Thursday, May 26, 2011

Pogo's simple truth as amended by the Constitution

Pogo, one of my favorite comic strip characters of long ago, famously said that "We have met the enemy and he is us." Sounds right to me, especially if we begin the snetence with the first three words in the Preamble to the Constitution.
As amended Pogo's simple truth would read "We the People have met the enemy and he is us.
Our own individual financial situation is known, or should be known, in some detail to each of us. We have no debt, some debt, too much debt, no income, some income, no savings, some savings, no expenses, some expenses, no hope, some hope and so forth.
We also know that we can't save or invest for the future if we spend more than we make in the present. And that if we do save or invest, the decision about how early, how much, how often, and what to invest in are all critical.
And that if instead of saving and investing, we spend more than we make, someone has to loan us the money to do so. And if someone does loan us money, that someone expects to be repaid and to also receive a fair rate of interest during the time the loan is outstanding.
That's just simple math. And simple common sense as well.

The same applies to the financial affairs of our country's local, state and federal governments.
In that regard, "WE THE PEOPLE" have spent many decades getting into a financial mess. Debts are at record highs and annual deficits continue to grow while the economy stagnates. That's pretty much universally acknowledged. Something has to be done to change all this by "We the People".
So what kind of change needs to happen when we face our current ugly reality .... at what some believe is a point of seemingly no hope for future generations? (A recent survey of Americans reports that 50% of Americans believe that our country will go broke before we reach a balanced budget. Needless to say, they survey didn't report when we would begin to repay the trillions of debt already owed.)
In other words, what are we to do when debt and deficits have reached levels which are clearly unsustainable? Simply, we as a society must reduce expenditures, increase income or invoke some combination thereof in order to stop the deficits and begin to pay back the excessive debt and interest charges we're incurring. Most importantly, we must enable sustainable economic growth in the coming years and decades.

{So if it's so simple, why is it that the process hasn't already happened? Because in large part, I would argue, "We the People" have for far too long engaged in a combination of what economists label as rational ignorance and rational irrationality. Simply put, rational ignorance means that we don't invest the time to become informed citizens on these matters and instead defer to our elected representatives. One vote won't affect the general election outcome, we choose to do other things with our limited time than be informed about our economic reality as a country.
Similarly, rational irrationality means that it's rational for us as individuals to act in a manner which may make us "feel good" but is contrary to the general good of our society. We thus enable our elected officials to make commitments and spend money we don't have in order to do favors for those constituents and factions which seek them. The public employee unions and the elderly are perhaps the best example of this "feel good" effort. Again, the thought is that it doesn't affect us, at least in the very short term, so why bother?
Since "We the People" don't take the time to know what's going on in the larger sense, (rational ignorance and rational irrationality), the politician commits us by granting special, albeit mostly unfunded, favors to selected parties, and the general economic situation deteriorates. In the short run, we may "feel good", but in the longer term, we end up where rational people acting rationally knew we would. Enacting legislation which helps certain people but for which we don't pay doesn't serve our society well at all.

So what do We the People do now? First, as individuals we stop acting in a rationally ignorant and irrational manner with respect to both our government and, and where the shoe fits, in our personal affairs as well. Second, we face the fact that the next thirty years won't look anything like the last thirty years. In this regard, things like housing, employment, investments ("financial repression" is a concept that needs to be broadly understood, for example), entitlements for the elderly, the costs of public education, national security and so forth must all be on the table for consideration.
But to have an ongoing serious and adult conversation about these things, we must do our part to change the existing culture. That's due to the fact that, as Pogo said, we the people are now our own enemy. Therefore, we also are the solution to the problem. It's that simple and that hard, too.
And why do we each need to play a part in changing the culture? Because it's our country.
With respect to changing the culture, John Kotter's eight steps ("Leading Change" book of 1995 or google/bing Kotter's 8 steps) of the transformational change process come to mind. We begin by (1) Creating a sense of urgency, (2) building a coalition, (3) creating a vision of what needs to be done, (4) communicating that vision, (5) having small successes, (6) building on those successes, (7) overcoming obstacles and (8) finally, the culture changes. In other words, lasting cultural change comes last and not first.
While fully realizing that I may be, although unintentionally, playing the role of windmill tilting Don Quixote here, I'm looking for fellow Quixotes ..... concerned citizens .... to commit to becoming better informed citizens and volunteering, with a sense of urgency, to join the coaliton of the willing. It's critical to our vision of a free and secure people operating in a market based society, thus passing on the American dream and promise to our children and grandchildren.

So here goes.
Today as a country we have more debt than we have plans to repay during the next several decades at least. In fact, we have exactly zero plans to repay any debt, and plan to spend more than we take in for the indefinite future. That's an untenable situation. Government induced "financial repression" lies ahead, meaning negative real andn nominally higher interest rates as far as the eye can see. That has serious implications for all of us, and especially for savers and investors, as well as for borrowers.

In the final analysis, this will come down to sustainable economic growth. Sustainable economic growth comes from free people participating in a market based economy. The bigger the role of government, the less freedom for both the people and the economy.
So we'll argue for a smaller role for government. More freedom for the people.
And a bigger dose of self reliance for individuals and families.
And a deeper understanding of what being an American means with respect to our responsibilities as well as our rights.
And we'll make the case for informed citizens acquiring more knowledge about how our people, our government and our society works best.
We'll deal with all these issues and hope to get input from our fellow citizens along the way to building a better America through knowledge, involvement and understanding.
To repeat, Pogo said it best, "We have met the enemy and he is us."
Thanks. Bob.


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  2. Great article! It encapsulates and re-enforces everything we have been discussing at your office.

  3. By searching the internet for terms like "public choice theory," "rational ignorance," and "rational irrationality" I have found logical explanations of a free society's choice to enact policies that will pile up unsustainable debts and future obligations. So far it has been in the best interests of various groups of people to exploit the ability to organize and apply pressure to lawmakers to pass laws that will enrich certain segments of people by applying the costs to the society as a whole and, probably more importantly, to future generations.

    That practice seems likely to end. Although the actuarial facts have been plain to see for decades, at any given time during the past several decades we were able to claim that our current debt levels and near term projected debt levels were not alarming. The long term, which is now becoming the short term, picture was scary, but it was always possible to claim that some factor or factors - economic growth, entitlement reform - would change to alter this dire picture before the problem became real.

    We are now seeing that the problem, unconfronted, will not go away, and that decisions about what to do with limited resources will actually have to be made. Until very recently, it was understandable to believe that no politician would propose a limit on the cost of medical care our society would cover for an elderly citizen. Such a proposal has now been made. The predictable response to this proposal has been to accuse supporters of this proposal of attempting to harm senior citizens. It is logical that a plan that proposes the change from a policy of unlimited care in the name of fairness and compassion to one of "defined contribution" and individual responsibility in the name of cost rationalization would provoke such a response from a compassionate society. But the response to this accusation is equally logical: The "fair" and "compassionate" policy is not economically sustainable, nor is it "fair" or "compassionate" to the generations of people that would be called upon to attempt to provide the resources to sustain such a policy.

    The best news is that we will act, and that by acting we will learn, survive and hopefully thrive. It will make sense for the presently "young" to support the presently "elderly" along the lines of the programs and benefits that have been expected. We are compassionate people. It may even make sense for these younger generations to demand "fairness" by attempting to preserve the entitlement system for the "long term." If the tax burden is sustainable, the lending desire and capacity present, so be it. If not, these younger generations of people will adjust their expectations of future support and begin to plan and work according to the new paradigm. I suspect that this change in expectations of the "safety net" will give these generations of people credibility and authority in persuading the presently and soon to be "elderly" in making responsible decisions and concessions concerning the care they receive at the expense of others, making all citizens partners in deciding what to do with the limited resorces available.