The Uses of Fiction

The problem was isolation from what they call the real world – four years of college, a few years of grad school and almost a decade teaching the bored and surly children of the absurdly wealthy at a prep school in upstate New York will do that to you. Dickens and Shakespeare and Homer aren’t the real world, or perhaps what they were up to, exposing what underpins the real world, is always beside the point when you have to make a buck and put food on the table. Insights into human nature and the big questions can turn you into a better person, but they won’t turn you into an effective hedge fund manager. Of course kids need to learn how language works, and how it can be used, and misused. Teaching late adolescents how to think things through clearly, and then muster an argument that explains what they’re thinking, and with example and logic demonstrates that what they’re thinking has to be right, and then getting all that down on paper – that’s fine. But that’s just practice for real life. That’s not hard to see. And thus some teachers walk away from the profession. There’s a hum and a buzz beyond the classroom walls. And it’s far too quiet inside those walls, where the hum and the buzz is just the kids, who will soon be gone, replaced by next year’s kids, and then the next’s, one year after another after another. Some teachers decide they just can’t stay there, warm and safe inside the walls, facing another year of new faces, who will soon be gone, off into the world beyond those walls. This is the only life you get. It’s time to move on.

But the transition to the world of doing things, not talking about doing things, where big questions and clear prose are somewhat beside the point, is always bumpy. It was like that ending up in Los Angeles thirty years ago, landing in an aerospace company that made its money in defense contracting. But the training position led to organizational development work, then to human resources and compensation, then to the systems work to support that, then to programming and finally to systems management. It worked out well enough. But the puzzle was always the odd things you learned along the way, like learning that the year started on October 1, the start of the federal government’s fiscal year, which was the start of the year’s funding cycle. It was a matter of keeping two calendars in your head, and knowing which year was more important. One was arbitrary, and your job depended on the other. And soon you found yourself doing budgeting, working on net present value, internal rate of return, modified internal rate of return, and arguing about return on investment, because you were fighting for funding for your project, and to keep your team employed. Invest precisely X in this project and you will get precisely Y in return, if all goes well. The classroom was far, far away. Dickens was for the weekends.

But the odd thing is that it became clear that this also was a world that wasn’t that very real either. Nothing was ever clear-cut. Those who got funding got that funding by kissing ass, or telling scare stories. And budgeting was more an art than it was a science. They call economics the Dismal Science. Only one of those two words applies. And precision was a joke. Spending this or that, to the penny, guaranteed something would happen, but no one knew just what. Those who said they did were blowing smoke, even if they didn’t know they were. It was easy to get wrapped up in the fiction of linear economic cause and effect, thinking it was real. The fiction became reality. Oddly enough good novels produce the same effect.

And here we go again on the national level. On Monday, February 1, President Obama presented his budget for fiscal 2011. Yes. That starts October 1 – which is about right because in our system the authorization to spend money and to raise revenue, to have the money to spend, lies with Congress. They control the funds, and they too are a bored and surly bunch. They may or may not approve any of it, or only parts of it, or they may throw spitballs at each other. Agreeing on what the budget should finally be – what will be done with what funds – is going to take time. And of course it’s controversial – 3.8 trillion dollars for fiscal year 2011, with increased spending on education and clean energy technology, and slower growth for the defense budget, and calls for more spending on job creation. We’re talking 100 billion in new job-creating measures, including tax credits for hiring and new investments in green jobs and infrastructure projects, with another 166 billion for other job-related sorts of things, and nearly 50 billion to extend federal unemployment benefits. And it lets the Bush-era tax cuts for high-income Americans expire, as scheduled, at the end of 2010. This is not going to be fun at all.

And there’s lots of fiction involved, as noted in the McClatchy account of the real issues:

The Obama administration projects rosier economic-growth prospects than most mainstream economists do but a sobering jobless recovery, according to documents released Monday about underlying assumptions in the government’s $3.83 trillion federal budget for 2011.

Other documents outlining proposed tax cuts and hikes reveal that the administration, concerned about growing income inequality, seeks to pay for a number of programs to help the middle class by taxing the wealthiest Americans and imposing new taxes on corporations, especially those with international operations.

This will not go down well. The Republicans, with the forty-one votes necessary to stop the Senate from taking any action on anything, by procedurally blocking voting on all bills and resolutions, will not allow new taxes on corporations, or allow the taxes on the wealthy to revert to their normal rates, because they argue low taxes on those with more money than they know what to do with will create jobs, as these folks are the ones who hire people. So low taxes or none at all on corporations and the wealthy means boom times – that, and deregulation, so they can do what they want. That this is clearly a fiction – as we tried that in the Bush decade that just passed and it led to disaster – doesn’t seem to matter. It should have worked. Yes, that’s nuts, but all budgeting is fiction.

And the McClatchy item points out that the Obama folks have their own issues with reality. When they came in they predicted we’d see eight percent unemployment, and then it jumped over ten percent, and still hovers at ten percent. Invest precisely X and you will get precisely Y in return? No, it was a guess, or informed speculation overwhelmed by actual reality. Now the head of the Council of Economic Advisers, Christina Romer, is saying she thought the jobless rate would stand at 9.8 percent at the close of this year, 8.9 percent late in 2011 and 7.9 percent in late 2012 – “Our projections of the unemployment rate reflect the particularly severe toll that this recession has taken on the labor market and on American workers.” Oops.

And then there’s the funding side of all this:

Specific proposals to generate revenue will be fought out in the weeks and months ahead. In the administration’s crosshairs for taxation are the finance sector and large multinational corporations.

The administration already had signaled that it hoped to raise $90 billion over 10 years by imposing a “financial crisis responsibility fee” on banks to recoup the indirect benefits they reaped from the bailouts over the past two years.

Buried deep in the administration’s revenue proposals are additional steps to raise nearly $25 billion over the next decade by closing another loophole that lets, among others, managers of hedge funds for the ultra-wealthy pay a 15 percent capital gains tax on the profits they receive as their compensation for managing the fund. Most Americans who are compensated for their work pay a much higher rate through the tax brackets on ordinary income.

Will the Tea Party folks rally in defense of hedge fund managers being forced to report what they earn as ordinary income? If we force them to pay the same rates as ordinary people, will that be the end of innovativeness in American finance? Should we take that risk?

But there’s more:

To help pay for an expanded child tax credit and other initiatives to aid the struggling middle class, the administration looks to impose new taxes on corporations or to close tax breaks.

Excise taxes to pay for environmental cleanup at Superfund sites would be re-imposed on corporations to raise about $18.9 billion over 10 years. These taxes were eliminated in 1996.

As you recall that taxes were lifted so businesses wouldn’t be burdened by having to pay for cleaning up after themselves. And business boomed? Ah well.

And there’s this:

A number of proposals to close corporate tax loopholes and make it harder to hide earnings abroad would raise $465.7 billion over a 10-year window. Many of these target multinational corporations that increasingly earn a greater portion of their profits abroad.

But everyone knows the argument again that – tax their earning hidden overseas and they won’t be as profitable, and this won’t thrive, and won’t have good jobs for everyone. And this budget also calls for letting the Bush tax cuts expire, but gets tricky:

These measures would raise revenue by repealing tax breaks for families whose adjusted gross income exceeds $250,000. The level for single filers is $200,000. The tax cuts of 2001 and 2003 would be allowed to expire for these wealthier Americans, and they could pay a higher tax on stock market earnings and even be prohibited from the same mortgage-interest deductions that ordinary Americans take.

A senior administration official, briefing on the condition of anonymity in order to speak freely, explained that from 2002 to 2007 “65 percent of the income growth (in the nation) went to the top 1 percent” of earners.

But you know the counterargument – that top one percent earners, who hold eighty or ninety percent of the nation’s wealth, are the ones who just might create the jobs for everyone else, so you don’t want to piss them off.

And so it goes. And this is a lot of money. And it will increase the deficit. But some, like the New York Times Editorial Board, are okay with the Obama budget, the work of fiction abut to be rewritten into a different work of fiction by congress:

When all the new spending and spending cuts are added in, and various tax increases and tax cuts are accounted for, the increase in the deficit, compared with what it would have been without any changes, is $120 billion. That is a lot of money. But it is not too much at a time of economic weakness, when deficit spending is needed to boost growth and put Americans back to work.

Still, if you’re feeling sticker shock, we are, too. It is important to remember that most of that $3.8 trillion, nearly $2.4 trillion, is for mandatory spending – on programs like Medicare, Medicaid, Social Security and for interest on the national debt. Medicare and Medicaid alone will cost $788 billion; that should be another reminder of why the country needs health care reform.

Congress also cannot waste any more time posturing about the deficit rather than doing what is needed to get Americans back to work.

You just have to spend money to make money, in a way, and in this case on job programs and projects, like high speed rail and green technology, to create jobs. If we do X we will get Y, if all goes well:

Millions of families need those benefits to meet their basic needs. And without their spending, more American businesses would face hardship, leading to more layoffs and ever higher unemployment.

The House passed a $154 billion jobs bill late last year that incorporates some of the president’s ideas. In the Senate, all of the Republicans and a handful of Democrats have balked, insisting that they are far more concerned about adding to the deficit. That is a false and dangerous economy. No one can be happy about the $1.3 trillion deficit projected for 2011. Still Mr. Obama’s budget calls for steps to begin to chip away at it. …

The alternative to spending more today on job creation is a prolonged downturn, or worse, renewed recession – which would only force deficits higher. In the medium and long-term, the country must deal with the deficit and the structural problems that threaten everyone’s economic future. Mr. Obama’s budget is a step in the right direction for both problems. Now he must press Congress to do its part.

Good luck with that. See Politico on the Republicans:

House Minority Leader John Boehner (R-Ohio) hinted at hypocrisy in the White House’s budget, which was delivered to Capitol Hill this morning. He said that Obama spoke about “the importance of fiscal responsibility” at his conference’s retreat in Baltimore last weekend but delivered a budget that “spends too much, taxes too much and borrows too much.” Boehner said the budget is filled with “reckless spending and more unsustainable debt.”

Senate Minority Leader Mitch McConnell (R-Ky.), like all other Republicans, blasted the budget. “This budget provides a startling figure that should stop us all in our tracks,” McConnell said. “According to the administration’s budget, the interest on the federal debt is expected to be nearly 6 trillion dollars over the next decade. We’ve all heard about interest-only loans, but this is the equivalent of an average of $600 billion dollars in interest every year. That’s an astonishing number.”

House Minority Whip Eric Cantor (R-Va.) had little praise of the president’s spending plan, saying in a statement that it “spends more than any other in history, creates the largest deficits in history, and imposes the largest tax increases in history – at a time when our country can least afford it.”

There’s much more at the link, but you get the idea. Actually, a lot of this like being back at the South Bay aerospace company back in 1989 or so, where what gets funded or rejected has more to do with ass-kissing or scare-tactics more than anything else. Or maybe Michael Lind is right, and the Republicans are deficit dodos:

One of the reasons progressives are losing the debate about fiscal policy arises from the fact that the debate is taking place at two levels: that of the academic seminar and that of the kitchen table. At the seminar level, the case for spending now, as long as the crisis lasts, and paying down the deficit later, when the economy is sustainably growing again, is based on macroeconomic theory. At the level of the kitchen table, however, the debate is framed in terms of what passes for folksy common sense.

The policy of slashing government spending during a near-depression – which the deficit hawks advocate – is insane. Even most intelligent conservative economists acknowledge this. But this madness seems plausible to many voters because of the parallel that deficit hawks draw between households and businesses, on the one hand, and governments, on the other. If households and businesses have to pay down all their debt at the end of every month, why shouldn’t the federal, state and local governments pay down all their debt by the end of every year?

But it’s just not that way:

In reality, households and businesses do not balance their budgets every month, or even every year. Both households and businesses take out loans and pay them down over many years.

Do deficit hawks understand that real households and businesses do not follow the “pay-go” rules that they advocate for the government – on the supposed model of households and businesses? Are deficit hawks really deficit dodos?

He says they are:

Consider household borrowing. In the deficit dodo universe, no family should ever take out a loan to purchase a family car. Why? Well, according to the deficit dodos, borrowing is bad, because the interest payments on loans represent money that could be used for something else. That’s true. But the real question is whether it makes sense to have the use of the family car right now, in return for modest monthly payments over time, or whether the family should wait to purchase the car until it saves enough to pay the full price upfront by showing up at the car dealership with wheelbarrows of carefully hoarded cash. Most American families – and most car owners everywhere in the world – prefer the installment plan to the upfront purchase plan. And they are right. They are not dodos.

What about businesses, the other parallel used by the deficit dodos in their folksy kitchen-table campaign against borrowing by government? According to dodonomics, if government were “run like a business,” everything would be paid for on a pay-go basis and businesses would be forbidden, by their own bylaws, from ever borrowing money.

Needless to say, no real-world business larger than a lemonade stand actually follows pay-go rules. Companies large and small depend on borrowing money. The fledgling entrepreneur borrows money from parents, or Aunt Bertha, or the bank, or the venture capitalist, to start the business. The giant multinational corporation routinely borrows money for many purposes. As long as the loans can be paid back out of future profits, borrowing makes perfect sense for a company, be it one owned by a self-employed gardener or a global aerospace firm.

There’s much more at the link, but the question is whether these guys even believe what they’re saying:

Maybe they have learned that they can get public support for their irrational crusade against government borrowing for legitimate purposes (like averting a depression) when they repeat the cliché that “government should balance its budget the way that families and businesses do.”

It’s just a trick, one that works quite well.

But then, who knows much about any of this? And what you learn, when you leave the pleasant and isolated world of teaching and enter the world of making and doing, is that you didn’t leave the world of interesting and sometimes absurd fiction and dreamy speculation behind – not at all. You just get paid better for dealing with it.

About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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1 Response to The Uses of Fiction

  1. Just Above Fan says:

    OBAMA and Bernanke are featured in a movie– about greedy hedge funds called “Stock Shock.” Even though the movie mostly focuses on Sirius XM stock being naked short sold nearly into bankruptcy (5 cents/share), I liked it because it exposes the dark side of Wall Street and revealed some of their secrets. DVD is everywhere but cheaper at http://www.stockshockmovie.com

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