Friday, September 3, 2010

Cycles and the Economy

A great deal has been said and spent in favor of one or another economic theory in an effort to control the economy, and in recent years to mend it. But I'm not sure how any of them explain natural cycles.

There is no doubt a tendency for 7 year cycles, used from biblical times to rotate crops and allow the soil to heal.  Renewal is a form of cycling back to freshness, as are periods of self-reflection. What about humility induced by spirituality or religion? Then there's zero based budgeting despite its spotty track record, but also the reason we need ABC accounting.

But unfortunately for taxpayers, bureaucracy never finds a good reason for the renewal of spring cleaning.

Some companies are truly Calvinistic in their approach; in good times, the crowd roars and they splurge, and in bad times, like off-season or winter, they take on a guilty, sinful stance, live in sack-cloths, lay people off, and generally gnash their teeth. There must be a middle ground there somewhere where we understand the difference between profligacy and hermity, retaining a healthy self-inspection as opposed to sliding from one extreme to the other.

Sure the world is a complex system. But it is possible to understand the reasons for our success and failure, and live and grow appropriately.  One of the first and necessary activities for self-improvement is an accurate self-portrait.

The federal government has been talking about instituting that portrait in accrual accounting for over fifty years. When Bush was President, leftist newspapers periodically called for it.   But groups like the Chamber of Commerce have been talking about understanding what's going on in Washington for a lot longer than that (the link is to a 1987 article).  While one can read the Federal attempt at GAAP reporting, it is still a report that would never pass any audit and so filled with doublespeak and obfuscation that its presentation alone becomes a shameful commentary of the state of our government.

Here's a clearer attempt at the numbers at Shadow Stats.   The numbers are enough to make any sane human cry.  I sure wish an ABC accounting analysis of the federal government was available using accrual methods.  It's the least we owe ourselves by now.

Some socialist economists like Krugman tell us that the deficit and debt don't matter.  That argument is only partially defensible if one assumes American growth grates are an inherently God-given truism, and that we can spread the debasement of our currency across the world using a printing press.  They are partly right; as long as the world uses the American dollar as their currency, the US can export its recklessness.  It does have a disproportionately negative effect on the world's poor, but then who cares when you're spending your way to riches.

Regardless of one's political stance, it is interesting that in the world of government, there is never any reason for self-inspection of the programs in place, no reason to cut back, no alternative that turns out to be better except those that cost more money.  There is only reason to grow even as corporations, individuals and even cultures go through an inevitable cycle of advance and retreat on any number of axes.  If ever increasing control is not the answer in even half the cases in our private and organizational lives, why is it ALWAYS the answer in government?

Right now the taxpayer is clearly going through a phase of economic retrenchment.  The Keynesian theory is that this is the time when government needs to spend even more.  Only in a reality based on fractional reserve banking and counterfeit currencies could such a response seem even partly practical or rational.  The country is in a somber mood of austerity.  The elites remain non-plussed and arrogant, bailing each other out in an effort to preserve a reality and economy that any fact based analysis suggests is long past gone.

No wonder the elites are continually surprised by economic news; their narrative grows ever more distant from reality.  No wonder there is a divide in Washington signaled by an election wave on the horizon.  There is a time for planting, and a time for harvesting.  There is a time for digging in, and a time to adapt.  It is the natural cycle of all living, complex organisms.  Only the emotionally challenged do not change when presented with new facts.

Washington does not understand at all that their falling approval ratings only partly have to do with politics or economics.  Command and control bureaucracies never work for long.  An ever increasing bureaucracy has never worked, besides its inherent distastefulness.  To say we can grow our economy and our bureaucracy out of our debt is to rely on a path never walked in direct contradiction to the cycles of life.

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