Sunday, April 24, 2011


Since the beginning of August last summer, my IRA is up more than 15%. Going through the statements, there was one month (November) where the portfolio value went down. Otherwise, it was all good news. In September alone it went up more than 3%. October almost replicated that performance. The best performer has been a developing markets fund. It's gone up in excess of 40%, most of which happened in 2010. In retrospect, I probably had too much of the portfolio in U.S. stocks. Live and learn.

When I was a kid in NYC, the mental model I learned was that America was the New World, Europe was the Old World, and much of the immigration that made the country great was from Europe to America. My mom was an immigrant. My dad was the child of immigrants. The unmistakable theme is that immigrants create dynamism via their own striving. (Richard Florida has been drumming to this theme as of late.) NYC was the melting pot where these immigrants became Americans.

It is very hard to tell how much a change in perspective is simply a matter of change in oneself versus how much is due to change in the world around us. Either way, I no longer hold that childhood belief. I have the distinct impression that America is now part of the Old World. Some of this is simply looking at the countries that make up the targets for that developing market fund:
Argentina, Bahrain, Brazil, Bulgaria, Chile, China, Colombia, Croatia, Czech Republic,
Dominican Republic, Egypt, Hungary, India, Jordan, Kazakhstan, Lebanon, Malaysia,
Malta, Mexico, Morocco, Oman, Panama, Peru, Philippines, Poland, Russian Federation,
South Africa, Thailand, Turkey, Ukraine, United Arab Emirates and Venezuela.
But much of it seems to be that we are so caught up in protecting what we already have and fixating on the decay in that. We don't seem to have a vision in how to make tomorrow better. Of course nativism has long been a theme in American history, for example as depicted in Gangs of New York. But the issue goes well beyond nativism. It is mainly about elites "cashing in" rather than reinvesting in the future. President Obama said as much last last October with his line about the Absence of Shovel-Ready Projects. Health care has taken up and will continue to take up so much of the bandwith on the political front that there seems to be nothing left over to discuss big investments.

High speed rail has been in the news as of late, such as this editorial from last week and this op-ed piece in today's paper. But the discussion is almost exclusively about outcomes - whether particular projects get funding or not. There is no discussion that I can see about big picture issues that the investments might address. We've gone through a revolution in communications. Yet with transportation it's been closer to stasis, perhaps even a step or two backward. Air travel is worse now than it was under Clinton. That may be a necessary consequence of 9/11, though I'm less sure about that. Doesn't it make sense to invest in alternative modes of transportation, simply for that reason? What's sensible with transportation, of course, depends a lot on your forecast of the future price of gasoline. Self-insurance against the real price of gas rising substantially suggests investing in modes that economize in this dimension. Both arguments favor investments in rail, but to make that a go you have to believe government spending can accomplish large, big picture outcomes. Instead we're discussing drilling in the Gulf, nuclear power plants, and cutting Federal spending across the board in the infrastructure/development area.

I haven't done a careful accounting of this recently, but it seems to me that my family's expenditures don't correlate all that much with income. The big drivers are life-cycle things - college for the kids, a third car for them, the insurance for that, etc. - and possibly some spending as release valve for work-related stress. Last year we moved our "exercise room" in the basement to what had been only used for storage so my wife could have a reasonably functional home office. (My office is my castle. Now she has hers too.) If the country as a whole had spending patterns like my family has, tax cuts wouldn't help get us out of recession, as they'd offer very little demand stimulus.

And that seems to be what we are seeing. The national mood is foul, the tone very pessimistic. Monetary policy has been extremely expansionist, but with interest rates so low already, that sort of push doesn't help much. Perhaps it is better than the Fed doing nothing. I'm not sure. It does seem to be the wrong lever to push hard on. Still a Keynesian at heart, to me the right lever to push on is aggressive government investment in new infrastructure. We're seeing the exact opposite, of course.

A couple of weeks ago Matt Bai had a piece about Mario Cuomo in the Times Magazine. Several parts of it resonated with me strongly. I share the values Cuomo articulates. He discusses luck versus pride. Feeling fortunate for success (the case in point was his son Andrew becoming Governor of New York) doesn't mean you should feel the good outcome is a consequence primarily of your own efforts, quite the opposite actually. The philosophical underpinnings for a social safety net rest in attributing much of the social outcome to luck. In contrast, if outcome is mainly personal effort, those who don't do well must be slackers. Many of my students seem to come at things with this point of view, even as they ask me to extend a deadline on a quiz they forgot to take. Cuomo discusses the Democratic Party's dilemma, trying to balance the interest and needs of the poor with those of middle class. Compassion must be tempered by what is sensible for the pocketbook, true. But our aspirations must be inclusive. Equal opportunity is a core value. And when someone is down on his luck, you lend a hand.

Scott Walker, the Governor of Wisconsin, had an Op-Ed piece about Medicaid a few days ago. There are parts of that essay that every reader can agree with - pushing on the electronic records front and expanding the role of accountable care organizations. But the argument for block grants can equally be taken as an argument for meanness and under spending on health care for the poor so Walker's argument about incentives to achieve efficiencies can be seen as a veiled argument for meanness. And meanness looks like a strategy that works at the polls. If voters (disproportionately those who are not poor) want to see their taxes cut, government services have to be cut as well.

This is the Tea Party logic. It appears motivated by anger. It fits the national pessimism. From where I sit is all about a recognition of national decline and an attitude of "wanting to get mine while I still can."

I believe we need a different point of view to emerge, a view based in a sense of responsibility and a belief that we can renew our society if we are all in it together. I've started a Facebook Group, For A More Compassionate And Saner America, where those members in the upper tax brackets signify a willingness to return to the tax rates under Clinton. That is not all we need to do, but it is a start. Please have a look at the group's Facebook page and consider joining.

No comments: