Sunday Issues Links: 7 December 2008
A Healthcare History Lesson for Obama

A Government’s Failure to Communicate

category_bug_politics.gif Before I get rolling on this story, you should know that I am so far removed from being a mathematician that the most important thing (aside from blogging) personal computers have done for me is balance my checkbook.

Until I got my first financial software (whenever that was), it was questionable whether the amount of money I thought I had in my checking account had anything to do with reality. Fortunately, to forestall overdrafts, I’ve always been good at estimating in general how much I’ve got and how much I’m spending.

To further convince you of my mathematical deficiencies, I'm pretty sure that most if not every time I've calculated percentages for a TGB story, a reader has corrected me. None of this keeps me from being amazed at the idiocy of economists that even I can recognize.

ECONOMIC ITEM NO. 1
You would expect economists to understand simple math at least as well as I do, so I was stupefied when an Australian friend, Peter Tibbles who has contributed some excellent stories to The Elder Storytelling Place, emailed about a looming merger between Qantas and British Airways. According to Peter, national laws of both Australia and Great Britain require that 51 percent of each company’s ownership be held by nationals of their country.

Economists have blessed this potential merger so I assume, to facilitate it, they will figure out how 102 percent equals 100 percent while preserving each company's required ownership majority. (Do check my figures on that.) Peter noted in a followup:

"More on economics and maths: a local economist said that if BA had 49 percent of Qantas they would have effective control of the company. Apparently if Qantas has 49 percent of BA it doesn't give them effective control. 'Run that by me again,' I said to my TV. There was no response."

ECONOMIC ITEM NO. 2
What has taken up way too much room in my brain as I've followed the economic crisis over the past months is that every economist I've read (and financial reporter) (and Wall Street master of the universe) (and designated media expert) has expressed surprise that the housing bubble burst. “Didn’t see it coming,” they say. Do each and every one of them suffer from short-term memory loss?

Prices of everything go up and prices of everything go down - back and forth in perpetuity. I'm no more a historian than a mathematician, but even I've always known that, and until recently I hardly ever read the business section of the paper.

When it became evident, in 2005, that to survive, I would need to sell my Greenwich Village apartment and move to a less expensive place, I was already worried that I had missed the peak of the housing bubble. I could see from my research to determine an asking price that even in the No. 1 most desirable (and expensive) neighborhood in New York City, prices were softening and an increasing number of people were cashing out.

It took nearly ten months to sell as I watched the market softening further while I waited for a purchaser. I got a good price, but not as high as it could have been a year earlier. Even a housing and economics naif like me could see the slump coming way back then and I hadn’t even heard of all those toxic mortgages yet.

How did I know? It wasn't hard. It took me about half a day of online research to find out that, occasional spikes notwithstanding, housing prices had been slowly creeping south for a couple of years - not by much, but evident; there were more for-sale and for-rent signs in my neighborhood than during the preceding decade; more empty store fronts; and I rejected several frighteningly low offers.

So here's the question: why did I, a non-professional with no more than a high school diploma, know a crash was in the offing and the experts with all those letters after their names say they were surprised?

ECONOMIC ITEM NO. 3
For a year or more, the U.S. government and their journalist mouthpieces repeatedly reported that the economy had not met the requirements to be officially declared a recession. The arcane formula generally defines a recession as TWO QUARTERS of decline in the GDP (gross domestic product).

Last week, economists at the NBER (National Bureau of Economic Research), who track these things, announced that we have been in a recession FOR A YEAR.

If I'm not mistaken, a year equals FOUR QUARTERS (again, do check my figures) and if that is true, why wasn't it announced that we were in a recession six months ago? Not one journalist in my extensive online reading has questioned this discrepancy. It produces the kind of cognitive dissonance that makes my brain rattle around in its casing.

More importantly, it leaves me wondering what number of financial decisions bankers, Wall Streeters, CEOs, government agencies, small businesses, not to mention individuals like you and me did not make or made poorly because the government did not announce the recession when it officially occurred.

Might I (and you) have moved my pitiful nest egg out of some of its investments that later failed enough to shrink it by 30 percent? Maybe, maybe not. But I certainly would have been paying closer attention and might have prevented some of the loss.

As Paul Newman famously said in Cool Hand Luke:

“What we’ve got here is a failure to communicate.”

And this time the consequences have been more dire than the outcome of a movie plot: some portion of trillions of dollars lost because the government failed to communicate. Newman, as Luke, was himself quoting actor Strother Martin who, earlier in the film, elaborates on the statement. If you are as cynical as I am, you will be interested in Martin’s full speech:

“What we've got here is failure to communicate. Some men you just can't reach, so you get what we had here last week which is the way he wants it. Well, he gets it. And I don't like it any more than you men. [emphasis added]

Hindsight is 20/20 and hypotheticals can’t be proved, but I wonder, I wonder if the losses – corporate and individual - might have been less drastic if government economists had communicated the recession earlier.

[At The Elder Storytelling Place today, Susan Gulliford explains how difficult it can be to do A Simple Bathroom Update.]

Comments

I heard something on the radio the other day that was sort of math related: Did you know that 60 is the new 50? That's because all the money you saved for the last decade has disappeared.

You could tell there would be a housing crash by watching shows like "Flip this House". And by seeing that regular working people could no longer afford to buy a house in our area. Suddenly one year everyone added a 1 in front of the asking prices for houses. So 80,000 houses were now 180,000.
Our property was just devalued by 22,000 by our town. However, that doesn't mean our taxes went down, just that the mil rate went up.
I wonder what would have happened with all that "lost money" if everyone had given it away to someone else before the crash. Or if we'd all just spent it.

Mom and I have been feeling the same dissonance for quite some time. We sit with our morning coffee making comments on the political and economic situation and shake our heads at all of the things we have seen coming but the experts seem so oblivious about. We have seen the deterioration of the job market for the last eight years--all of the time our current Lame-Duck-In Chief has been boasting of how many jobs his administration had been creating. We watched as the Federal government moved to bail-out one big financial institution, allegedly to free up a frozen credit market, and asked ourselves why they could possibly think that simply providing bushels of money would necessarily lead to increased lending. We are watching now as our congress-critters appear to be moving toward a 'loan' for the auto industry (thankfully not as big as the 'applicants' wanted) ostensibly to preserve jobs dependent on the industry and ask how they are going to ensure that the jobs are preserved. Everything I have seen indicates that massive numbers of jobs are going to disappear with or without the bailout and the ones that remain will have been bought at a fantastic price. I am like you. I wonder how those whiz kids with the degrees in economics and finance couldn't see the brick wall.

I guess no one in government has what it takes to be the proverbial messenger. Dee

What we have here is a total lack of candor and accountability. The only thing that's changed since the Dow cracked 7,000 in February 1997, is the BS factor in valuation, and now the chickens have come home to roost. We can give Paulsen all of the worthless scrip we can print, but at the end of the day our economy has been an Enron-style house of cards for more than a decade and now we have the people who engineered this train-wreck in charge of cleaning it up... IMHO

Well, we don't know that no one predicted it -- we just know that no one reported it. Or at least no one we heard.
My own head-shaking has been about the inflation rate. I don't know how journalists, who presumbably shop at the same grocery stores I do, have been faithfully announcing the official inflation rate for years...a rate that's been completely out of step with my groceries and utilities.
If you did want to communicate, how would you do it? How do you communicate with an audience fractured by ideology and technology? We've splintered into multiple audiences--blue, red, young, old, wealthy, well-off, poor; NPR and Rush Limbaugh, American Idol and the Daily Show, scores of channels on TV and radio, not to mention individual aggregators so we can decide in advance what news we'll consume online.

It's not just "a failure to communicate", it's also (or maybe "mostly") a severe case of the "ENC Syndrome i.e., we have beenliving through a severe epidemic of "The Emperor's New Clothes" malaise.

Everybody knows the story of the con-men disguised as tailors who arrive in the capitol and manage to scam the Emperor and his subjects that they could make the most beautiful clothes in the world. The Emperor and his subjects fall for the con and the Emperor goes to their shop, gives them several bags of gold, takes off his clothes and the scam-talors so him into a beuatiful outfit which he then shows off to all his subjects as he parades through the main piazza. The people see the Emperor walk along -bare assed naked but since only "stupid peasants" can't see the beauty of the Scam-tailors creations, nobody says that the Emperor, is buck-naked, except one little boy of seven, who announces loudly to his mom as he sees the Emperor walk by "Mom, he's got no clothes on"

Most of us knew that housing prices were drastically inflated and that the stocks was absurdly over-priced but we thought we'd won the lottery so nobody said a thing until it became so obvious that even the government couldn't hide the truth anymore.
We've been scammed alright, it a severe case of ENC syndrome and the fundamental cause of the disease? Greed

Noriel Roubini saw it coming a couple of years ago, he wrote about it, lectured about it, sent our press releases about it, and nobody listened. I started warning my friends and family about a year ago May, and was told, "You are engaging in worst case scenario thinking, don't worry about it, it won't happen." so many times, that I decided to take our (husband got tired of hearing me drone on and on) retirement money out of our 401K mutual fund portfolio and put it in a money market fund instead. On September 19th, after the government decided to insure money market funds since one broke the buck, my husband and friends that ridiculed me started to take notice. The message was always there, it just wasn't "positive", therefore, no one really wanted to listen to the canaries chirping that the air was bad. As many of your readers have surmised, they saw it coming, you saw it coming, but the almighty government that has our best interest in mind (chuckle,chuckle) didn't give the folks permission to worry. And watch Mr. Obama...he is sounding more and more like Bush by the day...another major scam has been perpetuated on the American public...I really don't think there is much difference between parties anymore...my gut tells me this and from now on, I am going with my gut, not what I hear politicians, economists and the like say in order to get what they want.

Remember, after 9-11 President Bush told us citizens to keep shopping. Our value to the economy -- and hence to companies and to the government -- is only as consumers... our collective ability to buy stuff.

Large portions of our corporate-owned mainstream news media seem intent upon reinforcing this. So, the news we get has been filtered, massaged, slanted, &/or tilted to keep us blindly buying stuff. Any truths and economic inconsistencies that get in the way -- such as the two you've described above -- are readily minimized or ignored.

See:
http://www.storyofstuff.com/

The reason the government economists didn't realize we were in a recession is that their brains were not getting enough oxygen from that rarified air they all breathe in Washington D.C.

I don't think that the smartest people in the world can fully control business cycles. At 76 I have lived through a lot of economic downturns. This one is one of the worst, probably because of a perverse philosophy of selfishness that can be traced back in a large degree to Ayn Rand and her hateful ideas, so eagerly embraced by Alan Greenspan. But we are all to some extent responsible. We voted in Bush and his cronies, and we participated in his program of waste and greed. Everyone I know has suffered to some extent. I am more fortunate than some, because I was never much interested in being a consumer of things. I have too many of them anyhow. My money was conservatively invested, and my income has been reasonably stable, but I will have to be more careful in the years to come, and I will probably have to spend some capital. I disagree with Stacie, I think Obama will do a lot better than Bush. He is interested in the common good and is not the captive of ideologies of selfishness. Also he is really smart. Notice that he hasn't urged us all to rush out and buy TV sets, as Bush did after 9/11.

Here is another article that I think would be helpful to read.

Ayn Rand wasn't hateful...she was just another woman that saw what was coming down the road, and now, her novel Atlas Shrugged is alarmingly non-fiction. Nationalizing private industry? Today's front page news...oh yea...Obama has hired back many of the men that tried to shut up the women that warned about this...
Change? Please.

I'm from Michigan which has, according to the numbers, been in an 8 year recession. At least the auto industry produces something. And,contrary to repeated old perceptions, performance and reliability have been improving. Wall Street produces little. The Wall Street "wizards" move things around with smoke and mirrors. It makes me furious that Sen. Dodd who got huge campaign contributions from the banking industry and is supposed to be watching over them because he's (I believe) chairman of the Banking Committee, complacently hands over billions to the banks without conditions and castigates the auto people. Such hypocrisy.

Our country's economic crisis has caused a number of ethical conundrums. A sign of the times, and one that effects seniors, is illustrated by what's happening in Mooresville, N.C. The town has repossessed 11 cemetery pots because people haven't paid their bills. There is an article on the repossessed cemetery plots at Ethic Soup blog:

http://www.ethicsoup.com/2008/12/death-dying-ethics-cant-afford-to-die-cemetary-plots-repossessed.html

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