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