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Becoming Greek

Holman Jenkins nails it in the Wall street Journal in Our Big Fat Greek Habits - If you don’t think we face interest groups and scams that block progress, read on. 8/7/2012

excerpt:

We’re not Greece but . . .

The number of employed Americans grew by 316,000 during the first 41 months of the Obama presidency. The number receiving Social Security disability benefits grew by 1,291,000.

One factor, says MIT’s David Autor, was Congress’s extension of coverage in the 1980s to hard-to-verify mental illness and back pain. As in Europe, the U.S. disability program has quietly morphed into a way to disguise the extent of long-term unemployment. The program especially has become a place for older unemployed workers to keep body and soul together while waiting for Social Security eligibility. Though funded by a dedicated payroll tax, the program now runs a deficit of $26 billion a year.

The U.S. isn’t Greece. Its economy is growing. Its debt is willingly held by investors. It can print its own money. But if you don’t think we face Greek-like problems with interest groups standing in the way of change, return to the top and read again.

HKO

Read the whole article. It is filled with similar examples of out of control, irrational growth of entitlements and bureaucracy.

The critical defining difference in our political choice is between those who define political success by how many are dependent on the government and those who define success by how many people are independent of government largess.

While we may debate economic policies, the more we encourage a culture that prefers benefits to work, short term benefits to long term growth, and government solutions to a never ending list of social problems rather than individual sacrifice and initiative- the more difficult it will become to avoid the fate the modern Greek oracles have clearly shown us.


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Economics and Culture

Victor Davis Hanson

Victor Davis Hanson writes Culture Still Matters in The National Review 5/31/12.

Excerpt:

But government-driven efforts to change national behavior often ignore stubborn cultural differences that reflect centuries of complex history as well as ancient habits and adaptations to geography and climate. Greeks can no more easily give up siestas than the Swiss can mandate two-hour afternoon naps. If tax cheating is a national pastime in Palermo, by comparison it is difficult along the Rhine.

Do average passersby throw down or pick up litter? After a minor fender-bender, do drivers politely exchange information, or do they scream and yell with wild gesticulations? Is honking constant or sporadic? Are crosswalks sacrosanct? Do restaurant dinners usually start or wind down at 9 P.M.? Can you drink tap water, or should you avoid it? Do you mostly pay what the price tag says, or are you expected to pay in untaxed cash and then haggle over the unstated cost? Are construction sites clearly marked and fenced to protect pedestrians, or do you risk walking into an open pit or getting stabbed by exposed rebar?

To put these crude stereotypes more abstractly, is civil society mostly moderate, predicated on the rule of law, and meritocratic — or is it characterized by self-indulgence, cynicism, and tribalism?

We in the post-modern, politically correct West publicly pontificate that all cultures are just different and that to assume otherwise is pop generalization, but we privately assume that you would prefer your bank account to be in Frankfurt rather than Athens, or the tumor in your brain to be removed in London rather than Lisbon.

HKO comments:

Economics focuses on incentives, but cultural preferences and habit also impact the traction that specific incentives will develop.  Charles Murray recent work, Coming Apart, addresses this same issue – but within our own culture.

We are reluctant to address culture as an explanation of productivity and wealth because we fear it will indicate intolerance or ethnocentric bias. But in reality, as Hanson so appropriately noted, we decide frequently where we live or who we transact with based on cultural preference.

If culture affects economics more than economics affects culture then economic remedies will not likely succeed.  However, if we allow poor economic policies to contribute to the degradation of our culture,we will find it very difficult to correct the undesirable effects with mere economic solutions.

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Avoiding Political Influence in your Investment Decisions.

While I share the great concern about her destructive economic policies of this administration, I am getting a contrarian tick about the dollar and gold.

Every right wing talk show and business TV show is flooded with adds selling gold to consumers.  “The dollar decline is inevitable” the pitchmen warn, “Gold is the only safe money.”

When there is this much noise and whenever anything is inevitable it is time to be cautious.

I remember during the seventies when inflation seemed inevitable. The doomsday newsletters like Harry Brown and Howard Ruff had middle class investors buying gold coins, opening us accounts in Swiss banks and investing in Swiss Franc CDs.  Gold reached over 800 dollars an ounce.

And then the inevitable did not happen.

Volcker and Reagan wrestled inflation out of the system, the dollar soared and gold plummeted. Silver which ran as high as $50 an ounce came crashing down to under $5. The real reason for its rise and spectacular bubble was not the desire for sound money but the manipulations of the notorious Hunt brothers.

Middle class investors who bought into the fear and invested heavily in foreign currencies and gold were badly damaged.

It is challenging enough to get accurate information about domestic stocks. Understanding the factors affecting currency values and foreign markets are far beyond the scope of middle class investors (and most professional investors as well.)

Interest rates are near zero. They cannot go down any further, and given the deficit will likely go up.  When interest rates go up the costs of holding a non interest bearing asset like gold goes up, and this puts down ward pressure on the price of the metal.

While the dollar may seem vulnerable its value on world markets are relative to other currencies. As we see the Dubai fantasy teetering on the brink of bankruptcy and countries like Greece nearing default, the dollar may start looking better if for no other reason than other countries are looking worse.

The amount of uncertainty multiplies greatly when you leave our borders. If you are concerned and want some gold limit your exposure to 10% of  your assets and even dollar average that to avoid buying at a top. Consider gold stocks like Newmont or Goldcorp that you can sell easily and quickly if the market turns against you.

Do not put gold in your 401k or retirement account. The tax protection is better suited to income investments, even low yielding but secure Treasuries. If you think interest rates are going up (I do) avoid long term bonds of any nature. Bond face values drop as interest rate rise.

Successful investing requires controlling your emotions.  Anger and fear over this administration’s policies can easily influence your investment decisions.  Rarely does such emotional influence lead to better decisions.