I’d like to start this blog ambitiously. This entry will be a long one, but by way of introduction, I’m going to be looking at a big issue. I want to try to answer a question I’ve overheard a lot since the downturn started; “how did we get into this mess?” Odds are, you’ve both said and heard it a dozen times. And I want to try answering it by applying a simple truth; that people do what they get rewarded for. Now a lot of the explanations for the catastrophe that has been the last few years involve that truth. Some say we got here because politicians were not rewarded either for having integrity or wisdom, but instead could get elected by telling us stupid lies we wanted to hear, and could line their pockets and insure re-election by playing to special interests. Others, mostly politicians, it seems, tell us it’s those people who either failed to read their mortgages, or who knew they couldn’t pay their bills, but signed them anyway. They were rewarded with the chance to own a house for about the same per month as if they were renting. Others lay the blame on corporations, or unions, or regulations, or globalization. All, to some extent, share the blame, but it seems to me that when you have this many problems, you should be looking for which disease caused them all, not choosing the worst of the symptoms.
Probably the most popular of all the pinatas are the bankers. I’d like to take a look at them for a moment, not because I think its all their fault, but because there’s a hint there. Now we’ve all heard them demonized, how they preyed on the weak and made a pact with the devil, and how they should have known better, since they were the experts. I’m actually annoyed at them for a variety of reasons, (somewhat unusual ones, but that’s a matter for another time.) But before we condemn them entirely, I’d like you to consider a proposition., Lets say you have ten million to invest, and its 1999. I come to you and say, I have this friend who wants to buy a house. He doesn’t have much of a down payment, and he tends to switch jobs a lot, so he may have trouble making the payments. Can you loan him the money? Now normally, you’d say “no way, that sounds horrible.” But consider this; since WWII, house prices have gone up very consistently for half a century, and they’re going up particularly fast now. So, if you make him the loan, and he can make the payments, you make a good bit of cash on the interest payments. But if he can’t keep up the payments, say a year from now, you get the house. And in that era, the house could conservatively have gone up by 10 to 20% in price. It might very well have doubled. Which means, you had somebody making payments for a year so you could hold that house while it went up hugely in value. If it was 100 K when it started, it is now worth anywhere from 110k to 200k, plus his small down payment and his monthly payments. That means that even if he doesn’t keep up the payments, you’ve made a good 20% on your investment, a very very healthy return. This remains true till the moment of the crash; every year till then, it was a good business decision. And honestly, its hard even to attack it on moral grounds, because you’re giving someone a chance to own a house who might otherwise have never gotten a loan. You may make a little more money off that, but that’s the price of risk. They might get a lower credit score, but they would have to pay rent if they hadn’t gotten the loan, so they may not have lost a dime. By the way, I’m not saying they shouldn’t have seen all this coming. A half century of growth is no excuse to believe that a crash could never happen again. I can’t really offer much proof of this, except the back up of a few friends and family, but I said two years before the crash that trouble was coming, and six months before it happened, I told everyone who would listen (very few) to get out of the real estate market, because it would happen within a year. I find it quite disturbing to be so much in the minority there. On the other hand, one cannot forget, that if one of the banks had stopped doing this kind of lending, they would have fallen so far behind their competitors they wouldn’t have been able to survive.
Again, the bankers are merely a symptom, not the disease. They do reveal something quite useful though; that half century of nearly uninterrupted growth. Over fifty years; long enough for the people who lived through the depression’ grand children’s children to be born. For Americans, and for much of the world, it has in many ways been a very good stretch. Year on year, life has improved in many or most ways. Cold war or hot peace, right wing leadership or left, nothing has stopped that growth. At most a few small stumbles in all those years. And here we come back to that simple truth. If it is true that people do what they are rewarded for, ask yourself, what has been the reward to Americans for paying attention? So long as you weren’t part of a mistreated minority, or a law doesn’t hurt you, what do you care who wins an election, what their economic policies are, etc. Next year, on average, you’ll find yourself better off, regardless of who wins an election. In that stretch, we’ve gone from phones and cars being rarities to space travel and the Internet in our pocket. When things continuously improve, especially at such a dizzying rate, there simply is no incentive for careful political thought. Obviously there are some important exceptions, and I’m not downplaying them in the least; the Civil Rights Movement was surely one of the high points of American democracy, and Vietnam was one of the more difficult political/generational struggles. But these weren’t economic questions, or even exactly policy questions. The first was simply a matter of demanding what had long been promised, and the second was…. well, complicated, but still, it certainly wasn’t a primarily economic question. At any rate, those exceptions aside, the only real payoff has been the feeling of having “your guy win.” It seems to me, though, that the day when we can afford to be complacent may finally be over. All our various symptoms speak to that. Our banking system is a bloated, diseased mess, our political system is a bad joke, our tax system a disgrace. The gap between rich and poor has never been greater, and yet, not only is the union dead, but at least one in ten Americans is unemployed, and we continue to import nearly all goods and export mainly jobs. We’re in three wars, under an ocean of debt, and no closer to solving the energy crisis. Very nearly everything that could go wrong, is…
And yet, for the first time in my life, I don’t despair of the American people. All my life, I have met people who couldn’t care less about politics, or history, or economics. They could barely tell you who the president was, let alone who their congressmen were. As to what legislation is being debated, forget it. If they knew more than one bill a year, it was a miracle. They have no interest in any union (thought they’re furious they haven’t gotten that raise,) and as to what banks and corporations are doing, well, what does that have to do with them? Let Regulators and the Ultra-Rich sort all that out. Don’t get me wrong, they were deeply “political.” They knew that the other party, and anyone who supports them, is not only wrong, but evil, and even worse, un-American. We went straight from half the country hating Clinton to half the country hating Bush, interrupted only briefly by 9/11. And each side will tell you that their reasons for hating the elected president of the United States is righteous, but that the other side only hated their guy because they knew he was right, and he didn’t let them stomp all over the decent, hard-working Americans in their party. And in the midst of all of this partisan nonsense, less than half of us vote. We’ve all had conversations with thousands of folks like that, from both parties. Up to now, you could list all the problems that were coming down the pipe toward us, all the ones I’ve listed and more, and they’d tell you, straight faced, that first of all, most of that is the other side’s fault, and if they’d just let the good honest folks on their side go about their business, they’d take care of all that. More to the point, they could tell you, and quite rightly, that it’s never mattered who they voted for, nothing has changed. Actually, any time not two or more years before the crash, they’d probably call you un-American for suggesting that we have problems, or, even worse, that we’re not doing anything to handle them. In that state, you can hardly expect anything to change; how could it?
But again, for the first time, I begin to have hope. Why? Again, because of that simple little truth. For the first time in living memory, we will be rewarded for paying attention. And the stakes couldn’t possibly be higher. If we fail, not only will America become a third rate power, but the risk of global war and far greater global economic crisis becomes rather terrifying. The power vacuum the death of a superpower leaves has always lead to war, or wars, in every era in history, and with the environmental, demographic, and resource catastrophes we all face, the odds of a World War, or even nuclear conflict, becomes exponentially greater. If we succeed, America gets back on the path of growth, with all the vast rewards that implies. We now have the opportunity to choose our fate. All we have to do is become citizens of our nation, not consumers of it. The only question is, can we become what we need to be in time? That question is for America to answer, not me. As for me, that’s what this blog is about; paying attention, thinking and discussing. I’m not saying I have any answers at all, but I certainly have plenty of questions. Won’t you come and ask them with me? After all, we’re finally gonna get paid for it.