I'm really just chanelling Barnett here

The last couple have been a bit poorly focused as I try to find a way to present a more positive view of what's happening in the world. This time, I'm only giving myself fifteen minutes to write and including a link to something that explains why I feel pretty good about the future over all.

First, the bad news: times are hard. Jobs, and their accompanying sense of identity and security, are vanishing at an alarming rate. Money invested by people who decided not to join the spending binge, instead trying to do the right thing and defer gratification, is gone. People's hopes of sending kids to school have been dashed. Early retirement is no longer an option for anyone. A comfortable retirement of independent living will likely be denied those who, after a life of physical work and responsible spending, cannot work and must rely on their children, relatives or charity. Today's more prosperous adults have to put off their own dreams to support their extended families. All this comes in a time when taxes must rise, government services must be curtailed and the buying power of the world's reserve currency is uncertain.

Gloomy enough for you? Now for the good news. Our problem is that we have far too much capacity to produce the good things in life, and we just don't know what to do with it all. Our farms are still incredibly productive and it is well nigh impossible to starve in the United States, and in more places abroad. New companies are still opening to continue the process of creative destruction. Today's crisis is one of confidence, an overcorrection following an excess in the other direction. Creativity and adaptability are hallmarks of the human condition, and that hasn't changed. And no model in history has harnessed that to improve the human condition better than that of the United States, so much so that we've pretty successfully exported it.

We need to rethink prosperity a bit, but that's not the end of the world. The grand strategy remains the same.

Peggy Noonan cheers up

I highly doubt that Ms. Noonan actually reads this blog, but it looks like she took my advice: http://online.wsj.com/article/SB123508142847026881.html

In general, "big" means energy intensive. Thomas Barnett, in the wake of the Mumbai terror attacks, wrote that globalization is not the "Americanization" of the world, but rather the "Mumbaization", a meeting of cultures and practices that are old, new, rich, poor, and most of all dynamic. Indian engineers have proven that on does not need access to 1142 barrels of oil per year to design software and circuits (roughly $80k/$70, the quoted long term replacement cost of oil), 428 is just fine. Or, if you prefer, 13,635.7kWhrs annual per capita electricity consumption in the US vs. 480.5kWhrs in India (probably closer to 1000-2000 in the cities, but an order of magnitude less). Going local means forswearing the benefits of scale in favor of control over the whole chain.

People are planting gardens, looking into urban agriculture, and reinventing themselves as members of communities rather than isolated and replaceable nuclear family units who shuffle job and McMansion every seven years. My Cabaret cast has several excellent bakers, and we talk somewhat seriously of starting a business once the show closes (the self-reinvention that's happening during the show is quite remarkable, as people who've never been on stage become decent actors, singers, dancers, and stage crew). Even during the boom, graduate school admissions rose steadily as the pay for students became sufficient for them to live well enough that they could love their jobs, despite greater "prosperity" elsewhere.

Slumdog Millionaire has been nominated for Best Picture. The bike rack at my office overflows every day there isn't ice on the roads (despite stereotypes, few grad students would actually welcome death or injury). One of the most successful restaurants in town is also the most active in organizing community events, and is wallpapered with clippings from the local paper about them. The "post-war era" is now over, and in the US we are busily redefining what it means to be successful. The process is painful, giving up the comforts of isolation and rejoining the party always is at first, but we're still the destination of choice for all those innovative folks from Mumbia, Hong Kong, and every crowded, gritty and vibrant city in the world. If you wonder where this is all going, visit the cricket pitch in Kokomo, Indiana on a sunny Saturday during the summer.

The conditions for democracy especially and stability in general include prosperity. At several points in our history we changed the definition of "prosperous." We need to do that again, and I have no doubt we will. The agrarian, isolationist confederacy that split off from England has become the world's oldest constitutional state and its dominant military power. We have lived beyond our means, but we've done that before and survived. We may see a new major political party emerge in the next couple years as the failed philosophy of one falters, and the pragmatic attempts of those currently in power to restore the old order fail. But the United States still wants to be the United States, and at the depth of the tarnishing of "Brand America" most of the world still wanted to work here.

We will learn to live well on something like 3000kWhrs per year, and probably as larger family groups in smaller towns. We have plenty of examples of immigrant families doing exactly that, and as always in our history we continue to bring in people who take to the idea of America with the faith of converts. As some segments bemoan the loss of McMansions that doubled as ATMs, many others are embracing a simpler, more social way of life. Wages will fall until it someone can afford to hire people and open a shop, and that person will be selling a more frugal and social customer base.

The desire to improve never dies, it just changes direction. The US has a long track record of drawing and empowering that part of the human spirit, and I'm willing to bet we will again.

Cabaret Pie

Our supply of frozen blueberries is dwindling faster than I would like, but the Farmer's Market had apples, as we expected, and pears, which we didn't. I had promised a blueberry pie to someone in the cast, but didn't have enough berries, so I found a way to combine the fruits. I doubt she'll mind the switch.


Recipe:

Preheat oven to 350F

Roll out:
1 Whole wheat double crust (see December) into a 9.5" deep dish pie plate, top crust rolled out and ready off to the side.


Combine in a bowl:
3 Cups peeled, cored and chopped honey crisp apples (other crisp apples should work)
3 Cups peeled, cored and chopped Bartlett pears (Bartlett is the pie pear)
2 T All purpose flour
1/3 Cup brown sugar
1 t Ground cinnamon
1 T lemon juice

In a small bowl, combine:
1 T sugar
1/4 Cup milk

Make a layer at the bottom of the crust-lined pie dish with:
1.5 Cup fresh (or thawed) blueberries
dot with 2 T butter

Pour the apple pear mix from the bowl into the pie dish, moisten the rim and cover with the top crust. Poke several vent holes in the top and brush with the glaze.

Bake at 350F for 45min, rotate 180deg and bake another 30min or so until the apples are tender.

Let cool for at least a couple hours.

Peggy Noonan should cheer up

I'm a big fan of Peggy Noonan. Her stark realism and unique perspective make for fascinating reading. However, for all that I claim to be a pessimist, I think she goes a bit too far. (in case the link dies before you read this, she tells of a gloomy New York now that the financial economy has effectively been nationalized, and goes on to compare the attitude of Capt. Sully who landed his disabled passenger jet on the Hudson to that of Ms. Sulley who felt it was okay to have eight kids in addition to her first 6 and raise them all on food stamps.)

I think we will call the 1990s and first decade of this century a "not my problem" period of American history. Our schools push actual education up the pipeline, to the point college professors have to teach basic grammar to sophomores at teir-one universities. Many engineering programs now do as much as possible as "group projects" that shield underperforming students from their day of reckoning. Now immigration barriers seem to be going up to sheild us from "job stealers" who might exploit a free market to lower costs. Securitization separated the originators of loans from their performance. We invaded two countries and cut taxes so that only our volunteer military force felt the pinch. The great trend in almost all "progress" of the GE/Disney type has been to isolate us from people with safer cars, larger houses and gismos that do work which used to fall to human hands (and still does where domestic service is cheap).

There are two things that give me a lot of hope going forward, however. The first is that prosperity is increasingly being redefined by ability to interact, rather than isolate. The most popular video game system in the world is at its best in parties. Social networking is a major growth field, allowing people to connect and stay connected in ways that provide impressive new capabilities for those willing to exploit them. Cell phones, already the most popular piece of technology around the world, move capabilities that used to tie people to their desks into social spaces. Netbooks are accelerating this trend by putting enough computing power to do any office task in a low-cost, highly portable laptop that can, and does, help plan events on the fly. The era of the Fourth Screen promises more time in social spaces.

Internationally, our hope is the rise of the middle class around the world. As countries need examples of how to lift themselves out of poverty, their examples right now are Europe, which is in a deepening hole; China, who's in more trouble than us; and the US. China and Russia may well end up in another border war, probably near some pipelines or gas fields, since China needs to burn off extra male population and Russia needs higher gas and oil prices. Europe is set for a real mess as populists on the right and left attack centrist governments that brought them greater economic integration without the political will to spread the pain around (Germany may end up simply buying Greece and Spain, and deploying troops as necessary). The only example of a large, diversified, domestic-and-export economy with capacity for business creation in both services and manufacturing is the United States. We overstretched, and intentionally let ourselves believe blatant falsehoods (like: always appreciates!) while being incredibly innovative in finding ways to channel the buckets of money the world was pouring on us. In other words, we did what we do best here too well, and the rest of the world responded to us acting like drunken sailors by chanting "chug! chug!".

More importantly, the future of the country lies not in the hands of the sheltered, but the aggressive. Despite their best efforts, the "insiders" of the major parties could not secure their party's nomination in the face of aggressive campaigns by "insurgents" (in how many other countries could that happen? hint, it's a nice round number). Most credit unions are running full-court-press marketing to grab the best consumer and commercial loans that the big banks can't make today because they're model of lend-and-sell has failed. Ivy league engineering students are going into engineering, where they will be forced to make something of intrinsic (new products, applications, etc) instead of notional value (like CDOs, CDS's, etc*). There is one place in the world right now with the strategic depth, capacity for innovation and appetite for risk to take the lead on issues like moving towards a post-oil world, climate change and global migration. Things are bad, and will continue to be bad for another couple of years, but our tolerance for Octomoms, whether they stay at home or run money-center banks, is slim.

Even the latest stimulus package is a good example of this. Yes, it utterly reeks of Democrat triumphalism, and further proves that the GOP's best friend is Nancy Pelosi, but give it points for chutzpa. Given the opportunity to undo the vaguely Republican-friendly things that have dominated Federal spending since 1996ish, they seized the bull by the horns and did their best to undo it all within three weeks of the arrival of a friendlier White House. For their overstep, they can expect to be thrown out of office by the first intelligent and aggressive Republican to put together a real alternative vision for the country (no, "um . . . Cut taxes again!" doesn't count, but Manzi's on the right track). This country survives and thrives because of the indomitable dynamism that has made our shores the destination for the tired, poor, talented, and ambitious masses yearning to breath free.

We'll be fine.

Crust, then filling

The reign of the monetarists seems to be over, at least for now. The instruments of monetary policy assume that in general, people want to borrow and lend to pursue certain opportunities. Lending increases the net money supply, and so the rate of economic activity can be somewhat regulated by controlling the supply of money using key interest rates. Unfortunately, this process assumes that most of the loans issued will be repaid. When loans default, there is a contraction in the money supply due to (1) the lost value of the loan itself and (2) the reduction in overall confidence that the system requires.

This is why things are so bad right now. Loans were issued to people who had no hope of actually paying them back. Borrows and lenders assumed that someone else would come along and issue another loan for enough money to buy the asset (e.g. property) at a high enough price to cover the original loan. This is not a functioning free market, but a giant Ponzi scheme. Thus, the Fed can set its interests rates at zero and the economy will still tank because the confidence required to "create money" does not exist. The economy will not recover until there is confidence that loans issued to banks and other parties will be repaid, just ask anyone from Japan.

In order to create confidence, there must be a clear way forward. All options are bad and involve a lot of people losing a lot of money. Many of those will be investment bankers who will lose ~90% of their net worth and still live better than 95% of US citizens. The taxpayers, including proportionally larger amounts for said bankers, will get hosed. But we must know how that will happen. Ad hoc responses and unclear plans from the US Treasury Department will only prolong, and probably exacerbate the pain.

Thus, Washington right now looks to be reading a page from the Japanese book: build up political capital with fiscal stimulus and then address the banks when the pain gets too bad. This is backwards, like trying to bake the filling when there is no crust. Fixing the banks will be painful, more so in the year the fixes happen than the status quo. But until it happens, no amount of fiscal stimulus will help.

Stimulus "pie"

We all know that pies are good, and many would argue that a bit economic stimulus is good. What follows, however, is a culinary version of how we think the current American Recovery Act (or whatever it's called these days) came to be. This was made for my perfectly marvellous spouse and I during a recent visit to a friend of ours.

Start by planning to make a fruit cake. Save dried fruit in the wine and liquor left over from parties, much as one might squirrel away plans for things like needed infrastructure improvements.

Realize that you need to make it in a big hurry, and so replace the normal cake part with something that comes together quickly, like a Betty Crocker Spice Cake Mix. The result, while certainly tasty, is not really a fruit cake. Much like the current "stimulus" isn't all that stimulating.

Don't bother greasing the pan or letting the cake set up properly after it's pulled from the oven. Instead, scrape the cake out as crumbs and pile them into a deep dish pie pan, while eating whatever crumbs don't fit. Much like one might have the House try to include everything, while the Senate nibbles it down to size.

Add some instant vanilla pudding to the crumbs, just to sweeten the deal, then go to lunch. If you were in Congress, you might lose track of time and just stay out to lunch . . .

On the way back, don't bother picking up the whipped cream this creation requires. Instead, mix two egg whites and some sugar to make a meringue. Add some sprinkles, and it looks great but isn't really safe to eat, so put it under the broiler until the top is nicely browned. It was tasty, but it wasn't a pie. The "stimulus package" might have some good parts, but it's not a fiscal stimulus.

A uniquely American resiliance

[[Philosophical note: I consider myself to be a happy pessimist. I see the glass as half empty, but only a lemon (which life is apt to give) and some sugar away from lemonade. I generally expect things to go wrong and then try to position myself to benefit.]]

Pessimists and International Relations scholars don't make for pleasant company when topics like the global geo-political solution come up. However, one thing, on further reflection, has me feeling a bit more optimistic than usual. The history of government in the United States suggests that democratic institutions can be far more resilient than a survey of history would suggest. I will leave open the question of what about the people of these United States has brought us back from the brink several times in our history, but a quick walk through of our history suggests that we are either very lucky, or have some anti-authority quality in our institutions and leaders that causes government power to retreat after a small over-step.

Following the Revolutionary War, our generals decided to get out of government, a largely unprecedented step in the history of man. A more likely scenario would have been what happened in South and Central America, where the disparate colonies could not agree on a central government, and went their own largely autocratic ways.

The Articles of Confederation suffered the classic problem of representative government: insufficient will or authority to accomplish tasks demanded by the governed (Hayek writes a great chapter on this when discussing 1930's England). In response, a group of men got together to overthrow that government and replace it with a stronger, "Federal" system.

The first leader of this vastly more powerful national government decided that eight years at the helm was enough, and voluntarily stepped down, setting a precedent that defined our chief executive for 140yrs. The third man to hold the office peacefully surrendered it to an ideological opponent, the first time in history something like that happened.

At the close of the Civil War, Robert E. Lee told his army to disband and go back to being good citizens. This spared the country the prospect of a long guerrilla war and the curtailment of freedom that would entail over and above those lost during the war.

In 1917, the Alien and Sedition act was dramatically strengthened to account for the fact that popular sentiment generally favored going to war on Germany's side against England. Wilson's administration, however, allowed its war powers to fade.

FDR tried like heck, and almost succeeded. The most recent administration tried to establish a "permenant majority", but failed because of gross incompetence.

This many times is too much to explain with luck. We've got something good here. Time to bake a pie and celebrate.