Wednesday, January 28, 2009

Obama's Best Pick You Never Heard Of

Obama has made an incredibly astute and fortutitous pick of Peter Orszag as the White House Budget Director.  Orszag is brilliant, plain spoken, and comes to the job absent a bunch of political baggage that might have caused folks to dismiss his fantastic analytical skills.  (Please don't think I am gushing about President Obama - I am a stone cold pragmatist and I believe I harbor no illusions about the actual powers of the Presidency.)

Read this article in today's Marketwatch.com (excerpts follow link):


Peak oil? Global warming? No, it's 'Boomsday!'

Six years ago, Peter Orszag, President Obama's new budget director, co-authored a Brookings Institution study that concluded: "Balancing the budget would require a 41% cut in spending on Social Security and Medicare, a 47% cut in discretionary spending, or a 17% cut in all non-interest spending." It's getting worse: Today entitlements eat up 40% of the federal budget and are growing.

Bruising battle? It won't matter. In the long term, reforming entitlements will be like rearranging deck chairs on the Titanic. Remember, Obama's adding a $1 trillion stimulus package on top of what Nobel economist Joseph Stiglitz calls a "$10 trillion hangover" of debt left by former President Bush and the economic meltdown. And all that's on top of the massive $60 trillion to $75 trillion of unfunded Social Security and Medicare liabilities.

To get perspective, let's shift our thinking into a parallel universe: Into Chris Buckley's satirical novel "Boomsday," which goes way beyond acceptable government policies. He offers a bizarre solution to reforming Social Security, a solution that forces all of us to focus, and not just on the out-of-control economics of retirement entitlements. He forces us to focus on the one core problem overshadowing all other global economic issues: Population growth.

Too many boomers and babies in this equation

Yes, population is the core problem that, unless confronted and dealt with, will render all solutions to all other problems irrelevant. Population is the one variable in an economic equation that impacts, aggravates, irritates and accelerates all other problems. Imagine you're on a call with the Oval Office:

"Listen to me," the frustrated U.S. president says on the phone in "Boomsday:" "I got a collapsing economy. I'm fighting four wars -- and looks like another is on the way." Agitated. "I got melting ice caps on both poles. Florida just lost another two feet of waterfront. Hundred square miles of Mississippi just went under." Faster. "I got a drought in the West the Interior Department says is going to make Colorado and Wyoming into another dust bowl." Breathless. "Pakistan and India are going at each other like a couple of wet cats. The CIA's telling me Israel's preparing to launch nuclear weapons." He's shaking. "I don't have time to take on a one-legged senator who says the solution to Social Security is for us to kill ourselves at age 70. The way I'm feeling now, I may shoot myself. And I may not wait until I'm 70."

Yes, you heard right. He's reacting to a proposal made by Cassandra Devine, a character in "Boomsday." She's a young, hot PR hustler running a "must read" blog. She resents the fact that her generation is getting stuck with the tax bill to pay Social Security benefits for retiring boomers. At first, her proposal was just a wake-up call, a shocker to get attention, to get Washington to deal with a hot-button issue politicians refuse to face. Her plan: Reduce population by encouraging suicides for aging boomers.

Bogus math and economic equations

OK, so suicide's a bizarre, unacceptable solution. But "Boomsday" does put the problem in sharp focus: No, it's not "peak oil." Not global warming. It's the population explosion: Too many people, old and young, boomers and babies too. More and more people filling up our little planet.

And while she proposes eliminating boomers, throughout history other writers, warriors and governments have dealt with the other end, limiting births -- from family planning, infanticide, even genocide. Yet few expect change at either end of this spectrum. Indeed, a United Nation's study estimates the world population will continue exploding, from 6.6 billion to 9.3 billion by 2050!

And not only will there be about 50% more people on the planet before today's kids reach the age of the youngest boomers today, but every year they'll also be demanding more opportunities, more benefits and more resources for their personal economic growth as well as for the expansion of their national economies. Warning: by 2050 America's 400 million will be vastly outnumbered by 8.9 billion others across the planet, all competing with America.

In short, within four decades human demands will easily double. That makes population growth the key variable in every economic equation ... impacting every other major issue facing world economies ... from peak oil to global warming ... from foreign policy to nuclear threats ... from religion to science ... everything. Population is the No. 1 variable in the economic equation.

Everybody loves that "rearranging the deck chairs on the Titanic" tag line... but the simple fact of the matter is that the above population numbers assure us that Social Security and Medicare will NEVER deliver as promised - this is a simple, real world example of the mathematical concept - "the exponential function" - and it wouldn't matter if we were talking about compound interest or weeds in an empty building lot:

Anything growing steadily has a "doubling period" and reaches infinity fairly quickly.  Seeing how we live on a finite planet we can safely conclude that ANY social or political policy that depends on the infinite growth described in the "exponential function" will ABSOLUTELY, POSITIVELY BREAK DOWN AND FAIL.  Social Security and Medicare are the 2 most obvious, but money supply, food supply, water supply, fisheries, timber, etc... also come under control of this mathematical LAW.

I listed some of the things a family man should do to avoid this 47 vehicle, interstate pile up in my January 4, 2oo9 post, "Back to Business".  Of course, I know that I am shouting into the wind and that most folks can be presented with of all of the data and sound reasoning in the world and then keep on eating or smoking, etc...  Now I know the scientific term for this:

"Incredulity Response".    (This is a fascinating article and is worth the time it takes to read it in its entirety.  What struck me, besides the obvious, was the concept's applications for trading and investing.)
In November 1987, Leach was changing trains one night in London at the King's Cross Underground station, a sprawling hub that throbs with more than 30,000 passengers during rush hour. He noticed the "thickest, greasiest, most cloying smoke I've ever seen." At first, it didn't make sense. There were no flames—just acrid smoke like the kind that belches from a ship's funnel. Almost without thinking, he found his way up to ground level and hurried to the exit.

Today, more than 21 years later, most of the memories have faded, but Leach can still smell the foul smoke and hear the wail of a uniformed railway worker: "There are people dying down there." For some inexplicable reason, as the fire spread, trains kept on arriving in the station. Meanwhile, aboveground, officials unwittingly directed passengers onto escalators that carried them straight into the flames. Many commuters followed their routines despite the smoke and fire. They marched right into the disaster, almost oblivious to the crush of people trying to escape—some actually in flames. Thirty-one people perished in the King's Cross fire, and incredibly, the Underground staff never sprayed a single fire extinguisher or spilled a drop of water on the fire.

Leach has a name for this syndrome. It's called the "incredulity response." People simply don't believe what they're seeing. So they go about their business, engaging in what's known as "normalcy bias." They act as if everything is OK and underestimate the seriousness of danger. Some experts call this "analysis paralysis." People lose their ability to make decisions.
In other words, I could lay out the statistical certainty of the eventual collapse of the very things that hold our economy, our very society, together until the "cows come home", and 90% of the savers and investors that read this - and actually have the means to do something - won't change a thing until it is too late.

"Incredulity Response", indeed.

Mentatt (at) yahoo (d0t) com



15 comments:

bureaucrat said...

If you believe in this response, and I can't see a defect in it, then you must come to the conclusion that there is nothing you can do (I would think a few years of trying to convince people about peak oil -- like me trying to get my family and friends to listen -- would have already led you to believe you can't make anyone think anything), so you invest, and you come to the conclusion that in the end, people are responsible for their own mental laziness, and short of starving them, they deserve what they get. Meanwhile, we peak oil people have invested optimally, accumulated smartly, made the $$ and win in the end. :) It's all you can do. People are too busy with Paris Hilton to care. So, screw them.

On the flip side, things ain't as bad as you are claiming either. Several nations (Italy, Japan, etc.) have aging populations, and they haven't imploded because of the higher old-people costs. Maybe they aren't the cutting edge of technology centers, but that isn't neccessary anyway. Social Security can be fixed with some minor changes. The Medicare thing will be handled with the inevitable U.S. national health care system (we are the only industrialized country that doesn't have it). As for Obama's new man, the old people of America will ensure that Obama and his budget diretor will get nowhere -- thru 2012. They can't even get digital TV to hold to a deadline!!! :)

A Quaker in a Strange Land said...

WE will survive.

Our FINANCIAL resources will not.

In the short term, financial resources like cash and bonds may actually appreciate - that is what happens in deflation. How long will deflation last? THAT is the $64,000 question.

Anonymous said...

It's interesting, the problem spots in the article were just what we were discussing at work yesterday. South Asia, Africa and the Middle East are going to go up in flames. The EU may well come apart. Europe has little fossil fuel of any kind. North America is the best place to be through all of this, IF we can get off of foreign oil and disengage from these regions. We have natural resources and a comparatively lower population density. Russia has the same advantages, but is exposed on its southern border. DEFENSE DEFENSE DEFENSE.

Nature is based on an exponential growth-catastrophe model. Nothing is permanent. Nothing should be. Sustainability is an illusion, and the sustainability wonks need to figure that out. Personally, I'd rather gut through the catastrophes and take my chances than to condemn my offspring to the horrid totalitarian world a sustainable culture would become.

Regards,

Coal Guy

Dan said...

To work as advertised social security requires a rapidly expanding population and it is on the ropes because of the ABCs- abortion, birth control, and condoms. I don’t see how a shrinking population will help with that.

On the other hand natural selection is the default for dealing with resource competition. I have zero hope that reason will rule the day, I’m not even sure it would be desirable.

Anonymous said...

Peter Orszag, President Obama's new budget director, co-authored a Brookings Institution study that concluded: "Balancing the budget would require a 41% cut in spending on Social Security and Medicare, a 47% cut in discretionary spending, or a 17% cut in all non-interest spending."

What about military spending?

Anonymous said...

Let me get this straight:

You are pointing out that most people are unable/unwilling to understand the deadly consequences of exponential population growth, but YOU are?

Congratulations on your 2 new children. That makes 5 children, right?

A Quaker in a Strange Land said...

HA!

Actually, That makes 3. The other 2 are my g-d children (my sister's kids, but they might as well be mine, too)!

But very, very observant! You must be in possession of a uterus... or gay... straight guys would have missed that...

Population growth or decline is the number of children per WOMAN - not per MAN. I promise - I will never father more than 2 per woman...

Does that make you feel better?

BTW, I did not say I had the solution, only that Obama selected a guy who can count (and I did not say Orszag has a solution, either)...

Hysterical!

Thanks for the nasty, sarcastic comment you f*&^ing cynic. Stop by anytime and make me miserable.

A Quaker in a Strange Land said...

Coal Guy...

AMEN!!!!!!!

A Quaker in a Strange Land said...

Military spending?

I am with you, bro.

Now let's see... if an Obama admin and a Dem controlled House & Senate cannot cut military spending...

HMMMM...

I guess we will have to wait and see if we have been fooled again.

Anonymous said...

>Several nations (Italy, Japan, etc.) have aging populations, and they haven't imploded because of the higher old-people costs.<

....during this past period when oil has been flowing like water.

Any nationalized healthcare system would also be forced to face the declining oil import future. And seeing as our US medical system is lavishly addicted to fossil fuel usage.....???

Also, I just cannot see how the US/UK can lose our status as the worlds financial center and have this NOT affect our oil import situation in a negative way.

At some point, we will need to trade real money or real goods for our 25% share of world oil production.

bureaucrat said...

For you Greenspan lovers (from the UK Guardian):

"The worst economic turmoil since the Great Depression is not a natural phenomenon but a man-made disaster in which we all played a part. At the top of the list is Alan Greenspan, chairman of US Federal Reserve 1987 to 2006. Only a couple of years ago the long-serving chairman of the Fed, a committed free marketeer who had steered the US economy through crises ranging from the 1987 stockmarket collapse through to the aftermath of the 9/11 attacks, was lauded with star status, named the "the maestro". Now he is viewed as one of those most culpable for the crisis. He is blamed for allowing the housing bubble to develop as a result of
his low interest rates and lack of regulation in mortgage lending. He backed sub-prime lending and urged homebuyers to swap fixed-rate mortgages for variable rate deals, which left borrowers unable to pay when interest rates rose. For many years, Greenspan also defended the booming derivatives business, which barely existed when he took over the Federal Reserve but which mushroomed from $100tn in 2002 to more than $500tn in 2007."

Anonymous said...

Greenspan was just forestalling the inevitable. He knew it. I heard him talk about it on TV. It may have come a few years sooner or later, but it was coming. Blame who you will. One of Mish's articles contain a graph that shows credit growth diverging from real production starting around 1975, and growing ever since. One of those exponential growth things. It ignored which party ran congress, or who was president. One of the Fed Chairmen could have stopped it, but who wants a Depression on his watch...

The only other thing to do is feed it and hope the bad thing happens when you're long gone.

Regards,

Coal Guy

Donal Lang said...

You're right about population, which has more than doubled in my lifetime (2.9bn in 1955, 6.8bn today); a doubling of population halves the per-capita resources of the World, it speeds the usage of oil and other resources (including food and water!), and accelerates ecological and environmental destruction.
A few years ago, on a blog, I proposed that, as aid, we offer guaranteed work and a basic income for life to couples who would (after having 2 kids) would voluntarily be sterilised. In the developing nations this would enable those parents to educate and care for their two children properly, and the next generation would be more successful and productive.
Sadly, the vituperative nature of the responses meant that I closed the blog!
Sadly the lack of willingness to properly discuss the population issue means that the 'solution' will be a population crash, probably connected to something like a Bird-flu or Sars epidemic. To Coal Guy; don't think for one moment that any western nation can avoid the consequences of this; just look at the Sars virus which was in Canada in days!
Any other solutions anyone?

A Quaker in a Strange Land said...

Hey Donal:

I have no idea what to do as a MACRO solution, society wide that is.

All of MY solutions are micro, i.e. how I handle this for my family. Getting 6.8 BILLION folks to cooperate with something so sensitive is, well, not bloody likely.

I agree with Coal Guy that I think the "sustainability wonks" are full of sh-t, and are really looking for Grants to study stuff that cannot be implemented or measured (why can't I get a gig like that?).

Be well!

Anonymous said...

Hi Donal,

I don't think we are immune. Disaster can happen anywhere. All I'm saying is that we are in the best geographic position. I'd expect war and famine to tear South Asia apart.

Obama wants more presence in Afghanistan and Pakistan. I don't think it will help. The Taliban are again busy blowing up schools and shooting women in the head for shopping without an escort. They seem to have popular support! We are going to get sucked in.

As for disease, it can happen anywhere.