in this sham). You've clearly displayed here that the best interests of the athlete run a distant fourth in the decision-making process behind money, money, and money. And with an event like this making it clear that the schools have little regard for the academic well-being of the athletes, arguing that a "free education" makes this all okay is completely fraudulent. These kids aren't learning a thing by playing a basketball game in the pre-dawn hours on a Tuesday. Unless, of course, they didn't already know that money rules all.

Pathetic.

(P.S.-- "Get Up, Get Loud, Get to Class"?? What the hell? That doesn't even make sense! What kind of trained monkeys do they have working in the Kent State marketing department? Nobody's going to class if they're going to a basketball g--you know what, never mind. Just never mind.)

Cam Newton puts a new spin on an old debate

Since I've written extensively about the contradictions and inconsistencies in NCAA policies, I can't in good conscience ignore the Cam Newton situation that's (very slowly) developing at Auburn. If you're not up to date, the New York Times provides a reasonable summary (with links to prior articles) of the events surrounding the Auburn quarterback (and current Heisman Trophy frontrunner).

Newton’s recruitment is at the center of an NCAA investigation, as three people publicly brought allegations that he was being shopped to Mississippi State for a six-figure amount...

For the NCAA, the Newton case brings up issues and concerns that it has spent decades trying to quell. And the problems are playing out in public in real time, as if it were a continuing soap opera narrated by Twitter.

The allegations that Newton’s father asked for money to sign him cut at the core of the organization’s amateur ideals. The perception that players can be bought and sold for such an exorbitant price recalls lawless days that NCAA officials hoped had long passed...

The allegations that Newton cheated academically three times at Florida before leaving the university is a blow to the NCAA’s effort to show that its stars are actual student-athletes.

Then there is the role of Kenny Rogers, the so-called recruiter who has financial ties to the NFL agent Ian Greengross. Rogers said on a Dallas radio station that Cecil Newton Sr. was looking for $100,000 to $180,000 for his son to play at Mississippi State. If that is true, and the deal was being cut through a person tied to an agent, it would be another black mark for the NCAA in a season in which troubles with agents have been nearly as big of a story as anything that has happened on the field.

Clearly, this thing is a multi-part soap opera that cuts to the core of nearly every major issue that haunts the NCAA. Most importantly, the implication that teams may have considered (or provided) cash incentives in their recruiting activities places a new spin on the old agent-player dynamic.

If you'll recall from my previous posts on the topic, I'm a big fan of pointing out the hypocrisy of college coaches and their strong words regarding professional agents. To wit,

Alabama coach Nick Saban famously referred to agents as "pimps" in the wake of his program's agent-related controversy this summer, saying:

"I don't think it's anything but greed that's creating it right now on behalf of the agents," Saban said in a rant at the SEC media days. "The agents that do this – and I hate to say this, but how are they any better than a pimp?

"I have no respect for people who do that to young people. None. How would you feel if they did it to your child?"

This, from a man who is scheduled to be paid $4 million per year through 2017 for coaching these same kids. Look in the mirror, Nick.

There is, in my mind, little difference between a professional agent and a college coach. Both receive financial benefits directly tied to the performance of young athletes. Both provide some sort of counseling (teaching, negotiating, contract advice, whatever else) to the athlete in return for those financial benefits. Both engage in aggressive recruiting activities to retain the services of the highest quality young athletes, and both have incredible financial incentives to do so.

Why, then, would we think that only agents like Josh Luchs would go so far as to pay players to sign with them? I've always assumed that a pay-for-play scandal at a major NCAA school was inevitable, and whether or not the Cam Newton story becomes that scandal is somewhat irrelevant. The important point is that it's completely plausible given the nature of the landscape in collegiate athletics--sports fans and the media hardly even seem surprised by the allegations.

What's more troubling is that it's Newton, not the schools or the NCAA, who seems to be facing the most scrutiny from the media. This double standard has of course sparked significant anger (and predictable screams of racism), with Hall of Fame running back Tony Dorsett referring to the situation as "a modern-day lynching" and columnist Jason Whitlock referring to the reporters of the Newton story as "slave-catchers".

The "lynching" accusation is easily dismissable as a man (Dorsett) in search of media attention, but the "slave-catchers" accusation warrants further discussion, as was provided over at Deadspin. I think Whitlock is wrong in his characterization, because regardless of the media's spin on the story, it is the attention placed on the issue that is ultimately important. The more informed the public becomes about what's going on in the NCAA behind the scenes, the better equipped they will be to evaluate the justness of the laws and policies in place. It is the people, not the media, who will ultimately make the decision as to whether or not to pressure the NCAA to change its policies.

The media's job is to make the issue known to the public, and they have done that. Now it is the public's job to take over the fight (or elect not to). If I had to guess, I think that they will indeed take action, and it will be to the benefit of future student-athletes (if not directly Cam Newton). College athletics are rapidly approaching a major point of conflict that will shape the future of the NCAA and universities in general. How the media chooses to portray Cam Newton while it's happening is largely irrelevant in the big picture--for his part, he's more likely to emerge from this mess as Reggie Bush (Super Bowl champion) than as Maurice Clarett (ex-con). For now, he's merely a very talented player who's caught in the crossfire of a very heated debate.


[New York Times]

One more quick one to send you into the weekend...

For those interested in near-term market direction, I thought I'd pass along this tidbit from yesterday from Zero Hedge (emphasis theirs).

Insiders have officially marked the top of the stock market: last week's insider selling of all stocks (not just S&P) hit an all time record of $4.5 billion. This is the biggest weekly number ever recorded by tracking company InsiderScore.com: as Sentiment Trader highlights no other week before had more than $2 billion in net selling.

Furthermore, selling in just S&P companies hit a whopping $2.8 billion: over 4 times more than the week prior! As such the ratio of insider selling to buying is now meaningless. Even Bloomberg, which traditionally just posts the data without providing commentary to it, highlighted this ridiculous outlier: "Insider selling at Standard & Poor’s 500 Index companies reached a record in the past week as executives took advantage of a two-year high in the stock-market to sell their shares."

This behavior by insiders (mostly corporate executives) gives a pretty stark indication of where they think the market is headed next. It's hardly surprising, then, to see today's very weak market action. These insiders by definition know more than we do about their companies.

There are many reasons (tax planning, etc.) that would explain why insiders would be cashing in their stock options--especially in the latter part of the year--but this level of insider selling is staggering. It's especially remarkable when taken in tandem with this report, which indicates that small investor sentiment is at its most bullish point since January 2007. At the very least, insiders have decided that the risk of higher taxes is not outweighed by any potential rewards in the stock market over the next several months. That's worth noting.

When small investors disagree with insiders, it's not usually the retail investors who are right. Be careful out there...

[Zero Hedge]

I don't like LeBron James (and so can you!)

Yes, my headline was a somewhat stale Stephen Colbert reference...deal with it

Many of you will remember my rant against ESPN last month, when they revealed their plans for the Heat Index, a page devoted solely to covering the Miami Heat's every practice, game, and team meal. You'll pardon me, then, for my unbridled glee this morning after my Celtics beat the Heat for the second time in this young season (this time, in their gym) to send the supposedly historically great Heat team to its fourth loss against only five wins. Somebody tell the Heat Index that 5-4 is a looooong way away from 72-10.

The excuses are everywhere this morning, from Dwyane Wade's "We're the best 5-4 team in the league. How about that?" to the near-ubiquitous "these sorts of things take time" from coaches and players alike. Never mind the fact that the 2007-08 Celtics started 8-1 (and 20-2) after adding Ray Allen and Kevin Garnett to the mix.

But I would've postponed my victory dance this morning had I not been alerted (by a particularly salty reader) to this comment from LeBron James, who is rapidly ascending the ladder of sports villains.

“For myself, 44 minutes is too much,” James declared. “I think Coach [Erik Spoelstra] knows that. Forty minutes for D-Wade is too much. We have to have as much energy as we can to finish games out.”...

Two days earlier, James had done nothing in overtime and ultimately decided the difference was a Hall of Fame coach, Jerry Sloan, who knew exactly what the Heat were going to do. James never takes responsibility, never says, “I’m the MVP and I need to do more.” He didn’t do it in Cleveland, and he’s never going to do it in Miami. Now, 44 minutes in a grudge game with the Celtics is too much. Always an out, always an excuse.

Well put, Adrian Wojnarowski.

You're LeBron James. You're the world's most narcissistic athlete, a man who's repeatedly said that he aspires to be a "global icon" and took the unprecedented step of turning a free agency decision into an hour-long "look-at-me" reality TV special. And every time things don't go your way, you throw your coach (or teammates) under the bus.

44 minutes in a game against the defending conference champions is too much? Let's ignore the fact that his minutes per game are actually down as compared to last season with the Cavaliers, and that Michael Jordan only had one season with the Bulls in which he averaged as few minutes as James has averaged so far this year.

More importantly, James (like Wade and Chris Bosh) knew what he was getting into when he started this thing. All 3 of them signed max contracts (we just want to win!), meaning that the rest of the roster had to be filled in with minimum-salary veterans in order for the Heat to fit under the salary cap. That's the reality of what they chose to do in the offseason.

If LeBron, et al, wanted to have the luxury of taking some time off and limiting their minutes, then they should have accepted less money to ensure that the bench players would be of a higher quality. Instead, they all signed for the max, and their teammates consist of whatever Pat Riley was able to scrape up from the local YMCA and the lines at the unemployment office.

For LeBron, it was a choice between a deep roster and a championship-caliber bench on the one hand or the most possible money on the other hand. James chose the money, and now he wishes he had some time to rest. Too damn bad.

And just for fun, I'll post the video of Rajon Rondo dunking on an apathetic Chris Bosh, which is a perfect metaphor for last night's game.



Yeah, I'm fully aware that the Heat will probably end up pulling things together and winning 65 games and maybe even a better record than the Celtics. But LeBron is well on his way to "most hated athlete" status, and I'm cheering every step he takes down that road.

[Yahoo! Sports]

Why you should ignore "core inflation" measures (and Paul Krugman)

My old punching bag Paul Krugman is back at it again, with a somewhat condescending blog post imploring us all to mimic the Fed and focus only on "core inflation" measures (which do not consider food and energy prices). I'll repost the whole thing here:

Just a quick illustration of why I — along with the Fed and everyone else who’s serious about these things — use core inflation rather than headline inflation to measure trends. Here’s core versus headline CPI growth for the past decade:

So, do you believe we faced runaway inflation in early 2008, which had turned into runaway deflation by the middle of 2009, then miraculously stabilized? I don’t; I think volatile prices were volatizing, but that underlying inflation was trending steadily downward.

"Everyone else who's serious about these things?"--oh, you smug sonofabitch... Okay, that aside, the Wall Street Journal immediately posted a rebuttal (imagine that).

As you can see, the headline CPI item is incredibly volatile, but seems to hew to the core measure over time.

But that isn’t the entire story. Here’s another chart showing the cumulative change in the headline and core CPIs since the end of 1999:

The core has risen 24.1%, the headline has risen 29.4%. So except for those supermodels who don’t drive or eat, prices have risen more over the past decade than the core measure suggests.

That’s not to say the core isn’t generally a better guide to understanding what’s going on with underlying inflation; rather that there may be something going on with those noncore measures that is worth paying attention to. For example, rapid growth in developing markets may be bringing about a shift in global demand for commodities such as oil and grain that makes it unlikely that their prices will revert to the mean.

The line about supermodels, while snarky, is an important one. It dovetails nicely with an e-mail response that I sent to a reader (my mother-in-law) this morning, after she had sent me a link to this New York Times article.

As I wrote in my e-mail, my greatest fear is of "biflation", which is EXACTLY what the Journal's graph is showing. What Krugman chooses to refer to as "underlying inflation" is realistically durable good inflation--autos, technology, etc. This portion of goods represents 90% of income for the richest 20% of Americans, but only 40% for the poorest 20% (refer to the chart in this post for a stunning graphical representation).

So for the poorest Americans (Princeton professors need not apply), which is realistically the more important measure of inflation? The one that tracks their ability to eat and heat their homes, or the one that tracks their ability to buy iPods and Chevy Volts? Yeah, I thought so...

So, Krugman, you're right. If we don't care about poor people (or anybody but the very rich), we should absolutely mimic the Fed and focus only on core inflation. How a self-described "liberal" can espouse a policy that so clearly favors the richest of the rich is absolutely baffling to me.

Here's my full e-mail response, if you're interested to learn more about biflation and why I don't trust the Fed or quantitative easing.

What worries me most (and what I think these Fed policies are likely to cause) is "biflation"--where the costs of vital goods (food, energy, clothing) increase fairly rapidly, while deflation persists elsewhere (technology--where it's considered perfectly normal, autos, housing, other durable goods). Essentially, earnings-based assets (commodities) increase in price, while debt-based assets decrease. This is already occurring in the markets, where commodities prices are shooting through the roof, while "core inflation" measures--which include durable goods--have remained stagnant (low levels of "core inflation" are a large part of Bernanke's justification for his policies).

Biflation creates a particularly dangerous situation because it severely harms the poor, while not promoting their employment. Recall that the poorest 20% of Americans spend roughly 60% of their income on food and energy, whereas that proportion for the richest 20% is closer to 10%.

Furthermore, the increase in the cost of staple goods will cause margin pressure on almost all corporations as their input costs rise, which will put pressure on profits and make them reticent to begin hiring. Biflation is particularly dangerous when you consider that nearly all of our most important businesses in America are in the provision of durable goods rather than vital goods (exceptions include ExxonMobil, Chevron, etc., but it's clear to see how biflation would hurt banks, technology companies, and not least of all Wal-Mart, our nation's largest employer by a long shot).

Bernanke has claimed that his policies will create a "wealth effect" as stock prices rise--the wealthy will spend their new money on all sorts of goods, creating traditional trickle-down economic growth. I'm skeptical. I think that few investors are comfortable that stock prices will remain at their current levels, and they won't begin spending that "wealth" until they are comfortable that it's here to stay. The longer they do not, the more time higher input costs will have to flow through to corporate earnings. As earnings decrease, so too will stock prices, possibly creating a self-fulfilling prophecy for investors--as stock prices correct, they'll have even less reason to spend their newfound wealth.

It's not a rosy picture, but I think it's fairly clear what overly aggressive Fed policies have created in the past. Asset bubbles are essentially unsustainable, and incredibly ugly when they burst. The Fed has determined that the best way to save the economy is to create a new asset bubble. I think that's foolhardy. Our economy has significant structural problems that will take time to work out--I'd take a Japanese-style lost decade any day if my other option is a decade of relentless bubble-blowing and bursting. I especially feel that way since we've already essentially HAD a lost decade--since 2001, we've seen an increase in unemployment and national debt, a decrease in the dollar's purchasing power, and no increase in the stock market (in fact, the S&P is about 8% lower than it was in Jan. 2001). That's what these Fed policies do.

We need to be patient and work the bad debt out of the system, not panic and flood the market with easy money so as to encourage more risky debt-fueled behavior.

[New York Times]
[Wall Street Journal]