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Hapas: The New America
Shanghai Postcard 2004
Japan's Runaway Debt Train
Battle for the Soul
American Chickenhawks: Your Congress
Is This a Nation at War?
A Nation in Denial
Financial Meltdown Watch
How much Is a Gallon of Gas Worth?
What This Country Needs Is a... Good Recession
Outside the Box
How to Make a Favicon
In a Humorous Vein
If Only Writers Had Uniforms
Flattening the Knowledge Curve: The "Googling" Effect
Human Bandwidth and Knowledge
weblog May 2005
What's New, 2/03 - 5/05
Weblog and wEssays
wessay noun, combination of 'web' and 'essay,' denoting a short essay which exploits the hyperlinks, interfaces and interactive capabilities of the World Wide Web; coined by Charles Hugh Smith on May 1, 2005, in Berkeley California.
June 30, 2005
Don't Write for Readers, Just Write Grants
Civil War authority and author Shelby Foote, who just passed on at age 88, wrote all his works in longhand and then typed up the day's output later in the day. This appears to be double work but I reckon he edited the morning's work while typing. As the cliche says, "writing is re-writing," and this process enabled a quick re-write.
Contrast this work ethic with the current state of creative affairs, in which savvy writers don't bother risking their own time or sweat--they just write a grant and thus get paid "upfront." Gosh, I wish I was this smart; but alas, I turn a dark green shade of envy at this brilliance. I just read about a creative type--you know, performance artist, filmmaker, writer, you name it, the kind who brags about never holding a "real job" since the age of 23--who just secured a grant from the Rockefeller Foundation so generous that it funded her move (she bought a house, of course) to Los Angeles. The "job": churn out a film script--yeah, the same job tens of thousands of other dummies do "on spec" each and every year in the hopes that their golden idea will morph into one of Hollywood's handful (about 200) of feature films.
Never mind if her script or film (if it is ever made) is any good or attracts an audience--what does she care? The money's already in the bank, pal, thanks to the "dead white males robber baron tax scam" which allows the family of said dead white robber baron to avoid estate taxes by setting up a foundation. And I wonder if Mommy and Daddy provided any support for the la-di-da creative lifestyle which so glibly eschews "real work." Hmmm... oops, my bitterness is showing, pardon me while I clean up a bit....
My bile rises at these most excellent grant writers (I don't think they start their pitch with, "Dear Offspring of the same Dead White Male Robber Baron I loathed in college but now love 'cause you're gonna give me $50K") partly as a result of some recent scutwork required of all lowly free-lance types like myself. It seems publishers sold various free-lance stories to database outfits like Lexis-Nexis without compensating the authors of the stories. Thanks to a handful of writer's organizations (National Writers Union) and authors (E.L. Doctorow, et. al.), a settlement of up to $18 million has been won on behalf of us free-lance scribes. (I think the $18 million works out to about a week's pay for the robber barons who stripped the assets of Enron, HealthSouth, Tyco, etc.)
Unfortunately I haven't kept accurate records of all my published pieces, so I had to fire up an old Macintosh computer to sort through all the stuff I'd written between 1989 and 1993. (The total count between 1989 and 2004 came to about 250 stories.) While there is some chance I might pocket a couple hundred smackeroos for this toil, it won't compensate for the depression brought on by reviewing the woeful pay doled out to peon free-lancers like myself. Yes, a handful of premiere magazines pay big bucks for pieces, but outside that elite circle a $1,000 fee is pretty decent, and fees on the order of a couple hundred bucks are the norm, even for glossy national magazines whose ads cost thousands of dollars per page.
In an economic sense, the fees paid for writing are absurdly low because the barriers to entry are absurdly low. Anyone with access to a computer can become a writer, and so there is an endless supply of new writers competing for a relatively rare byline with existing writers. And as all of you creative types know so well, we'll all do it for free just to get a byline, or space in the show. So the publishers never have to bid competitively for writers except at the top tier--and even there, the number of mastheads paying real money for essays or fiction has dwindled to a mere handful.
Back in the day, the barriers to writing on a personal computer were higher. When my business partner and I bought our shiny new Macintosh computers in 1984, we finagled a discount from $2,500 down to $2,300 by buying two Macs. In today's money, each original Mac cost $4,300--a staggering sum given its wimpy 128K RAM and reliance on floppies to load the OS and store files. To add insult to injury, I paid $2,000 in 1988 to upgrade the memory to a then-cutting edge 2 MB and purchase an astoundingly capacious 32MB hard drive--in today's money, another $3,200. This minimal computing power and storage (by today's standards) thus cost me $7,500--and that's not counting the $500 Imagewriter printer and external floppy drive.
The original Mac was indeed a technical marvel, but it was definitely a pricey one. Just recently I replaced my Wintel PC (yeah, I still have a Mac, too) with a basic H-P model for $450, and tossed in another 256MB RAM myself for $30. This is a rather astonishing bargain.
If you're a free-lance writer with a bit of a niche or expertise, you might nail down a job which would pay for this new PC in one fell swoop. But to pay for a new Mac in 1984--over $5,000 including the printer-- you would have to be one of a very rarified clique to earn $5,000 for stringing together some words. Hats off, gentlemen and gentlewomen, those of you who can demand such fees; at least you earned it the hard way, by creating something, rather than excelling solely in the art of grant writing.
June 29, 2005
Bubble? What Bubble? Just Look
There is a "debate" of sorts on whether the U.S. is experiencing a housing bubble. This chart ends the debate. It's really not much of a debate; the real estate and housing industries quite naturally state there is no bubble, and their proof is highly evocative of the dot-com stock market bubble circa 1999: there is no bubble because rising demand and cheap mortgages are both permanent features of the American housing market. (Back then, the claim was that as the Internet boom was permanent, so would be profits. "Dow 100,000"!)
If only it were so simple. As this chart from the book Irrational Exuberance shows, demand (in the form of rising population) has been steady for decades. Yet housing prices have exploded only in the past few years. So much for "demand" being the proximate cause. Ah, the industry retorts, but money is cheap now; that's what's driving housing higher. This chart reveals that money has been cheap for much of the past 60 years--and there was no hockey-stick rise in house prices. But the costs of construction have gone up, the industry notes; but this too is wrong; adjusted for inflation, costs are lower than in the early 80s.
This chart effectively dismantles all claims that "fundamental" economic issues are driving the housing market. All these same drivers have been present since 1950, and the most striking feature of the chart is that housing costs were basically flat (adjusted for inflation), with a few blips up in the late 70s and 80s, from 1950 thru the late 90s.
So what's been driving the housing market mania? The only answer left is speculation--the same craziness which led to the dot-bomb stock market implosion. The outlines of the near future are growing sharper; we need only look to the U.K. and Australia, whose housing bubble preceded ours, for a glimpse of our own future. There, housing prices have started to fall; sales and mortgage re-finances have plummeted, along with (quite predictably) consumer spending. After all, where were the consumers getting all that cash to spend? From their mortgage re-fi's, of course.
Look out below. So here is what will unfold in 2006: the great unraveling. Prices dip, sales fall, re-finances disappear, speculators (the buyers of a third of all new homes and condos) unload their spec properties, and then the long-term consequences begin: massive lay-offs in the construction and mortgage lending industries, consumer spending dries up, deflating Asia's exports to the U.S. With less trade surplus dollars to put into U.S. bonds, Asia can no longer prop up low interest rates in the U.S. Rates rise, further depressing the sagging housing market. The virtuous circle unravels and a new, unvirtuous circle takes its place: each downtrend strengthens another.
But don't worry--there's no bubble.
June 28, 2005
Can You Tell What I Am? Part II
Although this snapshot from my last trip to Paris is not a great photo, I like its themes of reflection and identity. The play between the face of a customer gazing out at me and the photo of the eyewear model in the window inspired me to snap a quick shot without looking through the lensfinder; as a result, you can see the reflection of the camera's flash (and my head just above it) in the "optique" (eyewear) shop window.
Paris is a good place to reflect on what we "see" as identity because a variety of people call it home. As a longtime resident of Hawaii and the San Francisco Bay Area, both centers of large Asian populations, seeing two young Asian schoolgirls on the Metro talking animatedly in French struck me as strange; my expectation was to hear either English, Vietnamese, Mandarin or Cantonese. I have read that Japanese feel a similar surprise when they visit Brazil and hear the many Japanese-Brazilians speaking Portuguese.
But I could easily identify the Asian-Americans in Paris without hearing a word of their conversation; their body language alone--their gestures were somehow larger, freer and more expressive than Asian-French people--marked them as Americans. They also wore the more overt signs of American identity--tanktops and tattoos.
We are, it seems, more situated in a culture than in an ethnicity.
June 27, 2005
"Retirement": The New American Elite?
I just returned from a weekend in Los Angeles, attending the retirement party of my cousin Larry HasBrouck. A dedicated and much-respected teacher for 37 years, he accepted an early retirement package (he is 63 years old) and is now facing the void (or let's say "opportunity") created by the ending of a well-loved lifelong career. It is a life's work worth celebrating.
Being self-employed certainly colors my perception of a pension of $60,000 a year--a pension which cannot be decimated by the bankruptcy of the employer (in this case, a school district which is part of the vast California Public Employees Retirement System, PERS, one of the largest investment entities in the world). Last time I looked at my annual "benefits" statement from Social Security, I am slotted to receive between $700 and $1,000 a month, depending on when I "retire" (not a word in the vocabulary of the self-employed).
With the bankruptcy of United Airlines and the potential bankruptcy even of General Motors on the horizon, the end of private pensions seems close at hand. A new elite is forming in the U.S.--those with unassailable pensions which include medical benefits for life. The rest of us will be left shifting for ourselves, buying expensive supplemental health insurance if we have the money, and getting by on Social Security. Those with generous 401K plans may be able to set aside enough money for a more comfortable retirement, but then again, if the stock and bond markets collapse (as seems likely within the next 5-6 years), then that implosion will strip away much of any 401Ks holding stocks, bonds or mutual funds.
Some 10 million people work for government agencies in the U.S. while another 12.7 million work in the education industry. While some of these workers may not covered by an ironclad pension, the vast majority work for government agencies (school districts, university systems, etc.) Another million or so work for government hospitals and health care agencies, and then there's some two million people in the Armed Forces.
Bottom line: about 26 million workers (out of a workforce of about 132 million) are in line to receive an "old style" pension of generous monthly checks and substantive medical benefits. Another few million may have a union-funded pension plan, and a few companies like IBM may have pension plans which will survive the coming depression. But as health care spirals ever farther beyond the budgets of private employers and workers, perhaps these workers with generous pensions will be recognized as a new elite in American society; protected by their government service from the rising winds which threaten to strip away whatever assets or "pension" those employed in the private sector may have accumulated, they will prosper even in the coming lean years.
June 24, 2005
On the Impermanence of Work
A recent jaunt across the Golden Gate Bridge yielded this snapshot, and some reflections on the impermanence of so much of our work. The guys who designed and built the bridge (it opened in 1937, in the midst of the Great Depression) are mostly gone, but their handiwork remains--a structure as close to permanent as we in the modern era understand that term. While the 9/11 attacks took down two great towers, the wrecking ball of "progress" has taken down many thousands of buildings--many worth keeping, many not.
The permit for the Empire State Building, after all, included plans for its demolition. Far thinking, those New York planners. In the glorious field of economics, it's called "creative destruction"--the clearing away of the old (including entire industries and all who toil in them) to make way for the new (fabric-covered cubicles and arguments over who took my cream soda from the staff fridge).
The craftsmen who labored on the Pyramids or Notre Dame or the Roman acqueducts had little doubt their work was permanent; now, virtually any structure other than a handful of icons like the Golden Gate Bridge may fall from public fancy and be torn down in a relative blink of an eye.
But how wondrous to have work which outlives you. I have been working for 35 years already, and am nowhere near "retirement," (what that means to the self-employed, I have no idea). Like most "knowledge workers" (it sounds so much better than "paper-pusher," doesn't it?), most of my life's work is utterly forgotten, recorded only by a scattering of yellowing papers and clippings.
Sometimes when I am in Honolulu or on the Big Island, I will drive by the houses I helped build (as either a carpenter or as a contractor), to reassure myself they still stand, perhaps, and to draw satisfaction from their maturity--the way they have settled into the landscape. Some have been in disrepair, and I am aghast at how quickly wood structures deteriorate in the tropics. No doubt many will be torn down in my lifetime, if I make it to three score and ten. But others, the well-cared for ones, will no doubt survive me. It's an odd thing, that the only visible remains of 35 years of work are the 100+ plus houses Mike Tanner and I built when I was in my late 20s/early 30s.
As a free-lance writer, I am part of a settlement from major publishers who sold our collective work to databases without compensation. As part of the claims process, I have been assembling a master list of all my published articles--well over 200 in all. It's sobering to realize how little remains of all that work, and how poorly I've managed my records. Does anyone remember even one of those stories? Probably not.
Which brings me to you, cherished reader. Every scrap of writing--it's all for you. I recall the first thrill of realizing a million people would be glancing at my work (how many read the last paragraph, I shudder to guess) back in 1989. Even though all of this is impermanent, purposefully so, I try to apply the same standards to this, which will find perhaps a dozen or two readers at most, as work destined for a million glances: to provide you with the best information I can find, and the most salient and interesting points of a subject. Reader--you are greatly appreciated. As they say in Japanese: Honto, ne?
June 23, 2005
Can You Tell What I Am?
It took us some time to locate this old teahouse in the narrow winding alleys of Bangkok's Chinatown. A single reference in a long-outdated guidebook mentioned the old teahouses on this street--though alley better describes its width and abundant foot and cart traffic--and with some modest perseverence we located what may well be the last old teahouse in the entire megalopolis of Bangkok.
I am visible in the far right, the lone farang, gaijin, round-eye, big nose, Anglo-Saxon, Caucasian, haole, etc. in the joint--and indeed, on the street.
While there is much to be said of interest about this comfortably worn establishment--its limited menu of snacks, iced or hot tea or coffee, its gregarious waitresses, its unparalleled view of street life meandering by--what struck me at the time was my complete Otherness: a tall, slim (rare for a middle-aged Westerner nowadays, alas) very pale male dressed in a terribly formal long-sleeved shirt (to keep from getting horrendously sunburned) and a foolish floppy hat. To be Other is to be expected, of course, in a distant land where people don't look like you. But the edges are more blurred than you might expect.
By which I mean: my Asian-American companion easily passed as Thai. In China, she easily passed for Chinese. In Japan, her actual nation of heritage, she passed occasionally for Japanese, but not always, due to the robustly tanned result of her Hawaiian upbringing (anathema to most refined Japanese and Chinese ladies). In Oakland Chinatown, she passes for Vietnamese or Chinese. In Thailand, people addressed her in Thai; in China, they spoke first in Mandarin. Clothing, of course, can give you away, but jeans and a T-shirt pass just about anywhere as "local" (and we have no interest in visiting places where it doesn't). In dressed-up Japan, her informal wear gave her away as foreign. But elsewhere, in countries where peasant faces are still darkened by the sun and not everyone has money to clothe themselves in expensive finery, she is routinely seen as local.
You'd think a haole could experience the same anonymity in Europe, but Americans seem, even to my unpractised eye, to stick out: they talk loudly in American English ("like, I am so over X"), they're dressed like slobs or college kids (whichever sounds better to you), the young ones sport idiotic tattoos (um, do you know those Chinese characters mean "I suck, kick me"?), they're overweight, and they wear--gasp--sandals instead of proper shoes.
Thus I am inordinately proud to report that I was asked for directions no less than five times in my recent walks around Paris (my "Paris Transect"). Yes, I have 12.5% French blood, but I doubt it overrides all the Scots and English; yes, I wore leather shoes (it was, after all, late October) and a proper shirt and trousers; and no, I do not speak more than strained schoolboy French. But still, something about me caused French strangers--oui, every one was French--to buttonhole me and ask for directions. This may well say more about the convoluted nature of Parisian streets than about my extraordinary "Frenchness," but I took it as a enormous compliment. Pardon moi, je ne sais pas rolled rather expertly off my tongue by the last hours of my walkabout.
June 22, 2005
A Degree of Success
"De-industrialization" has an ugly sound to it, and for the millions of workers who've lost manufacturing "blue collar" jobs in the U.S. over the past two decades, it's had an ugly consequence: gone are high wages and benefits and more or less permanent employment. Even worse, jobs for those without college degrees have lost the mobility which once allowed an ambitious worker to rise to higher skill and pay levels.
The Wall Street Journal has been publishing a series describing this reduced mobility in the U.S. economy for less educated workers; the latest is As Economy Shifts, a New Generation Fights to Keep Up. The evidence is straightforward: the odds of a person getting a college degree are linked to whether their parents earned a degree or not; "An American has a 62% chance of getting a bachelor's degree if either parent did, but only a 19% chance if neither parent did, according to Bruce Sacerdote, a Dartmouth College economist."
As we all know, a college degree is now requisite for a good livelihood. Or is it that simple? The San Francisco Chronicle just ran a story bemoaning the shortage of young workers willing to learn the "blue collar" trades the local refineries need to continue operations: Who Will Fill Baby Boomers' Big Work Boots?
One of the reasons, it seems, is that high school graduates have been drilled that college is the only pathway to a decent career. Meanwhile, high-paying jobs are going begging, and the refineries are increasing their training programs to ensure they will still have welders and machinists in ten years.
What has happened in the U.S.--the loss of low-skilled manufacturing jobs to places with lower costs-- has been going on for centuries. As historian Fernand Braudel has shown, capital and manufacturing have shifted from region to region and industry to industry for hundreds of years. Lyon, France was once a great silk-weaving center, for instance; it lost that industry long ago.
But there is a difference between a line assembly job which can be taught in five minutes and an actual skilled trade. Some 16% of the U.S. economy is still manufacturing related, but the jobs require higher and higher skills. There are also millions of jobs in the building trades, auto maintenance, etc. which are well-paid and do not require a college degree--though they do require knowledge, training and expertise.
I wonder if this dichotomy doesn't reflect a generational gap in values. We of the Countercultural Era (hippies, activists, etc.) valued self-sufficiency; we changed the oil in our own car, tended gardens, baked bread, learned to sew, built our own houses, and started our own businesses not because it was a career path per se but because we valued authenticity (real food, real skills, etc.) over convenience or consumerism. We rebelled at the thought of living out our productive lives in some sterile, stratified cubicle and corporate structure of bosses and bosses' bosses. As a result, many of us became mechanics or carpenters--even with our college degrees.
Many skilled jobs remain localized; you can't ship your car to China for a tuneup, for instance, or outsource the maintenance of a refinery to India (unless you ship the entire refinery to India first). Many are undoubtedly entrepreneural in nature, meaning that you don't "get a job," you "make a job."
I wonder if young people now--who famously do not know how to cook--want to actually learn how to do things, or if they just want a "good paying job" in a clean little cubicle somewhere. There are those service jobs, of course, millions of them; but they may not be all they're cracked up to be, and the mobility within those corporations may not be as wonderful as the "standard model" suggests.
June 21, 2005
Meltdown in the E.U.
These two charts reveal what's fundamentally wrong with the European Union: the economies of Germany, France and Italy are far too dependent on exports. As a result, they face three insurmountable problems:
Canada is also heavily dependent on exports, but these are largely commodities: timber, grain, minerals and petroleum. The U.K. is also vulnerable to any slowdown in its exports.
So who are these countries depending on to buy all their exports? Just look at the two largest economies of the world:
Unsurprisingly, The E.U. depends very heavily on exports to the U.S. and to China. As a result, they are exquisitely vulnerable to any slowing in either economy. But consider who China depends on to support its enormous export economy: the U.S. The charts reveal the dominance of the U.S. economy, and that it is the end market for a significant chunk of the exports not just of the E.U but also of Japan, Southeast Asia and China. The entire world is propped rather unsteadily on the back of the U.S. consumer--yes, that over-indebted idiot freely spending his home equity line of credit.
So the line of dominoes is now very clear: most of the world depends very heavily on exporting to the U.S., especially those economies whose lifeblood is exports. The U.S. consumer has been able to buy the entire world's exports by draining his home equity, which has been rising due to the global housing bubble, which is dependent on cheap and plentiful mortgages.
Now we can see how the dominoes will fall: any tightening in money or interest rates will choke off the housing boom, ending the U.S. consumer borrowing spree which has supported the entire world economy. Please don't tell me the housing boom and cheap mortgages can go on forever, because nothing goes on forever--especially a system this imbalanced.
Who's enabing the low interest rates? The Japanese and Chinese central banks, by recycling their dollars into U.S. Treasury bonds. Where do they get all those dollars? By exporting boatloads of stuff to the U.S. consumer. What happens if the consumer stops buying? Then they don't have any more dollars to buy Treasuries, and U.S. interest rates go up. The feedback loop changes from positive to negative in a New York minute.
OK, enough economics. I promise to cover something else. But this, along with global climate change and environmental degradation, is one of three key issues facing the world community. The collapse of the U.S. housing boom isn't just going to affect some distant economy--it will affect every economy and every person in that economy.
June 20, 2005
Boomers, Prepare to Fall on Your Swords
Perhaps the most mocked generation in the last century, the "Baby Boomers" have certainly enjoyed a roller- coaster ride: born in the socially constrained environs of the post-"good war" boom, saddled with an old man's "limited" (unless you got killed or wounded) war in Vietnam, reviled and feared as drug-crazed hippies and idealistic founders of anti-war, feminist, Black Power and environmental movements, sucker-punched by the worst recessions since 1929 (1973-75 and 1980-83), revered as founders of the personal computer revolution, reviled (again) for an obsession with "me" and "getting mine," benefactors of the Dot-Com boom of the 90s, and now, in a grey-haired botoxed frenzy over staying "youthful," we collectively face the bankruptcy of the social welfare programs our parents have enjoyed at our expense: Medicare and Social Security.
Now it falls to us to fix the finances of our foolishly bankrupted nation. Either we sacrifice our freebies (every recipient of these programs has extracted far more than they paid in, even including accrued interest) or we leave our children and their children burdened by an impossible debt.
I say we go out with idealistic panache, and fall on our swords with grace and dignity. Instead of sucking off future generations like our parents have, let's pay our own way, tighten our belts, stay healthy without absurdly expensive operations and medications (which don't work that well anyway, in case you've ever read the fine print) and leave the next generations a financially stable nation rather than a bankrupt, self-absorbed "pass the buck to your kids" mess--which is the current state of affairs.
Why leave our debts to the next generations?
June 19, 2005
in Memoriam: Winky Cosmos
It's difficult to describe the bonds between dog and human, or any pet and human, for they form in a peculiar space not entirely accessible to either human or animal. Each pet has a personality, just as distinct and unique as that of any human; and yet the very traits which make dogs endearing--so stalwartly affectionate, so ceaselessly glad to see you--are precisely what sets them apart from humans, who never cease to disappoint us.
A wonderful dog of my acquaintance died suddenly last week, and I want to honor his passing. Winky came to my good friends Steve and Clara Toma of Kalopa at a most propitious time eight years ago, when cancer had severely dampened their spirits. Winky was not a young dog even at that time, and so it was a given that his time on the planet would be even more limited than our own.
Yet in those eight years, he enriched their lives quite unlike any other being. His three feet (or perhaps more) vertical leaps, his boundless enthusiasm for walks, his clever tricks (rolling over and then back on even my minimal hand signals), his unwavering laser-beam-like focus on the can of treats placed out of his line of sight on the refrigerator, his rascal's visits to a neighboring "girlfriend"--all of these made him a companion for all times and all moods.
On occasion someone gets close to describing the true value of a pet, and perhaps especially that most symbiotic of human pets, our dogs; here is Tom Stienstra's heartfelt ode to his dog Rebel. (Stienstra is the Outdoors writer for the S.F. Chronicle.)
Although his fame rests on his plays, Eugene O'Neill wrote a poem to his longtime companion dog Blemie which expressed the tenderness and longing that he so obviously had difficulty feeling for his own children. It can be viewed at his home in the San Ramon Valley (just east of the S. F. Bay Area), Tao House, which is a National Park Service site.
Winky, you'll long be missed.
June 18, 2005
Is The Bubble in Housing About to Burst? (updated June 23)
Some of the most respected publications in the financial media have been trumpeting the dangers of a collapse or decline in housing prices. The Economist (6/15/05) bluntly states: "The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops."
The Wall Street Journal has covered both the cause of the bubble-- In Treating U.S. After Bubble, Fed Helped Create New Threats (6/09/05), and the result-- What Happens If Real Estate Goes Bust (6/12/05)
Note:These WSJ articles are only viewable online to subscribers. Alternatively, you can always visit a library and read the print editions.
For an excellent summary of just how extreme this housing bubble is, and why it appears to be close to popping, check out Barrons' story on economist and author Robert Schiller, whose book Irratioinal Exuberance predicted the collapse of the NASDAQ dot-com bubble just weeks before its ultimate top.
Judging by various events and timelines--the fact that the current "bull market" is running out of steam, the current account deficit continues to hit new highs, short-term rates are approaching long-term rates (hint: that signals a recession), crude oil continues to set new highs ($58/barrel today, with a target of $67 in my estimation), and perhaps most tellingly, Federal Reserve Chairman Greenspan retires in December--the housing bubble will stop expanding this year and then burst in a showy conflagration in 2006.
I feel badly for the multitudes buying overpriced houses with no money down or with "interest only" mortgages-- which is some 60% of recent buyers in California. It can safely be predicted they will either lose their homes or their down payments in the coming years. Such is the power of "irrational exuberance."
There's one more irrefutable piece of evidence that the bubble is about to pop: anyone doubting the staying power of real estate is subjected to the rage of fearful believers. To quote from the WSJ's Jonathan Clements:
How hot is the real-estate market? Try reading my mail. A few years ago, I could offer warnings on the actual costs of homeownership and I would hear hardly a peep. But lately, when I offer similar comments, I am inundated with blistering emails that belittle my intelligence with language unfit for publication.
June 17, 2005
Only in America
Yesterday I had the honor of attending the elementary school graduation of a young friend. There were no ceremonies marking the passage from elementary school to middle school (or intermediate school, depending on your locale and age) "back in the day," and I suppose this could be seen as an example of the sort of "ceremony creep" which parallels the "awards dilution" which is endemic in popular culture ("and for the best hip-hop song assembled entirely of sampling...").
But in this case I think the recognition is deserved, for in today's world the transition to middle school in indeed a perilous one. Elementary school is, alas, the end of innocence; "popular culture"--that is, the glorification of flashy greed, the degradation of women, the ubiquity of drugs and violence, and the pressure on girls to focus less on math and science and more on their appearance--fills every crevice of teen life.
This bittersweet recognition of the difficulties ahead was counterbalanced by an awe at the multicutural wonder that is this nation. Every ethnicity was represented in the class of sixty-four, and many were "Hapa" or mixed-race Americans; no one ethnicity was a majority. (Sample last names: Sudjian-Carlisle, Pride-Garcia.) Every child spoke a few lines on the theme "Free to be me." Many spoke of striving for success, and of honoring their friends, teachers and families; some held up inner traits such as generosity and appreciation as goals, while others mentioned careers in professional sports or law or the arts.
Only one mentioned a practical career--engineer--perhaps unsurprisingly, an Asian-American lad--and while it's the time to dream big, it was disconcerting to note the high percentage of African-American lads who mentioned professional football as their dream. As in that other favorite of young dreamers, the entertainment industry, the truth is that a vanishingly tiny number of people actually make a living in the field of professional sports. That is a statement on our culture which needs no elucidation.
My own aspirations at that age were ridiculously low--I recall my "career report" was on aircraft maintenance; why I didn't want to be a pilot like every other normal kid, I have no idea--and aiming high is much better than aiming low or not aiming at all. And so it was gratifying to hear many of the children's aspirations to be a doctor, architect, artist, veterinarian or even--gasp--writer.
Despite the pressures of popular culture, each child held fast to some inner vision; interestingly, girls spoke more often of inner goals than the boys. But most amazingly, this incredibly diverse group of children had no awareness of the uniqueness of their diversity; it was entirely normal to them. They could not know how few places in the world harbor such variety and individualism.
To illustrate this American vision, what better place than Yosemite in spring?
June 16, 2005
Are Our Cities Making Us Fat? Part I
The premise is simple: since American cities are largely unwalkable, Americans don't walk, and hence we have become fat. The rise of obesity in our culture is a complex phenomenon, of course, one that is mirrored in other developed economies. There is the degradation of the American diet, the sedentary work of a predominantly service economy, and other cultural factors. But we shouldn't overlook urban planning as a component of the obesity trend.
This topic is an excuse to display some photos of my most recent visit to Paris last October. (On a free mileage ticket, mind you--I am a poor working writer, not a "trust fund baby.") Central Paris is an oval about 10-11 kilometers (8 miles) across, and on a lark I walked across the city one day--a "Paris Transect," from Bois de Boulogne to Bois de Vincennes.
Much has been written about "The French Paradox"--that the French eat rich foods such as meats and cheeses, yet they don't suffer heart disease at the same rate as Americans--and red wine is often fingered as the positive counterbalance. But plain old walking should not be dismissed as the French curative; peple walk in Paris, and they walk far and fast.
More on this urban planning/health relationship later.
June 15, 2005
China's Response to Environmental Protesters: Police Goon Squads
It's always interesting to find mainstream media coverage of the truly big stories: demographics, environmental decline, and the imbalances in the world economy. The Washington Post's reporters managed to get two stories Chinese authorities must have been desperate to suppress. In one, peasants are shot and beaten when they protest a land grab. In the other, peasants protesting the poisoning of their air, water and soil were attacked by an army of 3,000 police goons. Note:You may have to register with the Post to access the articles, but it's free.
Read these two stories, and then tell me China has the means and the will to resolve its environmental challenges--with a straight face. You can't. It's all here in agonizing detail: the corrupt officials, the blatant land grabs, the terrible health effects of unregulated industries, the complete disinterest of local and central government officials (the peasants tried "official" channels for four years and got nowhere), and now, the government's search for the guilty--not the polluters, of course, because they are hand in glove with the local officials; no, the dragnet is out for the peasants who had the temerity to challenge the polluters' right to send them to an early grave in the name of "progress" Chinese style, which sadly flows in only one direction: to the top. For more, please read my essay Asia Crises: China.
If that blatant repression doesn't disturb you, then read this BBC report on China requiring all bloggers to register with the government. This is in addition, of course, to all websites, chat rooms, etc. The reason is obvious: if stories like the two above get out on the web, people might discover the truth--and that is always most dangerous to authority based on secrecy.
Proving yet again that PBS is the only source of seriously important television, NOVA examines the global demographics and environmental problems (the same ones addressed in "Asia Crises: China") in a two-part series titled World in the Balance. I heartily recommend it.
June 14, 2005
Why the Democrats Keep Losing
A great gnashing of teeth can be heard across the nation, punctuated at times by a low moan of frustration. Yes, it's the Democrats, adjusting their hair shirts and wondering why they keep losing. The media is full of explanations of their decline and the Republican's ascendency (or treachery, depending on the media outlet), but I think it boils down to a state of denial: the Democrats just can't see that their constituencies are no longer "the people," but elites which feed largely off the public trough.
I've been a registered Democrat for most of my life; I switched to Republican to vote for John McCain, then switched back to vote for other candidates on the Demo primary ticket. But it's increasingly obvious the Democrats are out of touch with mainstream voters' concerns. It's not that the Republicans are so "in touch" but simply that they are less out of touch--and they've packaged their ideals in ways which resonate more with voters than the empty bag the Democrats clutch so tightly to their chests.
According to the Bureau of Labor Statistics, 12.5% of the U.S. workforce is represented by unions. While unions are the best hope for workers who toil at Wal-Mart to gain health insurance coverage, let's be honest about the economic realities of globalization and other macro forces in the economy: if the unions succeed in organizing workers at Wal-Mart, God bless them, the workers will not be earning $36 per hour like UAW auto workers, or $100,000 a year in wages and benefits like BART employees here in the S.F. Bay Area.
Fundamentally, unions have circled the wagons in the one area where they still have clout: public employees. In the boom years, governments promised benefits based on a never-ending dot-com fueled boom of high tax receipts. As a result, many public employees have garnered wages and benefits which far exceed what typical workers in private industry can ever hope for. These rich benefits--90% to 100% pensions, payable at 50 years of age if you turn in your 30 years, full medical coverage for life, etc., are so unaffordable that local governments are being driven to the financial wall--and this is in "good times." Wait until the recession of 2006 guts their tax receipts.
As for those rich UAW jobs--look for General Motors to declare Chapter 11 bankruptcy by 2010. The global oversupply of vehicles will only get worse, and it simply won't be affordable for GM to add $2,000 a vehicle to pay retirees' benefits. You may not like it, but it's an economic reality.
Let's be honest about the Democrats' primary constituency. Public unions are a "special interest" in the sense that their raison d'etre is to protect their member's benefits at whatever cost to the public is necessary. Their primary concern is not public welfare, despite their PR. Let's also be honest about how extreme these wages and benefits have become. You have transit workers making $170,000 a year with overtime; while it's easy to revile the gross over-the-top bonuses of Fortune 500 CEOs, this exceeds the pay of CEOs of many companies in the $20-$50 million range. If you've ever run a company, then you know the stress and responsibility is very high; your mis-step could cost everyone on the payroll their job. $170,000 for simple service work? It simply isn't worth that much.
Beginning teachers are grossly underpaid, there's no doubt about that. But in the real world, would you need to offer $100,000 to find someone qualified to operate a subway train? The answer is obviously no. Then there's "pension creep." Here in California, 90% pensions (that is, pensions which pay 90% of your lifetime top wage) were once reserved for safety officers like Highway Patrol. But now every other employee is a "safety worker," allowing them to draw the high pensions designed for those whose lives were endangered by their work. The unions don't like this sort of data to leak into the media, but the average person who isn't making $100,000 is not being fooled. That is why recent tax increases even in the ultra-liberal Bay Area have been soundly rejected.
The same denial is in force regarding the Democrat's alleged weakness on National Defense. Regardless of how you stand on the "war on terror" and the war in Iraq, the truth is the average middle-of-the-road voter has legitimate concerns about the Democrats' backbone for dealing with a nasty, brutish post-911 world. Let's be honest; the Democrats were more than happy to live with Soviet Communism forever in "peaceful co-existence," and their record is decidedly mixed in a way which is not the case for the Republicans. Clinton stepped up to the plate in Haiti (a forgotten victory for timely US military intervention) and again in the former Yugoslavia, and I believe that his willingness to use force despite his non-combatant history was a substantial if unheralded part of his re-election and popularity.
Even combat veteran Kerry was unable to overcome many American's dis-ease with a Democratic president at the tiller of the ship of state. Yes, his character was impugned by the Republicans' hatchetmen, but it's a form of self-serving denial to dodge this reality: the last Democratic candidate to win against a viable candidate in an election unaffected by third-party alternatives was John F. Kennedy. Johnson won against an extreme candidate (Goldwater, nominated when the Republicans were wandering in their own desert), Carter won in a reaction to Watergate, Clinton won because Perot siphoned off votes from Bush Senior, and he won re-election against a weak candidate (Dole) based on his record of prosperity and a policy of active foreign engagement--without force where possible, but with force if necessary.
It's worth recalling that Kennedy scored points by accusing the Republicans of being soft on defense (if you can imagine that)--the famous "missile gap."
What I fear is the Democrats will only truly change when their current standard ideology exits in a coffin. The country is better off with a strong Democratic Party, and you need look no further than the gross fiscal irresponsibiity of the current Republican leadership to see why.
June 13, 2005
As mentioned earlier, the current issue of The Atlantic features a piece by James Fallows titled "Countdown to a Meltdown: America's Coming Economic Crisis." The premise is a bit of a conceit: the article professes to be a report from a senior advisor to the new president in 2016, outlining how the U.S. came to such dire straits.
Where Fallows relies on actual financial data, he is on solid ground, and his summary of how the interconnected fiscal imbalances of the global and U.S. economies are bound to unravel is both succinct and compelling; but when he roots around for ironic pointers of U.S. decline he loses touch with reality and the work suffers. His main source of ironic twists is China; he suggests that by 2016 China's technological lead in maglev (magnetic levitation trains) technology is the envy of the world, as are Chinese universities, and indeed, Chinese infrastructure and commerce in general.
While these fantasies are bitingly useful stilettos in the belly of American triumphalism, they are indeed fantasies. China's own maglev train reaches the astounding speed of 110 kilometers an hour, or about 68 miles per hour. Even more telling, the Chinese government has selected a Japanese Shinkansen design for high-speed long distance rail service over the maglev design currently in service at Shanghai Airport.
Note to Fallows: physics matters, and so do costs. The maglev system does use considerably less energy than either wheeled trains or airlines, and it is very fast (430 KM/hour or 267 MPH as opposed to about 300 KM/hour or 190 MPH for the French TGV or the Japanese "Bullet Trains"), but its cars and tracks are more expensive. Operating costs of a maglev are currently double that of high-speed wheeled trains, which relegates maglev to the category of luxury travel or amusement park ride. Maglev is a typical "gee-whiz" technology that gets nothing but glowing press coverage but which is passed over time and again by the authorities responsible for making sound fiscal choices. Much like the Concorde jetliner, it simply can't pay for itself.
(Note: The fancy Shanghai Airport maglev was built by German companies anxious to sell billion-dollar systems to China. It ends not in Shanghai but in the middle of nowhere, where you have to hump your luggage some distance to a subway station to actually get to Shanghai proper. not exactly what could be called great planning. I know, because I took the maglev pilgrimage myself on my last visit to Shanghai.)
As for China's infrastructure, Fallows has clearly never observed China's current infrastructure being built and maintained. If you've visited China at any length, and observed the buildings and roadways closely, you know that's the problem: nothing is maintained. It's being built at slapdash speed, and then left as-is until it's torn down and replaced, perhaps in as few as 8 to 10 years.
If infrastructure is poorly built and poorly maintained, it won't last long--and replacement costs will only get higher as energy, material and labor costs rise in China.
As for Chinese universities, Fallows apparently knows little about how subjects and critical thinking are taught in China, or the many other cultural factors which affect education at the highest levels. Suffice it to say that U.S. universities are far from perfect, but the nexus of government funding, research excellence and collaboration with private enterprises cannot be re-created in China, at least in its current state, for a number of reasons.
For some background, read this piece from Foreign Affairs magazine.
Lastly, Fallows fails to account for the consequence of America's financial meltdown on China: it too will melt down. China's economy, intimately dependent on the U.S. currency and market, will necessarily crumble as the U.S. dollar falls and the U.S. economy spins into recession/depression. First off, China's vast holdings of dollars and U.S. bonds will decline along with the dollar; a $200 billion loss isn't chicken feed. More importantly, the decline in the U.S. will trigger a worldwide recession, as the U.S. remains everyone else's largest end-market. Even if China weathered the decline in the U.S. market--unlikely as that is--there won't be any other safe haven of insatiable buyers to replace U.S. consumers, as the enfeebled E.U. and Japan will quickly topple as their U.S. export market deteriorates. (They're both slipping towards recession even now, in "good times.")
As I outline in "Asia Crises: China", China also has severe demographic, fiscal and environmental problems of its own to address, and the likelihood that they will be entirely resolved by 2016 is somewhat remote. World oil production will peak around 2010, and thereafter decline--not exactly a propitious development for energy hogs like China or the U.S.
While it makes for nice fantasies, the sad truth is the coming meltdown of the U.S. economy--which after all has been actively aided and abetted by the central banks of China and Japan--will drag the rest of the world down with it.
June 11, 2005
Catchy Political Satire
Is political satire ever tuneful and fun? Yes--when it's a song titled "King George Is Back." Penned by my pal Mike Dakota, the song is a witty sendup of the Prez which ends with a special flourish provided by two girls aged 8 and 9. Disclosure: I played one of the lead guitars on the tune (the distorted one). But despite that flaw, you'll find it a fun listen. Just click on the link and Windows Media should open and play the song.
In other news, my story on "green" technologies ran in today's S.F. Chronicle.
June 10, 2005
Fiscal Meltdown: The Major Media Catches On
Imagine my surprise, if not outright glee, at noting that both Harpers and Atlantic Monthly feature stories this month on our fiscal irresponsibility and the coming meltdown. Harpers piece is entitled "The Iceberg Cometh: Can a Nation of Spenders Be Saved?", while Atlantic's is even more direct: "Countdown to a Meltdown" by good old James Fallows.
The major media--especially these top dogs of literary journalism--are rarely first on a major story, but they do reflect the zeitgeist of the liberal (or liberally educated) elite of the nation. Doom-and-gloom headlines sell magazines just as they sell television "news" (and I use the term loosely), and so we have to take this new fiscal awareness with a hefty grain of salt.
Still, the change between greed (the current status quo of the nation, especially in real estate) and fear (when everyone panics and tries to sell the golden investment they were just bragging about the month before) is entirely internal. That is, the decision to bail out on that "investment" condo in Ft. Lauderdale comes from within, as the investor's own psychological certainty of success is first eroded with nagging doubts (nourished by stories he sees in reputable papers and magazines). As proof of decline settles in as a "story," the investor's doubts strengthen and his euphoria dissipates. At some threshold of fear his resolve breaks and he tries to get out of the once sure-fire investment.
But alas, everyone else has tracked the same inflection point, and the investor is left with the unwelcome realization that he has been part of a herd since he first dipped his toe in real estate investment. Though each decision is internal, the herd magically turns as one organism, and as fear replaces greed, each tries to "beat the herd" by selling. And so the selling becomes a self-reinforcing wave, which brings the very collapse no one foresaw when greed reigned supreme. A few naysayers had issued warnings, but eventually they'd been felled by calls that "this time it's different." Perhaps unsurprisingly, it never is.
Lest this sound too dour, I've illustrated it with cherry blossoms from the orchards of Brentwood, California (those not yet chopped down for cheek-by-jowl McMansions--but that's another story).
June 9, 2005
The Real Federal Deficit: $2.3 trillion a Year
For your consideration: a surefire recipe for fiscal catastrophe. The "official" Federal deficit (the difference between what the government collects in taxes and what it spends each year) is -$412 billion, meaning that the Federal government borrows $400 billion from somebody (mostly the Japanese and Chinese central banks) each year. Ours is not the only government running huge deficits; most major economies, including China, support central government deficits on the order of 3-4% of GDP. Some, such as Japan, are creaking under the weight of much higher deficits.
You have to wonder who's saving enough to support these enormous deficits; it certainly isn't Americans.
It turns out the "official" deficit is woefully under-reported--for the obvious reason that the truth would scare the daylights out of anyone not drooling over the Big Screen TV ads in a semi-comotose state. As the chart below shows (courtesy of analyst Bud Carson), the deficit as it would be accounted for in a private firm (i.e. according to GAAP standards) would have to include the Social Security surplus which is spent by the government ($200 billion), the interest on the Social Security "trust fund" (i.e. the Social Security taxes we all pay which have been theoretically set aside for future retirees), and then the future liabilities which have been accrued that year, which in our government's case, includes the Social Security and Medicare costs of those reaching retirement age in that year (as well as those new benefits extended to existing retirees, i.e. the drug plan).
In the corporate world, this would be the money the company has to pay into its pension fund to cover future pension payments to retirees. (Many corporate pension plans are underfunded, but that's another story.)
But alas, our government has a "pay as you go" system, where no money is actually set aside for future Social Security or Medicare expenses; all expenses for current retirees are paid by tax receipts and borrowing in this year. As those retiree benefits increase, so must either taxes or borrowing.
Our leadership's largesse last year in granting an open-ended "drug benefit" to Medicare recipients--along with existing Medicare benefits--means that the future liabilities accrued just this past year are $1.6 trillion. In other words, the Federal government "owes" its current retirees $1.6 trillion in future benefits which will have to paid by future workers. And this liability will only skyrocket as Baby Boomers (those born between 1946 and 1964) start retiring in their teeming miilions.
This is the perfection of irresponsibility--granting huge benefits to current elderly voters by obligating younger generations to an entirely unsustainable fiscal burden. Take this to the bank: the entire system of huge deficits and low interest rates supported by Asian central banks will implode next year, taking the "housing boom" and the U.S. economy with it. I cannot predict the month, but I can safely predict the year: 2006 will be the year when the inevitability of our folly comes home to roost.
June 8, 2005
The Mafia-Watergate-Assassination-Vietnam Connection
A bit of speculative history. Although it is unlikely to ever be definitively proven, there is some evidence that voter fraud in Illinois and Texas gave John F. Kennedy the slim margins needed to win the 1960 presidential election. Other evidence suggests Kennedy won fair and square, but what is known is that the Mafia claimed to have influenced the vote in Cook County (Chicago) in Kennedy's favor. In Texas, Lyndon Johnson's political machine was known to be as corrupt as the day is long (see Robert Caro's definitive account of how Johnson won elections: Means of Ascent.)
Whether the Mob manufactured the 10,000 votes needed to ice Kennedy's win (by a paper-thin 9,000 votes) in Illinois or not, the perception they did certainly colored Nixon's and the Republican Party's view of how to win elections.
The Mafia-Watergate Connection works like this: losing the election to Joe Kennedy's Mob connections in 1960 embittered Nixon to "playing fair," and so Watergate (such an inept series of bungles--he shoulda hired the Mob, like the Kennedys did) resulted less from the need to massage the election (he was leading McGovern by a huge margin at the time) than from this dark bitterness.
That's a little too tidy for my taste--he didn't get the nickname "Tricky Dick" for nothing--and so the more intriguing connection is between the Mob and Kennedy's assassination in 1963. The story there is that the Mob reckoned their "assistance" in 1960 earned them a free ride, but instead new Attorney General Robert Kennedy went after OC (Organized Crime) in a bulldog fashion, royally angering the Mob Bosses. Their eventual response: tie up with rightist Cubans infuriated by Kennedy's failure to support the Bay of Pigs invasion of Cuba to murder the President.
Understandably, various mobster's talk of "whacking the president" can be ascribed to self-preening, but the scenario does provide a compelling motivation--and motivation, even in the "Oswald was the lone assassin" theory, has always been the weakest link in any assassination story.
So where does all this lead? Let's suppose that all that talk by Joe Kennedy and the mobsters and LBJ's confederates is largely true, and the election was thrown to Kennedy by the same untraceable voter frauds which operatives in Chicago and Texas had long mastered. Let's suppose for a moment that fraud had failed, and Nixon had won the election.
Although we can never know what Nixon's exact policy decisions might have been, we can safely predict the master strategist would never have supported the Bay of Pigs invasion (he was far too canny for that kind of embarrassing mis-step). We can also predict that the Soviets would never have tried placing missiles in Cuba either, knowing full well that Nixon was no pushover.
Judging by Nixon's "triangulation" policies in the 70s, playing China off the Soviet Union, and his decision to bomb Hanoi into submission in December 1972 (which worked as planned--they submitted once their Soviet-supplied surface-to-sir missiles ran out), we can also predict that he would never have pursued Johnson's doomed expansion of the war in Vietnam. Again, he just wasn't that dumb; whatever his faults, he played confidently on the largest chessboard, while Johnson and his hacks stood nervously over their checkers game of domestic politics.
Domestically, Nixon was above all a pragmatist, pursuing policies which would have been considered enlightened in a Democrat (such as block grants) or even high-handed Federalist intervention (wage and price controls). The fate of civil rights legislation in his hands cannot be predicted, but his record during 1968-1974 suggests less a hide-bound conservative than a pragmatist.
What if Nixon had won in 1960? No Cuban Missile Crisis, no assassination of the President, no Vietnam, no Watergate--and probably a Democratic victory in 1968. You really have to wonder if the Democrats' machinations in 1960 created a dark karma which led the nation down a needlessly bitter pathway to assassination and Vietnam. It's something to ponder.
The voter fraud of 1960 may even have set in motion pieces which clicked into place forty years later in 2000, when Republicans, recalling its efficacy in 1960, borrowed the "how to steal elections" playbook, and nudged another close election in their favor. Revenge, even two generations later, must be sweet indeed.
June 7, 2005
Are We Poised on the Precipice of Another Age of Turmoil? (Part II)
In Part I we glanced at the economic cycles which seem to rise and fall with astonishing regularity in the broadbrush strokes of history. These "long waves" seem to suggest a severe and long-lasting downturn in the world economy is close at hand, based on the fundamental insight that the enormous mountains of debt which have been accumulated must now be repudiated in order to set up the next cycle of growth.
The writer as radical hippie, circa early 70s (photo courtesy of Ian Lind)
There is another eerily repetitive pattern of change which has occurred on 40-year cycles in the past century: one of social tumult and change. Consider the explosion of artistic freedoms in film and music of the 1920s, and the concurrent lifting of social constraints, and then note the similarity to the 1960s (ending either with the disasterous Rolling Stones concert at Altamont in 1969, or Watergate in 1974,depending on your taste in history). If the 40-year pattern holds, we are in the midst of, or at least entering, a similar decade of social turmoil.
We could posit that the cycle began on Septemebr 11, 2001, ushering in a period not of artistic expression but of new constraints and paranoia. The rise of the religious right as a political force could be seen as the penumbra of the 1960s, just as the rise of a radically reactionary Islam could be seen as a reverse analog of the big-power Communist threat the U.S. faced in the 60s.
Where the 60s were all about questioning the conformity which had dominated social and political life in the 1950s, this decade seems to be about reining in the chaos, both outside the national borders and within. A new "ownership" ethic has replaced the paternalistic state ideal of the 1960s, and each new excess in the popular culture (hideously violent Playstation games, crudely misogynist hip-hop music [I know, I know, not all of it is], "edgy" television "entertainment") is matched by a shrill new constraint (banning medical marijuana, stem cells, etc.).
Even more troubling, the divide between the wealthy elites and the middle class is widening; as the economy stumbles toward breakdown, the wealth of the nation has flowed to the top 5% of citizenry. As the average Schmoe relentlessly taps his home equity to support a lavishly foolish "upper-middle class lifestyle" filled with the spiritual rot of gimcrack distractions and useless toys, (Wall Street Journal, May 17, 2005, "Lagging Behind the Wealthy, Many Use Debt to Catch Up") the real wealth of the nation aggregates in the elites' hands. As tax rates for the wealthiest plummet to all-time lows, medical insurance becomes a luxury for everyone not independently wealthy or employed by a government agency.
The nation careens down the path of a fiscal policy of endless deficit, transferring whatever wealth remains in the hands on the young to the elderly via unsustainably expensive Medicare benefits, and yet the citizenry are strangely complacent, as if their internal compasses have been scrambled. The events of the decade ahead may provide a lodestone for the dazed American citizenry; as things fall apart, they may find their internal compasses re-set, and the distractions of consumerism less mesmerizing. Can it happen too soon? I think not.
(For more, see What This Country Needs Is a... Good Recession)
June 6, 2005
Are We Poised on the Precipice of Another Age of Turmoil? (Part I)
First, I want to take notice of D-Day, June 6, 1944, the battle which set the stage for the defeat of fascism in Europe. (Interestingly, the battle which turned the tide in the Pacific War occured at roughly the same date, June 3 - 7, off Midway Island, in 1942. U.S. planes destroyed four Japanese aircraft carriers and even more importantly, the cream of Japanese naval aviation. But that's another story.)
I honor those D-Day vets who are still alive, and those who have passed on; and especially those who faced such harrowing odds of survival. My uncle served in B-17s in Europe, which at that time were suffering a casualty rate of 50%. Yes, 50%. The same poor odds faced submariners in the Pacific War, and certain classes of helicopter pilots in Vietnam (Loaches). Victory and defeat alike carry such incredibly high costs.
As we consider a day 61 years ago, it calls to mind the broad sweep of history, and various cyclical patterns of history--those posited by Nicolai Kondratieff and Ralph Nelson Elliott. For starters, let's consider 1893, 1932 and 1974. Interestingly enough, those bottoms of financial panics or depressions seem to operate on about 40-year cycles. If there is indeed a pattern there, we should get a humdinger of a depression around 2012.
Kondratieff posited that an economic cycle of debt buildup and repudiation repeats every 50-60 years. Given the enormous borrowing binge the world has gleefully embarked on during the past five years (M-3 expansion of around $2 trillion by some estimates, American homeowners tapping their equity to the tune of $1.6 trillion in new debt, Federal budget deficits on the order of $400 billion annually, etc.), it's difficult to dismiss Kondratieff's fundamental insight as entirely wrongheaded.
Many in his camp believe we are entering the "winter" phase which will culminate in a collapse or repudiation of all that debt. It's something to consider, given one irrefutable fact: no economy runs up forever in a straight line of unending growth.
"The low-interest-rate-fueled growth in the U.S. economy, says Robert Brusca, president of Fact and Opinion Research, has played out principally through reckless spending from refinanced real estate. "I'm convinced that people have taken this money and blown it on gewgaws and junk," he says. "We're basically borrowing money to support our consumption, and we are living well beyond our means."
June 4, 2005
If a Tree Falls in Iraq...(assuming there is a tree)
It's hard to know what's really going on in Iraq, for any number of reasons: the nation's vast geography, the numerous ethnic and tribal factions, and the dangers faced by any media brave enough to venture out. Old pal Ian Lind recommended a blog from an embedded free-lance journalist in Iraq, and I strongly second the suggestion to read Michael Yon's blog. It is astonishing to see supermarket shelves bursting with fresh produce and read that the people are happy and prosperous. How is this possible? It's in the part of Iraq controlled (and patrolled) by the Kurds, that's how. Whether you supported the decision to go to war or not, it is more than interesting to see what life is like now for the once-repressed Kurds.
In other news, I have finally finished my essay on China's future (see link on the left, Unfolding Crises: China). Even if you're not interested in China's environmental, demographic, political and financial challenges, you might enjoy my photos of Chinese gardens and villages.
June 3, 2005
Morgan Stanley Sucks!
Reuters, June 2, 2005 --Morgan Stanley, whose battle with unhappy shareholders has played out on the business pages, is warning prominent newspapers that it could pull its advertising if it objects to articles written about it.Why haven't other multinationals glommed onto this brilliant "reverse bribe" idea before? No need to bribe anyone for positive coverage--just threaten to pull your advertising--a reverse bribe, if you will--if any truth, oops, I mean negative coverage, slips into the media.
Could anything be more crass? An outright bribe, perhaps--but this is a pillar of Corporate America. Is it now OK for Fortune 50 companies to threaten the media to limit coverage of their actions? What's next? "McDonalds pulls advertising in response to negative coverage of transfats in french fries"? "Wal-Mart pulls ads in response to revelation that employees are underpaid"?
Note to Morgan Stanley: if you want warm and fuzzy coverage, there is a way to guarantee it: buy an ad and write your own copy. If you're too cheap to pay for ads which glorify your company, may I suggest you move your operations to Cuba, where for a modest (by your standards) cash bribe to the state-controlled press, you can escape all scrutiny.
Yosemite Valley, May 27, 2005
Above-average snowfall in winter brings full waterfalls in spring. The seven-mile loop hike up to the top of Vernal Falls (offering a view of Nevada Falls just beyond) requires a climb of about 1,400 feet from the valley floor, but it's well worth the effort. This photo was taken from the "Tunnel View" lookout.
June 2, 2005
Why Inflation Appears Low
Every small business owner and consumer has the queasy feeling that inflation is running considerably ahead of the "official" Consumer Price Index rate of 3%, but the misrepresentation (or manipulation, perhaps?) has been a puzzle--until now. Alan Abelson's column in Barrons this week contains a cogent explanation:
"Shelter, you see, which accounts for about 30% of the core CPI (and nearly a quarter of the overall index) is measured not by the dictates of the marketplace, how much houses actually fetch when they're sold, but by a strange -- make that perverse -- yardstick called owners' equivalent rent. Homeowners are asked how much they think they could get were they to rent their abodes.So the speculative buying of real estate which is driving up house prices everywhere has created a huge supply of property available for rent, lowering rents by 20% -25% nationally. This in turn suppresses the 30% of the CPI based on housing. 25% of 30% is 7.5%, which suggests that an accurate reading of the CPI over the past few years would be 7.5% higher--not even counting the added cost of second mortgages and re-fi's which homeowners have taken to draw out their equity. Despite the low interest rates, not everyone's mortgage has dropped; people are borrowing huge amounts against their equity--by some estimates, $1 trillion over the past few years.
Note that 35% of all home purchases nationally are second and third homes--pure speculation. Also note that 2/3 of the new mortgages in the San Francisco Bay Area are "interest only," which means the owners have deferred the actual costs for a few years. Finally, note that about 34% of all new mortgages and re-finances are adjustable loans, which means that the rates (and payments) will rise along with interest rates. Consider as well that even though low interest rates have made mortgages "affordable" (whatever that means), the tremendous rise in housing prices the past few years has dramatically raised the cost of buying a house--never mind the mortgage, how about the big increase in property taxes new buyers are paying?
Bottom line: inflation only appears tame, due to a quirk in the calculation of the CPI. The "real" rate of inflation is undoubtedly higher than the "official" rate of 3%. Consider the labor component of the economy, which Labor Department data reveals has started heating up:
"The new data show that hourly compensation in businesses outside farming rose 6.3% in the first quarter and 10.2% in the fourth quarter, both estimates substantially higher than previously reported 4.8% and 3.8% increases." (Wall Street Journal, 6/3/05)Though the housing boom has skewed the data in favor of the status quo--borrow more, spend more, inflation is dead, long live speculative housing!-- it's doubtful the real rate of inflation can be masked for much longer. Then what happens? Perhaps what everyone fears--a rise in long-term rates and the deflation of the housing bubble.
June 1, 2005
Links on your Left
Each mini-essay (wEssay) from last month's blog has been placed into categories so you can scan for topics of interest. I've cashiered the "What's New" feature from the past few years, as it has been replaced by this weblog; the entries (of limited interest, I assure you) are listed under the "archives" link.
In other news, my article on "green building" ran in today's S.F. Chronicle.