I am an ordinary guy who pays attention and would like to share a few policy ideas with you to hopefully receive your feedback.  I read some of your writings and like that you take a helicopter view of issues and are able to simplify complex issues using easy to understand analogies.  My favorite was Squanderville vs. Thriftville.  Unfortunately, no one listens to ordinary guys like me, which is why I am reaching out to you.

            We seriously need a game plan to reintroduce fiscal prudence if and when we return to prosperity.  The answer is to give the Fed/Treasury more variable knobs they can turn to steer economic behavior.

Our policy making system has what child psychologists term “Low EQ” (Emotional Quotient).  Essentially, low EQ is a lack of temporal maturity where near term gratification trumps long term rational decisions that are in the best interest of our country.  Our policy makers are so encumbered by electability that they only seem to act under crisis management.  It isn’t that any one politician is guilty or even that they are collectively guilty.  The system of politics itself is an entity with a personality and behavioral characteristics.  It is the system that has a low EQ and a faulty assessment of risk with the misconceptions of mean reversion during bad times and extrapolated prosperity during good times.  Our current risk psyche in a crisis is, “Just get me back to a good place and I am smart enough to immunize myself from future catastrophe.”

I am most concerned with the sequential propping up of our economy.  Bush Sr’s recession was saved by the dot com bubble and dubious accounting, which was saved by the real estate boom and cash out refinancing that poured gasoline on consumption, which is now being saved by economic stimulus.  While we have advanced in many ways, our way out of our crisis has been quick fix solutions that lack real legs.  When times are good, policy makers are reluctant to back fill the holes they’ve dug for themselves and don’t want to make difficult decisions.  After all, when times are good, why mess with things?  If you are a politician, you take credit for the good times, but you certainly don’t use good times as an opportunity to pay down debt, unless you want to help out your opponent. This mentality creates a serious ratchet effect where we take 1 step forward and 3 steps back.

Group dynamics is where our problems gestate.  Individuals and business create both positive and negative economic externalities from their activities.  Mr. Squander’s activity impacts the general economic health and should pay for the risk he has saddled onto Mr. Thrift.  The key to a solution is to identify and measure the impact of these externalities and either reward or require compensation for the effect of externalities.  In addition, to the extent possible, depoliticize economic policy by moving the decisions elsewhere.

The Treasury and the Federal Reserve Bank have very limited power to make adjustments in our economy.  What if they had more tools at their disposal to make variable adjustments to the economy?  What if in a limited way the Fed and Treasury could turn certain knobs to alter savings, consumer spending, capital requirements, or even taxation?  The obvious issue is usurping the Constitutional authority of Congress.  However, I think that if a new system is far more rational, it can be sold. (Delusion is a prerequisite for us entrepreneurs.)

Let’s examine one variable for simplicity.  Let’s say that there was a national sales tax that the Fed could alter within a strict range of 0 to 2%.  Use of proceeds could be general debt reduction (not to be measured in Congressional budgeting).  When the economy heats up the Fed could bump sales tax to cool things down while paying off the credit card in times of prosperity.  But before we choke on the Constitutional issues, let’s take a peek at other merits.

When the Fed has tools other than monetary policy to slow the economy it can perhaps pinpoint the issue with greater effectiveness.  When a consumer is contemplating a major purchase, price hits him right between the eyes.  Interest rates are only a roundabout means for getting him to slow down.  Most probably don’t even give the interest rate a second thought so long as they can afford the payments with little forethought to the possibility that their economic circumstance could change.  Taking a little steam out of an overheated economy might help us to avoid asset bubbles while paying down debt during good times. 

By having tools other than interest rates, I suspect that the volatility of interest rates might diminish.  Think of what that might mean for the option component of mortgage spreads and the ability of corporations to plan in a more stable rate environment.  Wall Street and hedge funds might not be too happy since volatility is a source of trading profits, but that might actually be a populist selling point of such a program. 

By using sales tax to slow the economy, the government doesn’t need to raise interest rates that also increase the cost of servicing the national debt. It might actually relieve politicians of the burden voters put upon them to create short term prosperity at any cost.  Individually, I think politicians are more fiscally responsible than they vote.  I actually think I have some interesting selling points that might appeal to both parties.

There are a number of knobs I would love to see placed at the Fed / Treasury’s disposal. 

• National Sales Tax (0-X%)
• Credit card surcharge on increased balances (0-X%)
• Cash out refinance surcharge (0-X%)
• Variable capital requirements for financial institutions based on risk.
• Tax credits you have offered to solve foreign trading imbalances

I’m certain there may be other more effective knobs that the Fed / Treasury may be able to twist and turn to improve the EQ of our American economy.  I offer only a conceptual approach to the problem.  We don’t live in a static economy and should never rely on static policy or sequentially static policy particularly when electability is a motivator.  Instead, we should give independent authority to tweak variables, within a range, to correct the externalities of bad behavior and at the same time reduce our national debt.  I would be terribly grateful for your thoughts.

Kind regards,

Kurt Jordan

Ordinary guy

www.MosquitoCurtains.com

Implicitly, the wealthy class pulled a reverse Carnegie.  It lent money to the consumtion class to buy homes, refinance mortgages to go on vacation and to buy consumables.  The motivation was that the investor class could make money and there is nothing wrong with that.  However, the wealthy class didn’t run a credit check and the loans were not repaid.  Who lost? 

Asset values plumetted from stocks, to home values, to all the excess stuff on Ebay for sale.  If you have nothing, you have nothing to lose.  If you are the investor class, you have everything to lose.  As an economy, we pulled a reverse Carnegie and there is no savings for a rainy day. The right hand gave it to the left hand and the left hand spent it.

The solution is to allow capitalism to ruthlessly punish the bad decisions so that those responsible are purged from the system.  The absolute worse thing to do is to try to solve the problem by throwing even more money at the problem through the endless consumption stimulus proposals.  America needs to increase its propensity to save so that we can reinvest in things that will last.  Instead, we tried to spend our way out on the perception of the good faith credit of the USA.  While it creates short term relief, it will cause long term pain in ways that will be very difficult to recover from. 

Economic power is every bit as important as military power and in most cases wields more influence.  China is on course to slowly buy up American assets and that fact matters when we sit down to discuss issues like Iran and North Korea. 

What is interesting about the current financial crisis is the paralysis that it has created and the terrible allocation of the nation’s resources.  I want to leave you with a bit of optimism.  The month before the crisis and the month following the crisis were not all that different.  We still have an educated work force and we still have all the stuff we’ve made or built.  The crisis was simply a wake up call to say, “You were spending your money unproductively!” Instead of mass producing new homes, you should have built something else.  The unproductive effort was a waste of time and resources that will set you back, but thank God we have that information.  Unfortunately, our road out of the mess is exactly the road that got us here, unless we make the tough decisions and re-establish a firm financial foundation. 

Politics measures horizons to the next election.  Polititians are motivated to get re-elected.  It’s the flawed decision structure we’ve made for ourselves.  It is up to responsible citizens to remotivate Washington to take a long term approach to this crisis.

 Carnegie never had the intention to consume all the wealth he had amassed (and I’m not sure any one man had the capacity to do so). His view was that he would use the money to create an endowment to invest in things that would last 1,000 years, primarily the arts. Hospitals and education. What is interesting is that he empirically saw that the public’s propensity to consume would never create lasting wealth. For the general public this was great in the long run, but must have really sucked if you were a Carnegie worker.  These Carnegie workers paid the price for the greater good of later generations though it was not their choice to do so.

 Economies need to be careful that the gap between the wealthy and poor classes does not get to be too wide since envy may cause a revolt.   Certain segments of the poorer class will invariable face certain circumstances where they earn below even sustenance living.  Whether it is mismanagement of resources, or circumstances like a blind brother who is unable to work, war or weather, the poorer class is vulnerable.  They still need to survive and they may very well take what they need to live regardless of how much script their market wage has earned them.

 Wealthy individuals who live in countries where there is a wide gap between the haves and have not’s, live behind tall walls with barbed wire and armed guards.  A smart wealthy class will create some measure of a safety net that ensures that everyone is taken care of at some basic level.  Smart economies create a balance that must be maintained for the benefit of everyone. 

 Pure unregulated capitalism and controlled socialism are two extreme ends of a spectrum of possibilities.  History has shown us that each extreme has certain benefits and flaws.  Unregulated capitalism, where individuals act independently according to their own personal interest will create a class system with an ever widening gap, but will allocate resources efficiently and invest in infrastructure that will tend to improve the standard of living for everyone.  The Industrial Revolution has shown that unregulated capitalism can be quite cruel to the working class.

 Pure socialism is more egalitarian, but is also, terribly inefficient with its allocation of resources.  Socialism will likely go down in history as a failed experiment.  The paradox of capitalism is that when individuals make independent decisions, it is better for the group as a whole though it is not very egalitarian.  Socialism has a similar paradox that a centrally planned economy is inferior for the group as a whole but seems to champion the individuals.  (The Communist made an attempt at socialism, but for the most part replaced the capitalist class with the elite and privileged Communist Party.)  Socialism just doesn’t seem to fit the nature of human beings to differentiate themselves in a world of Two-ness.  The contradiction simply could not endure and it is drifting into Darwinian extinction.  The question is, do we really have free market capitalism?

Upon years of self-reflection, I determined that I lack space between my ears to hold moderate quantities of information at one time. Imagine you are making a salad for twenty people. You find a large luxurious 24” cutting board and an enormous salad bowl. You begin to systematically cut through all the vegetables one by one until your salad bowl is filled. You toss your salad and serve it to your guests.

Now imagine your cutting board is the size of your palm. To make matters worse, every one is very particular about their salad dressings such that you must serve your guests in individual bowls. To accomplish your goal, you must hyper-focus and work as efficiently as possible. Vegetables are flying. Tear the lettuce because that needs to go in the bowls first, four slices of cucumber, and then slice a whole tomato; place part to the side. The half cut cucumber won’t make a mess so it can sit on the counter, but you need to work out of the rest of the tomato because it will run juice every where. Onto another serving bowl, the priority is to finish off the rest of that tomato, a bit more cucumber while you’re still holding the knife, tear the lettuce and on you go.

In the world of computers, this is called low RAM (random access memory). Like your computer, if you don’t have RAM, you need to compensate with high processing speed or you may as well leave the kitchen. You need to rely on short cuts to make it happen, but you definitely need a system. Statistics is a subject I love. It fits my sensibilities of dealing with what feels like large amounts of information and emotion that I triage for relevance and consequence before processing. If there is no relevance to the task at hand and there is no consequence, what ever it is, can wait.

I am convinced that dreams are a way for the mind to re-sort all the impartial information you’ve accumulated during the day. When you go through the day with a small cutting board, you make countless decisions and process using impartial information. You may receive gobs of information, but you only process the information necessary to perform a particular task. All nonessential information gets suppressed. The information I don’t use is still somewhere in the echo chamber I call my brain, but it is one huge tangled ball of yarn. Not only is there partial information, but there are partial emotions, opinions, feelings, hopes and fears that didn’t make the cut to get me through my busy day.

Dreams are the subconscious unraveling of that tangled ball of yarn like sorting the mail at the central mail terminal. The mind is amazingly efficient at this kind of re-sorting. And my brain is very experienced at this since it gets a lot of practice. Because the subconscious mind is so efficient, it often blends information sorting with emotion sorting to form story dreams.

This is why dreams can be so wacky. Let’s say I leave the house with a sultry kiss from my luscious wife. I’m in a hurry, so I tear away. Before I think much about it, I flip on the radio and am riveted to a live story about an airplane that is trying to make a troubled landing. By the time I get to the office, I learn that the airplane has landed safely. Most of the workday is spent trying to appease my biggest client who is furious over an error that I am frantically trying to sort out. Over all, it’s nothing too out of the ordinary.

But as the ball of yarn untangles, I might go home and dream about being naked in an airport with no money to get home. Meanwhile the radio is instructing me to perform all these random tasks to find my clothes. The money is never found but my suitcase is packed full of my wife’s lingerie that I must wear home. Like so many dreams it is often non-linear, non-sequiter, and makes little sense.

I have no opinion about what dreams actually mean, but that is not the point I would like to make. What is important is that my mind requires that I periodically stop and untangle my ball of yarn. Because my cutting board is so small, I need untangling often; and I sometimes drift into an absent fog that I can best describe as a sort of waking narcolepsy. Even while awake I will momentarily disengage the cotter pin and let the fly wheel run free to untangle my ball of yarn. In those moments, I am only a spectator. I can’t direct the untangling process. I can only observe a gibberish rapid resorting that even I don’t understand. For those around me, it can be quite frustrating, “Hello, anybody in there?”

When I mentioned this theory to a psychiatrist friend, he told me that narcolepsy is often treated with Aderal, a commonly used to treat ADD. I don’t take the medication, but I think it is interesting that the two conditions are so correlated.

I have short cuts that I’ve developed for making quick decisions. I use what are called risk-adjusted weighted probabilities. What are the possible outcomes? What are the probabilities of the various outcomes? What are the benefits and consequences of those outcomes? Make decisions accordingly.

I spent 19 years in the financial markets where statistics and risk played a very large part in the financial instruments I sold. I simplify problems by breaking them down into very simple models.

My son and I have a difficulty fitting in to restrictive environments since we become quickly frustrated and sometimes frustrate others. Our liability is also our strength and I wouldn’t trade our quirky quality for all the tea in China. I’ve learned to embrace it and explore it, while I hope I can teach my wonderful son to do the same.

I had lunch with an Israeli professor at Berkeley when I was a student and we were discussing foreign politics. At one point he made the statement if the US withdrew support from Israel that the Arab nations would massacre the population. From my sheltered upbringing, I told him that I found it hard to believe that anyone could be that extreme. He made a very interesting comment, “It takes only a small fraction of the population to execise passion for an ideology, and the masses will either do nothing or get swept up in the passion similar to the dynamics of a mob.

25 years later his message still resonates with me but for a different arena. To get anything done in a group there needs to be a small kernal of passion. A large group can get moving if there is passion. The seeds of passion can be surprisingly small if it is determined enough. The 2012 election is ripe for an independent movement to make its debut in politics.

INSTITUTIONALIZED CORRUPTION

US politics suffers from institutionalized corruption. Polititians are playing by the rules, but the rules are fundamentally corrupt. Influence is purchased because elections are expensive, plain and simple, and I will not belabor the point. A polititian isn’t a polititian if he doesn’t get re-elected. We the people, listen to the outrageous rhetoric with no recourse but to shrug it off.  During election season, we sit around our TVs like we are watching a football rivalry between two college teams. We hear over and over, “We good, They bad” and it is sickening. To be a polititian there are certain practicalities and while everyone seems to be playing within tolerated boundaries, the rules of the game are flawed.

The polititians aren’t bad people, the system is flawed. But it is in no polititians best interest to change the rules since in the current system they hold a political seat. “What? You want to change the rules after I’ve just won my seat? Maybe the rules are warped, but I just won.”  Whenever rules change, someone benefits and someone loses. You can always expect resistance to rule changes. But what are we to do?

As an example, back in the 90′s it used to be that if a polititian didn’t use their campaign money, they could keep it. It was a real recipe for legalized graft. Polititians knew something needed to be done but it wasn’t in their personal best interest to do anything about it. The only way the bill passed was to “grandfather” existing polititians and restrict only new money. Not very sincere politics, but at least it got done.

AN INDEPENDENT AGENDA

I think that independents can rally around 3 general themes that I will discuss in greater detail on another post. The three themes are Productivity, Security, and Transparancy. Sounds like something that could be universally accepted, but you will find tremendous resistance to all three by highly motivated corruptors of the system. It will be worth reading and the conclusions will startle you.

HOW TO UNIFY AN INDEPENDENT MOVEMENT

Independents don’t need to elect their own candidates to get their agenda advanced. In fact it would be counterproductive to do so. When Ross Perot ran for president, he lwas a conservative with a change agenda and simply stole votes from George Bush Sr. A vote for Ross Perot paradoxically was a vote against a large portion of what he stood for.

Using game theory, imagine there are 3 gunfighters with the following accuracy, A=90% B=70% and C=35%.  All three are in a standoff. They fire one shot, and if any one survives, they continue until there is no more than 1 survivor.  Who has the best chance of survival?  When you do the math it is gunfighter C who has the least accuracy. Let the Republicans and Democrats slug it out and sling mud at each other.  Using this strategy, Independents are immune from attack. Imagine now there are 2 gunfighters and you have one 100% accurate pistol for sale. Get the idea?

Since elections are won by a narrow margin, a determined block of 3 million voters could easily have a sharp impact on the outcome of an election. The conservative base will always vote Republican and the Liberal base will always vote Democrat, but it is the Independent voter that will elect the next president. They just need to be organized. 3 million voters isn’t a majority it is 1% of the general population.

Now the question is how do you get 3 million voters to move in the same direction? I suspect that as few as 150,000 passionate individuals can get 3 million voters to move in the same direction. I will make the bold statement that 150,000 determined individuals can move this country in a different direction. We won’t have our own elected officials, we don’t need or want our own elected officials. We would be a defacto coalition party to whomever supports our agenda. In my view this is the only chance for real change in a system that is fundamentally corrupt.

Vote for the candidate most likely to advance the Independent agenda. If he or she doesn’t deliver, take every step to vote him out and try again with a fresh body. It won’t take too long to get the message across.

More to follow in future blogs:

I paused for a moment and replied, “My children have gone to bed for the last 9 Christmas Eves
with the giddy anticipation that some man they met in the mall will come down our chimney and
deliver on a promise. And sure enough, for the past 9 years, they found that promise  fulfilled.
In fact, I would be lying to them if I told them there was no Santa.”

He looked at me for the rest of the evening as if I were a pony biscuit in the pasture to be avoided.

Every Christmas some magic sweeps over our house and my children enjoy the delicious
mystery of Christmas.

Life was simple up until about the age of nine. The first round of questions were about logistics.
“How does Santa make it to the billions of homes in just one evening, Daddy? I’m worried
he’ll be too tired to come to our home and maybe he’ll miss us.”

A little reassurance was all that was necessary at 9, but at 10 the same question came around.

“Well, I don’t really know for sure and I’ve wondered myself about that very same question.
Maybe there is Santa time where a second to us is like an hour to Santa.” Their smiles
reaffirmed that I was the most brilliant man in the world with all the answers, while I felt lucky.

At 11, I still didn’t know quite how to respond especially since the kids at school were adding
their 2 cents.

“You know, maybe he can’t make it to everyone. It’s only a theory of mine, but maybe the
kids are right. Maybe Santa casts a spell over parents and puts them in a trance that they don’t
remember. What if I tie a string around my toe while I sleep and see if the string gets broken?”

Sure enough, on Christmas Day the kids ran into the bedroom to check the string, even before
rushing down stairs.

On that same Christmas, my son received 3 gifts. The main gift was defective, and the second
gift was a remote controlled dragon fly. He went out into the back yard to fly his dragon fly
and a hawk swooped down and snatched it in mid flight and flew away with it. It was a tough
Christmas understanding why Santa wouldn’t hawk-proof his gifts, but my children still had faith.

This year, my daughter came home with news from the older girls in her ballet class that parents made
Christmas come true. On a pinky swear, I told her that I believed in Santa Claus. I was just as puzzled
as she was with the news.

“Honey, I just don’t get it. No I’ve never seen him and I agree that those guys in the mall
can’t all be Santa, but I just don’t understand how it happens.”

We sat together searching for answers. “Honey, maybe Santa only comes to those who believe.”

“That would make his job easier with fewer kids to visit.” she said.

I explained that some people are in touch with the magic and some are not. “Do you believe
in God?

“Yes”

“Have you ever seen him?”

“No.”

“Who do you think is closer to God, you or me?”

“Me.”

“That’s right. I’m 49 and you are 12. You came from the other place only 12 years ago. It’s
been much longer for me. That’s where the magic is. That’s why younger kids believe. Some
people have the gift for a very long time and others lose it. I suspect that when they lose
it they get a little envious of those who still have it. Maybe they try real hard to get you not
to believe because they are sad.”

“Yes, dad. And maybe the parents have to step in for the non-believers so they can
still have Christmas.”

“Honey, I’m no expert but, you made a really good point.”

“Thanks, Dad.”

So this year, she will go to bed with the giddy anticipation that Santa, and not some fake mall
Santa, will come down our chimney and fulfill a promise. I have a pretty good feeling that her
faith is just strong enough for that promise to BE true.

]]> http://www.mosquitocurtains.com/blog/2009/12/04/santa-lives/feed/ 0 http://www.mosquitocurtains.com/blog/2009/12/02/welcome-to-mosquito-curtains-blog/ http://www.mosquitocurtains.com/blog/2009/12/02/welcome-to-mosquito-curtains-blog/#comments Wed, 02 Dec 2009 07:41:57 +0000 Administrator http://www.mosquitocurtains.com/blog/?p=3 Hopefully, this will be one of the most interesting blogs you’ll come across.  We talk a little business, but mostly share deep thoughts about life.  Sometimes when you are on your porch protected from biting mosquitoes, you will just start to think!  You are invited to participate.  You may not agree, but is every supposed to agree?