I'm James Maxey, the author of numerous novels of fantasy and science fiction. I use this site to discuss a wide range of topics, with a heavy emphasis on cranky, uninformed rants about politics and religion and other topics that polite people attempt to avoid. For anyone just wanting to read about my books, I maintain a second blog, The Prophet and the Dragon, where I keep the focus solely on my fiction. I also have a webpage where both blogs stream, with more information about all my books, at jamesmaxey.net.


Sunday, March 08, 2009

Three ideas for saving the nation; or, why we are doomed.

It's pretty easy to knock the current economic plans being advanced by our leaders. The plan of Obama and the democrats basically boils down to spending a lot of borrowed money. Pouring 1.6 trillion in borrowed money into the economy may indeed prove stimulating. If I add up the credit limits on all my credit cards, I can borrow roughly $70,000 dollars. I could run out tomorrow and spend it all, maybe on a hurricane tour of Vegas. I would certainly feel very rich for a short while. A lot of businesses would feel the benefit of me throwing money around like the sy is the limit. My neighbors might look at me with envy as I pull into the driveway with a new car. I'd be high on the hog--until I had to start paying it back.

I'd probably be okay for a little while. The payments on all this would be pretty high, but I still have my job and some money in savings, so I could meet the payments for a month or two. After I pay down the debt for a couple of months, I could borrow money from the credit I'm opening up in my credit cards and make payments for another month or two.

Still, anyone with a lick of common sense is going to be able to look at my monthly income and compare to my monthly payments and come to the grim conclusion that I don't stand a chance in the long run. Bankruptcy looms; my only hope is to sell the car I bought, sell all my assets, work multiple jobs, and live on Raman noodles and tap water.

This year, our government is going to spend roughly twice as much as it takes in in taxes. If it's a stupid idea for me to do this as an individual, can some one explain why it's a good idea for us to do this collectively? The one advantage the government has is it can print money. But, it can't change the actual value of money; it tomorrow it decides to just double the amount of currency in the system, it will have the effect of halving the value of our currency. (If we're lucky, half.)

So, are we doomed? Probably. I don't see anyone rising on our political scene anytime soon who will be able to take us in the direction of fiscal sanity.

Still, just for the fun of playing make believe, here are some ideas for how we could get out of our present mess. We don't have to be doomed. I think there are actions we could take today that would result in us being a financial powerhouse again within my lifetime:

A. Stop spending more than we bring in on stuff we don't need. See my previous beaver management post. Unfortunately, cutting out trivia like beaver and cricket management will only make a small dent in the budget. To seriously impact the budget, we have to slash some sacred cows. Here are a few cuts, in order of their likelihood of causing riots:

1. I love NASA. I think that it is good for us collectively to explore Mars with robotic probes. I think that our long term survival may one day depend on our ability to find all the asteroids and comets that pass near us and be able to shoot them out of the sky. But: Mars isn't going anywhere. If we have to shut down our space program until we are back into financial health, I'm willing to make that cut. We can go back again in 50 years and it won't be all that different.

2. Social security and other benefits must be means tested. Right now, the benefits are paid blindly regardless of how wealthy you are. This is fundamentally fair. If we only gave the benefit to the poor, it would be, in effect, a penalty on responsible people who planned for their retirement. But... so what? If we don't find cuts to make somewhere, responsible people are going to be penalized anyway by hyperinflation. Social Security is the single largest item in the budget. We can't do anything that will have any real impact without at least slowing its growth.

3. Close up shop on the American empire. We currently have troops stationed in 140 different companies. Our spending on defense is more than all the other countries of the world combined. Do we really still need troops in Germany and Japan? Once we go to war, are we obligated to leave troops there forever, paying lease money on bases to the host countries? Bring the boys back home. We have 55 nuclear subs lurking in oceans around the world serving as mobile missile bases, waiting to launch a final strike in the event of nuclear war. Why? It seems like we could get the same deterent effect out of, say, 5 or 10. Assuming we even need a deterent effect any more. Pakistan has, like, 1 bomb, and we aren't going to go to war with them, even though this is the country Osama bin Laden is probably hiding in. With nukes, a little goes a long, long way.

B: If you found yourself overwhelmed by your debts, one thing you could attempt would be to sell off your assets. It's a little different from increasing revenue; if I decided to liquidate my comic book collection, I'd get a one time burst of cash, but have no comic books left. Other people might have heirloom silver or jewelry that could bring high dollars. It's heartbreaking to sell these things, but such is life. It's time to look at what the government can put up for sale.

I'm not sure what the riot factors of any of these are, but let's just go for them:

1. We own millions of acres of national park land. I'm a fan of national parks; I frequently pay visits to them. But... we aren't going to be able to enjoy these parks if the economic house of cards collapses and we revert to cannibalism. Tough choices must be made. For instance, there are long stretches of shoreline around all four coasts that are protected as national parks. Ocean front property is big dollar property. We can put half of what we own up for sale. Developers will spend billions to snap this land up. Or, alternatively, state and environmental trusts will match or beat their offers. We could rig the auctions to weight the bid of an environmental group at twice the value of a developer. And, maybe once we are back on our financial footing, we can look at buying some of this stuff back. But for now, I'm guessing this could be extremely lucrative. (Though, admittedly, this is just a guess. I'm too lazy to do actual research into the true value of the assets held by national parks.)

2: For the land we continue to manage, when we lease rights, make those rights reflect their actual worth, rather than the sweetheart deals that are currently the norm. This can go hand in hand with expanding the areas we put up for lease.

3: How's this for a radical idea: Let's sell all the books in the Library of Congress. We'll of course keep scans of everything. But, look, Ghandi's sandles and glasses just recently brought in over a million dollars at auction. The Library of Congress contains books from Thomas Jefferson's personal collection. The highest price a rare book has ever sold for was $8 million for J.J. Audubon's Birds of America. I'm guessing many of the books in the collection could match or beat this price. I'm also guessing that there's a warehouse somewhere in Washington full of all the small stuff left behind by the Presidents. Every family that moves in redecorates; you know that somewhere there's a crate that contains all the drapes and bedsheets from when Herbert Hoover lived there. Maybe Ronald Reagan left his toothbrush in the white house medicine cabinet... he was getting kind of absent minded. I bet there are Reagan worshippers out there who would pay top dollar for his toothbrush. Maybe they could capture some DNA from it and try to clone him.

And, how's this for a plan: The white house has a lot of unused bedrooms. Why not insist that our presidents have roommates? I found a roommate to help cover expenses. Obama can suck it up and do the same.

C: The American Endowment. Ivy League colleges have endowments. Someone, or groups of someones, give them big chunks of money and this money gets invested and the colleges get wealthier and wealthier, even as the government funnels more taxes to them in the form of grants. Harvard has an endowment of 34 billion dollars (at least it did before the stock market tanked). What we need is an endowment for America. We know that Barack Obama can ask people for money, and they'll give it to him. He raised more money than he could spend in a political campaign; that's just jawdropping, considering how wasteful campaigns can be.

Right now, if Obama put out a call for all American's to pay an extra hundred dollars to help offset the budget deficit, I'm willing to bet he'd collect a healthy sum, though nowhere nearly enough to actually dent the deficit. Still, one reason I'd be reluctant to contribute to such a call is I know that the money I sent in would instantly be spent. It was spent before anyone even thought to ask me for it, in fact.

But, what if we had an endowment that American's could contribute to that was going to serve as a national trust fund? We could establish it for a set number of years-twenty five would be a good target. During these 25 years, we could only put money into the fund, and draw nothing out of it. We could launch the fund with a giant telethon. Bill Clinton could play his sax. Obama could auction off baby kisses. Dick Cheney could agree to stand in a stockade and let people throw tomatoes at him for a thousand bucks a pop. At the end of the evening, we'd have tens of millions of dollars. Then... we'd invest this conservatively. Only buy stocks with P/E ratios of 15/1 or better. Have a nice mix of bonds and money market accounts. Every year at tax time, we could have a check-off box asking if you wanted to contribute $5 to the fund. We could have the world's biggest bake sale on the national mall. We keep adding to the savings, and allow the power of compound interest to grow the endowment. Then, if we got the rest of our financial house in order in the intervening 25 years, perhaps we would be in a shape that when we start drawing on the endowment 25 years from now, we could use it to pay down the national debt, which is still going to be around. Maybe we could buy back some of those parks we sold, and look at sending people to the moon again. Instead of us borrowing money from China and Saudi Arabia, maybe we'd be in a position to loan them some dough.

In short, my plan breaks down to:
1: Cut spending. Stop borrowing.
2: Sell assets to pay down debt (or, get a roommate to share expenses).
3: Put money into savings and don't mess with it for a long time.

This happens to be my own personal plan for financial health. It's common sense, requires a little discipline, and trades luxuries today for a more comfortable and financially sound future. It can be done! There is hope!

.... yeah. I know. I think we're doomed too.


MoneyandCorruption said...

I appreciate your effort to come up with solutions, but when is a large financial governing body going to take credit for what went wrong? If these people are not held accountable this situation will repeat too soon.
I didn't forget how to do my job, a plague of locusts or a flood didn't visit my town, my debts are paid up. As far as I can tell this entire crisis is the fault of financial trickery by large institutions. Maybe if they had spent some time engineering raises for the working class instead of complex financial schemes to maximize their bonuses we would be in better shape. In the industrial world, we have learned to produce more fantastic things more efficiently than at any time in the history of civilization. Global communications, wind turbines, solar power, vaccines (smallpox is wiped out!), we even know how to make power from sewage.
Greed in the financial system is what screwed things up. The World Bank is saying nations are going broke... thanks for your help, World Bank.

James Maxey said...

Thanks for commenting, Money. I guess I fundamentally disagree that this entire crisis is the fault of financial trickery by large institutions, unless you count the collective American populace as a large institution.

However, looking back over my article, I see where I introduced some of the confusion, since I wasn't clear on what problem I was addressing. Right now, I think we as a nation actually face two problems.

Problem #1: The economy is in decline due to some of the financial trickery you mention. We are going to undergo a protracted period of collective pain as the stock market tumbles, houses are foreclosed upon, and unemployment rises. A great deal of this can be blamed on banks easing credit standards. There was some governmental pressure to ease standards on mortgages, but where was the governmental pressure to give credit cards to any 18 year old with a pulse? The banks made a lot of stupid loans. That said, we, as a people, were active and willing participants in the stupidity. They offered risky loans, and we took them. This created not only a housing bubble, but an overall consumption bubble over the last two decades. It couldn't go on forever, and now the bubble is popping.

The key to getting through this current crisis is for the government to do nothing. Believe it or not, what we are seeing is the free market working to correct its excesses. Companies that took on too much debt to expand will disappear. The worst banks making dumb loans will fail. The stock market that had been trading at 40 to 1 P/E will lose three quarters of it's value. (This means I'm predicting we'll see a bottom to stock market declines around 3500.) Housing prices will fall until they reach a level that people start buying them again.

Once we hit rock bottom, and the overvalued assets reflect their true value, and the strong companies have flowed in to take the place of the weak ones, the economy will build up again. This might take decades, but it can happen, unless the free market train has the tracks torn out from under it by bad government policy.

Which builds to our second national crisis, the one I was actually talking about, though I wasn't really clear to make this point:

Problem #2: As a nation, as represented by our government, we have borrowed too much money. Except for one brief blip near the end of the the Clinton era, we've been running massive deficits, leading to ever increasing national debt. This year as a nation, we'll spend twice as much as we bring in in taxes. This is unsubstainable. You or I couldn't get away with it for long. And I think this is the true threat to our long term economy, not the collapsing bubble.

Our money has no intrinsic value. A dollar is worth a dollar due to our collective agreement that a dollar buys what a dollar buys. These days, a dollar buys a lot less than it did when I was a kid. thanks to the slow crawl of inflation. My fear is, one day, in a not so distant future, the US is going to be unable to tax or borrow enough money to pay the interest on its obligations. At that point, the only choice it will have left is going to be to print more money. With a wave of the financial magic wand, it can magically say, "Poof! We have ten times as many dollars as we used to." This will mean, however, that a dollar can now buy only a tenth of what it used to in the real world. We'll pay off our national debts with the devalued money, but gas will overnight be twenty bucks a gallon, a gallon of milk will be forty bucks, and the only thing left on McDonald's value menu will be a cup of water, assuming you provide your own cup.

So, I'm actually proposing solutions to coming hyperinflation due to excessive national debt rather than proposing solutions to the stock market decline, unemployment, etc. If anything, my proposals would probably drive unemployment up: if we did cut our military down to the size required to defend us instead of defending the whole world, we'd instantly put a hundred thousand soldiers out of work, plus hundreds of thousands of other workers who build rifles and tanks and submarines. Half the people who sew uniforms would be out of work. If we closed up a lot of bases, we'd lose the jobs of all the secretaries who work there, and all the various businesses that grow up around bases, like barber shops and strip joints.

Still, not to sound callous, but the constitutional purpose of our armed forces is to defend us, not to serve as a large public works program providing jobs. And, history shows a very definite and decisive fate for nations that invest too much in their militaries: They collapse, again and again and again.

I think our national financial house is on fire, and the current proposals to borrow more money from China and pump it into make-work jobs is the equivilent of pumping gasoline into the fire. It's a desperate attempt to avoid the pain of a market correcting itself that will, in fact, lead to a financial crisis that will make us all long for the sweet and golden glory year of 2009, the last year we were rich.

Let me also say that I hope I'm dead wrong. A lot of very smart, very educated people endorse Obama's plan. Perhaps they know something I don't, and have some deeper understanding of our financial balance sheet than I do. I'm not an economist. Anyone who takes one look at my house or my car could guess that I don't know much about getting rich. Maybe, just maybe, nobel prize winning economist Paul Krugman actually knows the right way out of this, and I don't.

All I have to support my arguments are gut level common sense and an American public school education in history and math. I pray that this is just one of many times in my life when I'm offering loud and forceful opinions on stuff on topics I really don't know that much about.

I guess we won't have to wait that long to find out.

Izgad said...

Awesome piece James! I particularly liked the bit about maxing out on one's credit cards and going to Vegas. For me the key solution is to do one's best to link payment to decision making. Living on a college campus I see everyday how children should not be trusted with their parent's money. How much more so should a politician not be trusted with ours? What this means in the end is that anything that we can possibly put in the hands of private citizens and make them directly pay for what they use we should. Privatize social security, welfare and even schools.

James Maxey said...

Izgad, as it turns out, the parents shouldn't have been trusted with the parents' money either. Still, somebody has to spend it I suppose, and I'd rather it be private citizens than government.

Izgad said...

Me too.

Gray Rinehart said...

Interesting as usual, James. I don't agree with all of your individual proposals, but your underlying premise -- we shouldn't spend more than we earn/produce, individually or as a nation -- is sound. My latest blog post directs folks to come visit you and see what you have to say.

James Maxey said...


Thanks for directing folks my way. I actually have a modification to my somewhat tongue and cheek ideas here that I think is a plausible and beneficial approach to rethinking our economic woes. Yesterday, I spend some time talking to a woman who works on the James Webb Space Telescope program. She basically made the argument that funding NASA was an investment that returned more in economic benifits than the tax dollars spent on it. The technological spin offs that come from pushing the limits of engineering, for instance, offset the costs of programs that don't, on their face, seem to have immediate payoffs. It's an argument that is obviously true. Whatever fraction we spent putting up those early satellites, its inarguable that the world has reaped trillions of dollars in the intervening years from the advances in communication made possible by satellites. Our modern world would look very different if we hadn't made these investments, and as a percentage of the total budget, they are rather modest expenses. Their budget in recent years has averaged about 15 billion a year. This is roughly what senators spend in a year on hookers and booze.

So, let's take NASA off the Federal Budget by making a 1 time allocation for an endowment. Over a decade, we'd spend 150 billion (probably more). So, let's just do a 1 time allocation of 100 billion, then set them up with an NPR type model where all future funding will come from voluntary contributions by corporations and citizens who are enthusiastic about space research, plus the interest that will accrue on the endowment.

NASA may wind up with less money following this model. On the plus side, they could remove themselves from politics. They routinely work on projects that are going to span decades. Right now, this means they are subject to having new directions imposed on them everytime there's a change in congress or the white house. Instability is built into our democratic system, a good thing for many reasons, but a sucky thing if you are trying to design a 20 year plan to send a manned mission to Mars. (The merits of which I can debate, but I don't think many people would argue that it's something that couldn't get done in a single 4 year administration.)