Something We Can Be Grateful For

According to Bloomberg.com, with the bailout of Citicorp, the US government has now pledged over $7.7 trillion of our money; this represents “half the value of everything produced in the nation last year.” This is also the equivalent, according to Mish Shedlock, of about $24,000 for every individual in this country.

Now, while it is true that some of this money is simply pledges and represents money that will never be spent, it is also true that the amount is growing every day—just today the government began to bailout bad credit card debt—and no one knows what the total bill will be before this is all finished. It is clear that, at some point, the government will have to renege on its pledges or lead us into a hyperinflationary spiral. In either case, we will be far worse off than if the government had never commenced its program of bailouts.

But, there is good news, and the good news lies in the teachings contained in the perennial spiritual wisdom: The good economic news for this Thanksgiving is that the solutions for our seemingly intractable economic problems begin in our minds and not in the world. Real relief is just a thought away.

If the real problem were in the world, the situation would indeed be hopeless. As a nation, we are hopelessly in debt; state government pension plans are rapidly becoming insolvent; infrastructure in our cities is crumbling; and special interest groups seem to have complete control of the government. Some look to the world for solutions, they believe that if they elect the perfect leader then he or she will lead them out of the wilderness. Beginning in January, these same people will begin to see that this belief is just a juvenile fantasy, aided and abetted by watching too many television shows portraying a hero riding to the rescue, as well as by their lack of critical thinking skills.

But the real problem is not in the world, the real problem is in our mind. Thus, A Course in Miracles says this: “As a man thinketh, so does he perceive. Therefore, seek not to change the world, but choose to change your mind about the world. Perception is a result and not a cause.”

Nightly on the pundit shows, there are those who claim to be philosophically and ethically opposed to bailouts, but at the same time support the bailouts as the lesser of two evils. They claim that without the bailouts the economy would suffer a deflationary depression. It is amusing and educational to listen to such nonsense. Never have these pundits been asked either of these two questions: “Can you name one time in your own life when violating your core philosophical and ethical principles led you to a happy ending?” or “If you are prepared to throw out your core philosophical and ethical principles, what principle(s) are you substituting in their place in order to evaluate which corporations and consumers get bailed out?”

In any case, their fundamental logic is warped. They claim that they must abandon their principles because of the current economic situation. In reality, they have switched cause and effect. The current economic situation exists because, collectively as a nation, we have abandoned our principles. Thus, the first step back on the road to recovery is to change our minds.

The great psychiatrist Thomas Hora observed this:

All problems in life are nothing else but certain invalid thoughts; all mankind is suffering from certain beliefs, and these beliefs create believers. The believers experience these beliefs. So, if you have a problem, you can know that this problem is not a person. It is not something concrete; it is always a thought, because the phenomenological world is just the outpicturing of a series of invalid thoughts. Whenever we have a problem, regardless of diagnosis, or the nature of the problem, it is nothing real; it is always a thought.

During this Thanksgiving week, we can be very grateful that the road to recovery begins in our minds and not in the world. How soon we choose to exercise our inherent freedom to realize this will go a long way to determine just how long-lasting and deep our national nightmare will be.

The Dumb and the Arrogant

The human condition is to have a very limited perspective. We are all dumb about many things. Just being dumb is no big deal. If we have the humility to understand where our perspective falls short, we can trade with others for services that help fill in our knowledge gaps. Being dumb is no barrier to a successful and happy life, but living without humility—also called being arrogant—is a tremendous barrier. And when you combine stupidity and arrogance along with the power to coerce others, you are able to create misery not only for yourself but for many others as well.

Only a few short years ago, a student in my class told the story of his participation in the General Motors/United Auto Workers “job bank” program. As a laid-off union worker, he was eligible to collect a full salary of over $30 hour; all he had to do was sit in a room with other job bank participants and do nothing. He related how most of his colleagues simply talked, sat there staring at the walls, or did crossword puzzles. He couldn’t recall anyone even reading a book while they sat there all day, and he was the only one who was making use of the educational benefits that the union contract also provided. If the autoworkers went back to school, they didn’t have to sit around in the room—they would collect their salary, as well as get a free education. Amazingly, every other participant in the “job bank” program chose to simply sit, instead of choosing to get a free education.

By the time that this student had related his story, GM, Ford, and Chrysler had already spent hundreds of millions of dollars on these job bank programs. Apparently, my student’s fellow, laid-off autoworkers thought the party would go on forever. They thought that the power of the unions to coerce the automakers and consumers would continue unabated.

Remember, if Congress votes for an automobile bailout, part of the money will pay for workers to sit and refuse to change.

And what of the auto executives that signed such insane contracts? In their stupidity and arrogance, they believed that they could get consumers to purchase inferior products, carrying inflated price tags, and that they themselves would never bear the consequences. As they destroyed shareholder wealth, they paid themselves exorbitant salaries.

Remember, if Congress votes for an automobile bailout, part of the money will pay the salaries of these dumb and arrogant executives.

Mark Twain used to frequently include this joke in his lectures: “Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.”

The powerful Congressman Barney Frank, chairman of the Financial Services Committee, would have to make anybody’s list of dumbest (at least about economics) and most arrogant Congressmen. This week Frank said about the proposed bailout of U.S. automakers, “There’s no downside to trying.”

No downside to trying! Since the 1980s, GM, Ford, and Chrysler according to David Yermack have collectively destroyed $465 billion dollars in capital. About the bailout for automakers, Yermack writes, “We would do better to set this money on fire rather than using it to keep these dying firms on life support, setting them up for even more money-losing investments in the future.”

In contrast to the automakers, according to Geoff Colvin in his book Talent is Overrated, Microsoft has created about $200 billion in shareholder wealth; Google has created about $120 billion in shareholder wealth. How did they do that? Compared to some other corporations, they better served the needs of the consuming public; and in the process, together they have created about $300 billion dollars in new wealth. Google has put at our fingertips the wealth of information on the Internet, and Microsoft (for all our complaints about them) has built an operating system and office suite that almost all of us use every day.

No downside to trying! More taxpayers’ money is wasted, setting the stage for an even more severe economic depression. Less capital remains for productive industries and firms; as a consequence, jobs are lost—not saved.

The problem is of course, when you are dumb and arrogant, you think you deserve the power to coerce others so that you can have your way. The autoworkers, the auto executives, and Barney Frank are more alike than they would like to believe. It is amazing how many Americans are fooled by their economic sophistry and bullying.

This is the former Packard Motor Car plant which closed in 1958 (source). Would we be better off today if we were still driving Packards? Who could possibly believe we would be?

Even After All They Have Done

The weekend before the election, I was talking to a retired university professor. We just met for the first time, and he was sharing with my wife and me how the recent collapse in stock prices would influence his retirement. I told him that things could get a lot worse. He looked at me with alarm (perhaps over his retirement and perhaps over panic that he was sitting next to a “kook”); and with that, he was not really interested in extending the conversation. He ended our conversation with a puzzled question: “Even after all they have done?”

He didn’t wait for my reply; as he uttered “even after all they have done,” he was moving away to get some food. In reflecting on his comment, we can begin to understand why for the foreseeable future, more will be “done.” The belief that our government institutions can fix our problems is still widely, almost universally, shared.

He doesn’t read my blog; but I would like to review a few of the more recent things “they have done.”

A few weeks ago the New York Times told the story of a homeowner in suburban Los Angeles who had one of those “name your own payment” home loans. Those were the loans where you didn’t even pay the interest due each month on your loan—the principal kept increasing, and the theory was that eventually rising home values would bail you and the bank out of your mutual lunacy. In any case, the homeowner now owes $350,000 on a house worth only $150,000. He has already cashed out, and presumably spent, $200,000 of his “home equity.” He has stopped paying his loan so that he can qualify for a new mortgage which will write down the $350,000 to $142,000. In the Times article, he freely admits to fraud saying, “I guess they are forcing me to deliberately stop paying to look worse than I am.”

Now, if this loan modification was a voluntary business transaction between the bank and the homeowner, I would not be writing about it. However, the Fed has infused billions of dollars into banks; and all of us will be paying the bill. Today, Citibank announced they will be spending at least $20 billion on such loan modifications; this follows in the footsteps of J.P. Morgan Chase who will be spending $70 billion. Today too came news of a massive new effort by Fannie Mae and Freddie Mac to modify the terms of millions of loans.

If you still think this is a good way to spend taxpayers money, Sandra Hamilton gives a concrete example why it is not :

Several years ago I bought a house. I had an option for the financing; I could take a rather high interest rate (for the time) that was fixed or I could put nothing down and pay nearly nothing for an adjustable rate mortgage. I decided not to gamble. I knew interest rates can and do rise. I opted to pay a lot more for my house and to have the security of a fixed rate loan. That decision cost me a lot of money over the past five years, but it was supposed to save me money when the tide turned.

Now, I am paying for that decision. I am paying for my neighbor’s house down the road who did not want to pay more at the time. I am paying so that my neighbor and yours, who took out a mortgage with no down payment and paid next to nothing for the past five years, can get his mortgage reduced with my money. How is that fair?

My next-door neighbor decided to take out a huge chunk of change by refinancing when housing prices were high. He spent nearly a hundred thousand dollars fixing up his home and buying new cars and boats. He has a lovely new kitchen and a bathroom to die for. Now he will be bailed out by the government because his house is in foreclosure. He will get a new loan, a nice low fixed rate (even lower than mine) and he will have a significant chunk of his principle reduced. Who pays for that? Me. Why? Because the government doesn’t have a dime and all money it gives to Mr. Smith it must take from Mr. Jones. (You and I are Mr. Jones in this example.)

Today’s news also told of how yesterday, Obama pressed Bush to provide massive new aid to the automobile industry. Nowhere in the stories about Obama’s request is there even a hint that Toyota, Honda, Hyundai, Subaru, and BMW are happily and profitably building cars in the United States. They are just not building their cars in Michigan with union workers or providing their executives with obscene salaries.

Please don’t let anybody tell you that the success of foreign automobile plants in the United States is on the back of the workers. Auto workers at GM earn about the same hourly salary as autoworkers do at Toyota. The big differences are in executive pay. In 2006, Toyota’s CEO, Hiroshi Okuda, earned $903,000; while GM’s Rick Wagoner earned almost $10 million dollars.

Perhaps Obama can explain—if Toyota builds a better, safer, more reliable car than GM—why should the taxpayer be forced to spend billions of dollars to subsidize Michigan’s overpaid auto executives and unionized automakers? They are no more entitled to your tax dollars than any other business who fails to satisfy your needs. Don’t expect a reporter to pose that question to Obama anytime soon.

When supermarkets replaced the corner grocery store, when Wal-Mart replaced K-Mart, when Starbucks replaced your local diner, did the economy collapse; or did it grow?

If you long for the standard of living Americans had when corner grocery stores provided much of our food, then by all means, support giving away billions of dollars to the big three automakers. If you think this is a good idea, ponder this question: If GM took out an ad in the newspapers announcing the “save the GM fund,” how many taxpayers would voluntarily write a check? When you answer that question, you will understand why GM will force the taxpayer to write a check. Let’s not call this a bailout or a rescue—this is theft, pure and simple.

One more recent thing that “they have done”—when you are forced to cut back on your holiday gift giving this year, you can be thankful that at least the bankers at Goldman Sachs will not go without. Goldman Sachs, who has already received about $9 billion in taxpayer money, plans on giving out about $11 billion in bonuses to their employees.

Indeed, after “all they have done,” we can be thankful that the American economy is as resilient as it is. Eventually, anything reaches the breaking point; even the resilient US economy will collapse after “all they have done.”

Advice to Obama: Use Loving Principles, Not Force

I’m currently living in what was once the most libertarian state in the country, New Hampshire, until tax refugees from Massachusetts moved in and promptly began to vote for the same kind of politicians that they had just fled from.

For weeks, our home has been bombarded by telephone calls and visits at our front door from Obama supporters. Each time, we politely informed them that we don’t discuss politics with strangers; but their solicitations continued unabated.

Yesterday, Election Day, when we were out for our daily walk, Obama supporters were on the road going door-to-door. They giddily asked us if we had voted yet. Our paths kept crossing as we continued our walk; the image of Bill Murray punching out the insurance salesman in Groundhog Day flashed across my mind. Not wanting to impede my spiritual progress, I quickly adjusted my focus to the beauty of the surrounding forest.

Truthfully though, I feel for these giddy Obama supporters. Many of them are sincere and their hopes will be dashed in short order. For a few years at least, no matter how bad things get, the true believer will not lose faith. As bad as the economy gets, they will believe that Obama’s actions prevented things from being even worse. And they will believe that anybody who opposes these actions is responsible for any of Obama’s failures. Eventually however, even his most ardent admirers will be forced by circumstances to examine the evidence.

I didn’t stay up to listen to Obama’s victory speech, but I read the text this morning. In his speech he said: “There are many who won’t agree with every decision or policy I make as president.” Nowhere in his speech, or during his campaign, did Obama clearly articulate the principles that would guide his decision-making. Nowhere has he given the slightest indication that the U.S. Constitution will play any part in guiding his decision-making. Nowhere has he given the slightest indications that he understands and values the principles that support prosperity and liberty.

Obama has a strong personality and is one of the most charismatic politicians of modern times. Michael McMaster in his book The Intelligence Advantage writes this about this type of leadership:

Leadership without a distinct theory is merely a phenomenon of personality and will not survive the particular leader. More importantly, it will seldom have more than a temporary impact… The idea of getting from “here” to “there” without an understanding of the process and a theory from which “there” comes is a design for struggle, effort and suffering.

Rather than trying to govern by personality and inevitably by coercion and force, Obama can choose to be a true leader—one that unites people behind common principles. There is no need to invent these principles, the principles that promote liberty and prosperity have already been discovered and articulated. Claims have been made about Obama’s unusual personal brilliance; however, there is no need for that here; all that is needed is the humility to respect, honor, and be a steward of our rich heritage.

Two of the greatest political documents in the history of the planet are the Declaration of Independence and the U.S. Constitution. In these documents, we find the transcendent idea that human rights are inalienable and are not granted by powers on earth and, its corollary idea, that the powers our government has are very few and defined.

These are documents that reflect loving principles, because they’re based on respect for each individual. Out of that respect comes voluntary action and not force—these are timeless guideposts to liberty and prosperity. Expect the opposite from Obama—actions based on coercion (force)—and the claim that force, in the form of higher taxes, required national service, more regulation, and diminution of personal liberties is necessary to promote the common good.

No one can blame Obama supporters for wanting a change. The Republicans have governed miserably and have indeed helped to create a disastrous mess for this country. However, substituting one unprincipled gang for another will just continue us down our path of ruin. If you want to do more than hope, study the U.S. Constitution, study the principles that promote liberty and prosperity, and insist that your elected politicians do the same.