Greed, Virtue and Clunkers
July 31, 2009
We’re all happy to own, sort of, a share of GM or whatever it’s called today. Buying, sort of, Detroit, Wall Street and many a bank will no doubt be the greatest thing since sliced shoes. Some of us would have preferred to keep our house, job and car but that’s the way the buck rolls. There is no use whining. Remember “Yes We Can”? Of course we can. What is happiness anyway?
The financial crisis resembles a black hole. Black holes possess a gravitational field so powerful that nothing can escape its pull. The hole has a one-way surface into which objects can fall, but out of which nothing can come. By fall, Obama will have plugged this particular financial black hole by dumping all your money into it, or so he says. Time flies and fall is almost upon us. Obama in his tower may be more clairvoyant than you and I, but my pocket book still complains about an empty stomach. That hole is still here in spite all the good work by Obama, shoveling your money into it by the trillions.
Not every genius agrees with the generosity of Obama. I don’t mean ever-moaning, fat cat Republicans. Of course they disagree. I think of the prevailing, foggy as always, opinions of Nobel Prize (or not) economists. Generally, they point out that any bailout or relief effort, no matter how big, will be much too small to have an impact while being insanely too big, causing disastrous events such as hyper-inflation, fascism, divorces and reduced grants for Nobel Prize professors. In other words, the relief package is too small while being much too big. Got that? Me neither. That’s why we’ll never get that Prize.
Obama wants you to trade-in your old clunker for a brand new Eco-Green vehicle. Clunkers include your Cadillac Seville, BMW 8, Nissan 300ZX, Porsche 968 and Toyota Supra. Obama recommends super-green replacements such as Cadillac SRX, Chevrolet Express Cargo, Chevrolet Silverado 1500, Dodge Ram Pickup 2500, GMC Savana and the Toyota Tundra. A mass of rules apply to clarify this eco-friendly initiative.
The old clunker faces immediate execution though crushing or shredding at a designated disposal facility, at the pleasure of the dealer who in folly accepted your poor old car. Maybe more than a few clunkers jump the fence and gain a new life as NYC or Cuban cabs. Perhaps your kid will buy it back with a McDonald’s paycheck. Often, killing off the old and the frail doesn’t quite work out as expected. Ask any Cuban driver. Remember the fate of Heinrich Himmler.
Of course, you will have to pay with taxes for this generous and forward looking idea to the tune of $4,000 a clunker, and up. To be sure, you’ll watch your neighbor trade in all six of his Cadillac’s, gaining some $25,000 at your expense. Meanwhile, you’re stuck with the full lease on that brand new Toyota Prius you patriotically bought last year. Timing is everything, Obama mentions, “Yes We Can”. Of course we can, but it would be nice if perhaps we had a say in the matter.
Incidentally, the $4,000 clunker trade-in could buy you two (2) Tata Nano, fully paid for. The same money could also pay for two all-electric 4-seater Tara Tiny (top speed 43 mph, range 62 miles, operating cost 1/5 of gas fueled cars). Why not one of each? Unfortunately, such as deal won’t be available for a while – the Indian manufacturers are scrambling to meet Indian demand and aren’t currently looking towards the US market. One might wonder why GM is completely incapable of producing a $2,000 car. Considering higher labor cost and higher standards in general, what about a $5,000 vehicle? I guess not. The tiny Smart Fortwo goes for almost $12,000 which is about as cheap as it gets in the US. A Segway (12 mph top speed, 20 miles range) sets you back $5,500, air conditioner not available.
In short, you sell the clunker while actually buying the thing through taxes. Then you pay so the dear old thing can become a tangle of shredded recycle materials. Top it off with a brand new, overpriced car from some company unable to grasp the basics of plus and minus. Are we all chasing our tails?
Here’s to success, sort of. In six days, the clunkers program chewed up $1,000,000,000.00, reaching the approved spending limit. 225,000 clunkers go to clunker heaven and an equal amount of green cars will hit the road. The program is on hold at the moment (late July 2009), looking for more funding.
Convert 225,000 clunkers to new green cars. It affects only less than 0.1% of the US car inventory. There may still be 10 million clunkers on US roads. Don’t look for a meaningful reduction in pollution, safer traffic or better looking parking lots. Things will look pretty much the same, except in the eyes of Obama and his spin machine.
Letting those clunkers die in peace, here’s a reality check. A recession is generally defined as two or more successive quarters of negative growth. Presently, that applies to many countries around the globe. A GDP drop of 10% or a recession lasting for several years is called a depression. Here is a Wikipedia description of a depression:
- “Considered a rare but extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation or hyperinflation is also common elements of a depression.”
That is depressing, to be sure, and unfortunately very real. Recessions are common and happen about every 3-5 years. Depressions occur every 20-40 years on the average. As an exception, the last hundred years only produced one major depression: the great depression of 1929 -1939. Two World Wars starved off further depressions. We may all be excused for being out of touch.
Only history will tell whether the current crisis is a mere recession or a full blown depression. At worst or best, depending on your point of view, it could mark the end of capitalism, democracy and many a marriage. Covering the issue, the observant elite, such as Conan O’Brien and 360 Anderson Cooper will amuse us for years to come. Clever, or not, bloggers will pipe in with great enthusiasm. The rest of us will not care about the fine print which may not be the best game plan. After all, this is your chance to get a subsidized Kia Soul or to dump your mortgage to end all mortgages on your neighbor.
The US GDP shrunk by 6.3% in late 2008, followed by a 5.5% drop in early 2009. The 2nd quarter of 2009 continued down by 1%. The US economy has declined for four quarters, a continuous drop last seen during the Great Depression of the thirties.
Many other countries share the same deep hole: UK is off 5.6% year-over-year. Germany was down almost 4% early 2009 but may be recovering. Spain is suffering an unemployment rate of 18%. France, Italy and Spain are down by 1% or so. Ireland is off 6%, Sweden down 5%. Japan GDP is down almost 13% and Iceland is off 12%, Lithuania off 24%, Ukraine down 9% and Russia down 2-3%. Asia is slowing drastically but is perhaps still in the black. OPEC and oil and gas producers see huge declines.
Dubai and East Baltic house prices are off about 40%, worse than the crushing 24% drop in the US. Real estate prices in central London are down by 15-20% with more than a few owners wishing they never had heard of Notting Hill. With financial fat cats scrambling to get out of town, Manhattan real estate is in for a beating. Sales of $5 million homes are reportedly slower than watching grass grow in Antarctica.
That is an astonishing array of synchronized red. Often in the past, recessions have been localized or at least lagging each other. One country is up, the next one down but smoothing the overall effect. This time the house of cards is tumbling down simultaneously all over the world. Just about every major economic indicator around the globe has hit record lows at about the same time.
Every one of those indicators affects our lives, one way or another. It might be hard to believe that the melt down of Icelandic banks and the catastrophic state finances of Lithuania will affect you. Not so. It does affect you in a confidence driven world. That Hong Kong fund manager will see the headlines of Iceland crashing and promptly dump every UK share in his portfolio. Then the Pound will drop and the dollar go up, hurting wheat exports from Western US, dropping the peso considering the money inflow from migrant workers in the US West took a dive.
To some, the effect is more dramatic. 1.2 million Swedes placed their savings in fast growing East Europe funds. Today, those savings are off 60% in value. The overall value of Icelandic stocks is down by 90%. The cost of the Icelandic meltdown is close to 75% of its GDP. Perhaps 300,000 UK savers see their Icelandic assets disappear as do 120,000 Dutch, all pending actions by various governments far beyond that of Iceland.
Recessions, depressions, famines, swine flues and Katrina’s are hardly unique events. The swine flu related influenza of 1918-1920 killed about 75 million and infected 500 million more. Bengali cyclone flooding kills 100,000 on a regular basis. The 2004 tsunami death toll was 225,000. Katrina is hardly in the same league with a toll of about 2,000. 9/11 killed 2,974. By contrast, the Rwanda tribal war of a few years ago killed almost a million. The recent Darfur war killed 400,000 and displaced 2,000,000.
In 1923, Germany issued two-trillion Mark banknotes. Postage stamps had a face value of fifty billion Mark. In 1946, the Hungarian National Bank issued bank notes in the amount of 100 quintillion pengÅ‘ (100,000,000,000,000,000,000). Recently, Zimbabwe’s annual inflation rate reached 89.7 sextillion (1,000,000,000,000,000,000,000)) percent.
On the other hand, green gas emissions from some fourteen GM plants will shortly go to zero. Titanic’s New York docking fees are null. Unemployment instantly went to zero in Hiroshima on an August day in 1945. So did employment. Trade Center elevator maintenance cost is zero. In one single day, some 26,000 Lehman Brothers employees walked out the door, never to return. Their employer declared they could not pay back the $770 billion they owed and walked out the door, never to return.
As you see, real time events progress far faster than the responses, bailouts and clunker programs devised by governments, homeland security forces, local police and Greenpeace. Events are crushing, sudden forces. Officials such as FEMA (“Brownie, you’re doing a heck of a job”) can only react to the unexpected. They never seem to be on top of anything, whether providing disaster relief (“Thanks for the update. Anything specific I need to do or tweak?”) or dressing properly (“Tie or not for tonight? Button-down blue shirt?”). All Quotes, thanks to Michael Brown, were made as thousands died in New Orleans.
Your financial woes are sure to disappear. Your beloved wife will stop nagging you. A husband will end his obnoxious ways. IRS will stop harassing you. Parking tickets may be excused. You won’t have to get up in the morning to face that hopeless job. One day your troubles will be over forever.
A really bad recession hits the pocket books of all of us. Unemployment will hit tens of millions of Americans and multiples more around the globe. Untold masses of house owners face disaster that Obama’s trillions will not cure. Some will freeze and starve. Others will lose their health, families and self respect. Production of babies will skyrocket while the manufacturing of crappy cars will nose dive. Widows relying on GM stock won’t dine on truffles anymore.
Even the rich suffer – with or without an end to Bush’s tax subsidies. Bill Gates is almost poor by historical comparison. Microsoft stock price is half of its former glory. Saudi royalties, sultans, princes and Halliburton kings walk on slippery ground as oil prices went from almost 150 to below 40 bucks a barrel. The Kuwait Central Bank was about bankrupt. Middle East palace production is way off. Foreign workers are fleeing, abandoning their mirage Hummer windfalls in the airport parking lots. When it is over, it’s temporarily over. Luckily for the Kuwait Bank, oil prices are scrambling up towards $70 as Americans hit the vacation trails.
As for myself, a rather obscure web site informed me I rank at about 700,000,000 in the list of the richest people on earth. Frankly, I’m not real sure if my fortunes are up or down. I do know that filling up my Mini with gas is a lot cheaper than a year ago. But then my rent is way up, mysteriously. What else changed? I don’t see too many bargains beyond the norm. Do you?
Government isn’t really any better at figuring out how to tie shoelaces than Joe the Plumber. What might be obvious to you and me rarely is evident in Washington and other capitals. Government tends to spend their trillions of recovery bucks too late in the cycle and thereby causing the upward cycle to overheat, which leads to the next crisis. The result is unfinished bridges, mysteriously enrichment Florida sugar kingpins, more awful Detroit Hummers with no buyers, luxury school buildings with no students, hyper inflation and untold other disasters.
Governments aren’t real good at managing their affairs. Consider the “-gates” incidents, each one casting a bit of doubt not only on management skills but on the general sanity of those involved. Here is Wikipedia’s list which covers 106 known cases only. The real list is no doubt miles longer:
- “Angolagate, Baftagate, Bandargate, Bertiegate, Betsygate, Billygate, Bingogate, Bittergate, Blagogate, Bonusgate, Boozegate, Buttongate, Camillagate, Cheriegate, Chicanegate, Coingate, Colegate, Comet Watergate, Contragate, Contragate, Corngate, Debategate, Dianagate, Dijongate, Donnygate, Ettehgate, Fajitagate, Fallagate, Fiascogate, Filegate, Flakegate, Gatesgate, Gerstmanngate, Grannygate, Guzzlegate, Hookergate, Hot Coffeegate, Iguanagate, Indygate, Irangate, Iraqgate, Jerezgate, Jerseygate, Katrinagate, Kazakhgate, Lewinskygate, Liegate, Lipstickgate, Mabelgate, Macacagate, Manuelgate, Monicagate, Monkeygate, Monstergate, Muldergate, NAFTAgate, Nannygate, Niggergate, Nipplegate, Noemigate, Officegate, Paintergate, Paragate, Partgate, Passportgate, Paternitygate, Peppergate, Petrogate, Picturegate, Pizzagate, Plamegate, Railgate, Rathergate, Reutersgate, Rinkagate, Sexgate, Sexy Photo Gate, Shawinigate, Shilpagate, Shreddergate, Sirengate, Slapgate, Smeargate, Spygate, Squidgygate, Stepneygate, Stormontgate, Strippergate, Strippergate, Strippergate (CA), Suitcasegate, Tailgate, Tasergate, Tevezgate, Tiregate, Toallagate, Toiletgate, Travelgate, Troopergate, Troopergate, Tunagate, Utegate, Wardrobegate, Watergate, Waterkantgate (Watergate an der Waterkant), Wheatgate and Whitewatergate”.
The government will occasionally get things right, by mistake most often. For instance, Hitler fixed the German unemployment problem in the thirties by massive investment in autobahns, Stukas, U-boats and black uniforms. Unfortunately, once he built all the autobahns and flooded the “flight clubs” with Stukas, what’s for dessert? World War II took over as employment source for the Aryan masses. The black uniforms were put to deadly use.
Stalin decided farmers were too uppity, especially in the Ukraine. By hiking tax rates in the form of wheat and barley deliveries to well over 100% of actual production all the Soviets suffered famine, killing millions. Mao in China did much the same thing. Today, the same story is repeated in Africa. The Beloved Son in North Korea also experimented with famine to show who is in charge. These are bad government programs.
FDR got it somewhat right with the Great New Deal but millions of Americans nevertheless suffered greatly. Some criticize the Deal, claiming it set out to rescue the Capitalist system that caused the depression in the first place. That’s a good point with relevance to the Obama rescue plans. Many agree with Obama that his deal is saving the day. Does the following ring a bell, in spirit if not in details?
- “When Franklin D. Roosevelt took office, the nation was in deep economic trouble. State governors had shut down every bank and every bank account was frozen—no one could get a bank loan or cash checks or get at their deposits. Unemployment was 25% and higher in major industrial and mining centers. The agricultural sector, with a fourth of the nation’s population, was in worse shape than industrial areas.
- Deflation was raging—prices were falling, making future planning difficult and raising the burden of existing debts. Mortgages were being foreclosed by tens of thousands. Worst of all, many people seemed to have given up hope for a better future and were desperately holding on. Unemployment was still high in 1939, with the tide only turning in 1941.”
FDR’s New Deal was a great political reform but it did not rescue Americans or others from the depression. It took 72 million dead in WWII to finally put that beast to sleep. GM’s tank business boomed. Boeing’s bomber business flew high. The unemployed millions found solid employment in the Armies. Women became riveters. Ship builders scrambled as U-boats drove shipping demand way up. The University of Chicago rode high with the A bomb as its star. All at a profit, you might add.
With another World War unlikely at the moment and only small time wars in Iraq and Afghanistan, Obama’s trillions won’t do the job. It will require something real to pull the World out of the hole. Damn if I know what will do the job. Maybe housing, consumers, iPods, Bruce Springsteen or the NBA will save us all. One thing is certain – it will be the common man and woman that charges ahead and beats down the dragon.
You see the world fall apart. Fortunes disappear without a trace. Age old institutions are gone, leaving a tiny cloud of dust soon dissimilated. Surviving financial institutions, car dealerships and hot dog stands will never again be the same. Perhaps you will never be the same either. At least some of us will pay more attention to an elusive quality called happiness.
Happiness is a state of mind or feeling characterized by contentment, satisfaction, pleasure, or joy. Scientifically, human happiness correlates with safety, love and belonging, esteem, and self-actualization. There is little or no correlation between income and happiness. The amount of spare time people have, and their control over how much spare time they have, correlates with happiness. Feeling in control of one’s own life leads to happiness. Losing control can be a great source of unhappiness.
The Eightfold Path leads its Buddhist practitioner to Nirvana, a state of everlasting peace. Aristotle stated that happiness is characteristic of a good life. The happy person is virtuous. Happiness is “the virtuous activity of the soul in accordance with reason”: happiness is the practice of virtue. According to that idea, Conservatives are more virtuous and thus happier than Commies, Gays and Liberals, according to several scientific studies:
Republicans are more likely than Democrats to state that they are “very happy.” The gap, unbroken for almost four decades, has been unaffected by political fortunes. Republicans place a higher value than Democrats on marriage, children, and religion. They are more likely than Democrats to be married and attend religious services regularly. Shame on you Democrats.
The old satyr Silenus had been drinking wine and wandered away drunk, later to be found by some Phrygian peasants, who carried him to their king, Midas. Midas recognized him and treated him hospitably, entertaining him for ten days and nights with politeness. On the eleventh day, Midas brought Silenus back to Dionysus in Lydia. Dionysus offered Midas his choice of whatever reward he wished for. Midas asked that whatever he might touch should be changed into gold. Midas rejoiced in his new power, which he hastened to put to the test. He touched an oak twig and a stone; both turned to gold. Overjoyed, as soon as he got home, he ordered the servants to set a feast on the table. “So Midas, king of Lydia, swelled at first with pride when he found he could transform everything he touched to gold; but when he beheld his food grow rigid and his drink harden into golden ice then he understood that this gift was a bane.
Mammon is a term describing material wealth or greed, most often personified as a deity. Here goes : Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: For where your treasure is, there will your heart be also. No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You cannot serve both God and Mammon.
Plutos was the personification of wealth. Blinded by Zeus, Plutos could dispense wealth without prejudice. He is often portrayed with a horn of plenty. Aristophanes in 380 BC wrote a play called Plutus. At first, Plutus did not distribute wealth to the virtuous, or necessarily to the non-virtuous, but instead it is distributed randomly. If Plutus’ eyesight is restored, these wrongs could be righted. The world would be a better place. Plutus’ eyesight is finally restored. He hands out riches to some and removes riches from those he sees as not being virtuous. This gives rise to rancorous comments and claims of unfairness from those that have had their riches removed. The rich audiences in Athens were not amused.
Dalai Lama, exiled from Tibet since 1959, recently said (slightly edited): “The ongoing global economic crisis is an opportunity to re-think values related to finance. This unfortunate crisis can be a lesson to start to think about other values of human beings, not only just money. In money matters we need truth, honesty — transparency is very essential. My knowledge, experience in the financial field is zero but money is important. Without money you can’t survive. But there are other values, happy family, happy community and more content. The crisis is rooted in greed and speculation and a lack of transparency in the financial world. All those business people should learn is that all their business work should be transparent and clean and honest”.
Greed is the selfish desire for or pursuit of money, wealth, food, or other possessions, especially when this denies the same goods to others. Greed is one of the seven deadly sins in Catholicism. Buddhists believe greed is based on incorrectly connecting material wealth with happiness. Happiness economics point out that acquiring material objects has less impact than we imagine on our feelings of happiness. Assuming a basic level of material comfort, more wealth does not increase happiness. That point is generally lost on many. We never pick our nose, fart in public, steal from supermarkets, rage at fellow motorists or lie to our spouses. As with these examples, greed does not fit one’s preferred self image, thus denied but acted on in secret.
The latest bout of naked greed started with Ronald Reagan. Remember him? He’s the guy who slept through various cabinet meetings concerning illegal US deals in Iran and Central America. He graciously allowed an obscure Marine Colonel by the name of Oliver North take the fall. Reagan soon retired to Santa Barbara. Digressing for a minute, Oliver North was sentenced to a three-year suspended prison term, two years probation, $150,000 in fines, and 1,200 hours community service. All convictions were later vacated. North became a celebrated Fox News political commentator and a NYT bestselling author. The FOX channel produced and aired a television episode in which Oliver North was elected President of the United States. No doubt Oliver is one of those happy Republicans.
Reagan pushed Supply Side Economics, also called Reaganomics. Oddly, the elder Bush labeled the thing “Voodoo Economics” which did as much for his election chances as the “Read My Lips” gaffe. The Reaganomics is a simple enough idea. Reduce taxes for the rich. The rich will invest in jobs for the poor. The idea is still a favorite in any Republican town meeting. Unfortunately, the job creation part didn’t quite work out. The rich bought Microsoft stock instead of building new factories. Thus no jobs materialized but the rich got a whole lot richer. Then, as covered to exhaustion here, along came dotcom and dothouse, followed by the current dotmeltdown. Mammon is still alive.
Greed is not a new phenomenon. The previous paragraph on old mythology proves that point. Here are a few other, more recent examples: the Panic of 1857 – Speculative bubble in United States railroads, the Panic of 1873 – Civil War speculative bubble, the 1919-21 Depression due to a Post WWI speculative bubble, the Great Depression 1929-1939 and the total collapse in inflated stock prices, the 1973-75 Oil Crisis – Speculative quadrupling of oil prices. And so on.
See a pattern? Greed makes you personally unhappy. Yet, most pursue greed like the heroin it is. “Greed is a virtue, serving me all I ever want”. “Keep the cake that you eat forever and ever”. “Whatever you touch turns into gold”. “The day of reckoning is never”. Greed and speculation may not be the only cause of recessions but is frequently a major part, making all of us addicts unhappy. The question remains – who are the deplorable speculators? We don’t really know yet, do we?
To be continued.