Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

12 August 2009

Nervous Nellies


You want to know what’s causing our late-summer malaise? We’re a bunch of nervous nellies.

If you read the Wall Street Journal, you might have seen a bit of good news lately. China’s exports rose 5.2% last month, and it expects GDP growth of 8 to 9 % for the next two quarters. Auto dealers, gorging on Cash for Clunkers, are pressuring auto makers to increase production and employment. The EPA is about to certify GM’s Chevy Volt at 230 MPG, and Applied Materials expects a recovery in semiconductor equipment (a traditional leading indicator) next quarter. Electric rates are down sharply, due to the first-ever sustained decrease in demand, proving that conservation and efficiency have made a successful transition from ridicule to accepted policy. Brazil’s auto sector is thriving and plans to increase production and employment.

All this sounds much like the foreign-led recovery that a resilient global economy makes possible and that I predicted four months ago.

So where’s the bad news? Some idiot investment advisor says that bank stocks are overvalued, and the Dow falls 97 points. Go figure.

Banks stocks are schizophrenic and will be for some time. One day bankers insist on their autonomy and try desperately to pay back their bailout money. The next their CEOs are nibbling their nails and fretting publicly about their huge stashes of toxic assets. If you like day trading, you can “ride the waves.” But don’t expect sustained movement anytime soon.

No one (including the banks) has any idea what big banks’ toxic assets are worth. Treasury Secretary Geithner likes it that way. If people knew, they might make runs on the banks. But no one knows anything.

Complete opacity has been Geithner’s tacit policy from the time he took the oath. That policy will keep the banking system from collapsing until the global economy recovers enough to justify higher toxic valuations. Then, all of a sudden, there will be transparency and a “market” in derivatives, and all the twisted toxic positions will unwind. That policy does have a certain logic.

Then there’s the mob. Maureen Down frets that Obama’s health plan is in peril because inarticulate know-nothings are angry. These are the same people who opposed Obama from the beginning, almost entirely because of his race. They are our lunatic fringe—no more worthy of serious attention than the village idiot or the bar fights that occur in some neighborhoods in every major city virtually every Saturday night (especially the hot ones). Why reporters—let alone pundits—pay apparently serious attention to these silly-season performers is beyond comprehension.

The nut cases make a lot of noise. That’s their right. After all, this is America! But to confuse their noise with serious policy or national trends is a grave error in understanding reality.

Smarter, better educated people by far elected Obama. States accounting for 72% of GDP preferred him, and states accounting for 36% of GDP preferred him by margins of more than 20%. (The people who preferred McCain by a similar margin collectively account for 5% of GDP. They are undoubtedly the same ones now making all the noise.)

Productive people of all kinds supported Obama with time and money because they were tired of lies and grossly incompetent government. So did most experts.

These folks are hardly nervous nellies. They are the “silent majority” today. Unlike our scatterbrained media and the near-violent nut cases, they are used to solving problems the American way: with brains, resolve, patience and perseverence. They are still securely in Obama’s corner.

Why? Because they recognize his competence and strategic vision. Because he has made a solid down payment or nearly delivered on his most important campaign promises and his priorities on taking office. Because they know that Rome wasn’t built in a day and that the President has an extraordinary record of achievement after only seven months in office.

This productive, silent majority is waiting patiently, with high resolve, to see how the President’s plans and strategies (most of which have been brilliant) unfold. It’s not making much noise because it’s more than satisfied with him, his team, and his competence.

There are some real potential roadblocks. There are members of Congress who oppose changes the nation needs because they are too stupid to see the benefit, because they think their constituents are, because they have the habit of pandering to local interests heedless of the general welfare, or because they see opposition and failure—regardless of impact on the nation—as the best way to increase their personal power. They include people like John Boehner (R., Ohio), Mitch McConnell (R., Ky.), Jeff Sessions (R., Ala.), and John Ensign (R., Nev.). Except for Boehner, they come from small states, which our Great Compromise left with unjustified and disproportionate power.

Now Chuck Grassley, so avuncular and reasonable-sounding, has joined their group. Although his home state of Iowa is not known for its coal mines, he has pushed for huge loopholes in cap and trade favoring the coal industry. Then he opposed the bill as a whole, presumably because the loopholes weren’t big enough. Next he adds insult to injury by voting to keep nonsensical tariffs on cane-derived ethanol, which is four times more energy efficient than the corn-derived junk his state’s farmers produce.

The mobs at town-hall meetings may not understand the damage these folks are doing to our nation, but the folks who voted for Obama do. Many of them are Baby Boomers just entering retirement, with plenty of time and money to exact a political price for that damage. Grassley in particular would do well to remember that his home state of Iowa gave Obama his start in the presidential campaign. The good people of Iowa—let alone the highly educated experts who are Obama’s core constituency— won’t forget betrayal easily.

Like a rattlesnake on the ground, the nay-sayers and obstructionists are making lots of noise. But like that same rattlesnake, they have more to fear from the Homo sapiens walking overhead than vice versa. The story is not yet told, and the polls are vacillating, but if you want to keep your money, I wouldn’t bet on the mob.

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