History Repeats Itself Because the Political Class Lacks Imagination and Courage

Everyone seems agog over Anand Giridharadas' ideas, but I'm not impressed with him--or anyone else commenting on America's slow but steady descent into an amoral police state. In fact, the more I study American history, the more I realize America's leaders have been repeating mistakes by copying ideas from the past without realizing different times need different solutions. During the most recent recession, for example, Congress was atwitter over whether to extend unemployment insurance, and it eventually did--copying its exact response from the Eisenhower era over fifty years ago: 

Q. Mr. Vandercook: Do you have in mind so far any intention of proposing legislation to assist the States to continue unemployment benefits beyond the 6 months' period, as that 6 months, in many instances, is running out? 

THE PRESIDENT. I have forgotten for sure whether that was in the bill that went to the Congress or not. I remember the subject was discussed by Mrs. Hobby in front of me, and I would have to ask Mr. Hagerty to give you the exact thing as to whether it was actually in the bill. 

From 2013-2014, Congress extended unemployment insurance by 3 months, then continued it another 3 months. (See HR 3546, 3813, 3824, 3936, etc.) Why the sameness? Here's where Anand Giridharadas succeeds: he points out the political class has no real interest in changing the status quo anywhere. 

Now go and look at the kinds of people who enter politics. In almost every single case, they are from an affluent background or lack the real-life experience to overcome secondhand information (President Obama and the military, etc.). If you are someone who genuinely desires to avoid humanity's cycles of political failure, which model do you turn to? The obvious answer is nonconformity, but that approach requires an engaged, compassionate, and principled class of youth. Pray tell, where are they? 

Two Views on the Economy

Two interesting views on the economy and whether the recession is over:

1. Schwab's Liz Ann Sonders says it might be over.

2. Dennis Gartman says it's over.

Now read this and this:

For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag...

Actuaries say that about 5.5 million retired public employees have health benefits of some kind - and accountants joke that there are not enough actuaries in the country to do all the calculations necessary to estimate how much all these retirees have been promised...[In contrast,] Today, only one in 20 companies still offers retiree benefits, according to Don Rueckert Jr., an Aon actuary.

Rosy economic projections belie the public sector's debt bomb. At some point, taxes must be raised to cover public sector pensions and lifetime medical benefits. Once taxes increase, non-government workers will have less disposable income. The less disposable income, the less people can spend. The less spending, the lower our economic growth--as long as our economy is driven by consumer spending.

The only solution to the death/debt spiral is to cut spending, which includes cutting public sector benefits. Does this mean that teachers and other government workers must get paid less? No. What it means is that government benefits must be brought in line with a regular American's benefits. Instead of a pension, police officers, teachers, lawyers, judges, and other government workers should get a 401k or 403b plan. Instead of guaranteed lifetime medical benefits, government workers should get the same medical plan everyone else gets--employer-subsidized health care while employed, COBRA if terminated, and then Medicare when the time comes. Economists who praise the so-called economy recovery are not taking into account long-term debt liabilities. We need to cut spending, and all we've done so far is use accounting tricks to hide the massive debt we're giving to our children and grandchildren. That's not just irresponsible--that's immoral.

Kudos to the NY Times' Milt Freudenheim and Mary Williams Walsh for being ahead of the curve. Their article on GASB 45 was published in December 2005.

Law Firms Not Immune to Recession

The WSJ had a great article on recessions and law firms:

http://online.wsj.com/article/SB123292954232713979.html

What really interests me is the assumptions these now-defunct law firms made. For example, why were they so confident that complex cases, like the Microsoft anti-trust matter, would continue indefinitely? Didn't they realize at some point, all those associates had to work on other cases to bill a sufficient number of hours?

It looks like the recession bankrupted law firms that were inefficient and that failed to diversify. What's the lesson? Whoever ignores the rule of "not putting all your eggs in one basket" does so at his own peril. In law and in stocks, it pays to diversify.

Recession?

Apparently, a majority of U.S. states are now officially in a recession:

http://abcnews.go.com/Business/Economy/story?id=6075580&page=1

I'm not sure what to make of this--usually, when the mainstream press starts calling a recession, we're in its middle or late stages, not the beginning.

Anyway, the above chart isn't sad or tragic--we've become somewhat desensitized to recession calls. If you want to see something really sad, read up on Mattie Stepanek. Keep the Kleenex nearby before you make the jump:

http://abcnews.go.com/GMA/story?id=6069915&page=1