The Economy of the ’90s

In this current election cycle there has been much discussion of the “good old days” of the 1990’s economy when Bill Clinton was President. I am going to make a few comments on that time – but let nothing I say imply that the artificial affluence of the time was directly attributable to Clinton, we had a Republican Congress.

 Many good things happened –  welfare reform, a balancing of the budget, etc. But there were many bad things that we are paying for now. Wall Street lost its head in the rush to finance anything with the name dot com, money was poured into ridiculous projects, deregulation was taken to extremes.

 A personal note, back in the early ’80s I was a partner in a small technology firm. We were good, but we had no real plan for being a business. When my partners discovered that an old friend and college classmate of mine was a major financier of start-ups (Bill had brought out Apple and Genentech) they asked me to call him. Bill returned my call, and asked for our financials. My answer was “we have none, this is a courtesy call for my partners, I’ll be back to you if we accomplish something”. Ten or fifteen years later some damned fool would have looked at our incipient work (designing control systems for the electrostatic precipitators of power plants on micro computers) and said “Wow, where do you want me to send the millions”.

 Tax revenues were up in the ’90s, but that was based on an artificial economy. A bill passed by the Congress (Republican) and signed by President Clinton – heavily lobbied for – allowed such wonderful things as Enron, in the name of making the delivery of energy more efficient. Not a bad idea in principle, but badly thought out in practice. The villains of the era, as we found out later, were Enron and Worldcom and Tyco – but they each were different. In the case of Tyco the controlling owner, despite the public nature of the company, stripped the company. Enron and Worldcom were led by salesmen and true believers – I think their CEOs honestly believed that they were doing the right thing. But that doesn’t change the fact that they were wrong. Bernie Ebbers may or may not have known that his company was “cooking the books” to show a profit (and therefore paying taxes on that “profit”). Ken Lay may or may not have known of the side dealings of Fastow and others. But that doesn’t absolve them of the responsibility for their companies.

 It was an era of trading, the production of profit by artificial means. Too many young MBAs with no sense of history. The basic cause of the crash of 1929 was the pyramiding of holding companies – profits made by the increase in asset value due to the increase in the stock prices of the underlying companies – and those increases purely from speculation compounding itself rather than by actual profit through production. We saw it again in the ’90s. A great economy, just like the ’20s. We were lucky enough this time to get out of it without a major, and long term, depression.

 Good times based on a structure of balsa wood. I remember people laughing a bit about Warren Buffet’s Berkshire Hathaway going down in value in about 2000. I don’t think they are laughing now.

Another personal comment, I was long retired at the turn of the century – and was gradually moving my stock portfolio into solid bonds. I hadn’t been tempted by the “dot com bubble” as I knew it was just a bubble. I never thought I was vulnerable as most of my portfolio was in sound communications stocks, producers rather than entrepreneurs. I was wrong, the manipulations of Worldcom, the glut of computer systems purchased for dot coms that never had any business, and other such things redounded through the market. AT&T tried to keep up with Worldcom, and went from 35 to 3 in a brief time – others the same way. 

The point I am trying to make is that the economy can provide for all, when it borrows from the future. The Clinton era prosperity was just that, as was the twenties of Coolidge. Hoover came in at the tail end of the artificial boom, and got all the blame. Roosevelt’s policies probably prolonged the depression, although the economist’s view there have to be colored by the natural disaster that followed the market crash. Although one can’t compare an intentional attack (like 9/11) to a natural one (the dust bowl) there is a certain parallel  – the crash of an artificial economy followed by an unpredictable disaster.

 I’ll not get into details as to the failure of FDRs policies, nor will I fault him for them. WWII brought us out of the depression, not the WPA or the CCC – but the ideas of Keynes were still in academic journals at the time of FDR. Hoover might have had the right approach to the problem, but we will never know. A different time and a different form of government and capitalism.

 Suffice to say that an economy can provide profits, which themselves provide tax revenue, without necessarily increasing real production. Personal incomes can be high, again increasing tax revenues, but if they aren’t “earned” they are ephemeral. Donald Trump made objection to Rosie O’Donnell saying he went bankrupt, and he was right. But as an entrepreneur he did set up some things where his investors went broke.

 One has to separate the “pitchman” from the businessman. The producer for the ecomony from the entrepreneur out for himself. I am privileged to know a number of the former, friends and classmates from college. I won’t mention names, but I’m proud that I can’t name one who has made himself rich by making others poor – each of my friends who has made inordinate amounts of money has done so without hurting others, and in fact by helping them through building real enterprise.

 Ken Lay, Ross Perot, Bernie Ebbers, Koslowski (sp?) – all pitchmen. Perot ran his campaign on less government, but his fortune came from sweetheart deals with the Texas schoolboards for his data processing services (which weren’t very good, I was a computer salesman at IBM at the same time he was – his success came from lobbying).  

Enough for this. Capitalism, as conducted by public companys, is a system of allocating resources to the best use. It is corrupted, as it was in the twenties and the nineties, when it is working for advantage with government. I could rewrite the Communist Manifesto (Marx and Engels) to describe a popular ownership of capital through the publically owned corporation – they wrote of a time of individual capitalism when the owner had a finite lifetime.

The Snub

It is difficult for me to believe that the media have made so much of the “great snub” by Obama of Hillary at the State of the Union address. Fox News has used a body language analyst (not their regular one) who sees the snub, I’m not sure what other media have done, but I assume they have done something similar.

 I am not an expert in body language, but I do have eyes that can look at a photo. We see Obama facing a quarter to the camera’s right, his back three quarters to Hillary. We see Teddy Kennedy facing away from the camera, and a bit to his left (and the camera’s left). We see Hillary reaching her handshake directly toward the center of the frame, but her head is turned a bit to her right (camera and TK left), and her eyes turned sharply to her right.

 I don’t need a course in body language to see that she has reached out her hand in the direction of TK and that both have been distracted to someone off camera, left. For Obama to have turned away from her hand in a snub he would have to had the reaction time of a cobra, and a turntable to spin on in order to get his back to her in that crowded scene.

 A non-event, created by a single still photo. I hold no brief for either Hillary or Obama, I am a Republican. But I find no joy in this sniping by the media (and perhaps supported a bit by Hillary’s non-statement in a later interview). Perhaps Hillary and Obama are at personal loggerheads (as my candidates, McCain and Romney seem to be), but that still photo didn’t show that. It is is my interest, as a Republican, that there be dissention in the Democratic party – but this was both silly and unfair to Obama.

 Look at that still, it will be shown over and over again, everyone is looking in a different direction.

Vice Presidents for 2008

OK, I’ll give my first try at predictions on Murph Says. With the primaries apparently narrowing to two candidates on both sides there is speculation on Vice Presidential nominees for each contender.

 McCain: It is probable that Guiliani will drop out and endorse McCain – some see a VP nomination for Rudy in that. Very unlikely, although I wouldn’t write off a promise of AG. Huckabee would be a possibility, to salve the social conservatives, but I see that also as unlikely as he has a problem with economic conservatives that would parallel McCain. Were I to choose my own favorite it would be the newly “independent” Sen. Lieberman, but that wouldn’t fly with the social conservatives either (and I think Lieberman would prefer his independent voice in the Senate – although I wouldn’t rule out Scty of Defense). McCain’s choice must not be anathema to independents and “Reagan Democrats”, but need not be a pull to them either as McCain has his own pull there. Romney is out, the public antipathy between them is too great. A side bar, that hasn’t prevented pairings in the past, JFK and LBJ ran together – but things were a bit less public then. I think McCain would choose “none of the above” – perhaps someone like Bill Frist, or another who has been out of the public eye for a while but would be quickly remembered. Fred Thompson might be a good running mate, but I think not as McCain has the age, and Thompson gives the impression of being aged.

 Clinton: The Clinton/Obama ticket could sound like a dream one for the Democrats, and as a Republican I hope it doesn’t happen. I doubt, however, that it will happen. I can’t see Obama accepting the job as he is young and has time to go for the top prize again on his own – even if it is sixteen years from now (the unlikely scenario of two Hillary terms and then two Republican terms). I also can’t see Hillary inviting Obama for the job, his charisma would overshadow her. Richardson is a good possibility. Forget Edwards (unless there is a cynical deal in a “brokered” convention for his delegates – he wouldn’t be a good balance for her ticket). Joe Biden? No, Sen. Clinton doesn’t need another “foot in the mouth” helper, Bill is enough <g>. But may I say that I have respect for Biden when he isn’t talking for the cameras. I’m not sure that Bayh or other non-controversial Senators would choose to run.

Romney: This is not a prediction, I’m not sure if Romney has the political sense, but how about Michael Steele? A black conservative who is currently a Republican “factotum” (head of GOPPAC?) and who ran a close race for Governor of (Virginia?). I have listened to the man a great deal, he is clear in his analysis of politics, and of national and international events. (I confess that I watch the various programs on Fox News and my favorite analysts are Steele and Kirsten Powers – from the Democratic side – they both see the positives and the shortfallings of their respective parties). A Romney/McCain ticket might be a Republican dream (like the Clinton/Obama for the Democrats) but it will never happen – McCain will see more value to remaining in the Senate (and by value I mean value to the country). I really have difficulty calling a good bet for Romney’s VP – it will either be one of the early candidates or some nationally known name, I don’t think Fred Thompson would run with him, and I don’t think that would be a good pairing. Romney has a basic problem as a campaigner – he was brought up a gentleman. His attack dog campaign has been a bit inept as he doesn’t know how to do it. It is difficult for one not brought up “in the trenches” to come off well on the attack – Hillary has the same problem. As one who has both been brought up as a gentleman and one who has lived “on the streets” I sympathized with them, but they both needed a bit more time in the neighborhood saloon.

 Obama: He has an almost open field for VP selection, as long as it is an older and respected moderate. Bayh would be a good choice. I can think of a number of possibilities, so I’ll not spend as much time with him as the others. He needs a moderate to bring in independents, but he has already a call on them. Being conservative myself (call it a Rockefeller Republican – and we still exist even if some Conservatives forget us), I would prefer an Obama Presidency to a Clinton one. He is far to callow a youthful Liberal for me, but a liberal person has an open mind. I voted for JFK (my first Presidential vote) over RMN – I thought JFK would do nothing, and RMN would do the wrong thing. I was wrong. But that is for another essay.

Woman

As I’m not yet organized as a blog I’m going to post a little known poem by Rudyard Kipling. It is a late poem, as it is not in my complete version of his works from 1885 to 1918 (as published in 1921 by Doubleday, Page and Co. – and labeled with the swastica logo that was then an innocuous Indian graphic as well as a form of the Greek key).

 I pulled this poem from the pages of a paperback and taped into the inside cover of my Kipling book, which might be a valuable early edition were the covers not falling off – the stamped swastica on the cover, and the red swastica on the title page indicate that it was printed long before the misuse of that simple figure by Nazi Germany. I am often saddened by the way that graphics used for centuries can become symbols of evil when they are used evilly for a short period of time. But let me proceed to the poem.

 Harp Song of the Dane Women

 What is a woman that you forsake her, And the hearth-fire and the home-acre, To go with the old grey Widow-maker?

She has no house to lay a guest in – But one chill bed for all to rest in, That the pale suns and the stray bergs nest in.

She has no strong white arms to fold you, But the ten-times-fingering weed to hold you – Out on the rocks where the tide has rolled you.

Yet when the signs of summer thicken,  And the ice breaks, and the birch-buds quicken, Yearly you turn from our side, and sicken –

Sicken again for the shouts and the slaughters, You steal away to the lapping waters, And look at your ship in her winter-quarters.

You forget our mirth, and talk at the tables, The kine in the shed and the horse in the stables – To pitch her sides and go over her cables.

Then you drive out where the storm-clouds swallow, And the sound of your oar-blades, fallin hollow, Is all we have left through the months to follow.

Ah, what is Woman that you forsake her, And the hearth-fire and the home-acre, To go with the old grey Widow-maker?

Rudyard Kipling

I intend no meaning in posting this, I just felt like it. One could say that Kipling is speaking of a natural division of roles – man as a necessary hunter and woman as a necessary keeper of the home. One could also say that he is speaking of a foolishness on the part of the men, to choose adventure, hardship and risk over an available life of farm and husbandry. Or one could say that he speaks of a frailty of woman to not understand the needs for risk to perpetuate the living of the community. Is he denigrating either role? I don’t think so. I think he wrote it as I read it, a poignant description of life in a time and place.

Enough analysis, it is enough to post a Kipling poem that is not widely read – and doesn’t fit with the general view of his works.  

Obama’s speech, and college education

This article is in no way a criticism of Barack Obama’s position on education, I only mention his name as I just heard his speech after his South Carolina primary victory. My comments are a critique of the conventional wisdom that we need to spend more money to provide college educations to more students – a view espoused by both Republicans and Democrats.

 I think we have too many colleges and college students!

 The great failure of our educational system is at the secondary school level, our colleges are having to provide basic skills that have been neglected at the high school level. It is an improper form of argument to use personal anecdotes to prove a point, but in this case I think I must resort to that approach. When I entered college in 1953 the admission requirements were greater than the graduation requirements of most colleges of today. Except for those applying to the engineering program all applicants had to have a reading facility (the equivalent of about 2 years high school study) in 2 foreign languages and one ancient one. They also had to have a facility with mathematics through algebra and plane geometry, and a certain level of knowledge of English literature and general history. This applied to those who would study a science in college as well as those who planned for the liberal arts.

 In the fifty years since my graduation I’ve been shown papers from PhD candidates in various fields which had a complete lack of coherant sentences. (Oops, right now Hillary is speaking of college education – tomorrow it will be a Republican). I agree that we need an educated populace to both continue our leadership in technology, and for the benefit of the individual citizens. But I do not agree that the solution is more college education.

 In the summary of the year in the year book of the Princeton class preceding mine the writer spoke of hitchhiking a ride to the college (we weren’t allowed cars, hitchhiking was a necessary skill for PU – although there were no credits given). The truck driver dropped him off at the college and asked “are you a student here?”. When the answer was “yes” the next question was “what trade are you learning”. In that day and age when one could wonder the value of studying the old philosphers it was a question that caused some introspection. Is college a place where one learns to use the “mechanical tools” for success – or is it a place for advanced learning?

 Let me set up another controversial proposition. I think the GI Bill, after WWII, may have been a net negative to the country, and for all future vets. There are many, including some prominent jurists, who benefited from the GI Bill – and who might have had no education without it. But I also saw others, in my summer jobs while in college, who were in jobs that could be performed by a high school graduate. Not everyone is capable of higher learning, but the proliferation in the fifties of GI Bill college graduates lowered value of a college degree. (May I emphasize that this is not a criticism of all GI Bill collegians, many were proper college material). The result was that the corporations, with a glut of college graduates to choose from, placed a college degree requirement on low level clerical jobs.

 The good old Law of Unintended Consequences! The college degree requirement relieved the high schools of the need to provide basic skills. The number of colleges proliferated, and they needed students to fill their rolls, the admission requirements deteriorated, the high schools had less incentive to educate in the “three Rs”.

This may sound like an elitist manifesto, but it is not intended that way. College should not be a “trade school” even if the trade is high finance. A classmate of mine, who is one of the most successful financiers in the country, majored in philosophy and wrote his senior thesis on Emmanuel Kant. College should be a place of learning for those who want it, high schools should provide all the basic skills for success. It is a denigration of the student to say that he/she can’t learn at that age.

I hold no brief for the European system of education where students are aimed toward traditional trades or higher education by testing at age 12, and then again later. The “pre-selection” allows no room for the “late bloomer”. I like the flexibility of our system where one can gain basic skills later in life (through GED exams, etc.) and come back to the higher learning. Theoretically a carpenter can study and later go to Med school, although I’m not sure why a good carpenter would really want to (but my godfather was an engineer who went into medicine by hard work at a later age).

 We have lost, in some sense, the value of learning. I am not financially successful – but I consider my life to be a success. These days, in my retirement, I do woodworking and make musical instruments – at a point in my past I had a brief career in music as a performer. Perhaps, had I not gone to college (and particularly Princeton where I was taught nothing, but given the opportunity to learn from the best in each discipline), I might have been a woodworker, or a rich star in music. But I wouldn’t swap that education for anything – I turn a lovely piece on my lathe, then play a tune on the harp or lute I’ve built, then pull out a book on history or philosophy or science. I confess that I boast, I happen to have the facility to do those things.

 We let down our children when we don’t give them the primary and secondary school education that will allow them to seek their own level, and to make the best use of their god-given skills. I wonder often about the WWII vet I watched at an insurance company (coming full circle back to my earlier comment) whose job was to read applications and stamp them “refused” or “for review”. “Refused” was for obvious errors, all else was passed to higher authority. Eight hours a day of that, with no ability to advance (as he wasn’t really intellectually qualified) must have been a “downer”. The same man might have had a talent for working with wood, or for growing things – but the “conventional wisdom” put him in a dead end job.

May I again emphasize that I use Obama’s name in this only as a “tag” as he is far from being alone in the view that college education is the “be all, end all” for success. I believe our failure is not so much in not providing college as it is in not providing education. Primary and secondary school should be our emphasis, let college be for higher learning.

Polar Bears, our new companions

I’ll  not comment on the anthropogenesis of global warming for fear of being labeled one who believes the earth is flat, but I will comment on the impending extinction of the polar bear. It is claimed by advocates of the current warming crisis that temperatures now are the highest in recorded history. That claim is correct, if one recasts it to say “the highest in the history of recorded temperatures”, but we have only been recording temperatures for a couple of hundred years. The Wells’ data, using over a hundred proxies (such as tree ring growth) suggests no “medieval warm spell” – but anecdotal and archeological evidence show that a thousand years ago the temperatures (in the northern hemisphere, and particularly the North Atlantic region) were higher than today. Given the choice between the “proxies” and the anecdotal (wine grapes in England that had the French objecting to the competition) and the archeological (kitchen middens with remnants of the grains and animals husbanded – and those in Greenland) I’ll take the latter.

One can’t define the length of the medieval warm spell as one can’t say what is normal – the following centuries led us into the “mini ice age” in Europe – but it doesn’t matter. There is evidence of a “warm spell” in early Roman Britain, but not as well documented. Settlements found in the Orkneys and northern Scotland from some 5 to 6 thousand years ago, settlements of an unknown people who had a civilization that built relatively sophisticated dwellings suggest that the climate there was warmer then than now (and there is evidence that those peoples disappeared by migrating south as the climate cooled).

 OK, what about Polar Bears? Even if one doesn’t accept all the proposed warm spells it would be difficult to claim that there were none. The medieval one is estimated to be about 300 years long, but I’m sure there have been significant others. If the current melting of the polar ice cap threatens the polar bear with extinction then we must assume that the polar bear has evolved since the last warm spell – or that the polar bear evolved millions of years ago and has survived a number of meltings. It is not as if the polar bear could migrate to a colder area, that could have applied to the wooly mammoth whose range was in the colder levels of the temperate region. The mammoth could move north, the plar bear had no further north to go.

Personally I think the current panic on global warming is an example of poorly used statistics and a “bandwagon effect” among scientists – we’ve seen that effect before. But that personal opinion doesn’t invalidate my comments above. I will have more to say on the statistical usage in modern science in another posting.

The Shape of Politics

There is a new book out called Liberal Facism – I have not read it but have seen interviews with the author.  I think he is right, in a way, but he used the wrong title. For many years we have assumed that the political spectrum is a linear function – with the left and the right (the liberal and the conservative) being the extremes of that line. The choice of left and right, I understand, is a matter of the seating in some early parliament – the left and right could have been reversed in usage.

 It has been my thesis, for at least 40 years, that the political spectrum isn’t a straight line – it is more in the shape of the Greek capital Omega. There are various aspects to political opinion – the nature and the level of government is one of them.  Democrats are normally called liberal, and Republicans conservative. But there is a misnomer there as well, I would say that the Democrats and the Republicans of the middle all have the same goals for the citizenry, but a different opinion as to how to best achieve it. There are liberals on the Republican side of the aisle, and conservatives on the Democratic side. The differentiation there is less of goal than of the open mind to new ideas (and not all new ideas are good, sometimes conserving the old is the better).

In both cases the battle is for the hearts and minds of the voting populace, there is no desire to preclude democracy (or preferably our representative republic, true democracy would be the Ross Perot suggestion of an electronic referendum on each bill before Congress, a recipe for chaos as the pendulum of public opinion shifts).

 The far left and the far right, in the terms of the standard linear definition, are both fascist. Each has an absolute assurance of their own rectitude and a contempt for conflicting opinions. They each would set an elite of government in charge of the populace, and enforce it by law.

 That is why I say the spectrum is in the shape of Omega rather than a line. The far left and the far right come to a center at the bottom where they agree that they should manage the people and the world – they just don’t agree which of them should do it. The author of Liberal Facism seems to say (I haven’t read it) that Hitler and Mussolini were of the left as they were socialist, we of the right would certainly deny them as colleagues as both rejected the free market economy. But that neglects the complexity of social organization. Socialism, Communism and Capitalism are simplistic misnomers. The nature of the political economy is a combination of factors. One can have a populism of either left or right – John Edwards and Ron Paul, for example. I’ll not get into the details, although I will soon put an article on my “static” pages as to the varying combinations of economics and government that are possible.

 In summary, the point that the author seems to be making (from the interviews I’ve heard) has validity. His mistake is using the term Liberal to define it – facism is the extreme of either side, and liberal and conservative (without capital letters) are both honorable viewpoints.

 We live in a world that is complex, and I have a faith that the majority of the population are of good will (or at reasonably so). The left of center and the right of center disagree on methods, but each seek the same goal of the best for all – the extremes believe that only their view is valid and to hell with the rest of us, they don’t want something workable, they only want to be in charge.

 Of course we have the problem as to what views are extreme, since each extremist believes himself to be in the center.