ORPHANS OF THE STORM by Michael S. Malone
I’m constantly amazed, and appalled, by what little actual wisdom I’ve actually gained in my more than half-century in this world. But if there are three things I have learned, they are:
- Never trust luck to get you through.
- Don’t assume the best-case scenario.
- The laws of economics, like the laws of chance, always triumph.
The economic news this week, like most recent weeks, is mixed but mostly bad. The good news is that the economy appears to have grown in the most recent quarter – at least in comparison to the miserable first half of this year. The growth in unemployment seems to be slowing. And, of course, the stock market has enjoyed one of its fastest run-ups in recent memory.
The bad news is that much of this third quarter growth was already predicted from the artificial juicing of the economy from the Stimulus, Cash for Clunkers, and inventory replacement by manufacturers. Take those away, and you’re down to about a 1 percent improvement over the disastrous second quarter – positive, at least, but hardly grounds for cheering.
Meanwhile, the stock market rally may have peaked, and the indexes have begun sliding – with little indication whether this is the beginning of a second downturn or just a temporary hiccup. As for unemployment, its growth may be slowing because we’ve already reached historically high levels (especially if you measure real unemployment) and we’re running out of people to lay-off – and those who are laid-off are giving up looking for work. Perhaps most dispiriting are the studies that suggest that other than paying off some campaign debts to unions, the Stimulus generated few jobs – meaning that hundreds of billions of dollars of taxpayer money were spent on . . . nothing.
In other words, about the only conclusions that you can draw from all of this is that, the Administration’s cheerleading aside – and that, of course, is their job – there is still no clear indication whether the U.S. economy is actually recovering, sinking into a double-dip recession (or worse), or sliding into the malaise of a ‘70s style stagflation.
What does seem obvious is that the economy wants to recover. I can see it everywhere around me here in Silicon Valley – companies (notably the PC makers) putting out great new products, entrepreneurs writing business plans, talented people anxious to get back in harness. And I sense that’s true almost everywhere else in this country. Even the stock market rally seemed like a bull banging against a gate waiting to be unleashed.
But while we all may be ready to get back into the race, Washington – in whose hands our collective fate now sadly rests – may not be ready to let us. And it’s all because they seem to have forgotten, or never learned, those three hard-earned pearls of wisdom with which I began this column.
For example, inside the Beltway they seem to be pixilated (the old definition) these days with Magical Thinking. Both the White House and Congress somehow believe – despite all evidence that big, top-down and bureaucratic initiatives no longer work in our Web 2.0 world – that they can grab entire sectors of our economy and impose on them a whole new regime that will magically work without any unexpected and catastrophic side-effects. No business in America, from the corner dry cleaners to a Fortune 500 company would ever contemplate something this crazy, at least not without preparing the most detailed road map imaginable and getting every employee on-board – not passing massive and sweeping laws that nobody has read, whose consequences are unclear, and the majority of the citizenry is against.
By the same token, the lesson I’ve learned from thirty years working in a volatile place like Silicon Valley is to pray for the best-case scenario, but prepare for the worst. The smart companies around here scale up fast during the good times, but are always worriedly looking ahead for the next downturn. That’s why, Cisco’s John Chambers told me a few months ago, he hoarded cash during the last boom – just so Cisco would be able to navigate through this current crash, keep its employees and outrun its weakened competition.
The best-case scenario for this economy right now is that the Stimulus (or the proposed second one) actually works, the U.S. economy rights itself, and grows sufficiently fast over the next five years to absorb all of this new debt and produce enough new jobs to bring unemployment down to reasonable levels. And it is upon this best-case scenario that we are now preparing to embark on one of the most sweeping eras in government-run social engineering in our nation’s history.�
“The bad news is that much of this third quarter growth was already predicted from the artificial juicing of the economy from the Stimulus, Cash for Clunkers, and inventory replacement by manufacturers.”
It has been estimated that each Cash for Clunker sale cost the American taxpayer $24,000! Try imagining the government providing money that must be repaid at loan shark rates—because that is essentially what happened with this short term spending insanity. This might be similar to one purchasing a forty-five cent bar of candy on credit and eventually paying $20.00 for it.
Mike Wow! what an article. No one knows better about this job loss situation than my son Clayton Cramer. See Clayton E. Cramer: There Aren’t Many Days More Discouraging Than This. This is On facebook and in his blog. Your articles are always great.
Clayton Cramer should have a well paying tenured academic career. He is a true hero. Cramer is the one who blew the whistle on the establishment historian Michael A. Bellesiles, author of the deceitful Arming America. The latter man was ultimately forced to resign in disgrace from Emory University. Cramer’s own career was severely damaged because he refused to sell out to the anti-gun leftist university elites. A lot of people do not realize that a soft science Ph.D. is more often than not a sign of an intellectual whore. Today the MSM is being rapidly marginalized. Harvard, Yale, Princeton, and the other Ivy Leagues are next!
The economy will see a bit of a boost, once the banks quit hoarding their cash and start lending again, but that will lead to the dreaded inflation. The inflation has been averted, because the money hasn’t been released… but it will be. All this government borrowing and printing of money hasn’t been free.
People have been hoarding, too, and paying down debt. If that changes, it will really accelerate the inflation. The monster of hyper-inflation is coming. One would be wise to stock up on basics. Beans and rice. Learn to bake bread. Stock up on coffee or you will really miss it when you can no longer afford it. It will always be a great trade item. Keep your gas and oil tanks full. Guns and ammo will be a must.
Read up on the history of any country, like Argentina, that went through hyper-inflation. Very scary stuff.
I like your three truisms you listed. However, I have heard the argument that some presidents can be lucky. Some say Bill Clinton was lucky on the economy, however, I am not an economist. But, like yourself, I know some basics. This president was handed out of control tax and spending (with record deficits) by the Bush administration. In addition, an economic meltdown. So he chose to spend more to save the country. Now that is a gamble. Will it work? Like you say….the laws of economics may just triumph. We shall see.
Good article. I’ve always felt that a big chunk of the American financial ‘success’ has been OVERSPENDING. Americans buy every trinket they set their eyes on. Marketers know this and they push the envelope.
Do we need to come up with myriads of new car models every year?
Do we need Super-Sizing in fast foods?
How many pairs of shoes women need?
How many boxes of Craftsmen tools a man needs?
How many calls or texting do we need with cell phones?
The list grows and grows. After all the housing, computer, financial bubbles have exploded, people start to cut down on these unnecessary frivolities. So the Economy suffers. Once people regain their confidence in their finances, the ‘bad’ habits will come back, and so the good ole times.
Mr. Malone,
Great article! A great read on a cloudy day and a reminder that even a free-lance editor in a statist socialist economy can make it.
Just one little picky point (I am an editor, after all). Shouldn’t this sentence:
In other words, even if Washington no longer believes you can make intelligent decisions for yourself, it doesn’t mean you can make them anyway.
read as follows:
In other words, even if Washington no longer believes you can make intelligent decisions for yourself, it doesn’t mean you can’t make them anyway.
Great job!
Blessings from Samaria
Yes, Mike, “move somewhere else where the taxes aren’t so onerous” — like to another country. Try Latin America. At least they all KNOW they’re dictators there, and you can work with it.
The nerds of Silicone Valley are stoking coal while the LOCOmotive steams madly toward the cliff.
#1 Thomson: I so wish you are right.
#5 Mark Malone: You ARE right.
Things seem to following the stock market although there is a long lag time. But while the economy may seem to be recovering, there is the long term issue about what to do about the derivative market. It’s now become painfully obvious that much of the recent growth in “wealth” in the Western countries was largely illusionary and was based on derivatives highly leveraging stocks that were already grossly over leveraged. As long as most people didn’t try to spend too much of their imaginary worth, things were semi-sustainable but extremely fragile. However, this ability to leverage and transact such vast amounts of money via computerized financial trickery needs to be much more watchguarded from deliberate abuse, as well as being much better mapped out and understood. The old rules of stock valuation has been trashcanned: a company’s stock will now much more likely go up or down due to stock and “perception” manipulation rather than on the inherent merits of the company’s products or services. This is definitely unsustainable for a long term healthy economy.
The commercial real estate market is beginning to crash, bank failures exploding, the dollar dropping like a rock and the treasury printing presses running 24/7. No problems !
“For example, inside the Beltway they seem to be pixilated (the old definition) these days with Magical Thinking. Both the White House and Congress somehow believe – despite all evidence that big, top-down and bureaucratic initiatives no longer work in our Web 2.0 world – that they can grab entire sectors of our economy and impose on them a whole new regime that will magically work without any unexpected and catastrophic side-effects. No business in America, from the corner dry cleaners to a Fortune 500 company would ever contemplate something this crazy, at least not without preparing the most detailed road map imaginable and getting every employee on-board – not passing massive and sweeping laws that nobody has read, whose consequences are unclear, and the majority of the citizenry is against.”
And because of this, the business community is very scared by this amateur hour behavior in govt and rationally hoarding just like the individual behavior described above. I work for a very healthy, non-levered company with continuing good cash flow. in spite of that, we aren’t spending a dime on capital that we don’t have too until we can figure out if sanity will ever prevail again in DC. We ought to be the type of company driving a jobs recovery, but we aren’t now and for good reason. So this becomes a self-fulfilling prophesy in that, the more the politicans seek to fix the economy, the longer it will eventually take.
People have been hoarding, too, and paying down debt. If that changes, it will really accelerate the inflation. The monster of hyper-inflation is coming. One would be wise to stock up on basics. Beans and rice. Learn to bake bread. Stock up on coffee or you will really miss it when you can no longer afford it. It will always be a great trade item. Keep your gas and oil tanks full. Guns and ammo will be a must.
Read up on the history of any country, like Argentina, that went through hyper-inflation. Very scary stuff.
I think it is unlikely that we will have a hyperinflation in the manner of Weimar Germany or post-war Uruguay) where they were printing octillion pengo notes), but we could certainly get a seriously galloping inflationary spiral worse than the stagflation of the 1970s. I’m of rather mixed reaction as to what to do. The temptation is strong to pay off the mortgage and a couple of car loans, and hope that by keeping the rest of my portfolio short-term bonds, that as interest rates rise, I can keep moving into newer and higher interest rate bonds.
On the other hand, the house mortgage, while adjustable, has a 5 point maximum rise. I’ve had a number of bonds called lately, so I could just buy short-term bonds with those, and ride the interest rate rise as the money supply inflates. At some point, things will get so bad that even Americans will lose their love affair with Barack Obama, and stop believing that the lies that they get on television, and demand that we fix the core problems.
Or maybe they will just learn to give the Roman salute, and grant dictatorial powers to the One. It’s hard for me to tell. Maybe if the Republican Party stood for something there might be some hope of stopping this madness. But the Republican Party is too busy trying to get the adulation of parts of the polity that will never vote Republican, anyway.
“Hope for the best, plan for the worst” been good advice forever.
But, indeed, Washington is making it worse. They are trying to re-inflate the housing bubble (FHA loans at 3.5% down plus people simultaneously take out a home equity loan so they are instantly at LTV of 110% or more); support every crazed union initiative, OSHA rule, etc., so any business would be crazy to hire; threaten total chaos in the health care and energy (Cap-n-Trade) markets, about a fifth of te economy and affecting everything else; create political fears and uncertainty with attacks on Fox and even Edmund’s and AP; putting out propsals for financial regulation that encourage fear rather than confidence among lenders; and keep pumping out Fed liquidity and Treasury debt so it is more attractive to a bank to use free Fed money to buy Treasuries rather than make (riskier) commercial loans.It’s hard to imagine what more they can do to stifle a recovery, but I’m confident they’ll find more ways to do that.
Ruvy:
Thanks for catching that. I managed to put ‘can’ on both of those final sentences in the draft. Caught and fixed the second one before I posted (and sent to ABC), but missed the first. I’ve fixed it now — and I assume ABC did as well. Their editors are much better than mine (i.e., me). — Mike Malone
#17 Malone – You owe $50 for his/her services.
Hope is not a method. Neither is enthusiasm.
The Special Forces follow those principles. Pity the U.S. electorate didn’t.
Great piece and right on the money. We can’t hope for any kind of real recovery until small business is on board. Most of the small businesses with which I’m acquainted are currently in a holding pattern waiting to see what kind of havoc will reign once Washington is through with them. Never have they seen a government so hostile towards the “business of America.” And, should the worst happen, they plan to work around Washington (if they continuing “working” at all) in ways that are guaranteed to make the powers that be not even a little happy.
With everything that’s gone on in my lifetime, never would I have believed that our biggest challenge would be surviving the Obama administration and Pelosi/Reid Congress.
One hopes that there remain some responsible business leaders with foresight and principles in Silicon Valley.
Kleiner, Perkins and others are traitors to the free market system. Their support of Obama and their willingness to do unabashed rent-seeking is part of the problem. These are elites who have sold out.
That said, the technological innovation that has driven Silicon Valley has crested. Computers and the internet have become “normal” businesses now. There is still wealth to be created, but it will come slower and harder than before.
Great piece and right on the money. We can’t hope for any kind of real recovery until small business is on board. Most of the small businesses with which I’m acquainted are currently in a holding pattern waiting to see what kind of havoc will reign once Washington is through with them. Never have they seen a government so hostile towards the “business of America.” And, should the worst happen, they plan to work around Washington (if they continuing “working” at all) in ways that are guaranteed to make the powers that be not even a little bit happy.
With everything that’s gone on in my lifetime, never would I have believed that our biggest challenge would be surviving the Obama administration and Pelosi/Reid Congress.
Tomorrow may be very interesting in the stock market. The Friday 250 point drop may be the end of the bear market rally that has been going on since March. If it is, look out !
It takes an ivy league education to believe you can defy gravity.
Who’s kidding who? In my opinion it’s 1931. We’re getting a bit of a bump back on the upside, but what’s coming? 1932 when the Dow lost 75% of it’s value. World wide depression, here it comes ladies and gentlemen.
Think about it. The Fed gov’t is spending 750 bucks a month per taxpayer more than it is taking in. That’s counting people who pay taxes, not the plethora of welfare parasites who contribute nothing to society.
We’re in for a long dark ride.
The economy does not want to get well. The economy is what is happening. Who wants the economy to get well consists of us working stiffs and entrepreneurs. I strongly suspect, in fact believe, that Obama and his socialist and fascist appointees want it to get worse. Then they can really take over. While I have friends who are convinced that Obama is that evil, I think he is even worse than that.
The results are predictable when you wage total war on employers. Somehow, I can’t help thinking that lefties are not insane, just evil, and the predictable results are intended.
Great article, but I think one very important point is overlooked –No Government Action Has Ever Brought a Country Out of a Recession. A free economy, and primarily small business, “recovers.” Government can stall the natural recovery (in the current case perhaps for a long time) and a few government actions can facilitate recovery (such as Kennedy’s, Reagan’s, and Bush’s tax cuts) but it takes a vibrant, optimistic, small business community to grind the economy out of recession. Small businesses, now faced with incredibly higher taxes on everything from family farms to S-corps, to non-union sole proprietaryships, are seriously questioning whether to invest in this dismal future or wait for a time when they can actually expect some returns as a result of their efforts. As a small business partner it is especially depressing to be faced with situations such as the fact that the proposed health care reform legislation will actually tax our employees 40% for the benefits we provide because we chose to provide generous health care coverage now considered “cadillac” by congress. We recently have had to impose “layoffs” and feel that we will be very reluctant to ever hire again in the USA. Those jobs are probably gone forever. The combined government actions of “stimulation,” forced donations to the new religion of rain-dance weather control, and health care for all except those who pay, will likely provide for a “recovery” of the economies overseas. We will be likely hiring there in the future. The true business “stimulus” is an invitation to avoid “cap and tax,” “animal farm health dictates” and an anti-business environment in exchange for locales that still welcome entrepreneurship with “lower” taxes on business! Credibility, and hope, might have been possible if any member of the current administration actually had any business experience – even selling a slurpy in a 7-11, and if all had actually paid their taxes.
“I can’t help thinking that lefties are not insane, just evil, and the predictable results are intended”
It’s hard to tell, because they are so stupid.
Hoist on One’s Own Petard!
Oh…that this too, too sullied flesh would melt, and resolve itself into “adieu”. How shall I deconstruct thee? Let me count the ways! Perhaps…by thine own internal inconsistencies…or shall I do so by resolving thine own solutions into another “adieu”?
Let me count the ways:
First: Good Try. Well, good try if you ignore the “never trust” part.
Second: Thou shalt not assume facts not in evidence. It is indeed true that “The laws of economics…always triumph.” What thou hast forgotten is the word “eventually”. Meaning, “Not yet.”
Third: “Through the election process, of course…” And then, so sayeth you, a big but, to wit: “…but I’ll leave all that political stuff to the pundits.” Too late.
Fourth: “Meanwhile…barter…”. Eminently taxable.
Fifth: “Team up[!]” Cooleth!(sic)
Sixth: “…sell your services around the world virtually[!].” Also taxable, as you are still, me pretty, a US taxpayer.
Seventh: “Or, move somewhere else where the taxes are not so onerous…[!]” Perchance to the Broketh Caymans; perhaps to the Craven UBSerland; perversely to Arkansas, where Uncle Chucklebee raised taxes unmercifully. I thinketh not; still taxable.
Eighth: “Even if our leaders (sic) have chosen to be foolish, it doesn’t mean you can’t choose to be wise[!]” Wrongeth.
Ninth: Hast thou forgotenneth thy previous words, “Washington – in whose hands our collective fate now sadly rests – may not be ready to let us.” Righteth!
Tenth: Sir. With all due respect, what does the word “let” have in common with the word “freedom”?
Eleventh: Hast thou forgotten the meaning of “petard”? (Google it.) Hast thou forgotten the immortal words of praise from Anita Dunn, the High Preistess of Mao, who (not the idiotress) said, “All political power flows from the barrel of a gun.” Neither the petard nor the barrel of a gun allows one, in your own words, my liege, to “choose” anything at all.
Last, but surely not least: You, sir, have been hoist on your own petard, when you “assume” that the economy “wants to recover”, or that you “sense” anything, or that we are “ready”, or that “they” would not “contemplate something this crazy”.
And if Mao had starred in “deliverance”, he would have been in agreement with the line, “I bet you can squeal like a pig. Weeeeeeee!
The question you gott’a ask yourself, Mr, Edgeling is, do you feel lucky, punk?
Sincerely,
Abigail Van Buren
Good luck with your magical thinking.
Marc @ #17 & #18;
You owe $50 for his/her services.
It’s his services….
About that $50…. I’d feel more secure if you put those quotes in New Israeli Shekels than dollars…. When the Governor of the Bank of Israel here finally has to follow common sense instead of the lobbying of exporters, that $50 will sink from NIS 187.25 to NIS 137.25. My friends who get their pensions from the States watch with baited breath the “representative rate” set by the Bank of Israel each day.
That’s how nervous we’re getting out here.
Economic recovery? Not on Obama’s watch!