Once inside we all started chatting, the Carnival spirit of a crowd coming more from huddling and the determination to make our own fun than the reality outside.  Slithered from their winter coats this couple was older and somewhat dignified.  He was balding and round-faced in an open smile, she was dark haired, elegant, and the kind of thin that comes naturally and not from a gym.  As is typical in Saint Paul, they slid right into a half-serious bar chatter that was a friendly gauge as to what neighbors across town really think.  “This year, just about anything can happen, I guess,” it started with the weather.  But it quickly ran to politics, at least of a sort.

In recent months complete strangers have often been eager to talk about the economy, politics, and related topics.  There is a skill to it, less “This is what I think” and a lot more “This is what I read” or “This is what I’ve seen on the street”.  Very few people I meet really know just what to make of the world around them and want a deeper sense of news.  What they crave is more like gossip, not Kardashian mania but raw reads apart from professionalism and expert opinion.

The overall feeling is that this is a world in which just about anything can happen, and often does.  The guy, who eventually gave his name as Mike over a beefy handshake, went right to the heart quickly.

“I look around at everything happening and sometimes all I can say is, ‘No way’, but there it is.”
I struck a bit deeper, offering an analogy “Like before 9/11, you could never see that was going to happen.”
“Yeah, like that.  All these wars and rebellions, too.  And people without jobs.”
“Kodak just went bankrupt.”
“Yeah, well I guess we could see that coming.  But the people in charge really don’t seem to know what is happening, though I can see why.”
“What would happen if they admitted that, though?” I had to goad him.
“I, for one, would be impressed.  What about you Karen?”
“Oh, definitely.  It’s so obvious everything is done on the fly.” The cold serious in her eyes suggested this was personal experience talking.
“Everyone just reacts,” Mike continued, “And that’s all you can do.”

We talked like this for a while, but I knew the hard point of the evening had been made.  Eventually I offered my theory of a Managed Depression, already a decade in, and like everyone who has heard this since 2010 they agreed that this made at least some sense.  Karen in particular wanted to know where I got unfiltered information, and I pointed her phone to the yahoo economic calendar.  Digesting the numbers ran like a typical conversation here in Barataria but a bit more animated.

What mattered most in this short moment was that a lot of what is said and done these days makes ordinary people skeptically react, “No way!” as a first thought. We didn’t get into topics like Newt Gingrich or foreclosure rates or events in faraway lands like Syria.  The point was that there is a lot of really strange stuff going down that people don’t understand.  That’s why we talk about it with complete strangers as a kind of reality check.  We all get to say, “Yes, way!” to each other in turns and tell each other that we’re not crazy.

More to the point, everyone is just sort of winging it.

Our therapy bartab ran out after a short time.  It was back to Carnival-time barhopping for them and something like work for me, taking pictures and gathering information on upcoming events.  Far too much of the Winter Carnival has been scrapped or scaled back due to the unimaginably warm weather.  I have to keep on top of it all, and can make a living that way, believe it or not.  Go ahead and tell me, “No way!” and I’ll explain it in more detail if you like.  These days just about anything can happen.  That’s why we have to talk our way through it.

Coming into this cycle, the party was hoping to take the Presidency and the Senate.  If this keeps up they could lose 25 House seats and control of that body.  That could happen for a number of reasons, starting with a terrible candidate at the top of the ticket, one way or another, and an exhausted and broke base that has completely lost interest in “politics” as it is being practiced today.

That might cut a number of ways.

As a Democrat, I have to confess that I have mixed feelings about Newt Gingrich’s run.  The man himself is utterly repugnant in his personal life, but that’s his thing.  To then speak about the “sanctity of marriage” is hypocrisy and should not be tolerated in public life.  But to then go after the press for an interview with his ex-wife, whining that it was only days before a primary (with this calendar it will be only days before something) is another level of arrogance.  Combine this with racist code language on food stamps and his record as the first Speaker of the House to be disciplined for ethics violations, and you have a seriously toxic candidate by any measure.

Do I really want this man to have a chance at becoming President?  It should destroy the Republican Party if he gets the nomination, so there’s always that to look forward to. And if you don’t believe me, you should hear what the Republican establishment has to say – quoting here from George Will:

All across the country this morning, people are waking up who are running for office as Republicans, from dogcatcher to Senate, and they’re saying, “Good God, Newt Gingrich might be at the top of this ticket.”

But this is not Gingrich’s race in many ways.  He has not laid out any program that would define a potential Presidency, as he did with the very successful “Contract with America” in 1994.  Gingrich has always been at his best as a man with a plan, and voters typically favor those who seem to have a strong course of action that guides them.  He is also living off the land, constantly broke yet scraping up serious bucks even as the establishment tries to cut it off.  Yet these are the least of his worries.

What defines this race is that many Republicans simply do not like Romney  – which makes me wonder if there’s a general election slogan in there for Romney “Vote Mitt, because Republicans Hate Him.”  Gingrich is little more than the latest dark horse and there could yet be another who jumps in and siphons the “Not Romney” angst away.  Why don’t they like Romney?  It’s very hard to say, but what we do know is that the bile unleashed against the man in the primaries will leave a nasty first impression in the minds of many people who are not Republicans.  The longer this goes on, the worse it is for the party even if Romney wins.

Then there is the Ron Paul contingent.  It appears now that Paul will not catch fire, but you can be sure that his people will stay in until the convention, hoping to make their statement.  They could wind up being the power brokers if the party stays hopelessly split.  Somewhere in here is a real dream scenario for Democrats where there isn’t a functioning “Republican Party” in the near future.

For all of this talk what we can predict is that the Republican Establishment will have to show their hands in public far more than they want to if Gingrich’s momentum continues.  We will all get to know just who is really operating the levers of power as the ratty little dog named Gingrich pulls back the curtain.  They might be able to get this back on track with a wounded Romney ready to square off against Obama, who will likely benefit from a strengthening economy and simply staying out of the fight – but it will no longer be a private game to them.  They, and the American people, will have to get their hands dirty.

Maybe that Citizens United ruling wasn’t so bad after all – in a really strange way.

There are serious challenges shaping that could overturn this decision, at least in part.  But what’s most astonishing is that the worst offenses are not a direct result of the Supreme Court’s order but how it has been implemented in the chaotic political climate that rules Washington.  Blame the courts, yes, but there is much more that can be done to correct the worst of this.

The decision itself overturned the ban on corporate “indirect” speech in political campaigns.  The reasoning was carefully explained by Justice Kennedy in the majority opinion:

Political speech is so ingrained in our culture that speakers find ways to circumvent campaign finance laws. … Our Nation’s speech dynamic is changing, and informative voices should not have to circumvent onerous restrictions to exercise their First Amendment rights. … On certain topics corporations may possess valuable expertise, leaving them the best equipped to point out errors or fallacies in speech of all sorts, including the speech of candidates and elected officials.

That sounds reasonable enough.  It is certainly true that free speech rules everything we do and always finds a way around any laws.  It’s also true that the volume of speech depends heavily on the money behind it which can purchase access to media.  That’s where this opinion tried to show the way to the system that the Court favored in place of an outright ban:

The Court has explained that disclosure is a less restrictive alternative to more comprehensive regulations of speech. … In McConnell , three Justices who would have found §441b to be unconstitutional nonetheless voted to uphold BCRA’s disclosure and disclaimer requirements. … And the Court has upheld registration and disclosure requirements on lobbyists, even though Congress has no power to ban lobbying itself.

The court did not, as many claim, simply declare that “Corporations are People” and leave it at that.  They did state that speech cannot be curtailed, even as a practical matter let alone as a fundamental right, but the people behind all the money can be forced to show themselves.  Indeed, most of the money flowing into SuperPACs right now probably comes from people – although without the same disclosure laws that a regular campaign is subject to.

Why did the Federal Elections Commission (FEC) implement this ruling the way they did?  Because the FEC is a six person body composed of three Democrats and three Republicans.  They never actually agree on anything.  When this big change came through, requiring action on the part of the FEC to set up a new regime of regulations allowed by the court the result was the usual gridlock.  As Stephen Colbert has shown, there isn’t even a proper form for registering a SuperPAC.  Since nothing is prohibited, everything is allowed.

That’s not to say that the very basis of the Citizens United decision isn’t  poorly formed in the first place.  The Supreme Court of Montana at the end of December ruled that in Montana there is still a ban on corporate speech in elections, declaring the restriction to not be onerous:

The evidence submitted by the State in the District Court similarly demonstrates that corporations, through their political committees organized under Montana law, are and have been a substantial presence and active participants in Montana politics.  The many lobbyists and political committees who participate in each session of the Montana Legislature bear witness.  Under the undisputed facts here, the political committee is an easily implemented and effective alternative to direct corporate spending for engaging in political speech. This alternative is available to any corporation in Montana.

In short, corporations have their place for speech so there is no outright ban on the “expertise” provided by corporations in the political system we have.  Simple and brilliant.  Yet Justice James Nelson felt that Montana was compelled in a dissent to follow the US Supreme Court’s decision – but he does not like it one bit:

The notion that corporations are disadvantaged in the political realm is unbelievable. Indeed, it has astounded most Americans. The truth is that corporations wield inordinate power in Congress and in state legislatures. It is hard to tell where government ends and corporate America begins; the transition is seamless and overlapping.

And so there is a challenge to the US Supreme Court waiting that is well reasoned and formulated.  But we do not have to wait for the decision in Citizens United to be overturned to do something about the worst excesses of SuperPACs.  We only have to wait for political gridlock to develop a good framework for implementing the decision so that …

Oh, nevermind.  The only people who actually make decisions in Washington are the courts, and they were doing their best to guide and shape, not forcefully rule from the bench.  That’s not to say that they didn’t make a terrible mistake two years ago when they ruled that corporations have rights, like people.  But the big mistake was figuring that the political system had any chance of sorting it out.

“You say that storytelling can be used for anything.  You write about economics.  How does storytelling work in economics?”

The short answer is that there are many amazing stories to tell, but how can it be boiled down to a simple explanation?  The short version escaped me at that moment, but eventually it came back – it’s essentially the same as storytelling itself.  Things go along wonderfully until we somehow forget the lessons our grandparents learned the hard way and then have to call on another round of “experts” to tell us what should be obvious.  And that brings us to the concept of a “Debt Supercycle” – how Depressions have come and gone since ancient times because we lost the big story about the economy.

This is a topic that begs for graphs and charts, but there aren’t any yet.  It’s a theory that needs a lot more expounding before it can make it into the popular storyline.  But a quick introduction can help.  John Mauldin has been talking up this concept heavily for the last few years, so I’ll let him introduce it:

A Debt Supercycle is not some new thing. Rogoff and Reinhart write about 266 such events in the past few centuries in their epic work This Time Is Different. It seems to be part of the human condition. We increase the amount of debt in a system until there is too much debt. Each and every time, the people and leaders in a country convince themselves that “this time is different” and the debt is not a problem to worry about. And that is true until some moment in time when the markets lose confidence in the ability of governments or businesses to service the debt.

Note that the issue at hand is not governments, but the entire economy – businesses large and small included.  It’s not a policy decision but an attitude.  Once there is a general belief that money can solve all of our problems there is more of it and everyone becomes happy for a while.  Then, all Hell breaks loose.

The phrase was first coined by investment analyst Tony Boeckh in the 1970s to describe what he saw as a spiraling problem.  The timing is important because it highlights the famous statement by Vice President Dick Cheney that “Reagan proved that deficits don’t matter.”  Actually, if you take the very long view of things, we’ve proved pretty conclusively that they do matter – it just takes a while.

Irving Fisher wrote about this during the last Depression as well, so the concept is far from new.  It is simply convenient to ignore it as long as everything seems to be working well.

This comes back to haunt us when we look at the terrible decline of manufacturing in the US, the real source of our joblessness right now.  More debt means more money in the system, and for a generation more stuff is produced.  Yet right about the time Boeckh was making his observations it became clear that people were making a lot more money shoveling money around than actually making stuff.  It kept overheating for a full generation until the foundation of the economy was hollowed out, around the year 2001 or so, launching us into a Depression.  Managing the worst effects of this kept the party running for some time – until we get where we are now.  What really happened?

The short answer is that it took a full generation or two to sink in as more and more money took over.  And here we are wondering what to do about it.

The way out is not going to be easy, but what matters here is attitude.  I’d like to know what you think about this concept because a good story, especially on a topic like this, has to ring out as true from the very start.

Someday I’ll have the Big Story down so tightly that I can pull it out on a moment’s notice.  That’s the story we have to start telling about the economy – the epic tale that includes generations.  And it’s by telling that story that we change the attitudes that got us into this mess in the first place.

Despite the lack of graphs and details here, there are many included in the links provided to related topics.  If you’d like to read more, please  follow the links.

How are you doing?  It’s been a while.  I’ve always loved South Carolina for reasons that are hard to describe.  Perhaps it’s the history that lies just below the surface – even the bad stuff (you know what I mean here).  It could be the unique “Shag” dancing (no, that’s not a euphemism) or the passion for ACC hoops.  It might just be that I’m a swamp kind of guy.  But whatever it is, I’ve always known you as straight-up and honest people who are kind and decent.

You’ve all heard about the mayhem that native son Stephen Colbert has been plotting in your primary by now.  I’m sure it seems pretty silly, but it isn’t.  The thing is that we in the rest of the nation are asking you to help us out.  You’re on the front lines of nasty campaigning election after election, and you keep taking it and taking it and taking it.  But this year you can take a stand. This could be your second Battle of the Cowpens.  You probably heard this story in grade school, but let me explain:

Back in the Revolutionary War, things weren’t going well for our side in South Carolina.  The rebels made their stand under darkness in a fort made of tough palmetto logs, but they couldn’t hold back the superior British force.  That’s where the beautiful flag comes from – a symbol of resistance held fast in the dark of night.  For years Francis Marion hit the occupiers when he could, shooting and then running off in what many credit as the first guerilla war campaign.  South Carolina had to endure the occupation, but they hit back when they could.

Then came Daniel Morgan with some more regular troops, and he had a plan.  He knew that in the rolling hills inland he could set a trap despite being outnumbered.  At the ingloriously named Cowpens he set up his men so that the first line could shoot and fall back, as they always did.  The British chased after them, also following the usual order of things, and found the second line.  That line, too, shot once and fell back.  The Redcoats kept after them, over the hill and into a gulley.  Then, at the top of the next hill, was the mass of regular soldiers.

They didn’t shoot and fall back.  They made their stand and cut the British to ribbons.

From that great victory, Morgan marched north and joined up with General Washington to surround the larger force at Yorktown.  On stand led right to the next, and the British gave up the fight forever.

We became a nation in large part because South Carolina stopped taking it and made their stand.

Many years have passed since then, and somewhere along the way you became the third primary state.  Every four years the nasty has slithered into the Palmetto State and you have all stepped past the slime as you went off to vote.  Where have all the attack ads and personal assaults come from?  No one really knows.  It’s not who you are, I’m pretty sure of that.  But you’ve been taking it for the rest of us, getting in your shots where you can.

Stephen Colbert is asking you to vote for Herman Cain as a show of support for him.  But what he’s really asking you to do is to show up on Saturday and make it clear to all the people who invade your state with nastiness that this year you’ll make your stand.  They’re not expecting it.  They won’t see it coming at all.  It could be a huge victory, just like the Cowpens.

You might think that Colbert’s “campaign” is a bunch of nonsense and not worthy of the serious business of electing a President.  You’re right.  But you’ve had to deal with nonsense unworthy of a serious election for so long that there just isn’t any other way.  Like the British occupiers, you have to fight force with force – except in this case it’s nonsense hitting back at nonsense.

Good people of South Carolina, I promise that if you do this we can take the battle on to Yorktown and surround this nonsense once and for all.  All Stephen and I are asking is that you make a stand and stop taking it this one time.  You’ve done it before and the result was a free nation.  Help free us again.  This Saturday, take a long look at that beautiful flag of yours flying over the school where you vote, remember the heroes that fought under it at the Cowpens, and vote for Herman Cain.

Raise Cain for Colbert!

Thank you very much.

For everything Dr. King accomplished in his life there was much left to do when he was brought down.  It’s up to us to carry on and inspire our friends and neighbors to stand up, march proudly, and make a difference.

The craft of Dr. King’s life came equally from the homilies of sermons and the bubbling reaction of the crowds who came to listen.  There was much more to him than the careful cadence of measured speech, the poetry of language set on fire in the hearts of those around him – yet it was essential to the movement.

A cadence is a simple device in speech – a repeated rhythm usually sent home with repeated phrases.  Each sentence has the sense of an ending to it, a conclusion that allows it to stand alone before the windup to the next time the rhythm comes forward. It sounds simple explained in technical terms, but it has to come from deep inside.  It has to come from a well of passion, craft, and reaction.

Take for example the “I Have a Dream” speech, which will be repeated often today.  Dr. King addressed the huge crowd in front of the Lincoln Memorial with prepared remarks that were running a bit flat towards the middle.  He knew it, too.  The crowd had been excited and bubbling, but started to fall silent and distant.  That’s when Mahalia Jackson, standing behind King after singing her introduction, can be heard in the back saying, “Tell them about the dream, Martin.”  King left his prepared remarks and started in –

And so even though we face the difficulties of today and tomorrow, I still have a dream. It is a dream deeply rooted in the American dream.

Not much of a cadence.  The rhythm of English had yet to take over at this time, but the crowd perked up.  It was getting somewhere.

I have a dream that one day this nation will rise up and live out the true meaning of its creed: “We hold these truths to be self-evident, that all men are created equal.”

Stop right there for a moment and you can feel the cadence developing.  The repeated phrase “I have a dream” can be said in iambic time, soft-hard-soft-hard.  It’s the rhythm of English, something like a march that prefers to dance with a backbeat.  Beyond that repeated phrase is something ancient, already deep in the guts of everyone listening.  The crowd was responding, fueling this improvised journey away from prepared remarks forward.

The essence of Cadence is there, complete with the devices that send it home deep into the soul of every listener.  It is more than a repeated phrase, it is a call to action across time and the spaces inbetween our lives.

Cadence is not used very often today, in part because our common culture is falling apart.  A speaker can use the rhythm of English and repeat a few lines, but the deep roots of oration do not live in our souls as they once did.  Many speeches are delivered on teevee, without a crowd to respond to and gauge how it is working.  The great craft of Dr. King is in danger of passing into history.

Today, oration is rarely used to galvanize and call to action, but far more likely to pacify.

On Dr. Martin Luther King Day, there are many things to remember about what happened nearly fifty years past.  Dr. King himself was more than talk, but his craft was essential to making real change happen.  We suffer in the decline of cadence, a device far more complex than it seems.

Cadence comes to those who practice the craft carefully, refining and honing it.  Cadence comes from deep inside, flowing freely.  Cadence comes from passion crystallizing culture in word. Cadence comes from fire in the eyes of crowds.  Cadence comes from the spaces inbetween collapsing the multitudes into one solid body, ready for action.

Cadence comes to a culture when it is ready for something much more than words.  Cadence is language made into action.  Cadence will come back to us when we are ready for action, ready for leadership, ready to sieze our lives together and make a genuine difference.

It had to be turned over to Jon because what matters in SuperPacLand is that there is no “coordination” between the candidate and the PAC.  If that seems awkward, consider that “awkward” is a synonym for “uncoordinated”, so there you go.  And now Colbert is free to pursue an exploratory campaign to possibly run for President, maybe.

That’s what our political system is today – a kind of performance art.

It might seem trivial to care about what Colbert does, but without placing his name on the ballot in his native South Carolina a poll had him at 5%, ahead of John Huntsman.  That was before he ran any nasty ads accusing his opponents of … well, I don’t know what he might accuse everyone else of, but tradition dictates that South Carolina ads should be nasty.  It’s a “thing”.

It smells like a protest as to how ridiculous things are in the wake of the “Citizens United” ruling which entitled corporations to the same free speech as people.  It doesn’t operate quite like one because Colbert is only creating mayhem in the election process.  In many ways, Colbert actually maybe running for President sort-of dilutes the clear parody, but it also gives him something to promote with his supposedly large amount of dough.  Jon Stewart’s new PAC is buying ads all over South Carolina at a pace that rivals any of the real candidates, so we’ll have to watch what happens.

Why care?  What makes this a topic worthy of a blog or press or any notice at all?  Because the more attention we can give this the more it is clear that the “process” we have now is silly and stupid and really makes no sense whatsoever.  It has always been designed for clowns and sock puppets and more than a few freaks as a kind of traveling circus – we just put up with them because the press made it all sound so serious and important.

But today, we have the not-press, the comedians who feed the straightlines to the politicos as much as the other way ’round so that the jokes can just roll from there.  Colbert is simply exploiting this rich vein of comedy to the point where it becomes something like a public service.  At least, as long as he doesn’t get a big head and think that people actually want him to be President or something.  And he’s making it clear to everyone – no, this really isn’t serious or important.

So if our system is really a broken self-parody, what should we do about it?  Colbert doesn’t have the answers, but he is asking the right questions.  These are the important questions about the role of unlimited money without any reporting where it comes from – the kind of questions that come right after you’re definitely sure where the bathroom is.

Where will it go from here?  It is probably far too late for Colbert to actually get on the ballot in South Carolina, but we might expect a strong write-in showing.  If the Ron Paul people are capable of creating mayhem on the floor of the Republican Convention, imagine what a few delegates from ColbertNation could do?  It should only get sillier from here.  But why not?  It’s been silly for years but no one was willing to call it for what it is.  As the PAC is actually named in a very proper FEC registration, “Americans for a Better Tomorrow, Tomorrow” may yet deliver just that.  But today, we get to have some fun.

If we want to predict tomorrow’s news today, there is nothing more important than what might happen with employment.  While we can never be sure exactly what will happen, we can put boundaries on the possibilities.

There is no doubt that there has been rather weak but somewhat consistent job growth in 2011, as news organizations like CNN are starting to pick up on.  If it continues more or less as it has been, Obama should end his first term with no net loss in jobs and an unemployment rate right about the 7.8% he had at the start.  Analysts are quick to point out that no President has been re-elected with an unemployment rate higher than 7.2% since FDR, which is to say since the last Depression.  A big part of how the public reads this job growth we’ve had so far is how much people believe that we are in the middle of another Depression, or something at least like it, which demands a bit of patience.

Why isn’t job growth stronger?  As noted before, it’s already running a bit ahead of economic growth in typical postwar terms, so it’s hard to say that job creation isn’t about as strong as anyone can expect.

One reason that has been suggested by many people is “Structural Unemployment”, or a lack of potential employees with the right skills for today’s jobs.  This argument is quietly based on the principle of restructuring, which is to say that the economy is changing rapidly and people have to learn how to cope with the new one.  Structural Unemployment, however, is not likely a major problem.  The graph below, called a “Beveridge Curve” after it’s inventor Henry Beveridge, relates job openings to unemployment:

If the problem at hand was one of a lack of the right skills, this curve would shift upward as more job openings produced little to no change in unemployment.  This does happen in 2011, but only slightly.  A paper by the San Francisco Federal Reserve (pdf link) from last October estimates that skills mis-match does account for about 1% of unemployment, or about 1.3M unemployed.  The effect is there, but it’s not huge – the problem is mainly one of lack of demand.

It’s that simple.  There is no magic re-training or other program that will get us out of this situation.  What counts is increased demand for workers, which is always fueled by growth.

Without economic growth picking up in 2012, it’s hard to see demand changing substantially for workers.  Yet there does appear to be just enough pent-up demand from the lack of hiring over the last decade to keep things moving along into the next year.

The key number is 1.6M – that’s the number of jobs that have to be created by about October for Obama to break even.  Call it around 160k per month and we know what to look for.  It’s worth noting that we’ve been running 200k jobs per month, so it’s entirely possible that this could be pulled out at the last minute.

Since that time, 2M jobs have been created in the economy and the headline unemployment rate has fallen to 8.5%.  It feels like some improvement, if not much.  Yet many people feel it can’t be a real decline in unemployment in part because the economy itself is not growing much (running an estimated 1.8% GDP growth in 2011).

Is there real job growth, or is the regression line from all the postwar data presented by Shilling telling us it can’t be real?  My own analysis, which at the time pessimistically showed that higher growth might be necessary to grow jobs, may actually be telling us that job growth is indeed real – because it was so anemic over the previous decade of the Managed Depression, starting in 2000.

The background is complex without reading the original post.  Simply put, Shilling started from the typical observation that job growth is a lagging economic indicator, and that the unemployment rate never falls unless there is some economic growth.  Plotting all the data on a graph he came up with a regression line that suggested that 3.3% GDP growth, year over year, was the point where we would see the unemployment rate fall.

I noticed in his graph that the most recent data suggested an even higher economic growth was necessary – more on the order of 5.1% per year – before unemployment fell.  It seemed reasonable at the time that we were in a different economy that may not respond the same way as all the other postwar years.

But what if we turn this argument on its head and start with the assumption that this Managed Depression began a decade ago?  It seems reasonable that job growth could be lower until the economy restructured, which it may be doing now.  Below is the data on change in GDP over the last decade versus the unemployment rate, from the St Louis Fed:

Now let’s take the previous Barataria observation, that in the last decade unemployment has lagged typical Postwar behavior, and turn it on its head.  What if we are in the same basic economy, but experiencing a higher than average rise in unemployment due to the need for restructuring that was not occurring.  Rather than assume a higher GDP growth is necessary than before, what should the unemployment rate be, assuming the same regression holds?

The answer is that we should have an unemployment rate of about 7.2% right now, which is to say significantly lower than the 8.5% we are happy to have hit in December.  The difference between the two is about 1.7M jobs – nearly as many as were created in all of 2011.  Naturally, this assumes the headline unemployment rate is a useful number, which for the sake of this analysis (and consistency) it probably is.

In other words, the job creation we are seeing now may well be due to pent-up demand for employees, as reflected in the total number of hours worked by those with jobs.  Getting us back to an even keel could generate a significant number of jobs even before there is a big change in GDP growth.

This implies that job growth may not lag economic growth as we restructure, but may lead it. That may seem very backwards, but in a consumer economy that crashed in part because of a severe job shortage it could easily happen.

Should we take this as more evidence that job growth will continue into 2012?  We should never expect anything unless there is real economic growth, and that remains what we should hope to accelerate in the coming year.  However, there is reason to believe that the last decade of anemic job growth has created pent-up demand for workers that might actually lead the economy into the new year.

(Assuming Europe doesn’t bring us down, as always.  Sigh.)

This is what a time of revolution and restructuring looks like.  Anything can happen.  Times like these are what separates romantics from pragmatists, optimists from pessimists, and if we aren’t careful politics from any semblance of reality.

The first story that is worth following is the ongoing restructuring of the US economy, which added a strong 200k jobs in December.  Initial claims for unemployment benefits, a measure of layoffs, are down to 375k per week, giving job growth a solid chance.  Granted, at this rate the 8M-10M jobs we need will take four more years to develop, but it’s a solid start.  What could go wrong to put a stop to it?

Ah, there’s always Europe.  The European Central Bank (ECB) is acting to help ease the crisis as EU governments start fussing over permanent changes that will give them the kind of central bank and structure they’ve needed all along to take care of the problems they have.  But Euro banks are borrowing money to puff up their balance sheets only to put it back into the ECB with nearly no interest, losing a net 0.75% in the process.  They are that desperate to keep enough cash on hand to stay in business.  There has to be a crisis coming soon, even if the sovereign debt crisis is figured out.

So that remains the economic story – the US job market is setting in the base for what should be real (if slow) growth, assuming Europe doesn’t blow up and wreck everything.

A similar situation is playing out in our Defense department.  Obama went over to the Pentagon to brief the military on his plans – more of a “heads up” than a real policy statement with solid numbers.  The roughly $684B (depending a lot on how you count) that we spend on defense every year is the largest single category in our budget and completely unsustainable.  Getting out of Iraq will help get a handle on it, but the goal is a leaner military with fewer troops in Europe and a greater reliance on technology to keep costs in blood and money more reasonable.  It’s very much in line with what was proposed before 9/11.

Republicans, naturally, have already started squawking.  They label it a retreat from the world at a time when things are dangerous and require a firm hand.  Which brings us naturally to the situation in Syria.

The conflict in Syria is degenerating into a civil war, with elements of the military openly defecting to the “Free Syrian Army”.  At least one defector claims that dictator Assad no longer has control over the situation as it descends into sectarian violence and brutality for its own sake.  What can the USofA do about it?  Apparently, the answer is nothing at all – because we have no leverage over the nation and the politics of the region.  The Arab League is doing its best to contain the problem, but they do not have the resources either.  Syria will have to burn for the foreseeable future regardless of what we do.

Syria is both a case for a leaner military and a stronger one at the same time.  But the potential for some kind of intervention in the region depends a lot on how it plays out if the violence crosses international borders.

No matter what we do here at home to get our act together the potential for danger ahead around the world is higher than ever.  In a closely linked global system turmoil eventually hits everyone.

Will 2012 be the year when we finally get our act together, gaining control over our runaway budget and our economy?  Or will the world intervene to destroy the good things that are happening here at home?  Reading the news there is reason for hope and reason for panic all at the same time.

All we can do is struggle to keep it real as we do the best we can.  Oh, and there’s an election this year.  Sorry about that.

He gave his name as John, and slowly started talking about his mission.  He had just been to a pain management clinic at the hospital, and there in front of him were all the secrets that help him shove his life, if not his back, into order once again.  The car accident had done its damage, but pill after pill the magic that was supposed to help him cope had its own price.  Liz and I listened intently because a slipped disk in her back had given her the same bottles that rattled in her purse and through her nerves.

This is the world of powerful prescription drugs, a world far too many people enter but can’t leave.  John was working his way out, but just as he must hobble through life with a cane he first needed something else to lean on before he could ditch the pills.

For Liz, the journey started with a sharp pain that came on for almost no reason at all.  After a few days it became clear it wasn’t going away, so an appointment was made at the after-hours clinic, the only place she could get into the same day.  Hardly stopping to look at her, a prescription for Vicodin was written and that was that.  Call us if it doesn’t get better in two weeks.

It didn’t get better.  It got worse over the next few days.

Most people would just pop the Vicodin and hope for the best.  When that failed to materialize, maybe another little pill.  And another.  In a short time the bottle might be gone, but it would be easy to get another.  A serious addiction might result even as the pain didn’t go anywhere.

Liz knew better, and I did my part to watch carefully what was happening.  As it got worse she finally got into a regular doctor who knew immediately what was happening and got her on a course that seemed to repair the damage, not just dull the pain.  The magic pills would not be called on as she braved the pain and learned to manage it the best she can.

This particular evening, the story John told was exactly what she needed.  The universe has a way of providing what anyone needs if they pay attention.  There are ways of treating the underlying condition, managing the pain, and making a few adjustments here and there that aren’t too onerous.

Yet that is not what the medical establishment often provides people with chronic pain.  It gives them pills with incredible addictive power that dull mind and body.  For many people, they might as well give them a loaded pistol.

John is a very strong and brave man who stumbled down this path without realizing where it went.  After years of limping along he was getting the help he needed, but only after he insisted that there had to be a better way.  There, in front of him, were some answers that would help him get back to where he knew he needed to be – away from the magic pills with the high toll on spirit and flesh.  He could reduce and manage the pain without them.  Liz listened to his story and, having balked at the easy path, can take the right one instead.  What the medical establishment didn’t provide her a chance encounter at a bar one cold evening did.

Is this really any kind of health care?

Ron Paul may be the big wildcard in the election cycle, but not just because of this stunning poll result.  The more he and his supporters are marginalized and underestimated, the more powerful they become.  The game of expectations is clearly favoring a surprise on his part – and that could define the rest of this election season.

Support for Paul may not be centered firmly in the Republican Party, but rather more among independents.  His positions on the budget are about as hawkish as they come, as is his call for the dissolution of the Federal Reserve (a position similar to the opposition to the Bank of the United States that defined the Jacksonian Democratic Party 190 years ago).  Yet his overall isolationist call for the US to withdraw internationally is roundly derided by the party hierarchy as “1960s radical” or even worse.

Should the party be afraid of Paul?  The answer is a firm yes, but only because they have empowered him by ignoring and marginalizing his (very) loyal supporters.

The Republican nomination cycle is defined in the early stages by Iowa, New Hampshire, and South Carolina.  These three together will narrow the field and show who is viable going forward.  If Ron Paul gains a strong second or even wins in Iowa, he goes on to New Hampshire where Romney should score an overwhelming victory – but Paul is in second, 41-15 percent.  South Carolina will probably back the Christian evangelical candidate, currently Santorum, but the race for second place is much less clear.  Another strong showing for Paul there and he will survive to go on.

The reason this candidacy is important is that the Tea Party contingent, for lack of a better term, could rally around Paul and stay strong going through the process all the way to the convention.  If Romney can’t possibly lock it up, the Christian vote will probably do the same thing.  A deadlocked 3-way split would equal chaos in the Republican field.

Sound unlikely?  The problem with Ron Paul is that the hardening of his supporters makes his candidacy a crusade – something they will want to take to the convention if they possibly can.  He represents a natural fault line in the party that is growing as the establishment (like the Democratic establishment) seems increasingly out of touch with mainstream voters.  If the Christian vote takes the same path there may not be an y consensus candidate that unites the whole party.

Support for Paul has been hardened by the attempts to first ignore and now marginalize his positions.  Isolationism, for lack of a better term for it, is probably growing among voters as the Depression sinks in.  Why should we take care of the rest of the world when we have trouble taking care of our own?  A free and open discussion of our role would answer that question and place the USofA in an appropriate global context – but that isn’t happening.  Paul, and his positions, have been simply shot down as irresponsible without much explanation.  That may not sit well with people who don’t necessarily share Paul’s views but are at least intrigued by them.  What is the establishment afraid of?

Naturally, once we pass the early stages there will be plenty of time to engage in the debate that Paul will force.  But if they don’t take Paul and his loyal fans seriously, they risk empowering him even more going forward.  It is potentially a huge mistake that could cost them dearly.

We will all see.  But for now, what the nation and the Republican Party needs is an open discussion of Ron Paul and his libertarian brand of conservatism.  Is it popular enough that ignoring it will only give it room to grow?  What do you think?

Q: Why are they called “Primaries”?
A: It’s what comes first, just like “Primary School”. That’s why they often behave like 6 year olds.

Q: What is the difference between a Caucus and a Primary?
A: In a Primary, you show up and vote. In a Caucus, you go to an elementary school and after the person in the front reads some boring stuff you do the Hokey-Pokey. It really is a lot like being a 6 year old.

Q: Why are the polls so flighty, with one candidate on top and then another?
A: You have to understand the technical aspects of polling. All of this involves calling people at random, which means that they only people who answer are either very old, very lonely, or extremely eager to vent their opinion. In a normal election where turnout is around 6%, this is a very representative sample. This year normal people might show up who have caller ID and something like a real life. The pollsters are struggling to keep up.

Q: Is the lead really changing from one week to the next?
A: Yes, everyone gets to be “Line Leader” for a day.  It really is 1st Grade.

Q:  So if Rick Santorum happens to be ahead on the right week ….
A: Yes, even Rick Santorum.
Q:  Are you kidding?
A: No Child Left Behind.

Q: How many chances in life does Newt Gingrich get before people realize he has some pretty serious personality flaws?
A: How many chances did Nixon get?

Q: How bad do the Republicans want to beat Obama?
A: The Republicans are like athletes, and Obama is the nerdy kid with big ears.  Any number of movies will explain it from there.

Q: I’d like to be a teevee pundit. How does one get that gig?
A: You should have no marketable talents at all, aside from the ability to state the obvious over and over, ie, “Two plus two is four, it’s exactly four, and that’s what you get when you add two and two. Four.” You can practice at home if you’d like.

Q: Why isn’t there a national primary?
A: Why isn’t there a College Football playoff system?

Q: Ron Paul 2012!
A: That’s not in the form of a question.
Q: So?
A: Good point.

Q: Why don’t the Republicans just do what we know they’ll do eventually and just give it to Romney?
A: Give them time.  Fox has to bump its ratings up with about a billion more “debates”.

Q: Is this any way to elect a President?
A: Yes, it is, technically, “a way”. Any other way would not be half the fodder for jokes.

Total job growth was around 2M total for the year once we have the last of the data in.  That’s about what anyone expected for the year, but what’s been surprising is how consistent it’s been.  The graph below shows data from the St Louis Fed on the total number of jobs in the USofA:

With such solid, consistent growth, why is everyone so down on jobs and their prospects?  The answer has come to us in waves through the year, as shown in the same chart with an overlay of the unemployment initial claims figures (scale on the right), a measure of layoffs at larger companies:

Despite overall job growth, there were nasty spikes in job loss going into the Summer and again in the Fall.  While there are jobs out there and growth is continuing, there is less security and more constant scrambling.

Note, however, that we’re ending the year with a solid drop in initial claims.  The worst may indeed be over for layoffs at larger companies.

Going into next year we can see there is momentum for an improved 2012 in many ways.  But the turnover in jobs remains high even as the total number of jobs is improving.  Quality of the jobs we have is clearly a major concern for everyone, something that is going to reflect security as well as pay and benefits.

Taking all of this together, there are many signs that the economy is indeed restructuring to form a new economy – one that many of us are not going to recognize in the next few months.  It’s not an economy many people are happy with, but it is turning around overall.  While 2011 was not the absolute bottom for jobs (that occurred in February 2010), this was the year in which the restructuring which is laying the foundation for a real recovery took place.

Where are the new jobs?  Measures of small business job growth are notoriously slow to catch up, running six months to a year behind overall surveys of workers. I won’t report them here for that reason.  But given that there has been solid job growth in the face of strong layoffs at government and larger companies, there has to be job growth in small businesses.  These typically offer less security, longer hours, and fewer benefits. It explains the pessimism about “quality” jobs.

But given time, small businesses sometimes grow into larger businesses that provide the bulk of the jobs in the economy.  In an excellent piece by Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, the difficulty of relying on small business to grow the economy is explained:

But don’t small businesses at least fuel job growth? Sort of. It’s not small businesses that matter, but new businesses, which by definition create new jobs. Real job creation, though, doesn’t kick in until those small businesses survive and grow into larger operations. In fact, according to path-breaking work by the economist John C. Haltiwanger and his colleagues, once they accounted for the outsize contributions by new and young companies, they found “no systematic relationship” between net job growth and company size.

This is what appears to be the story of 2011 in employment.  New businesses appear to be springing up and creating  jobs, but they won’t really show solid growth until they take off and become established.  That’s likely to be the story for 2012.

Polls show that Americans are pessimistic at the end of 2011, but their fears may be overstated.  We won’t know for sure until the middle of 2012, but there is reason to believe that the restructuring is kicking in and things will improve.  It may not have felt like it, but 2011 may yet go down as the year that we turned the corner and the restructuring that fueled the next economy started.  Here’s to a Happy New Year.

But there is one thing that we know about this story that is worth telling now – influence is fleeting when done for the sake of influence itself.   That cautionary tale has a deep meaning well beyond “politics”.

Brodborb rose to fame in the Minnesota Republican Party by starting a blog called MinnesotaDemocratsExposed (MDE) in February 2005.  Published anonymously at first, Brodkorb was “outed” as the author in 2006 by a defamation lawsuit.  The blog has featured some good opposition research on Democrats big and small, but generally is full of innuendo and simply taking everything about as badly as possible on the Democrat’s side.  Opinions are published as facts in breathless ALL CAPS red headlines.  Twitter feeds are often used totally out of context.  The main feature is that MDE and Brodkorb were angry B4 angry wuz kewl.

As a political career, however, Bordkorb’s rise and fall was amazingly quick, lasting not even seven years (and resulting in well paying positions for only two).

This blog became a staple of political reporting as early as 2006 because of its incendiary content.  There is always a story full of made-up controversy inflated to the point where it seemed important, the hyped stories easy fodder for other bloggers left and right – sometimes bubbling into the mainstream press.  It is a star vehicle with one very interesting feature:

Readership has always been low, even by blogging standards.

This is an “insider’s” blog, dedicated to the great concept of “influence” in social media primarily by preaching to the choir.  Brodkorb’s fame was tremendous in a small circle, but largely unread and unknown outside of that.  The mainstream public didn’t read the screeds and would never have known about them had they not been picked up by the mainstream, supposedly “liberal”, media.

Why was this blog so successful as a star vehicle?  In many ways the story of Michael Brodkorb could only have happened when it did, much as Matt Drudge briefly had a career at the same time.  The blogging world was full of early adopters who mystified those who were not “savvy”.  Many people and organizations with traditional amplifiers picked up on blogs and other social media trends without any critical analysis at all.  The flashing shiny object of the new medium made it possible to be an “influencer”, or someone with an outsized swaggering cool as they sauntered through the High School of a very new media concept.

This does not happen today and it will almost certainly not happen again.  Media outlets routinely integrate the chatter of Twitter into their reporting without critical analysis, still, but in these flurries thousands of voices are treated on the same level.  There is no one central “influencer” who rises to the top any longer.  The views of social media have matured substantially, even if they still lack usually lack the analysis necessary to make sense of the flood of information.  Very popular YouTube channels and bloggers still make it into mainstream media, but today they always have a large following that they cultivated themselves – they are popular, not influential, first.

It’s also worth contrasting the hyperventilating spin mechanics still practiced on many “political” blogs in the USofA with the raw feed at protest marches around the world.  Violent clashes may still lack context and still require analysis, but they are at least visually compelling and newsworthy.

Ultimately, Brodkorb had to be judged by other skills that he might have brought to his own party.  Either as a policy wonk or as a campaign manager, something had to be delivered.  What brought him down was that he was not successful in his chosen path, one of campaign manager – running upwards million bucks in debt and maybe more (we will learn this week just how much) as vice-chair of the Republican Party.  The influence that made his career – nasty and angry as it was – could never carry him more than a few years on its own.

The lesson is a simple one for those who parlay influence for influence’s sake in politics and in social media – there has to be something more behind it or your career will be very short. There is reason to believe that the daze of the influencer star vehicle are finished no matter what.  But even if you can do it and the concept suits you, grab a Kardashian-load of money while you can.  There is still no substitute for substance over the long haul.

It doesn’t look much like Christmas this year in Saint Paul.  Hardly any snow has marked the passage of time into the winter, and the brown ground quivers only with the occasional flick of a pudgy grey squirrel tail.  It doesn’t feel much like Christmas, either, with the holiday falling on a Sunday and the usual Christmas Eve vacation not cutting everyone loose on the same schedule.  Not until tonight can anyone be sure that their friends and family are truly done, ready to let the holiday come into their lives.

This sneaking Christmas seems to fit 2011, a year when many people did their best to just get by. Here in the US it seems like little got done all year long.  The economy puttered along, gradually making some headway.  Congress lurched from one crisis to the next, the false excitement gradually giving way to disgust and eventually resignation.  Yet we made it this far and things may actually be getting a bit better, if slowly.

That wasn’t the case through the rest of the world.  While we appeared to be sleeping in through the dull recovery everyone else seemed wide awake.  Nations such as Tunisia and Egypt cast off their old dictatorships, and Syria appears to have erupted into civil war.  While we sleep the rest of the world is waking up, getting ready for their own time yet to come.

Here one day has dragged into the other for the most part, arriving at the Christmas brown and spent.  Some of us trudge through one more day or so, but we know that the days of rest and gathering are nearly here.  It’ll come to us when we finally grind to a stop.

It doesn’t seem to make for much of a holiday when every day merges colorless into all the others.  But it doesn’t have to be that way, of course.  Holidays are always more about what we have inside of us.  The bright green garland, red bows, and brilliant lights are a reflection of how we feel as we let a bit of hope and gratitude into our hearts. It sparkles out brightest in the eyes of the kids, gradually making all our lives brighter.  But we only get to realize what it means when we have nothing else to think about and nothing new to organize, buy, or hang.

Christmas comes when we finally stop.

It may not seem like much of a holiday at that moment, but like any good day it comes from within.  When everything stops the potential for action is what the mind makes of it, even if that’s nothing more than the joy of reflection.

May Christmas come to you and yours, and may you feel the moment it all stops deep in your heart so that you can enjoy it completely.

This is the end of the year traditionally. The new year should begin at Solstice, as is the ancient European tradition, just as the day begins at midnight. The only reason it doesn’t is that the Romans used a calendar, the Julian, that was off a bit by the time Pope Gregory XIII got around to revising it and everything moved ten days. No matter. The world since the Renaissance has increasingly been what we decree, not what we see.

Today is a day to make the final preparations for the next 10 days, awaiting the official proclamation of a New Year. Most people in Minnesota snuggle down safely this entire time, waiting for the time of work and struggle to begin again. This isn’t a time to do anything except figure out just how we want to delight each other and our children.

There is a certain magic in the darkness. Traditional stories about the dark include wolves just outside the door waiting to prey on unsuspecting innocents who dare to stray out into it. This time of year, however, nearly all Northern traditions stress the simple magic of being inside and lighting candles to repel the darkness and remember the year that has passed. The short days are weary enough to envelope even jaded adults, not just the naives of fairy tales.

Because it is an interior season, the various holidays that have mashed together into one conglomerate all have the same basic themes. It’s allright, this will pass, time passes, there’s a promise of light and hope at the other end. The great mysteries are all caused by a planet that wobbles just a bit on its axis and throws us all into a deep darkness that is just a bit scary. We need this reassurance ’round midnight as though we need a good story before we go to bed for a bit.

We stress our own imaginations and our man-made shelters because the darkness gets us down. Normally, I laugh at modern man’s need to make him or herself look bigger than we really are. Not this time of year. We can’t help but understand how small we are in the face of much more darkness than light, and are refreshed by the idea that one single candle is indeed much more powerful than any curse thrown into the darkness. The traditions and gentle wait for the official proclamation of a New Year don’t come from our usual arrogance. They come from a very real understanding of our limits as tiny little mortals. That can only be a good thing.

May the spin of our planet measure your life well in the new year as we turn back towards the light, and may the darkness of the season illuminate your heart in ways that inspire you.

Peace be with you all this Winter Solstice.

Into this darkness plunged the news that the “Dear Leader” of North Korea, Kim Jong Il, has died suddenly.  The world has reacted with a mild panic, stock markets tumbling as they contemplate the possibility of more uncertainty ahead in the region.  This was especially true in South Korea, a nation that only recently completed the leap from developing nation to the developed world.

This may not seem like a time of “Romance” in the way that anyone typically uses the word, but the imagination of the moment demonstrates what a new Romantic Era is like, good and bad, far better than nearly anything else.

There is little doubt that the situation in North Korea is desperate.  For decades, young men have willingly sold themselves into  slavery in Russian (and possibly Chinese) labor camps simply for the thin opportunity to defect once they were there.  Word of a new famine has leaked out, one that may rival the one of a decade ago that killed at least a million people.

South Korea has always imagined reunification when the enigmatic north finally failed.  They recently started “Reunification TV” as an internet channel full of news, dramas, and talk shows designed to get a new generation that has never known open war ready for their part when the day comes.  Nearly 60 years of unresolved cease-fire will not hold forever, and they have to be ready.  If the border was flown open in chaos tomorrow the wave of refugees would overwhelm absolutely everything in their nation.

But in their minds, it must happen.  It will utterly drain South Korea, but they must imagine it so that when the time comes they can make it real.

This is the nature of a Romantic Era, a time when imagination calls to first principles of freedom and the power of the human spirit.  It is not easy, but it is invigorating to imagine revolution and liberation around the world as brothers and sisters of the heart are reunited.

When the question was asked in Barataria as to whether a new Romantic Era is dawning, the discussion seemed to resolve in a very illuminating way.  Readers argued that Romanticism has been a strong force in the developed world since the late 1960s, at times a dominate force but certainly always present as an undercurrent.  It is in the developing world that a new Romanticism is rising today.  The world is becoming more equal, more free, and generally more hopeful as it imagines a better world for its children.  That is not necessarily true in the developed world, where systems and cultures are collapsing in a sour mash of distrust and corruption.  The two worlds are relying on each other to cross into new era of some kind – one that will probably be led in spirit by the Have-nots and led materially by the Haves.

It takes a lot of imagination to see this through peacefully to a great new age on the other side.

There is no place where these two worlds meet more starkly than on the Korean Peninsula.  The death of Kim Jong-Il does not mean that chaos will erupt tomorrow or that Reunification is just around the corner.  But the Yin and the Yang of tomorrow’s promise, portrayed vividly in the flag of South Korea, are both starkly present.  It takes a lot of imagination to contemplate how this plays out, either when preparing for the worst or longing for the best.

Imagination of a better world is at the heart of the human spirit, and it is what Romanticism is made of.  The terror of militarism and civil war spilling out over national borders is sometimes what it takes to break the old order and fuel that imagination into something better.  Korea may be on the edge of showing us just what our imaginations can do when fully engaged.  And that is how a Romantic Era that crosses the skies and oceans takes hold – for better or worse.

The darkness does not last forever, but dark times well spent, full of imagination, are what make the light inside shine brighter.

I gave up on Christmas several years ago. It’s not a matter of giving up on Christianity, although I firmly believe that if Jesus came back today he’s have a hard time calling himself “Christian” in any form we’d recognize. The problem with Christmas as we know it is I cannot see how something called a “holy day” (holiday) can possibly be equated with a major spending binge and a nearly complete lack of introspection. It would be for the best to have the small voice of wisdom that Linus gave us in “A Charlie Brown Christmas”, but I tend towards the cynical as the dark closes in.  I’ve dug this little parody song every year for over 20 years now:

Hark, the Herald-Tribune sings,
“God is dead, now buy some things!”
Headlines tell of death and war
And of sales at some big store.

Read how all the children fall!
Feel the horror of it all!
Since there’s nothing you can do,
Why not buy some stuff that’s new?

Hark, the Herald-Tribune say,
“The Grace of God has passed away.”

Rather than wallow in that bitterness to much, I found it easier to start over with the Winter Solstice. As holidays go, the Solstice at least has a long history. The ancient Germans would tie bits of meat and other offerings to a tall tree and set fire to it on the shortest day in order to coax the Sun God to come back. It apparently worked. Many years later this would evolve into another German tradition, which is to periodically set fire to neighboring countries. Also, they took the trees indoors and called it Christmas. But I like it better the ancient way, when practicable.

That’s what’s so funny about our culture and how we think about ourselves. Long ago, the ancients had holidays based on real, astrological moments – events that genuinely meant something in their lives. Somewhere along the line, we became more sophisticated and crafted holidays about salvation and karma and all kinds of other social constructions that are far more abstract.

Even that became a bit too heavy over time, gradually giving way to a time for a lot of shopping without so much introspection.

It has become fashionable among some people to talk about a “War on Christmas”, a rebellion against the use of terms like “Happy Holidays” to make the season generic and not exactly Christian. The sentiment is understandable, but misses the point completely.  Religious faith is not about what words you say but about what you genuinely feel inside and express through your actions.  Our culture stopped having a real “Christmas” in any kind of public sense years ago – if there ever was such a thing at all.   The War on Christmas was won by commercialism many years ago.

It would be nice to truly reclaim Christmas as a time when charity is given to the poor on the Feast of St Stephen (their patron saint).  The darkness lends itself to introspection and old fashioned quantity time together as a family.  There are many things about Christmas that are indeed good and decent, but so much of it was lost years ago it’s not in our culture any longer. It has to be actively re-invented from bits and pieces no matter what.

That’s why I stay with the Solstice, a day apart from the holiday everyone else has.  You can join us at the exact moment when Earth wobbles over and points us right out into space, away from the warmth of our sun and into our own imagination.  It is a good time to celebrate that life is what we make of it – peace and joy and justice all start with ideas that move with each heartbeat to arms that make them real.

We are small and fragile compared to the great forces that sustain us, but that is no excuse for not taking what we have and making the best of it.

This summary not only describes today, but the world around 220 years ago at the start of what became known as the Romantic Era.  It wasn’t romance in the way we usually use the term today, but instead a belief in the power of individuals and their natural instincts.  Understanding the movement and where it came from can give us a few clues where we might be going today.

The main feature of Romanticism is revolution.  The first time an imperial government was thrown off was here in the USofA, but France was not far behind.  Our experiences were very different as France descended into murderous anarchy and then a new imperialism under Napoleon.  But the central belief in the power of the human spirit guided all the uprisings that continued through the early 1800s across Europe, culminating in many ways with the work of Karl Marx.  Revolution became institutionalized and often a goal in and of itself before becoming so twisted that the mere mention of Marx brings up images that are horribly incorrect (as the man said himself at the end of his life, “The last thing on this earth I would want to be called is a Marxist”).

There was much more to the Romantic movement than revolution.  Populations were herded into cities in the early stages of the Industrial Revolution, and the result was filth and disease.  The natural state of humans, working as craftsman and farmers in a kind of medieval setting, burned in the minds of bright intellectuals.  New science and realistic art styles embraced nature with the arms of imagination.  Anything seemed possible, a prospect that was invigorating and terrifying at the same time.

We cannot expect history or even popular thought to repeat themselves perfectly, so this time will be different.  The Romantic era was led by artists in music, visual, and literary media, exchanging ideas through all forms of human expression.  That does not seem to be happening yet, at least not to the same extent.  While urbanization is increasing dramatically in some parts of the developing world, the developed world appears to be very stable and not inclined to shift dramatically.

The other key difference is that as an already urban population, the developed world’s reliance on central banks and the features of city life would collapse into a very different kind of chaos if it were to all fall apart suddenly.  Returning to rural life is no longer imagined as the hard work of farmers but more of an escape while still connected to the larger world with technology.  The skill to actually work the land, the culture in agriculture, is quite lost.

But there is little doubt that the Age of Anxiety, as I hope the latter part of the 20th Century will come to be called, has ended.  The lack of a term for this new era has been a barrier to its coming together, but I like the term “Fractal Era”.  It describes a new vision of nature, chaotic but bounded, and as free as the number of dimensions anyone can imagine.

I would like to know what you think, however, as this could become an important perspective for understanding the changes taking place around us.  Is a neo-Romanticism blossoming around us?  Is the human spirit becoming more important to us than particular cultural identities and great nations?

It’s not exactly an athletic competition, but it has all the important features of a sport (including that you can bet on it if you want).  Welcome to First Lego League, the challenge of wits more than strength.  It’s where the nerdier kids learn all the values of teamwork, persistence, and competition – and have a lot of fun!

My son George was part of a team at Expo Elementary which competed this weekend in the big tournament at Benjamin Mays Elementary.  The core of the competition is designing and programming a Lego based robot to work through a set field with many opportunities to score through many different actions.  The gladiators in this arena pick the challenges they want their robot to take on, then make it work with Lego arms programmed in a simple code for the movements.  There are also extra points for presentations on the theme for the year, which in 2011 is food production and safety.  The field of play includes farms, processors, and the family dinner table – tying the learning experience together.

With any of these tournaments, the fun is always in the enthusiasm of the kids.  Since we are an inner city district the Lego warriors came in all levels of income and all the colors of skin, mixing it up in the pits as they put the final touches on their robots.  Fair, even competition and desire to win united them all in one mind, at least until the tournaments started.

Though it is set up as a sporting event with head-to-head competition, the scoring is mostly done on team performance in points.  The action is mainly for show, missing only Grant Imahara or some other celebrity geek as an emcee.  It’s infectious, though, because most of these kids savor a chance to compete in the area that they work at the best – the tenacity to make something work.  The hard part for many has been the long hours learning how to put it together as a team without arguing, but they have to learn how collaboration works before they are ready to be real engineers.

Three teams from each division went on to the State Tournament, though sadly George’s wasn’t one of them.  He was happy enough to have his team medal, which he wore through the celebratory taco dinner we had after.

What sticks out through the whole event wasn’t just seeing so many kids from different backgrounds learning skills that will be valuable throughout life.  It wasn’t even the spectacle created by the competitions and screaming crowds cheering them on.  What really mattered was that it was a lot of fun and the simple joy of a craft done well sizzled through the young bodies and minds full of energy.

No matter what happens in this complex world we adults slog through, there will always be kids just being kids.  A little direction now and then, perhaps an elaborate competition set up with a big show, helps guide those moments into something bigger and educational on many levels.  But that can easily miss the point.  The real lesson of the tournament is that with enough energy nearly anything can happen.  When these kids grow up the world they craft will be as big as their imagination set on fire through events like First Lego League.  It’s hard to imagine it has any limits at all.

As the poster child for more financial regulation, MF Global has a lot to teach.  It was nowhere near “Too big to fail”, but it was big and messy.  This will highlight the laws we have in place and what happens when failure is an option.

One thing we can be sure of in this case is that lawyers will be all over it.  Investors will get back as much money as they possibly can from the company and, more importantly, the insurance carried to personally protect the board of directors.  The financial industry is far from self-regulating in any appropriate way, but you can bet that between their lawyers and insurance companies there will be a drive to tighten up standards based on precedents coming from MF Global – even if Congress does nothing new.

The next obvious question is how the auditor, Price Waterhouse Coopers (PWC), signed off on this company.  They might yet be held liable as well, triggering a different kind of self regulation.   Audits in the US are paid for and held at the direction of the company being audited, meaning they are not reliably independent and full of conflicts of interest.  There is definitely a place for new laws and/or standards to change many of these practices, but again a team of lawyers and a big settlement might do the trick on its own.

There is also the likelyhood of criminal penalties including jail time for MF Global’s executives.  We are about to see if personal responsibility for running a company into the ground is possible with the laws we have in place.  While some institutions might be “Too big to fail”, there’s no reason people can’t be strung up and made into an example for the industry.

Corzine’s testimony, largely hinging lack of awareness of what went on, may be little more than a legal strategy.  It could also have the advantage of being true.  He has only been at the head of this company for 18 months, and the level of fraud and mismanagement appears to be so broad and deep that it could not possibly be the work of one person.  The autopsy on MF Global may open up the smelly guts of a lot of industry practices that should prove enlightening.

It’s not as though “Too big to understand” is hard to accept.  Financial “innovations” are often created with little care as to their broader implications in the market and sold by advisors who really do not understand what it means to their clients.  Regulation of this process is almost certainly going to be impossible, since new products can be crafted around any well-loopholed law.  That is why a broader framework is probably much more helpful.

Consider for a moment the Federal Deposit Insurance Company (FDIC) and its role in banking.  This agency is self funding, getting its operating capital by charging an insurance premium to member banks.  When there is a failure, the team from the FDIC swoops in quickly, often on a Friday afternoon.  Their team might work through the weekend to clean up the mess and determine just how much capital the operation needs to guarantee all deposits and then arranges to have it open under new management on Monday morning.  To depositors, it’s usually as if nothing happened at all.

This model might prove useful for investment houses as well.  The insurance premiums would go up and down based on the relative risk of industry practices and the results of an audit directed and paid for by this agency.  There would be incentive to self-regulate built into the system while allowing for innovation.  And if the pool of capital proved insufficient for a big investment house, a loan from the government or the Fed could tide it over until it was repaid with higher insurance premiums going forward –  stiffing the industry, rather than taxpayers, with the tab.

The examination of MF Global will tell us if a model like this might work and generally make failure an option – possibly even on a very large scale.

The story of MF Global will play out in courts for many years.  The main purpose of a regulatory structure is quick action that could stem a system-wide meltdown and yet allow failure to occur when it has to.  This could be where we learn just how to make that happen if we pay attention.

The world of hockey is a bit difficult to understand at times, but one thing is certain – most of the fans are as intense as the players.  It’s not just the sheet of ice that makes this a Northern game, born on this continent.  Hockey people are tough and loyal, perceptive and quick, but also remarkably decent and civil.

Hockey didn’t come naturally to me, having grown up in a land of perpetual sunshine and a tradition of piracy.  It wasn’t until the Minnesota Wild came to the Xcel Center just four blocks from my house that I took any interest in the game at all.  I took it all in as a blindingly fast form of soccer, a sport I knew well enough.  It was enough to get me started.

Through the decade that the NHL has been in the neighborhood, the Wild have had their ups and downs.  This year, with new coach Mike Yeo they lead the league at 18-7-3 and are a lot of fun to watch.  There is always an enthusiastic crowd, even for away games, at Tom Reid’s pub – one of the great bars in the neighborhood.  Tom is part of the Wild’s radio broadcast team and his place is almost a museum of hockey, full of memorabilia from Tom’s career and the last 50 years of hockey.

It was at Tom Reid’s that I learned what Hockey fans are made of.

One time a big group came in from Chicago to watch the Blackhawks, and not all of them could get tickets.  They spent the game at the bar, cheering on their team in an hostile city.  Generally, it’s best not to bring up either sports or food with Chicagoans unless you want a tough argument, so you can imagine that a group of them having dinner and watching the game got a little out of hand.  By the end of the thrashing their team gave ours pretty much everyone was glaring at this group, ready to buy them all bus fare back down I-94.  But once the game was over and the puck was off the ice, it all changed.  “Can I buy you a beer?”  “This is a great place!”  “You guys are the best, I love this town!”  Soon, I felt like I had new friends.  These were hockey people – friendly and warm until that puck drops.

It’s easy to understand this in terms of the game itself, a full contact sport that requires intense concentration and amazing reflexes.  What is less obvious is how much the game and the fans reflect the traditions in this part of the world.  What you see in Hockey are all the skills that it takes to survive in a brutal climate that always provides – loyalty, civility, toughness, and watchful eyes that turn adversity into opportunity.

Minnesota, like any place in the USofA, has grown and changed over the years.  It’s full of people like me who didn’t grow up in this culture and sometimes aren’t sure quite what to make of it, along technologies that make the winter less brutal.  The fights in our Capitol spill over into permanent divides that don’t always make sense outside of a piece of legislation.  Suspicion of outsiders grows along social divides, becoming permanent as people forget we are all in this together.  The richness of the land is no longer something we share together, but something we grab and hold as if it were our own.

A great way to renew the spirit of a Northern people is in Hockey.  Not just watching the Wild clip out another win on the road and enjoying our moment of fame, but really getting to know what makes the sport a way of life.  It’s a metaphor of who we are as a people, written in small moments of remarkably intense emotion.

It’s worth getting to know, especially if the Wild keep up their amazing run.  Go Wild!

That’s not to say there won’t be a Recovery, but as is typical of a credit-meltdown fueled Depression there has to be a Restructuring first.  Money and labor and all the other resources you can name have to start going into areas that are going to be productive in the new economy that replaces the one that crashed and burned back in 2008.  Barataria has led some discussion on how jobs appear to be shifting rapidly, a sign of Restructuring, but there are some fascinating things happening that show how much our world is changing.

Some of those stories come from the world of oil, the mysterious black gunk that fuels the world.

Gasoline prices have not come down much through the Depression, despite considerably lower consumption driven by better fuel economy.  The reason for this is that refining capacity has always been the limiting factor – the ability to turn oil into lighter gasoline.  Lower demand should have given us some breathing room on our refining limit, but for the first time in 62 years the US has become a net exporter of refined gasoline and diesel fuel.  Developing economies close to us, notably Mexico and Chile, do not have the capacity to make enough fuel for their growing demand.  So they are buying it from us.

The oil being refined is still mostly imported, although the largest source is now  Canada.  But we can make more gasoline than we actually need.  Selling it keeps the price high, and we can expect the price to continue to be above $3 a gallon forever.

If that is not a bizarre enough change in oil consumption, consider the pronouncement from the World Petroleum Congress, an organization sponsored by OPEC.

“Increasing climate effects are an unquestionable reality,” said Sheikh Hamad bin Khalifa Al Thani, the Emir of Qatar. “Developing clean and renewable resources is a goal fully supported by oil and gas exporters.”

That’s right – OPEC is now fully behind renewable energy development, especially in the Middle East.  All the natural gas that was traditionally burned off as a nuisance is being captured and used to produce electricity for starters.  Where it gets interesting is the push by Arabia to generate up to 10% of its electricity with desert sun beating down on solar arrays.  Oil is simply too valuable for them to waste any longer, so they are going to take steps to conserve it and make use of other resources.

As desert people know, green is the color of heaven.

These are just a few stories that highlight the growing demand for more efficient energy and the development of renewable resources.   While we don’t necessarily know exactly what the next economy will look like, we can be certain that reducing energy costs will be a major part of it – and the development of these technologies is likely to be a big growth industry in the early stages of the new economy.  This will produce many stories that might have seemed bizarre just a few years ago.

What we can be sure of is that the economy is changing.  We know that the one which collapsed in 2008 is gone forever, and trying to revive the very same system will not produce what we need.  That’s made life harder for the Obama administration, which has worked hard to pull the levers it can to create jobs primarily in construction and supporting state governments.

It takes a little more imagination, however, to push ahead the Restructuring that will have to take place before a true Recovery can begin.  If you need to stimulate your thinking a bit as to what that could possibly mean, read the news carefully. You’ll find a lot of strange stories just below the headlines.  Taken together, those stories are the surest sign that a Restructuring is finally starting to pick up speed.

The jobs picture does continue to improve, with an official 120k jobs added in November alone.  This is not a huge gain over October but it shows that the momentum is continuing, as noted before.  This came despite a stubbornly high Unemployment Initial Claims number, which has not fallen much below 400k per week.  Big companies and government appear to be shedding jobs, but others are being created.  Where are these new jobs?  No one has been specific about the growing areas of the economy, which probably means that it is not obvious and no one knows yet.

The high rate of churn is a strong sign that restructuring is occurring and the next economy is finally being formed around us.  When that is identified there will be a lot more investment in whatever is growing and a chance for real optimism to bloom.  Give it about six months before it hits the popular press and really takes off.

Headline unemployment dropped even more, but this number is utterly useless.  A lot of those gains were from “discouraged workers” falling off their official count because they’ve been out of work for over a year.  As always, just ignore that number.  What matters is this:  the pace of job gains has to increase before a real dent is made in unemployment, but there is a foundation for future growth – as long as nothing screws it up.

The improving economy may have some relief for state and local governments built into it, too.  The growth in jobs came despite layoffs of 20k in government, a figure that shows how pinched states have been.  But Minnesota’s budget projection came in with a surprise $876M surplus, achieved by a combination of higher revenues, lower unemployment costs, and shuffling off some of the health care tab to the Feds.   If state governments at least hold even for the next year and stop layoffs there will be more jobs yet.  There is a feeling that we have indeed bottomed out.

At the Federal level, however, there is silence.  The Super Committee failed to do anything at all, which was supposed to trigger automatic cuts to everything.  Well, maybe.  There was some talk of not going through this “sequestration” before everyone fell completely silent.  No news is good news?  Hardly. There is still a crisis, explained about as succinctly as I’ve ever seen by New Hampshire Democrat Mark Fernald (who ran for Governor in 2002).  But Congress itself has decided to lay low, perhaps awaiting a big present from Santa.

That’s not to say that everyone at the top has been silently waiting.  The Federal Reserve lowered its rate to a number of banks around the world, really targeting Europeans without making it too open.  Nearly everyone can borrow from us at rates very close to zero, taking pressure off the European Central Bank (ECB) to lower its rates. There is even talk of another Quantitative Easing round for the first time since this summer, when the idea was roundly criticized in the financial world.

The International Monetary Fund also stepped up with more cash at the same time as the Fed action.  The result is that Europe has, once again, bought itself some time and German Chancellor Angela Merkel will use that time to come up with a new structure that allows the ECB to do what it has to do without sticking taxpayers with the bag.  That’s the plan, at least.

In Europe, the lack of an immediate crisis is close enough to good news, right?

Through it all, there is positive momentum.  Much of what was necessary to achieve an economic restructuring is in place, although at the highest levels the politicians have an awful lot more dickering to do.  Is the increased attention in Europe a sign that they will finally craft a solution to their problems?  Is the decreased noise in the US a sign that Congress is about to get serious?  We will see, with time.  But the start of December has been pretty good so far.

What do you think?  Are there some other big news stories that you’d like to talk about?  Let’s make this something of an open thread and chat for a bit.

But what about the other big economic problem, unemployment?  Very little has been written about jobs in the US since it appeared in September that something like a turnaround has occurred.  Unemployment Initial Claims were 390k-400k each week, seasonally adjusted, through October and November with little change.  That’s a net loss of 1.7M jobs per month before we add in the total creation to arrive at the total employment picture.

The easiest way to explain the jobs picture is with a few graphs from our old friends at the St Louis Fed.  The easiest way to see where we are is with the Total Employment since 2007:

You can see from this chart that from the peak of 138M employed people in the US the last official “recession” dropped about 8.8M jobs to a low of 129.2M.  Since that bottom in early 2010 we’ve rebounded about 2.3M jobs to 131.5M.  More to the point, the total number of jobs has been expanding at a steady, even clip for the last year.  Looks like good news?

The problem is that as young people enter the workforce, we need more than the gap of about 6.5M to reach full employment.  Estimates run between 8M-10M typically, but a lot depends on family arrangements and how that generation winds up defining their expectations in life.  At this rate, it will take another 4-5 years to get to the point where unemployment is not a significant problem.

That may make this “recovery” look especially weak, but it is far from it.  Let’s expand the graph a bit to include the last two official recessions, going back to 1989:

Note that in 1990 there was a longer lag-time at the bottom before things picked up, showing that in the first 2.5 years since the official end of the recession a similar number of jobs were created as have been this time around. For the official recession of 2001 we can see it took even longer to create that number of jobs, with the net loss continuing for three years after the end of the recession.  This is one of the many reasons why that “recovery” is dubious and the recessions of 2001 and 2007 appear linked in one large Managed Depression.

While the employment picture appears almost static there has been consistent growth in jobs over the last year.  This has come despite some rather large spikes in layoffs and resulting Unemployment Initial Claims over the summer.  The last chart is the same as the first, with the weekly Initial Claims on the right-hand scale.

Despite shedding around 460k jobs per week on average, or a stunning 58M over the same 2.5 year period, we’ve managed to eek out respectable gains in the total employment.  Granted, many of these claims are people filing multiple times as temporary or seasonal jobs run out, but it is still impressive.  Total employment is going up much faster than layoffs are going down, meaning new jobs are being created, probably in new fields.

What we can say is that despite a great deal of turmoil in the job market, there is net growth in the number of jobs.  The pace is not great, but it is steady and consistent.  Layoffs continue and jobs are being lost, but they are being replaced at a slightly faster rate.

This is what a restructuring economy looks like.  As long as there is no big credit meltdown there is a decent chance that the pace of job creation might even pick up as the restructuring firms up and opportunities for major investment become obvious.  But the base for a strong recovery appears to be in place already.

The term is something like a pop psychology term for the system of socialized risk that defines our entire financial system.

With the benefit of hindsight we can now ask whether or not the bad loans stopped after the big bailouts of 2008.  Did large financial institutions change their behavior and start to behave?  The answer, increasingly, appears to be no, there has been no substantial change in lending behavior since the bailout.  The “moral hazard” appears to be very real – big bets on big risks have continued without much change.  And that’s not only why there is a new crisis but also why serious policy changes must take place.

The term “moral hazard” is far from new.  In 2002 the International Monetary Fund (IMF) examined in detail whether their bailouts of nations and big banks actually encourages risk taking.  They found that it did, although they were not sure about the magnitude of the problem.  As they stated at the time:

As long as further evidence is needed to establish the magnitude of moral hazard, such action should proceed cautiously, weighing the possibility of moral hazard against other implications of the availability of IMF financing in alleviating the effects of crises.

Fast-forward to 2008 and the need for rapid bailout.  Caution was clearly thrown to the wind and enormous amounts of money were made available to financial institutions in trouble – damn the “moral hazard”.  How big has the effect been since then?

The poster child for the problem is MF Global, the investment house that made big bets on European sovereign debt in a clear belief that it would not be allowed to fail.  The counter argument against this being a case of “moral hazard” run amok is that they were a rogue organization, riddled with bad behavior and excessive risk taking.  But there is evidence that they were far from alone, with many big banks taking a lot of risk long after the bailouts.

It took a Freedom of Information Act request that went all the way up to the Supreme Court, but the some actions of the Federal Reserve since 2008 have been made public by Bloomberg.  A total of $7.77 trillion was sunk into institutions that were declared “healthy”, raising the question why they needed so much in emergency loans in the first place.  Profits from this action totaled at least $13 billion for the banks.

This is far from a partisan issue, with icons on the left and the right weighing in on the topic (although each stresses different kinds of “moral hazard”).  The disclosure prompted this statement:

“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.”

More disturbing than keeping Congress in the dark is how so much of this escaped the usual scrutiny from the Federal Reserve.  The Governor of the Minneapolis Federal Reserve (one of 13 people who should have had control over the situation), Gary H. Stern, said that he “Wasn’t aware of the magnitude.”  Clearly no one was watching what was going on.

The moral hazard is playing out very differently in Europe, where the Italian crisis is quickly coming to a head.  Strong action by the European Central Bank (ECB) has been slow to come in part because German Chancellor Angela Merkel insists that a framework of control be in place before any big bailout occurs.  Can they act in time to save the big institutions?  Is the sovereign debt crisis moving beyond Europe to Japan, among other nations?  The need for quick action is now being weighed against the moral hazard and the gears of bureaucracy are slowing things down.

The latest revelations about how the US system has handled the crises so far are making the case for caution around the world.  Something will have to change.

In the meantime, the world’s financial system remains almost paralyzed.  There will be no easy way out as the old regime will fall, one way or the other.  Will those who worry about “moral hazard” win and make major changes to how things are done?

There were candles and garlands and songs from a choir
With plenty of cocoa and snacks by a fire.
There was magic created by the soft reminisce
And the deepest desire to turn dark into bliss.
Through the season of hope and the quick shortening day
There was plenty of cheer keeping darkness at bay.

Very slowly it happened, though no one is sure
How the simplest of instincts picked up the allure.
But the giving of presents, small statements of love,
Turned from joyous to something, well, ugly … sort of
A contest, it seems, a strange kind of a test
To see whose affections were somehow the best.

The season of lightness and just being lazy
Became a mad rush that got horribly crazy.
There were presents to buy for the kids and the spouse
And dozens of gadgets to brighten the house.
So the running began, keeping everyone busy
And never a moment to stop feeling dizzy.

That’s when the blackness appeared at the start,
That’s when the darkness took root at the heart.
As the nights became longer, the season arrived
And the madness of rushing was slowly contrived
To a day, just one day, full of madness and tension
With a name that betrayed its beguiling intention.

Black Friday, they called it, and hyped up the scene
With ads running constant on each TV screen.
They printed up ads, stuffed each paper with stacks
Of glossy productions proclaiming in black,
“One day only! You simply must hurry
Or you will regret you missed out on the flurry!”

And the crowds, oh the crowds, yes, they came and they pushed
Risking safety and lives if they ever were smooshed
By the madness, the frenzy, the deep carnal cravings
To see who could brag up the largest of savings.
But the darkness, though clearly and deeply impressed
Was not going to settle for one day of mess.

The rush was expanded, set back several hours
To midnight, when dark has the height of its powers.
Then over the top, several days in a row
As the darkness enveloped and started to grow.
For the people who fueled it never relaxed
Would soon find their credit was hopelessly maxed.

They added more hours, working harder and longer,
And the pull of the darkness would only get stronger.
With kids stuck in day care and largely unseen,
The families were pulled, ripping up at the seams.
The dark only grew, sucking up all the light,
And the season fell deep in the blackness of night.

When it finally collapsed it was almost relief
For the hold of the darkness had no time for grief.
All the money was owed to some far distant lands
Who measured out tiring incessant demands
So the shuffle continued, not time for the season,
As lightness and loafing was something like treason.

That’s how the light became conquered by dark,
That’s how the blackness extinguished the spark
Which once glowed inside and then shone like the day
Bursting out through night, keeping darkness at bay.
And the season of light now exhausted and spent
Became only darkness, a time to resent.

Though the darkness is strong, it’s easy to fight –
It only requires your love and your light.
One single candle, flick’ring off a bright smile
Rekindles the season in elegant style.
And the rushing great madness, the sales at the stores,
Is something that lightness itself just ignores.

Though darkness has power that tempts and excites,
It’s kept far away by the smallest of lights.

This is not only Thanksgiving, it is what the USofA is all about.  The story of how we came to be such a people cannot be told often enough.  It is a story of deliverance away from terror to a tough land that, in the end, always provides.

The threads that wind together to create Thanksgiving all start with oppression.  Some Puritans craved freedom to worship in their own way that separation across the Atlantic was necessary.  Those who stayed behind eventually took over their nation and implemented their own terror campaign, scarring a land that had already been divided for a century between Catholic and Protestant.  Out of these bitter ashes came the stark realization that religious freedom, a separation of church and state, was the only way to preserve both.

William Penn poured the debts owed to him into this ideal and became the “Absolute Proprietor” of a land dedicated to this new concept of freedom.  The lands that grew around him were not made of the same material, but eventually attracted the misfits of Europe who had reason to flee.  When they finally banded together to create a new nation based on freedom, separation of church and state was included as one of the basic tenants of the land.  It was decreed that Thanksgiving would be celebrated in November, a bit late for a typical harvest festival, to celebrate the ratification of the Constitution that made the promises real.

Over time the nation grew and picked up more misfits from the rest of the world.  Each Thanksgiving there were more ways to celebrate it in the ways of each family, all Americans in their own way.

Today, the tables groan from the weight of a great bounty under rich language in Somali, Hmong, Cantonese, Farsi, and many other languages the founding fathers of the nation would never recognize.  But it is the same Thanksgiving as sure as it is the same principle that created the nation and brought so many people to this rich continent.  We have all been delivered to a great land defined not by material wealth but by the values – the belief that there is a place for everyone at the table.

May you all be truly thankful for the gifts we have, and in our gratitude may we reach out to those we might not understand, agree with, or even particularly like as we live up to the values that are often bigger than what we can all understand.

This essay contains two links to past Thanksgiving essays that say far more on the topic.  Please click through for some more Thanksgiving stories and have a great holiday.  Thank you.

Perhaps nature was telling us something.

This is the week that starts with a great American holiday but ends with an orgy of spending and crowds for many people.  But it can instead be one long holiday, one celebration of what really counts in our lives – family and community.  After Thanksgiving there is Buy Nothing Day, followed closely by a little light shopping on Small Business Saturday.  Together they make a holiday which is more meaningful and bright.

Through the last few very hard years the holiday season has been redefined for many families.  Gone are the great excesses that once defined Christmas, replaced by more carefully chosen presents that express true love.  It seems like about all anyone can do in the face of a Depression.  Yet this is more than frugality when it becomes a simple movement, a series of careful actions that add up to a people taking control over their lives.

For about as long as the day after Thanksgiving has been called “Black Friday”, there has been “Buy Nothing Day”.  The principle is simple:

On this 20th anniversary of Buy Nothing Day, we take it to the next level. We realize that consumer minimalism is one of many strategic operations in our continued fight for real democracy and life without dead time. This year lets fast like never before. Lets get monastic with our actions. Lets take back our holidays. Lets wean ourselves off of mega corporations, put our money back into the local independent economy, and live for a different kind of future.

It starts with more time spent … not shopping.  Not going anywhere, not buying the gadgets not made in the USofA, not doing anything.  A day spent being truly thankful for what we already have, even beyond the turkey induced coma.  A day to reflect and be part of a movement that simply refuses to be part of world defined materially.

That may be a bit much as a movement.  After all, we all consume a few things here and there.  But the day after has been declared “Small Business Saturday”, a day to go to local small shops.  According to the Twin Cities Independent Business Association (MetroIBA):

Supporting locally owned, independent businesses keeps more of your money in your community.  When you spend $1 at a local independent, an average of 68 cents is recirculated into the local economy.  In contrast, when you spend $1 at a national chain, only about 43 cents stays at home.  If Twin Cities consumers shift even 10% of their spending from chains to locals for one day, the Twin Cities economy gains some $2 million.

That’s more than just feel-good, that’s a big boost to the community we all depend on.  More to the point, it’s not entirely “monastic” and stark – there are a lot of great small shops which sell things that are unique and special, helping local craftsman and artisans make a living apart from some big conglomerate life.  A handy guide for those of you who live in Saint Paul can be found on Sara Kerr’s website in a series of articles she has been writing to promote Small Business Saturday.  She is profiling a dozen stores a day that make life in our little city rich and wonderful.

There is no need to push back the crowds at Wal*Mart to get the last discount battery powered gadget made far away.  A better life is there at a slower pace, one with more meaning and love in every carefully chosen box.

Taking these together we have the perfect antidote to a life defined by material goods and constant rushing to make or spend money.  They are something like the pause in “A Charlie Brown Christmas” when Linus tells Charlie Brown what Christmas is really all about – nothing fancy, just a simple statement of love and devotion.

Thanksgiving Day, Buy Nothing Day, and Small Business Saturday.  Three days where we can be truly thankful for the family and community that define a life apart from the emptiness of material things.  Three days full of love and togetherness.  What more could we ask as the winter closes in tight around us?

The growing realization is that they will have to print a lot more Euros to get out of this.

As discussed earlier, the European Central Bank (ECB)  does not really have the power to simply print money, which is more or less what our Federal Reserve did with two rounds of Quantitative Easing.  They were set up to make a single, strong currency that the world can rely on.  They did that well and are loathe to destroy the faith built up by simply printing cash to cover the pending default of sovereign (national) debt.

But once you accept that default is inevitable, there is little choice.  The problem comes in the reserves held by banks who were investing in the European economy.  Under the rules, leverage of up to 450:1 (!!) was allowed when the reserves were sovereign debt.  This was done because default on national debt was unthinkable – it simply could not happen.  So those assets were deemed completely secure.

Here in the USofA, we’ve been dealing with “Too big to fail” and, at times “Too big to understand”.  In Europe the entire system was set up on “Failure is impossible”.

The deal with Greece supposedly allows 50% of their debt to be defaulted on, although that does not include the debt with the ECB and other institutions, meaning it’s closer to 30% overall.  At least one independent analyst (Sean Egan) has said that he believes the default will have to be closer to 90% in the end.  The problem is that in order to cover debt payments you have to tax the people of Greece at a level that will almost certainly wreck the economy and plunge them into a Depression by any measure.  That makes covering the debt even harder, meaning more default.

As tempting as it is to make the banks pay for all of this, many do not have the reserves outside of sovereign debt to keep operating.  Asking banks to take the hit will almost certainly result in bank failures across the Eurozone.

As we all know, the problem is much bigger than Greece.  There is an estimated €3 Trillion in default looming out there right now, and that will have to be made up somehow in order to keep the Eurozone from falling into Depression.  If you estimate at least half of this can be raised by simply printing it, you’re looking at a situation very similar to the Quantitative Easing done by the Fed.

Why are they so slow to do this?  The ECB is chartered to prevent inflation and preserve the value of the Euro, and printing more of it would render the existing money supply of around €10 Trillion much less valuable.  However, inflation would spread the pain around very evenly through the whole system – essentially a tax on everyone for the benefits of maintaining one currency.

This has the additional benefit of lowering the value of the Euro around the world, making exports cheaper and likely providing jobs in the distressed economies.  But this could deepen the Currency War which is always on the verge of becoming more of a Trade War.

No matter what, the motto for the Euro is going to become “Print or Die”.  Exactly how much is an open question, as is how it will be authorized.  We do know that the result will have implications for international trade and will hurt our own efforts to boost manufacturing and create jobs here in the USofA.  But it is still much more desirable than chaos throughout Europe and a general Depression that could well bring the whole world under.

Dave Thune won re-election to the St Paul City Council in Ward 2 on the third IRV re-allocation by 806 votes, a 58/42 win.  It was by far his highest ever once all the sorting, counting, and math were finished the Monday afterward.  The great irony is that the strongest skeptic of the new IRV (or Ranked Choice) system wound up benefiting from it more than anyone else.  How did this all go down?

Watching the IRV Process Unfold

This summary of the election should never be taken as an attempt to take credit for the  victory.  I was part of a team that always started and ended with Dave.  I won’t name names because I didn’t get their permission.  When we finally got to a victory party at Mancini’s restaurant the entire Thuniverse was there, people who have been like an extended family to me since 1989.  Nothing could have happened without everyone pulling together.  The warm daze of summer when it all started to come together glowed from everyone as we recounted how we all got to this happy night.

Preparing the strategy for the campaign laid three strong realities in front of us. The first was Ward 2 itself, a diverse assembly of four distinct neighborhoods of similar size – Downtown, West Seventh, the West Side, and Summit Hill. Many of these communities are changing rapidly as young families move back into the city – making it hard to identify “likely voters”.  The last issue was the four opponents who paid their fee to run, making this an unusually crowded race.

Most of our strategy was the usual route taken for this diverse Ward, which is to print four pieces of literature that spoke directly to the issues important in each neighborhood.  This practice is not common in most campaigns, but is very powerful.  Distinct communities have very different concerns that should be addressed directly.  Failure to do so is always going to tend toward vanilla and plain pieces missing a strong connection.

Common concerns and values extend far beyond simply the neighborhood someone lives in, of course.  Identifying voters as they see themselves is critical to any campaign.  We relied heavily on targeted mailings to voters, speaking to many different issues such as crime, environment, taxes, human rights, historic preservation, and other issues.  That required us to identify these voters, the hard but essential part of any Get Out The Vote (GOTV) strategy.  Voter ID also meant that we knew who were our people, and who to call up, when the election rolled around.

These appeals to voters are important, but the personal connection is even more critical in a local election.  We tried two innovations to do just that.

Through the long summer months, when people were not interested in an election that seemed to be a long way off, we held “Ice Cream Socials” at the houses of supporters and invited the neighbors to see Dave in an informal setting.  Attendance was rarely great, but we did connect very directly with people.  I always joked that it opened Dave up to being labeled an “Ice Cream Socialist”, but they worked.  Parents could bring their kids and be entertained with balloon animals, making a connection with the new families that might be voting for the first time.

The other innovation was a bank of personal video endorsements on the website.  These became very popular, energizing supporters and speaking very directly to people on a gut level.  Dave’s supporters said things that the campaign would have had trouble articulating as well, and often made Dave blush.  They went a bit viral towards the end, circulating widely even outside of the Ward.  The only problem is that there are so many of them the site bogged down.

The new IRV (Ranked Choice) system presented its own challenges.  Three of the four opponents were strong – one on the left, one on the right, and one that seemed to be driven by personal dislike.  Because this was the first election conducted in such a way we were cautious, using the slogan “Make Dave your #1` choice”.  At least one of our challengers actively sought second-round votes, but we felt it would have been unseemly to have an incumbent make the same appeal.  Perhaps in the future this won’t seem so strange.

IRV itself seems to have two very distinct requirements.  One is that while identifying your own voters is critical in any election, IRV requires identifying your opponents as well.  That would make an appeal for a second round by direct mail much more effective and not risk upsetting your own supporters.  We didn’t do a good enough job of this.  Also, IRV clearly does favor upbeat and positive campaigns, which was even admitted by one candidate who strayed from a positive tone.  Good turnout in any election requires that people have something to vote for, not just against, and in IRV that second choice is no different than the first.

All in all, the crowded field did favor Dave as the incumbent because it was hard for any of the other four to stand out in the crowd in a diverse district.  I still think this is a flaw in IRV and I prefer a system with non-partisan primaries where the top two, regardless of party, get another two months to square off and make their case.

What’s next?  Dave will continue to work hard for our city for four years.  The neighborhoods will continue to improve themselves through the grassroots efforts that are simply part of our daily lives.  And Saint Paul will be a great place for all of us.

Thank you again to everyone who made this a great election, including our opponents who engaged the voters and got them thinking about what they want as we all move forward together.  I’ll see you around the Ward, especially as I go around and finish pulling up the lawnsigns (ug!).

The bad news is that ten days out there is no sign of an agreement.  The good news is that it’s taking them so long because they are tackling the big issues such as tax and entitlement reform.

The process itself is deliberately private, meeting entirely behind closed doors.  The news we get comes in the form of leaks and answers to direct questions on how it’s going.  Most members are pretty candid about the possibilities of the panel coming to some conclusion, and some are a bit bleak.  But overall, experts in the field are hopeful.

News trickles out all the same, and if you want to follow it closely there is at least one site dedicated to the proceedings – Fiscal Times.  It is worth a follow if you want to get the latest reading on the tea leaves, often about all we have to go on.

What we do know is that the Republicans have decided that tax reform is not the same as raising taxes, although the effect may be the same.  This is one of the key principles of the Simpson-Bowles framework, and adopting it after nearly a year of speechifying and snarling is a major step forward.  It means that some new revenue, on the order of $300 billion over 10 years, is likely to be in the mix if there is an agreement in the next 10 days.

“The kind of reform we’re talking about is actually guaranteed to create millions of jobs over time and also bring more revenue,” said Sen. Pat Toomey, R-Pennsylvania.  By stressing growth there may wiggle room with the Republican base, but the proposal is on the table.  Will it get anywhere? “I believe that all of the ingredients for a good resolution are there,” according to Rep. James Clyburn D-South Carolina. “We just need to develop a will.”

Medicare reform has been far trickier, with no apparent breakthroughs at all.  It is almost certain to be part of the mix for the Republicans to accept tax reform of some kind, but a deal has eluded them as far as we know so far.

What we can say, however, is that the sides are very serious and are probably watching the situation unfold in Europe as they go forward.  Failure to create an agreement has tremendous consequences which they are all very aware of – even as the clock is ticking down.  Moody’s and other bond ratings firms have been rumored to have weighed in with threats of downgrades, although none has been made publicly.

What will happen in the next 10 days?  There seems to be a lot of will developing for a grand deal that will encompass everything that we know needs to be fixed in the future.  But will it pass before the deadline for all of Congress to act on December 23rd?  That is not as clear, but the relative silence from the rest of the very unpopular Congress suggests that they want to see what comes out of the Super Committee before they say anything.  That’s a good sign as well.

This process may yet work, but it has to work fast at this point.  There could yet be hope for the broken and dysfunctional Congress to achieve something not just adequate, but possibly even great.  We will see.

MF Global, the perfect poster child for “Party like it’s 2007” bad behavior.

This company did more than make a very bad bet, it ran what is now being called “Madoff like ponzi scams” and has $593 million of clients’ money missing.  It even had a prominent Democrat, former New Jersey Governor John Corzine, so there’s something for the Republicans to gnaw on.  If anything, MF Global is too perfect to be the bad guy on a drama that is almost certain to start playing out – it’s time to reign these guys in.

First, a little background.  MF Global had assets listed of $43 billion, making them a decent sized but far from big player.  They were primarily a brokerage house, trading in stocks, commodities, and a lot of government debt.  They were a primary dealer in US Treasuries, meaning that they bought big bundles of US debt directly from the government and sold it off in smaller packages.

What brought the operation down was the purchase of a lot of European government debt that the market had discounted to far less than face value.  The idea was that once a bailout was arranged using cash from hard-working German and French taxpayers these would be paid off at par, making a huge profit.  When the recent deal to pay off no more than 50% of Greek debt was announced, MF Global was left holding the bag – and had to file bankruptcy.

That’s chapter 1 of the story.  Chapter 2 goes back into something a lot murkier.

It turns out that there was something like a ponzi scam being run inside the company that may or may have had anything to do with the entire operation and may not have ever come to light had it not been for this failure.  They also had a nasty tendency to mix corporate and customer accounts.  But where it gets interesting is that this was all financed by (and operated closely with) JP Morgan, a company that has an amazing ability stand right next to nearly ever scandal that takes place on Wall Street.

That’s what’s great about this story – we have no idea what Chapters 3 onward are going to be like.

There is only one thing that is certain in this story as it unfolds, and that is that this is going to prove extraordinarily useful to just about everyone.  They clearly were way over-leveraged in their big bet on Eurobonds, begging for new regulations above and beyond the Collins amendment to Dodd-Frank that have yet to take effect.  They were in the process of moving into investment banking, making supporters of the Volker amendment (and those of us who want a full Glass-Steagall) queasy.  And the name itself has MF in it, giving comedians something to work with as they made big MF bets on all kinds of MF things.

This scandal also explains exactly why the governments in the Eurozone are so slow to bail out sovereign debt and solve the crisis – it would mean giving money to people like MF Global.

While no one can be sure where this story is going as a scandal, we can be sure that its usefulness will not escape anyone.  There’s just too much here to play with.  So while this isn’t going anywhere fast it’s going to be one Hell of a page-turner – and ultimately wind up on big posters plastered everywhere.  Something good may yet come out of all of it.

Meanwhile, I’m going to guess that the missing $593 million will wind up part of the one essential thing that Bernie Madoff never worked into his own scheme – an escape plan.  We’ll see.

This highlights the critical difference between how the US has been handling the Depression so far, which has been primarily to spend our way out, versus the European belt-tightening austerity being forced on member nations. That difference is stark, but it was not a choice – the Euro system is set up so that it cannot do anything else. It’s that inflexibility that is driving the crisis which has the world running scared.

What happened was a complex chain reaction that spooked the markets, as most news does these days. Despite no love for Berlusconi in bond markets, the possibility of instability in Italy made everyone nervous. That caused a sell-off of Italian bonds which, as the market works, drives up the net interest rate on the bonds out there. Higher rates make it more expensive to borrow, which is to say that the already cash-strapped nation is going to take an even bigger hit by borrowing on higher interest. The rate just hit the point where Greece was forced to look for relief from its debts, which means that it may be time for the European Central Bank to step in and arrange a big rescue package for the much larger Italy.

Got it?

Nothing really changed overnight, but the potential for more bailout has increased. And that highlights the problem that Europe has right now which is a system duct-taped together without a strong central authority that could do what we have done here in the USofA – spend, print, and otherwise get a lot more money out in circulation. Our Federal Reserve has been able to make overnight loans and craft “Quantitative Easing” packages while the Federal government ran huge deficits because we can do that. The Fed simply buys up Federal Debt with money they more or less printed. Thus more money gets into circulation.

Contrast that with the European Central Bank (ECB), which cannot borrow on its own and has no related authority which can issue “Euro Bonds” backed by the member nations. It has to go to nations one at a time – usually starting with Germany and France – to ask for support for what they need to do. The bank itself has a very limited charter and their mission states clearly:

The European Central Bank and the national central banks together constitute the Eurosystem, the central banking system of the euro area. The main objective of the Eurosystem is to maintain price stability: safeguarding the value of the euro.

Translation: We ain’t printing more pretty bills here. Our job is to keep it all on an even keel.

There are some great benefits to a system like the ECB and its related institutions. One of them is that by giving them a charter to focus exclusively on price stability (inflation and deflation), they have a task they can manage well. Our Federal Reserve, by contrast, has to watch price stability internally, the value of the dollar as an international standard globally, and our balance trade inbetween. If that sounds like an impossible job to you … well, it is. Bernanke is doing the best he can. The Euro system has one big drawback which is that it cannot respond to a crisis as quickly as the US one because the ECB does not have enough authority on its own. Hence it has to beg Merkel and Sarkozy for cash, crisis by crisis.

Back to the crisis del giorno – what is up next for Italy? The magic point that was crossed was not a sign of impending doom but merely a line that has signaled trouble in the past. Investors generally do not want any more news out of Europe and this little tidbit has turned an otherwise fluid story into something that can be reported with black ink on a white page.

Nothing has really changed and everyone saw this coming a long time ago. But it highlights the inflexibility of the single currency system put together with duct tape and a complete lack of any central authority that can make things happen. Our system, despite its flaws, is far more flexible and responsive.  Remember this the next time a politician calls our Federal Reserve system “treasonous” or otherwise plans to abolish it.

I am greatly honored to be a part of the campaign to re-elect my friend and a great leader for our city, Dave Thune, here in Ward 2. I hope all of you who live here can join me in voting him back in to finish up the great work he has done for us.

I should start by explaining that I am the campaign manager for Dave this time around so that my interest is clear.  But that’s not important – I took the post because I very much believe in Dave and what he has done for us.  He is the essence of what it means to serve at a local level and make a city work.

Saint Paul is typical of many cities in that the burning big issues heat up in the friction between 293 thousand-some people – yet what matters most is that the city keeps moving on, providing essential services that affect and define people’s lives constantly.  The city paves the roads, provides the police, sends out the paramedics, keeps up the parks, and keeps an eye on economic development.  Along with the School Board, they craft everything that we depend on when we wake up each morning.

Campaigns at the local level are sometimes swamped by issues that seem bigger, such as our lingering Depression or the great mess of vacant and foreclosed houses that dot our neighborhoods.  But in the end the people we elect this year are charged with making the city work.

Dave Thune understands the give and take of it in his guts.  His style on most issues is to lead from behind, supporting neighborhood activists who are working to improve their own neighborhoods.  Whether it’s about creating new parks, such as Pedro Park downtown or new off-leash dog parks, Dave has been there to support their efforts.  When neighborhoods have had to take on landlords who didn’t care who they rented to and tolerated very bad behavior that threatened the whole neighborhood, Dave has been there for them.  Big redevelopment projects, like the re-use of the great Schmidt Brewery, started out with dreams that Dave helped to make happen.

Yet what Dave is most known for is taking a bold stand – as he always says, ‘There’s no point to being elected if you don’t do anything with it.”  He was out front for equal rights for homosexuals in the 1990s, and more recently sponsored the city’s domestic partnership registry.  He’s most known for the ban on smoking in bars and restaurants, an ordinance he initiated which cost him a lot of support.  There are many redevelopment efforts Downtown and throughout the neighborhoods that he took on as personal projects, unwilling to let historic buildings be demolished.

Through it all, Dave has been highly focused on making the city work.  When general criminal activity bubbles up, as it sometimes does, it’s always been Dave that brought the neighbors together with the police and helped teach them how to be the eyes and ears that lead to arrests.  Dave has had many sleepless nights over the city budget, about as tight as it can be, working to keep the services we need without raising taxes.

It’s this balance between the details that do not make the news and firm grasp of the big issues that sweep over our city that makes Dave so important.  He’s never shied away from a tough stand when it had to happen, however.  I always joke that Dave has 2 friends for every enemy – but he has a lot of enemies.  You simply cannot balance the needs of a place as diverse as Ward 2 without upsetting some people.  Dave does it with great courage.

Things are tough this year and the challenges we face are harsh.  Yet we have great projects moving forward and life in Summit Hill, Downtown, West Seventh, and the West Side is looking better than it has in a long time.  Dave is slow to take credit, preferring to point to how he simply supported the neighborhoods in their efforts to make things work.  That’s true, but without Dave a lot of it would never have happened.  We need this leadership so we can keep the momentum going through hard times.

Please vote for Dave Thune on Tuesday if you live in Saint Paul’s Ward 2 and put out the flag to remind your neighbors.  Thank you.

People are willing to give up 40 or more hours a week to have it.  The lust for it drives some people to betray their friends’ trust, and the lack of it has driven some to suicide.  In our culture, there is nothing quite like money as a motivator.  So what is it?

I got into this recently when I tried to explain how we got into the current mess.  It’s all a matter of values, a concept I’ve re-iterated a bit by dwelling on the way the rules of the economy are developed in a kind of social agreement.  But that’s not enough for a lot of you because, after all, this big thing called an economy is really all about money – and that’s what matters.  Right?

Asking what “money” is, as a concept, may sound like the stupidest thing possible.  It’s what it takes to survive and do all the things that a modern person likes to do, after all, and you don’t question something like that.  Yet the economy that we have is made up of money and the exchange of it, so the more we understand what money is the more we understand the current situation.  That’s why I turn to popular conservative icon Adam Smith, who said:

“All money is a matter of belief.”

Many people think there is a definite value to money, a sold meaningful purpose that underpins everything.  There isn’t.  Some will tell you that when we abandoned the Gold Standard and went to “fiat” (forced) currency we lost our sense of real value; they never tell us what gold is all about in the first place.  What matter is what people believe in, be that gold, the Federal Reserve, or Canadian Tire Corporation – money is always nothing more than what people believe it is.

Money only means something when it comes time to exchange it for something useful, such as a mortgage or cat food or beer.  That’s when we learn what the real value of it is, even though we have ideas about the value of money in our head from experience.  If there’s too much money floating around, the value of it goes down – which is to say the price of things goes up, taking more money per bag of cat food.  When lines of credit dries up very suddenly, there is a lot less money in the world suddenly, and prices may fall; that explains the massive sales many retailers had in 2008.

This is true no matter what the money is made of.  When Spain found they could loot the bejaysus out of Peru in the 16th Century, it thought that its troubles were over – but a period of terrible inflation set in that destroyed the nation and left it vulnerable to a outside forces that ripped it apart for 300 years.  Even when it’s gold, too much money in the wrong places can create the stagflation that we experienced in the 1970s.

The Dollar is nothing more than a certain amount of numbers that are maintained by the Federal Reserve.   If it looks as though the Dollar is worth less, they make it harder to get – and currently the shortage of Dollars has them doing everything they can to get more out there.  The problems come when you have to compare the Dollar to the Euro or the Yuan or the Brasilian Real.  In this case, the relative values have to be balanced out, more Dollars making it fall versus everything else and so on.  It’s hard to balance both at the same time, but that’s what the Fed has to do.

The other dimension of money that some of us will talk about is how it is distributed through an economy.  It’s clear that when the money is concentrated in a small number of hands the potential for real disaster is even stronger.  Concentrations of wealth marks the start of nearly every Depression, and this one is no different.

I’ve said many times that you can’t have an economy based on making something from nothing.  That sounds like a call to a fundamental law of money, something like Newton’s Laws of physics.  It isn’t.  If everyone suddenly had a lot of money, then money wouldn’t be worth much anymore.  This is nothing more than a practical consideration.  That means that for the rich to remain well and truly rich, they have to not only have a lot of money, they have to have more of it.  That’s the concentration of wealth that leads us around the great wheel of history to Depression.  Note also that if one nation has a lot of wealth, the same principle applies as it relates to other nations – unless they are producing something of real value.

So what is money?  It’s a way of keeping score.  People get so obsessive about it because we live in a world that obsesses over it.  That’s about all there is to it.  You may or may not think this is a good way to organize things, and that’s your opinion – but the basic principle, that money is nothing more than a matter of belief, is certainly true.

That’s not to say it’s the end of financial life as we know it, but reading the news out of Europe you might come to that conclusion.  What’s astonishing is the growing feeling that the public cannot and should not take on socialized risk any longer, meaning that banks are going to have to fend for themselves.  The same medicine appears to be popular for nations that have run up huge tabs.

This is no longer about Occupy Wall Street or even Occupy Main Street.  This is turning into a worldwide rebellion.

Of all the news today the most important is Greek Prime Minister Papandreou’s announcement that the brokered deal made up of a 50% default with a 50% bailout of Greek debt would be put up to a referendum.  This deal is extremely unpopular at home because it also requires serious belt tightening as Greece moves towards a balanced budget.  While most of Europe was talking about how to rescue Greece almost no one got around to asking the Greeks if they even want to be “rescued” in the first place.  Papandreou, a wily old politician, apparently decided he was not going to shove this down his nation’s throat – probably more to save his own hide than out of any noble instinct.  The result is even more delay for the years-long crisis and rising chaos in Greece itself as the government first has to survive parliamentary procedures.

That’s bad enough as it stands.  But the inability to solve the Greek situation has raised questions about what will be done with Italy, a problem on the order of €3.5 trillion as a worst-case.  Wanna talk about “too big to fail”?

The G20, or 20 largest economies, are meeting in Cannes and this will be on the top of the agenda. Europe will probably ask the US and the developing world to pitch in.  Yes, there is a good chance that Brasil might help bail out Europe.  That’s how strange it’s gotten.

Caught up in all this is MF Global, a horribly named investment house gone horribly wrong.  They bought up a lot of Euro debt that looked like it might default very cheap, a play that would have paid off if the Euro crisis had been solved with a big bailout.  It has to be the worst bet in the history of making very bad bets.   They were financed by JP Morgan, which has been remarkably public about protecting its rights in bankruptcy court.  This story has a “where the is smoke there could be fire” feel to it that could play out badly.  At the very least, we may yet get out of this story why Big Boyz like John Corzine, partner at MF Global, have been willing to throw the dice so hard for an expected bailout.  Stay tuned.

While the leadership crises of various kinds play out, there is some good news here in the US.  Jobs are being created – not at a rapid enough clip to end unemployment, but upwards of 100k per month.  We saw this same result in September and had to wonder if it was a fluke after a flat August, but the pace apparently continued in October. Leading the charge are smaller companies, which appear to be hiring faster than large ones right now.  Big companies have fewer planned layoffs through the end of the year as well, meaning that the “churn” of restructuring may be moving towards general growth.  It’s still slow, but it’s going the right direction.

But any turnaround is happening without leadership of any kind.  Politicians are stuck bailing out big institutions of various kinds while the people of this nation are getting on with the business of ending the Depression on their own.  It’s enough to make a Libertarian out of anyone.

Small companies hiring a few people to expand and keep up never make much in the way of news.  What gets the media’s attention is what happens to big companies and nations, which is to say that the news is likely to be lousy for a long time.  We got through October with remarkably little news and a few decent days on Wall Street.  November?  Not been a good one so far.  Perhaps its best to not stay tuned after all.

- From “A Nightmare Before Christmas” by Tim Burton

Halloween is one of those things that’s pretty obvious.  It’s a spooky time of year when everything seems a little depressing – why not make it fun?  Yet any history of the holiday starts with ancient Celts and Romans and winds up … not entirely making sense.  How do we get from religious celebration to gorging ourselves on sugar?

There’s a story here that may or may not mean anything.  But, like most history, it’s interesting when told properly.

There’s no doubt that the roots of the holiday lie in the Celtic holiday Samhain (se-MINE) – one of two days of the year when the realm of the dead is very close to our world. Celts would light bonfires along roads to guide spirits along their “proper” route so that they wouldn’t feel the need to come knocking at the door.  Smaller candles were put inside hollowed out veggies, like turnips, to keep them out of the wind so they could burn all night.

In England these traditions became absorbed into “Guy Fawkes Day” on the 5th of November.  On that day in 1605 a Catholic radical was caught with barrels of gunpowder underneath the House of Lords, the triggerman for a plot of revenge against the anti-catholic laws of the day.  Each year he is burned in effigy all over again, with leave-stuffed clothes to make up the “Guy”.  He is often propped up with a cup to raise money for the charities in the weeks ahead, asking “A penny for the Guy?”  Our use of the term “guy” as a generic term for “man” comes from this.

In Ireland these traditions became more absorbed into Catholic life, turning into a time when prayers were offered for the souls of the dead.  It was combined with All Soul’s Day and celebrated as All Hallows Eve, or Hallowe’en.  People often went door to door to comfort those who had experienced a recent loss and pray with them.

Like so many things in the US, our history is one of the Irish arriving in a land of freedom and finding the cork pulled from all the persecution and superstition.  In the 19th Century the date became associated with pranks and vandalism, often blamed on the souls of the dead that must have been roaming the lands.  There are stories that this was a big night for the KKK, a group with deep Scotch-Irish roots, using the cover of superstition for terrorist activities. None of this is very clear as it was not written down well, but the night became known for mayhem and chaos.

Civic leaders stepped in and found something else for kids to do.  In 1920 the first organized Halloween was put on in Anoka, Minnesota as an attempt to corral the energy away from pranks and into more “wholesome” fun.  Good kids were rewarded with candy and the term “Trick or Treat?” became associated with the celebration.  It caught on, and by the 1940s spread across the US.

The association of candy with Halloween also ran strong in Texas, where the Celtic traditions smacked into the Mexican holiday of Dia de los Muertos.  This seems to be another amalgam of Catholic holidays and pagan beliefs, in this case Aztec in origin.  In this holiday ancestors are presented with treats on an offrenda or alter, and a picnic is often held in the cemetery where their mortal remains lie.  It’s a joyous time of reconnection and fun, not pranks, so the modern concept of Halloween as day of candy caught on very early in the 20th century.

What we can be sure of is that Halloween, as we know it in the USofA, is about a century old at most.  It was created deliberately and caught on because it fit well with ancient traditions and a need for civic order.  The wandering dead meandered in meaning from being the dearly departed to tricksters and gradually our own children made up in costumes.  The bonfires were put safely into pumpkins and the offerings to our ancestors became little treats served up by the whole community.

The pagan roots evolved into other kinds of celebrations in other lands, but they feel about the same in the end.  It’s a spooky day that gradually turned into fun and civic organization.  More than anything, it marks the passage of our world away from superstition and towards civic organization and other more boring stuff.  But the mischief and mayhem shows through Halloween, making it a lot more fun than other holidays.

Ownership of history is, at least in part, ownership of a culture.  Exposing history as a pack of lies suggests that education and culture, as we know it, is nothing more than a tool of exploiters.  The somewhat desperate need to uncover conspiracies is probably nothing more than a political statement borne from the politics of our time, not the politics of 1600 portrayed on the screen.  This trend is bizarre, wrong and … quite fascinating.

Shakespeare doubters have made their cases many times over, but it is worth noting that it is not an old phenomenon.  No one questioned Shakespeare’s existence before 1856.  The movement appears to have gained steam in the latter 20th Century, the exact “true authorship” always a moving target but often settling on Edward de Vere, Earl of Oxford.  The case began by doubting that a commoner could possibly have known as much about how court life worked and how the levers of power operated.  More recently, the snooty dismissal of Shakespeare the Commoner has given way to more elaborate conspiracies hatched in the halls of power to deceive the people.

There is little to any of these theories and considerable evidence that Shakespeare existed and was indeed the author of the works attributed to him.  It has been compiled into one handy pdf that is available for anyone to read.

Personally, I think that the movie “Shakespeare in Love” put to rest all of the outstanding questions about Shakespeare.  It portrayed playwriting as a collaborative process distilled in the sharp mind of a man who had many friends and kept his eyes wide open for inspiration.  Understanding that great works are the product of a time as much as a person is not only well supported by other great artists’ experiences, it is something we can see happen around us to this day.

But this is all beside the point to those who want to find conspiracies in history.   Like the “DaVinci Code”, there is a deep belief that history – and thereby culture – as we know it is a lie, a plot to dupe us all into submission.  No amount of documentation on Shakespeare or gut-level common sense about the artistic process will change that impulse.

That is not to say that history does not have its share of veiled truths and conspiracies hidden deep within it.  My personal favorite remains the story of Vespasian, Emperor or Rome, and how bits and pieces of his triumph from the ashes of Nero and civil war survive to this day. But that particular one is extremely well documented by many historians – despite how it rubs against the contemporary political use of a book of the Bible.  Hidden histories always have a political struggle at the heart of them, and they only stay hidden as long as the politics of the story remains contemporary.

Which gets us back to the movie “Anonymous” and the Shakespeare doubters of the world.  There is no reason for this to have the cache it does other than it advances some kind of politics, feeling, world view, or whatever you want to call it.  Guess number one is that the “hidden history” thriller genre has raked in some decent box office receipts and kept Nicholas Cage’s career alive, which may be reason enough.  But Shakespeare?  Why would anyone care?

I believe the answer is simple.  Shakespeare has a tendency to be crammed down the throats of young students.  Rebellion against rigid education systems based on neat little desks in neat little rows naturally needs a villain, and Shakespeare is one damned good iconic target.

Caught somewhere in the middle is a common culture changing rapidly through global connections and a contemporary near cult-like belief in individualism. There are many contemporary political reasons why the assault on Shakespeare has its followers – but it’s still pure hooey.

There will always be a Shakespeare, there will always be an evolving English language, and there will always be a legacy culture that we have to deal with.  The heart of the story does not reinforce mind-control or threaten individualism, but puts it into context.  That’s far more liberating than the “History is full of lies” dismissal of everything we know – and it’s more accurate.

That’s pretty much what just happened to our economy – socialized risk with private profit.

Supply-side theory, where investment money is made as cheap as possible, is about reducing risk to investors. Whenever money can be borrowed cheaply it will find its way into investments that otherwise would be considered too expensive to be worthy investments.

This kind of policy is supposed to pay for itself by fueling a high level of growth that will bring in more revenue later. This is the “Laffer Curve”, named for economist Arthur Laffer, who has extensively analyzed when and where cuts in marginal rates to investors has worked.  When taxes on investment get too high it is entirely possible to stimulate growth through the economy as a whole by cutting rates, as he has shown.

There are two problems with this analysis, however.  The first is that it does not mean that always cutting tax rates for investment will help fuel growth, as acknowledged by Laffer himself – there is a time and a place for everything.  The second problem is deeper and shown by two times when Laffer gets to crow that his theory worked – the mid 1920s and the late 1990s, times that mark the start of massive credit bubbles that ended with a Depression.

This naturally leads itself to the other side of a cheap money policy, the part where deregulation of banking is considered always good.  The creation of large banks clearly makes money cheaper, encourages investment, and thereby increases the total risk taken on by the entire system.  When their failure is not an option, risk is directly socialized by a bailout – as we saw in 2008.

Supply-side policy is only one aspect of socialized risk, however.

The Black-Scholes-Merton theory dealt with risk directly by, at least in theory, eliminating it.  The concept is simple – any investment can be insured by selling contracts that pay off if it fails, pushing the risk out to a larger market.  This is what we call a “Credit Default Swap” (CDS), which is a kind of “derivative” – a financial instrument that pays off based on some other purely financial event.  Set a big investment up properly and, the theory goes, you can be guaranteed risk-free return.

Without getting into the impressive math that makes this otherwise batty idea look smart, there is a major limit to the application of this work – it assumes a stable, liquid market that does not have a major disruption.  As long as everything keeps on keepin’ on it is possible to eliminate risk in a truly peaceful world.

The application of this work met the supply-side movement in the late 1980s, and you can imagine how the two worked together.   When money can be had for cheap and invested at no risk there is only one thing to do – borrow as much as possible and leverage as many investments as you can.  That’s how the total global market for derivatives reached $516 trillion in June of 2007.  This is not a typo – $516 trillion, or nearly 10 years total world production of everything.

The risk, of course, did not go away – it became socialized risk, borne by the system itself and ultimately governments.  The massive credit bubble that created and defines this Depression was formed by far too much leverage -  Other People’s Money (OPM) – the real opium of our time.  That is what socialized risk is.

It may not set well with some to call risk that is distributed through market forces a socialized risk, but there is no better term for it.  If the risk is not carried by the investor it is shared socially by some mechanism.   There is a government policy pushing the concept at the front and an implied bailout at the back end that distorts the market.

There are some who look at the system of socialized risk and demand that rewards also be socialized by either nationalizing the banking system or, at least, regulating it as if it is a public utility.  The other option is to understand how supply-side theory is socialized risk and ditch the entire concept, at least as it is dogmatically applied to every situation in every economy.

Either way, I’m good with it.  The system we have now, of socialized risk and privatized profit, has shown itself to be a failure.

At the heart of it all is 30 years of an applied theory, a history that appears to be discredited but never been properly repudiated.  As we move past the dogma of Supply-Side economics there is a lot more than government taxing and spending policy to clean up.  There are the banks whose turf is being occupied today, those that are beyond Too Big to Fail and well into Too Big to Understand and simply Too Big.  They got that way the same way our government did – by leaving common sense and history behind.

It’s been 12 years since the big financial bubble was in the process of collapsing for the first time.  Wall Street had a fabulous ride through the 1990s from “high tech” stocks that were largely retail outlets and services making use of the new connections promised by the internet and dramatic improvements in shipping.  The mania simply got ahead of itself, and by 1999 was clearly taking a bit of a pause.  That worried those who assumed the bubble was a desirable thing that should continue on forever.

The single guiding principle – supply side theory – told policy makers that if there was more investment money available the wonderful gains could continue forever.  This time it wasn’t a matter of tax or spending policy, but keeping the party going on Wall Street.  Freeing up banks, the argument went, would make even more money available for investment in the fabulous engine that created more and more wealth all the time.

Only one thing stood in the way.  Since 1933 it was illegal for ordinary banks, those that took deposits and made loans, to invest in securities like stocks.  Banks had to contend themselves with making loans to people and businesses with the money they made off of the interest from other loans.

That law was known as the Glass-Steagall Act, named after its two sponsors.

When it was passed in 1933, the separation of investment and ordinary banking was apparently obvious enough to not be controversial.  The Great Depression was well under way and the failure of banks propelled through every Main Street in the USofA as a general failure of everything.  A wall separating the two was simply a foregone conclusion – although other provisions of the act, such as deposit insurance (FDIC) took a lot more convincing.

Not so in 1999.  By then, the separation seemed antique and a serious impediment to perpetual wealth.  It was quietly repealed and then …  something very big happened.  Take a look at this chart that has been circulating around the ‘net (so I cannot give proper attribution!) showing the timelines for the creation of the largest banks – those that are truly “Too Big to Fail”:

Note that 1999 is the big turning point, the spot on the chart when many become one in quick succession.  Removing the wall between ordinary banking and investment banking created a grab for small banks and other institutions that had good cash flow – money in and out that could be leveraged into short-term borrowing that in turn was put into the stock market, derivatives, other complex investment instruments.

It was only a short step from the merger mania to the channeling of mortgages – the mainstay of many ordinary banks – into mortgage backed securities.  These are bonds with big cash flow behind them backed by ever-rising real estate that … well, we all know how this turned out.  Removing the separation between ordinary banks and investment banks fueled the mania that kept the party going right up until 2008, despite the fact that the rest of the economy was clearly in trouble from at least 2001.

There has been a call recently to re-instate this separation, and Glass-Steagall is being talked about more openly than it probably ever has.  Where its initial passage was not controversial, and its repeal also a forgone conclusion, it is now up for debate.  A bill to do this has not gotten far, languishing in the US House.

What are the demands of those who are fighting Too Big in many forms?  One of them must be to re-establish the provisions of Glass-Steagall – the wall between ordinary banks and investment banks.  Expect to hear a lot more about this in the near future as the excessive belief in supply-side theory – more money for investment is always good – is finally repudiated as the true origin of the massive credit bubble we’ve all experienced.

You can use it as an accusation or from inside someone’s head.  Through its many uses and distinct flavors, you will find that nothing suits the internet quite like second person.

Because of its clumsy nature, you will find that second person is hard to maintain.  You have only one subject, the pronoun “you” that has to be repeated constantly.  You may be put off by the constant usage of this one word, but the effect is immediate and personal.  You are having a conversation directly with the reader in the second person, speaking to them as if they are in the same room.

You will most often find this perspective used in instructions or other teaching situations.  When you use the second person for teaching it is natural to become more passive and cautious.  You may be speaking to the reader, but the subject matter still has to stand out.  Use an implied pronoun to keep instructions from being repetitive, with the verb first and the subject simply left out in sentences such as “Insert the widget into the particle board table top with a big hammer”.   Write each sentence as a continuation of the previous, tying together a paragraph as a complete thought and this form will begin to flow naturally.

Of all the uses on the internet, however, you run into second person most commonly as an accusation.  You can see these examples on twitter and any other social media site when people are supposedly arguing politics but instead slip into a personal game that makes little sense at all.  “You want to control people!  You (fill in the blank) think the way you do because (fill in another blank)!”  Ideally, you find this usage as boring as I do and will avoid it altogether.

Maintain the second person if you find it works to your benefit and allows you to speak directly to the reader.  You may find that it becomes troublesome after a period of time, however.  Give it up in a new paragraph, never changing in the middle.  When you change perspective in the middle of a single thought you run the risk of seriously confusing your reader.

You can and should use the second person whenever a direct conversation with the reader is called for.  But you must be careful how you use it and be very aware that you are writing in the second person.  Watch for it and it will start to pop out to you in many places – but rarely maintained consistently and constructively.

I’m a big fan of ancient music. The idea that a voice can speak to me over centuries has always been a mystical experience that hits me in the guts much harder than the latest pop tune. The personal connection I have with Ludwig van Beethoven is only a part of the experience of feeling well grounded by the sounds of artists long past, the composers whose music somehow lasted and made it to the ears of today.

Recently, however, the classical scene has undergone a genuine revival that puts these great composers in their place. Since the advent of recorded music, every one of the “great works” has been recorded over and over by musicians eager to get their craft out to an audience. But do we really need another “cover” of a work that we all know well? Many young musicians out to make a name for themselves have taken a scholarly approach and dug up works by people we don’t know that sound, suspiciously, like works that were written by figures we thought we knew intimately.

It turns out that none of the great composers of any time worked in a vacuum. This may sound like a huge “Duh!” to anyone paying attention, but it puts everything in a new light. For example, I’ve never thought that van Beethoven’s Violin Concerto in D (Opus 61) was actually written by van Beethoven. It just doesn’t sound like him to me, especially compared to the piece he wrote just before it (Symphony #4) and just after (the Carolian Overture). He was undergoing a lot of turmoil in his life, and in a short time his growing deafness would drive him to contemplate suicide. Was the melancholy but sweet longing of the first movement or the bouncy exuberance of the third possibly written by such a man?

The answer, to me, came when a young violinist named Rachel Barton Pine dug out the Violin Concerto of Franz Clement, re-published for the first time in 200 years in 2005. Clement is important because he is the soloist who performed the premiere of Beethoven’s work in 1806, and is said to have been the one who stood between the concert organizer and Beethoven, who was incredibly late with the score. It turns out that Clement’s own Concerto, written 8 years earlier, is remarkably similar to the one that we call Beethoven’s.

Musicologist Clive Brown, who is responsible for digging out the Clement work, charitably refers to the “hidden dialogue” between the two men. I honestly think that it’s just as likely that Beethoven was in a personal crisis and couldn’t finish the commish, leaving it to Clement to Beethoven-up his earlier work to cover for a friend.

There’s no doubt that there is a relationship between the works, just as there was between the two men who were both responsible. That’s the important part of this whole story, in the end, because no matter how great we insist that a composer must be their work came out of a scene in their own day. There are many other examples of “borrowing” that became obvious in time, such as the suspicious similarity between the Siciliano of Bach’s Sonata for Flute and Harpsichord in Eb (BWV 1031) and an earlier work by Pergolesi.

The idea that great innovation doesn’t come from spontaneous “eureka!” moments in a great mind, but from connections between a number of people that are very skilled in their craft is a strangely recent way to look at history. We’ve been far too in love with the idea of people who became myths, supposedly bigger than the times from which they came.

The lesson that we are products of our times, some products perhaps a bit more durable than others, is hard to understand when we can’t relate well to our own history. Thanks to developments in the depth of the classical music playlist, this lesson can be appreciated in our guts by sounds that wash over us from days long past. It’s a good lesson, and one that I’m happy to hear firsthand.

It’s time to call this for what it is – a political con – and to put it to rest.

It was called “Supply Side” because it was supposed to be the answer to the old Great Depression era theory of John M Keynes that in hard times government could get the economy moving again by “priming the pump” – getting consumer spending going again.  In economist terms that’s the demand side of the economy.  Milton Friedman argued in the 1970s that long term growth came from managing the investment potential of the economy or the cash available for investments.

It seems like a reasonable theory in itself.  Putting this into practice has been trickier.

Since 1980 the theory has run that if you cut taxes for those with a lot of money most of it will go into investments, creating a larger pool of cash for expansion and growing stable businesses.  Supposedly this works best when you cut the capital gains tax, or the rate of taxation on investment profits.

This appears to have worked in the 1980s.  It is entirely possible that a one-time cut in investment taxes will encourage money to go back into investment, but what about a permanent cut that never goes away?  Rich people, like poor, who have extra money tend to spend it.  In a completely liquid stock market the distinction between long-term capital gains and short-term trading evaporates quickly because anyone can move money in and out easily.  So it is only reasonable that the decades of deficit financed tax cuts worked for exactly the reason that they were not supposed to – they encouraged demand just as Keynes said they would.

Consider this data on the growth of consumer expenditures from our old friends at the St Louis Federal Reserve:

We can see that in the 1980s there was a big bump in the net increase year over year, surpassing even the “good years” of the 1990s.  The net effect of the supposedly “supply side” stimulus was growth in consumer spending.

Contrast that with today, where the net growth in consumer spending is considerably lower.  The tax cut of the Bush years that were supposed to encourage investment and create jobs have not done so, as we discussed at great length previously.  But making them permanent has not created a permanent growth in consumer spending, either.  It’s become a spent force that is not doing a thing to stimulate the economy any longer – either for the reasons it is supposed to or the reasons it seems to have worked in the first place.

That’s very consistent with what Keynes taught us.  There is a big difference between a one-time “pump priming” and a sense of entitlement.

More to the point, there is no shortage of investment money sitting in financial institutions looking for an opportunity.  Thanks to the Federal Reserve, there is no shortage of capital – upwards of $2 trillion is waiting.  But it is going nowhere.   “Supply Side” makes even less sense in this environment.

It seems to go without saying that the Federal Reserve does best managing the supply-side and the federal government the demand-side.  If anything, those roles have been flipped right now.  The result is inaction.

What can be done about this?  A paper by the San Francisco Federal Reserve (pdf) showed that the 2008 stimulus created jobs at a rate of $115k per job with about an 18 year payback against the tax revenue it took in.  That’s an investment by any measure, even if you call it a Keynesian demand-side pump-priming or any other term that has seemed out of date since 1980.  A different kind of stimulus in 2008, to create jobs, worked well in 2008 as far as it went.

It’s hard to say exactly what a large Keynesian stimulus looks like after so many years of running one at great public expense.  We’ve been running deficits for so long that an extra boost may not have the desired effect unless it is carefully targeted as an investment in our future – transforming the economy into one that is sustainable and equipped with the infrastructure it needs to grow.  But those investments are fairly obvious and can be identified.  Making them works – and has a real, definable payback period.

The only thing that stands in our way is the will to make those investments, and the only things stopping that is the tired old idea that something called “Supply Side” is more efficient.  It isn’t.  It only worked to the extent it did the same thing we want to do now.  Investment in the next economy, not the economy of 1980, is what it will take to get things moving again.

To gather up the political will to make it happen the first thing we have to do is acknowledge that “Supply Side” is dead.

The times did change.  Protesters now scrub sidewalks and tidy up while speaking very eloquently and kindly about why they are there.  This is nothing like 1968, the year that can be taken as an event in and of itself.  According to a recent poll, a majority of Americans view this protest favorably, a rate ahead of Obama himself and twice the approval of the Tea Party’s hard line.

This is what it takes to start the process of change.  The problem comes when the movement has to focus on specific goals.  That will come with time.

A comparison to the “Arab Spring” shows the difficulty facing this movement directly.  Protesters in Tunisia and Egypt had a very simple message and an obvious enemy – the dictators in charge.  As Saul Alinsky advised, “Pick the target, freeze it, personify it, and polarize it.”  This is essential to all organizing.  For Occupy Wall Street, the target is a more nebulous crew of corporate demons that are hard to pin down.  Where Egyptians had a clear demand – Mubarak must resign – here at home there is no obvious course of action.

What we see now is nothing more than a start.  It’s a great start, but it will have to go to places that very few of those involved are likely to want to be.  The Millenial Generation has a style based consensus that has been hardening into a dogma.  This works well for getting attention and for doing things that can be taken care of easily.  Over the long haul it requires a tremendous amount of energy to sustain the movement – and without some quick victories that energy is going to wear thin in a hurry.

This places Occupy Wall Street at the crossroads of generations.  The movement will have to grow and change or it will die.

What is happening, so far, is very positive and has focused the media on issues that have been ignored for a long time.  The response from Fox News and those who identify themselves on the right-wing of twitter has been hilariously panicked, attempting to paint the movement as thugs who are paid to advance a political agenda.  One even acted as an agent provacateur and then bragged about it openly, a stupid move if ever there was one.  With time this will only marginalize them further than they have been since the Debt Ceiling Debacle showed their hand openly.  This is clearly a threat to the right, especially if it goes well.

How will it play out as similar protests occupy cities across the US?  The answer will come when the movement finds a kind of leadership – and a specific target.  The old rules of organizing will hold no matter what.  Support for the message at hand is strong enough that this movement will not likely die off, so some kind of way forward will be found.

As this fluid situation develops we will all be chatting about it more on twitter.  Please join a small band of Baratarians every Sunday night at 7PM Central time (midnight UTC) for #EconChat where we will discuss the underlying issues and devote at least the last 15 minutes of the hour long discussion to organizing.

I’d also love to know what you think here in longer form – where do you see this movement going?  What about the underlying changes we’ve been tracking in the economy and how they play into this?  What will it take to create a new economy that works for us all?

The first shots came from of a rare bipartisan show of unity in the US Senate, which passed a bill requiring new tariffs on Chinese goods if they do not allow the Yuan to appreciate in value.  63 Senators went along with the measure, including 17 Republicans.  It seems like a popular direction to go, but Boehner has said he will prevent a similar measure in the House.  Obama said weakly that diplomacy is a better approach.

Doesn’t sound like the war is on after all.  But support for it is growing.

The root problem is that by most estimates the value of the Chinese Yuan is lower than it should be.  This makes their stuff cheaper than it would otherwise be, which allows them to export more than an open market would allow.  Exactly how much lower the Yuan supposed is than free market rates is an open question – guesses usually are in the 15-25% range, but allegations run as high as 40%.

It is relatively easy for China to keep its currency artificially low and thus keep the factories humming with export goods.  The Yuan is not commonly held by a lot of banks throughout the world because all trade in and out of China is done in US Dollars.  That does make it easier to control, with the Chinese central bank simply selling off more Yuan and buying more dollars whenever things get out of the range they want it to be in.

Their victory in the Currency War depends at least in part on expectations that the Yuan will not increase in value much in the near future, making it a lousy investment.

There isn’t much we can do about this situation because there has been a flight to the US Dollar over the last two years.  The potential collapse of the Euro, the ongoing weakness in Japan, and an increase in international trade between developing nations (priced in US Dollars) have all appreciate the value of our currency.  Our goods stay relatively expensive – and the USofA remains a nation that makes more money shuffling paper around the world than manufacturing stuff in factories throughout the heartland.

The kicker is that the Yuan may not be under-valued at all, at least not by the Big Mac Index.  This popular game is more than a bit of fun because it demonstrates the problem very well.  If you go by real costs in China, technically known as “Purchasing Power Parity” or PPP, a Big Mac costs about the same there as here.  The problem is not currency manipulation as much as it is very low costs of production in China – wages, real estate, and raw materials.  That won’t hold forever no matter how much the central bank manipulates the Yuan – and inflation in China is growing and likely to be a huge issue shortly.

Give it time.  In the long run, the Free Market™ will sort it out. Of course, in the long run we’re all dead.

We may not have many weapons to fight a Currency War, but as the biggest consumer in the world the USofA has a big arsenal for a Trade War.  The problem is that as a WTO member nation we are subject to their judgments, meaning any kind of tariff will likely authorize retaliatory tariffs in other nations, triggering a situation something like the mutually assured destruction of the global economy.  A Trade War is the financial equivalent of a nuclear war.  But killing off global trade would lower the value of the US Dollar rather dramatically in the long run.

But it’s not like we haven’t tried this in response to a Depression before.

Most economic historians agree that the last global depression was made much worse by the passage of the Hawley-Smoot Tariff in 1930.  It was the most repressive tariff ever implemented by the USofA, designed to shore up our manufacturing and put the nation back to work.  It did just the opposite, closing down international trade and putting millions around the world out of work.  By 1932 both Hawley and Smoot (the sponsors) were defeated for re-election and FDR actively campaigned against the measure, repealed shortly afterward.

A Trade War doesn’t do anyone any good, but it sure looks appealing.  That’s the problem with a Congress that can’t agree on anything internally – it starts to look outside the US for the solutions to the problems it cannot deal with.  There could easily be more of this horrible nonsense  in the future.

If that sounds obvious, it’s partly because we’re living in a world that these two helped define. It helps to take a step back to a time when economics was inherently backward looking, going over old data as it comes out and adjusting to meet the world that was measured a month or several ago.

In the early 1970s central banks found themselves unable to do their jobs. The postwar economy had been built on the foundation of a stable US Dollar backed by gold that was the standard for the whole world. By 1968, however, things had started to change in ways that were not anticipated. The US was no longer the exporting monster it had been when the system was set up and the value of the buck was slipping. Nixon eventually abandoned the Gold Standard and let the currency float to whatever value it would trade at.

Oil producing nations, in part responding to being cut from the loop, took action and jacked up their prices with a cartel. The resulting inflation was devastating and completely out of control. What was the Federal Reserve supposed to do?

Sargent argued during this time that the expectation of inflation helped to fuel more inflation because people planned for it to be a part of their world. Getting it under control was a matter of shocking the system so that people came to understand that policy was going to tame inflation one way or the other – and then waiting a couple of years for this to sink in.

It worked, although the recession of 1980 was caused in part by the rise in interest rates that was necessary to make it happen.

Ever since this time central banks have made expectations central to their policies. This may seem obvious to us today but we can only say that because the work was universally adopted. What’s more interesting is that where traditional economics relies on rational decision making, this work makes no such claim. People act on what they believe will happen whether it’s based firmly in reality or not.

On the other hand, and there’s always another had in economics, expectations shape policies because what people think is going to happen has a tendency to be a self-fulfilling prophesy unless someone steps in to change it. The result is that central banks, along with governments, always find themselves in a discussion about our future.

Back to the politics of the announcement. Sargent, in particular, has long been a candidate for the prize based on his work so there wasn’t a big surprise. But at a time when central banks and governments around the world are having trouble making decisions, and Europe in particular has done little but delay making their big call, highlighting this work makes a definitive statement. Leadership matters, and big problems call for big actions.

The prize itself is not likely to influence how leadership acts, of course. It’s more of a shot across the bow than anything as pressing as the collapse of the Greek economy. But it’s an argument that activist government – and central banking – shapes the way we live. If things are not going well it’s because the right actions are not being taken. If that sounds like a big “Duh!” then welcome to the world of economics.

What matters most is that this depression has not been handled like the previous ones largely because of the work cited in the Nobel Prize. The ability to have a Managed Depression, where the psychology is kept on an even keel even as the economy storms and swells around us, is based on this work. Stay tuned to find out how well it comes out in the end – outside of 10 million Swedish Krona in immediate economic stimulus for two deserving guys, that is.

Being wrong is no crime as long as you learn from it.  So let’s go through and figure out what must be happening to miss so badly.

The net job creation figure is a relatively small number found by subtracting two large numbers, so the potential for error is high.  Unemployment initial claims, the only figure we get in real time week by week, ran nearly 1.7M over the month of September.  In order to get a net job growth of 100k that means that 1.8M jobs were created.  An error of just 5% in the monthly survey that tracks job creation would make it appear that there were no jobs created at all. That’s the first problem – the data are inherently noisy.

The other problem is that I assumed that job creation is relatively static, not changing much from one month to the next.  That is a position consistent with being at the bottom of the cycle where there is little to no change.  Clearly, we are in a very dynamic economy with a lot of job creation and destruction going on simultaneously.  The restructuring to the next economy is occurring all around us.  It’s a good thing.

It doesn’t get us to the creation of the jobs 14 million people need right now, but it gets us moving.  A solid 8-12 million jobs are still needed to have a labor market that is reasonably in balance with the ebb and flow of net job creation, when there would be a net gain of more on the order of 500k per month or better.

What is fueling the change in job growth?  Buried at the end of the monthly jobs report is the average workweek, now up to 34.3 hours.  It takes a lot of time to update the figures, but we can see from this graph stolen from an excellent article last May by Northern Trust:

I apologize for not having more time to fill in the data from 2011 today, but I can assure you that we have been running 34.2-34.3 hours a week this whole year.  That’s down a bit from the 34.6 hours worked in 2006 but up from the 33.7 net in 2008.  Those sound like small differences, and they are, but they mean a lot.

Employers are slow to hire employees but the work is piling up.  There is work out there.

Why aren’t employers hiring more rapidly?  There are three important reasons.  The first is that they aren’t confident that the work will keep coming in, so they are careful to hire.  Better tracking of temporary employees would help us monitor this situation, but there is nothing even close to real-time data on the temp industry right now – a major failing as we work to understand the new economy that is coming which will surely have a significant temporary worker component for a long time to come.  The second possibility is that overhead per employee has increased, making it more expensive to hire, which is probably not true at all – but efforts to decrease this barrier to entry in the job market would be the most significant government policy and leadership change that would help us to move forward.

The third possibility is much more sinister and full of political implications.  Corporate profits can be increased by working employees harder.  Certainly, profits are fairly solid in 2011.  A spooky stock market always encourages big companies to watch hiring closely as a way of managing their largest variable cost – especially in service industries that are more employee intensive.  There is little doubt that this is part of the equation, but we can’t be sure how much.

The net result is that some jobs are being created and there is work for people to do.  It is simply not enough to get us quite to the level necessary for a stable labor market yet.  There is a lot of reason to believe that the Obama administration is watching the stubbornly high Unemployment Initial Claims, a measure of job destruction that comes in real time.  If job loss fell just a few percentage points the net job creation calculation, subtracting two big numbers to get a rather small number, would look a lot better.

For now, it’s good to be wrong.  Things are moving along.  They just have to keep at it.

This year there is an intensity around the numbers that is probably an even bigger predictor of failure.  When greed is beating fear no one really cares about something as techno as data.  When everyone feels good, why not throw a party?  Numbers, themselves, are cold and hard and always ready to disappoint.  This October is setting itself up for a bad time ahead.

But it’s good that everyone is finally watching.

Estimates for job creation in September are coming in a bit higher than what we can expect for the final report, due on Friday.  ADP estimates 91k jobs were added but most economists figure it’s more in the 45k-60k range.  Watching the Initial Claims report week by week suggested it will be more in the 40k-50k range, given that we were right at 420k (4 wk moving average) through the whole month – and zero job growth seems to be at 430k.  Data from our friends at the St Louis Fed:

We’ll see if I am right on Friday, but that’s not really the point.  The intense scrutiny of jobs reports is almost certainly going to be something of a letdown because any of these numbers is just not what we need right now with an 8 million plus job deficit.

What matters far more than the data right now is the psychology.  Being this compulsive about numbers is not a good sign in that department.

It is worth noting that if zero net job growth is 430k initial claims, that means that somewhere else in the economy every week 430k new jobs are being created. Taking a bigger look, we can see that in something like a recovery we have initial claims more on the order of 300k each week:

At that rate, we’d create 500k jobs every month and inside of 2 years we’d have full employment.

The problem is not job creation – the problem is that the economy is turning over, creating and simultaneously losing jobs, especially at larger companies like Bank of America.  This is more evidence demonstrating that what is happening right now is not a permanent downslide but a transformation of our economy.  Getting through this period as quickly as possible is what matters most.

More importantly, there are places that are hiring and growing.  There are good investments out there for the nearly $2 trillion that the Fed has tried to pump into banks and other financial institutions.  It’s a matter of finding them – which is to say that they are probably smaller opportunities that have not made the radar of big institutions.  That is confirmed by the ADP report that came out today.  Growth is at the small end of the economy, as it usually is.

What can we make of all the data as the days become shorter and colder?  There are reasons to believe that Wall Street will panic at some point in this month because the line of really bad news, from job reports to profits to the Eurozone, is long and treacherous.  It’s a spooky month for everyone.  But that does not mean that something isn’t happening in the economy.

It has generally been said that Wall Street is a leading economic indicator, looking out a few years in the future.  That’s pure BS as far as I can tell.  Right now, Wall Street is at least a month behind – probably more like six months.  This is what happens when fear beats greed.  It’s up to the rest of the economy to keep doing what it does and hope that the leadership helps move the transformation along.