Inflation? Deflation? It’s All Relative

Lately, we’ve been starting to hear more and more about the looming threat of deflation.  One article I read made the scary-sounding pronouncement that once you get into deflation, you cannot get out.  So, deflation is the Roach Motel of the financial world, eh?  Forgive me for being skeptical, but I just don’t see the reason to be so scared.  Haven’t we been told forever that inflation is the bogeyman?  Hasn’t the Fed played ping-pong with interest rates with “keeping inflation in check” as a main goal?  And now we’re supposed to believe inflation is actually our friend?  We work more, we get paid more, and then we spend more on the same things — so we wind up in the same place.  We spend dollars now on what we used buy for pennies — remember when being a millionaire actually meant something?  Now you can be “worth” a million dollars, and still be plain old middle class.  So, please, don’t tell me that deflation would be the end of the world.

I understand the effect deflation has on debt: if money is worth more, then debts are effectively bigger.  And?  Let’s say we have true deflation, where prices fall, and wages fall with them.  Then all those people carrying debt have a bigger burden to bear.  OK.  Won’t their creditors look to the same mechanisms they always have, in such situations?  Wouldn’t they work with their borrowers to restructure the debts, and seek to recover part of the amount instead of losing the whole?  Why wouldn’t they?  So what if they’re getting less money back?  Less money is worth more, right?  Same goes for their creditors, and so on up the chain (though “up” may be a misleading way to characterize it, as the chain is more likely pretty much circular).

I’ve heard that deflation makes it less likely that lenders will lend, because, as the argument goes, they know it will be difficult for borrowers to pay them back, because deflation will sap borrowers’ earning power.  Again, I have to say, so what?  First of all, lenders always have to manage the risk of borrowers being unable to pay them back.  One of the challenges of inflation is that lenders need to recoup enough to stay ahead of it.  But with deflation, the lender is always going to stay ahead, even making loans with a 0% interest rate.  So, intelligent lenders will still be able to come out ahead while lending money.  Hey, maybe this is precisely what we need to purge all of the bad lending practices that crept in when everyone knew that everything was always going to go up up up!

The biggest problem with inflation is that there is no ceiling. Prices can continue to climb, as long as wages and the amount of printed money keep pace.  Deflation doesn’t have that problem.  This is where that “once you go in, you never come out” nonsense falls apart.  Sure, prices can drop until something that once cost dollars is back to costing pennies.  But at some point, some reasonable minimum must be reached.  Prices cannot reach $0 because no one will produce anything for absolutely nothing.  And people need things.  So, those things will be produced and paid for.  (And no one is going to advocate the minting of tenths or hundredths of a penny — because that would be stupid.)  People will realize that money is just a representation of goods and labor, and those goods and labor have intrinsic value.

My point here is that everything is relative.  Price has no meaning, in an absolute sense.  My parents house, which cost about $70k in 1975 would now cost more than ten times that.  But it’s still the same house, on the same property, in the same neighborhood, with the same schools, etc.  So, really, all it’s worth is what it is: a nice house, in a nice neighborhood, with decent schools.  The difference between the apartment we lived in when I was a little boy and the house that is now worth about $700k, is the 30+ years of labor that allowed my parents to own it.  If my parents sold that house today, they wouldn’t be rich.  They still have to pay to live somewhere.  And if they wanted to live in the same area, they could not afford to live any better.  They could only afford live in something of the equivalent value of a nice house in a good neighborhood, with decent schools.  Their other choice would be to downgrade on the house/neighborhood/schools, and take back some of that 30+ years of labor in the form of cash in their pocket.

Money only represents value.  Real value is in goods and labor.  How hard do I have to work to afford the things I need?  That’s how you measure the true value of a thing.  So, let’s not worry so much about the “value” of a dollar.  Inflation and deflation cannot both be all bad.  There are obviously positive and negative side-effects from both.  While changes in the value of money relative to goods and labor can cause some pain in the short term/small picture (change always does), in the long term/big picture, the fluctuations are pretty much meaningless.  So, let’s lighten up with the doomsday talk about deflation, shall we?

A Bit About Media Bias

Saw this video today, and couldn’t resist linking to it.

It’s supposed to be a demonstration of how media bias affected the results of the election.  The video itself doesn’t prove anything conclusively, though it is entertaining.  But the Zogby poll from which the questions were taken does make a stronger case that the media’s Obama tilt definitely influenced perceptions.  How many votes it affected is pretty impossible to determine — it seems like, regardless of facts, most people vote based solely on party identification, even if they’re not very involved or interested in politics.  But really, who knows?  Obviously there are some people who vote for one party in one election and the other in the next.

Anyway, right before the election, I was having a discussion with a friend about media bias and influence on voters.  It surprised me when he said, first, that he didn’t believe the media really had much of a bias, and then that he didn’t believe it really influenced people that much, anyway.  At this point, it’s common knowledge that an overwhelming majority of people in the “mainstream” press identify themselves as Democrats.  So, the question is not whether they favor Democrats or Liberal positions, but whether their reporting displays their preferences.  This is a more subjective issue, though there are surveys that try to quantify bias based on how many positive or negative stories are run on each candidate, how many magazine covers they get, and so on.  I thought it was a settled argument that, generally speaking, the mainstream media does demonstrate a bias for the political left.  Now, my friend is something of a special case.  He gets his information from tons of different sources, and so it’s likely that he sees much more balance.  But “tons of sources” and “mainstream sources” are not the same thing, and most people rely on the mainstream sources, because they’re just not passionate about digging up all the information they possibly can — a point I made to my friend.  He countered with the idea that most people don’t listen to what the media tell them, anyway — “they’re not lemmings,” is pretty much what he said.  I think the question of whether large numbers of people are lemmings or not is still open.  But let’s assume most are not.  People’s opinions have to be formed around something.  And as the linked video demonstrates, even though people were not told by the media that Palin said some of the stupid things that Obama or Biden said, their opinion of her, formed by what they had heard about her through the media, led them to assume she made those stupid statements.  Bias comes not only in the form of direct advocacy or opposition, but in decisions about what stories to highlight (or bury), and what language is used to present information.  At times, bias can be blatant, while at others, it can be subtle.  But to say that it doesn’t exist, or that it doesn’t matter, seems naive.

The End.

With Ohio and Virginia now being called for Barack Obama by a few different news outlets, the hope of a McCain victory is eliminated. Obviously, I am very disappointed, though not surprised, at the outcome. I’m trying to decide whether or not I’m proud of my country for passing the historic milestone of electing as president a black male. The easy answer is yes, for the vote appears to make it obvious that the United States is not, at it’s core, a racist nation. However, I haven’t believed that is has been a racist nation, at least not for some time. (That’s not to say racism does not still exist here — I’m not naive.) So, the election of Barack Obama was not necessary to prove anything to me, and thus it, in itself, does not make me proud. But perhaps I’m focusing too much on semantics. It is good that the United States has overcome an ugly part of its history, and has demonstrated to millions of Americans, who probably never believed it before, that they truly can play any part in the American story.

So, that’s the one bit of positive I can find in the results. Now for the negative….

I honestly am concerned for the future of my country. I am very much a believer in our system of government, and I do believe that, in the future, the pendulum will swing back — it always does. But I fear that as a society we’ve truly lost focus on the ideals that have allowed this country to be as successful as it has been. And I believe that the domination of the federal government by the Democratic Party over the next 2-4 years (at least), will push us even further away from those ideals. The founders knew that to be great, a people had to be as free as they possibly could be, and to guarantee that freedom was the sole purpose of the government they set out to create. That is why so much of the Constitution is devoted to laying out what the government could not do, and why it says that the government could not assume any power not specifically granted to it, by the states and the people, through their ratification of that document. Along the way, our society has lost sight of what makes us great, turning to government to protect and support us during tough times. And each time we’ve done so, we’ve handed over a little bit more control over our lives.

We now face the prospect of a federal government spreading its tentacles much further into areas in which government influence should be feared. We will see a health care bill with a significant federal role, we will see the government become much more involved in the way we buy our homes, we will see a renewed push for the government to control the direction of scientific research and individual behavior through manipulation of the tax code, we will see the government get even more deeply involved in how our children are schooled, and when and where. I know guaranteed health coverage for all sounds nice, but if it means that the government assumes the right to tell us how to live, what to eat, what procedures or medicines we can and cannot have, and if it means that the government has to control what specialties doctors may pursue, what drugs pharmaceutical companies may develop, and how much they can charge, therefore removing the aspect of true competition that produces the best doctors and medicine, is it really worth it? I know guaranteed preschool and more federal money in education sounds good, but if it means the government assuming an even greater role in deciding who can go to school where, and what they can learn when they get there, is it really what we want? And I know that it sounds great to have government champion worthy scientific goals, but if it means that we miss an opportunity to discover a truly revolutionary new energy source because some congressman wants research to focus on fuels made from corn, or that drug companies miss an accidental breakthrough on cancer treatment because they were pressured into not developing a cure for baldness, does it make sense? And when all of these plans fail to deliver on their promise, we will hear that it will only take a little more money, and a slightly more expanded role for the government, to make the system work. And with each additional dollar sucked out of the private sector, and with each new regulation and restriction, the chance for creative solutions being developed by private companies or individuals is diminished. And people will be afraid to say, no, no more money, no more power, this isn’t working — because as bad as the safety net might be, they will be afraid to give it up.

This is why I cannot be happy about this election. I would like for President Obama to prove me wrong. But I do not have much hope.

Election Eve 11th Hour Predictions

Barack Obama will win.

OK, so that’s not exactly going out on a limb. One thing I’ve learned over the years is that, even though the polls may be all over the place regarding the margins, they generally get the big picture right. Actually, I do believe that there’s a slim chance that McCain could win, but that chance is minute. It is pretty much certain that Obama will win a majority of the national popular vote. That means McCain has to take the “battleground” states, where polls do generally show a narrow gap.

Now, here’s where I do my best Bill Clinton impersonation: coming down squarely on both sides. Historically speaking, I believe Republicans have done slightly better than polling has suggested. That would mean that McCain needs to be close — within the polls’ margin of error — in order to have a decent chance of eking out a win. So, that means he has a decent chance of winning, right? This time, maybe not. Obama has his party very excited, McCain probably not as much. Obama will benefit from expanded voter rolls, McCain will not. Obama has the money and organization for a substantial ground game, McCain not so much. So, Obama runs the table on the battlegrounds, no? Well, maybe not. There are still a lot of undecideds out there (what’s up with those people?), and really, if they haven’t bought the Obama story by now, there’s little reason to believe they will. But how motivated are these people to vote? I don’t know. McCain does have some momentum, and the recently revealed Obama comments about bankrupting coal companies should give McCain a bit more of a push, in some areas, at least. Also, if I’m not mistaken, many of the battleground states have a significant number of absentee voters in the armed forces, and the military seems to favor McCain more heavily than it did Bush over Kerry in 2004. I don’t know how good of a job the polls do in accounting for this voting block.

So, Obama will win the popular vote, probably handily (though not with a 10% plus “landslide” margin), and will likely win the presidency — but McCain might just be able to pull it out. Or not.

And What About “President McCain?”

Now that I’ve written about the reasons an Obama presidency would be bad for the United States (series starts here), I’d like to say a few words about John McCain. I’ll start off by saying that I do not think McCain is a perfect candidate, nor do I believe that he would be a game-changing president. But there are some fundamental differences between John McCain and Barack Obama that, I believe, make him the better choice to be our next president, with absolutely no question in my mind.

Conservative Republicans don’t trust or are upset with John McCain for a several reasons. One big one is McCain’s role in helping to draft and pass the “McCain-Feingold” campaign finance reform act. In an effort to eliminate the corruptive influence of money in our politics (a very real problem), McCain-Feingold created, among other things, tighter limits on the size of donations, and strict rules governing who could say what in political advertising, and when they could say it. Though the courts have upheld much of the law, it is difficult to see how it does not violate Article 3 of the US Constitution, which explicitly bars Congress from passing any law “abridging the freedom of speech, or of the press.” The law basically comes down to, “You can say whatever you want, but you cannot spend money to do so.” This to me is absolutely ridiculous, and such a law never should have been passed. Another major reason why many Republicans aren’t crazy about McCain is his outspoken support for the recent attempt to overhaul immigration policy to create a “path to citizenship” for immigrants in the United States illegally. Generally, as a party, Republicans prefer an “enforcement first” approach — and, according to polls, so does much of the general population. McCain has also taken many stances, throughout his career, that Republicans have felt sabotaged their efforts by working across the aisle with Democrats, a recent example being McCain’s role in forming the “gang of fourteen” senators to prevent a showdown on the proper role of the Senate in the approval of judges. McCain also does not have a reputation as a fervent tax cutter, preferring to focus on controlling spending first.

For my part, I would say that McCain was absolutely wrong on campaign finance, though I can understand his motives, and can see how he could honestly believe what he was doing was an attempt to limit the power of politicians, and hence make government more responsive to the people. As far as immigration goes, it is a massive, complex issue, and it’s hard to see how any approach would be “right,” so I do not fault him for trying (though I do feel that, if we have laws on the books already, we should try enforcing them before abandoning or adding to them). And as for his so-called “maverick” streak, his tendency to break ranks and attempt to work with the opposition, I believe it disproves the myth that he doesn’t have the temperament to lead — he has avoided knock down, drag out fights by trying to find and build upon common ground. So, no, I do not think he’s perfect, but I don’t believe any politician is — and I believe it is impossible for any politician to be so.

For most Liberals/Democrats, the problems with John McCain are as expected: He’s pro-life, he’s against gay marriage, he’s hawkish (and worse, he has supported the Iraq War), he doesn’t believe in raising taxes on the “rich” — in other words, he’s a Conservative Republican. So, let’s take a look at some of these issues, and let me try to explain why Liberals should not fear John McCain. First off, while he may be Conservative on certain social issues, he does not come across to me as being passionately so. By that I mean that I cannot see him focusing his energy on such issues in the White House. On abortion, a lot would have to happen for Roe v. Wade to be overturned, and even if it were, the country would be a long way from outlawing abortion. So, the overall risk on this issue is small. As for gay marriage, both McCain and Obama have said pretty much the same thing: they do no support “gay marriage” but they do support “equivalent rights” for gay couples (e.g., civil unions). Although McCain has supported certain state bans, he’s spoken out forcefully (and rightly so) against a constitutional amendment to ban gay marriage. Regarding his hawkishness, while it’s likely true that he would exercise a muscular foreign policy, I don’t believe that he would just go off willy-nilly picking fights and starting wars. This is where his experience, both personal and as a long-time senator, is a huge factor. Does anyone honestly believe that it would be better to have a man with absolutely no relevant experience feeling his way through the immense foreign policy challenges we currently face, and will face over the next several years? Also, even if McCain’s tendency were to be provocative, he would be impeded by both the Democrat-dominated Congress, and the public hesitation regarding combat resulting from difficulties of the Iraq War. Even on taxes, though he might not want to raise them, he won’t have much choice. As the Bush tax cuts expire, the only way he could keep rates from going up would be to get Congress to pass new cuts — good luck with that.

The fact is that a President McCain would have to work with the most overwhelmingly Democratic Congress in a long time. That means that, even if he were a Conservative idealogue, which he most certainly is not, he would not be able to move the country to the right in any significant way. What he will be able to do, however, is to keep the Democrats from taking the country too far too the left. There is no doubt that on many issues they will be able to get their solutions implemented — which, although in many cases distasteful to me, is only right, as they represent a majority of the American people. But he should be able to prevent any huge new power grabs by the federal government. And that should be the most important thing to all of us.

Election 2008 Series:

• Why Fear “President Obama?” – Part 1: Wealth Redistribution
• Why Fear “President Obama?” – Part 2: Health Care
• Why Fear “President Obama?” – Part 3: One-Party Rule
• Why Fear “President Obama?” – Wrap Up
• And What About “President McCain?”

Why Fear “President Obama?” – Wrap Up

I originally thought this series would comprise about 5 installments. But with time running out before the election, I’ve decided to wrap up my case against Barack Obama with this post. I do hope to write a couple more posts, before the election — one about the pros and possible cons of a McCain presidency, and another more fully explaining my political philosophy so that my readers (all 3 of you) might better understand where I’m coming from. So, let’s commence with my closing argument.

Barack Obama began this campaign as the bringer of “hope” and “change,” with almost nothing to tell us what kind of change we could hope for. I will admit, when he first burst onto the scene, I was somewhat intrigued. The man does give a good speech (or more accurately, delivers speeches — even bad ones — well), and he did sound like he just might bring something new to the table. But if you actually listen to what he says — better still, if you actually read what he says — you’ll notice that he is no different than your average, double-talking, self-serving politician (he’s actually quite a lot like Bill Clinton). Read his speech on racism in America, the one in which he declared he could not disown Reverend Wright. You’ll find moral equivalence, a lot of grand but meaningless rhetoric, and the despicable degradation of his own grandmother in an attempt to cover for his own mistakes. Read his presidential nomination acceptance speech. You’ll find a laundry list of promises containing something for just about everyone, with no realistic possibility that he can deliver. Read the transcript from the third debate. You’ll find answers that put him nicely on both sides of various issues. Read his own web site. He claims that his tax changes amount to a “net cut” in tax revenue, while at the same time promising massive new spending and a “return to fiscal responsibility” (neat trick!). There’s nothing new here. There’s nothing new or bold about spouting “Change! Change! Change!” when the country has fallen on difficult times. There’s nothing new about promising to soak the rich. And there’s nothing new about the way he’s campaigning. He takes the same cheap shots as every other candidate, taking quotes out of context to ridicule his opponent. He’s gone absolutely wild with fundraising, after claiming that public financing was the right way to go. (Mr. Obama, the idea behind public financing is to make sure each candidate gets the same opportunity for exposure and doesn’t have to spend time pandering to donors. Getting money from a lot more people is not the same thing.) The only things new about a President Obama would be (obviously) his skin color, and his near total lack of prior relevant experience in any executive capacity.

It’s all well and good to talk about “change,” but think for a minute about whether the changes he hopes to bring are really something we want. On foreign policy: Obama still wants to set a date for withdrawal from Iraq. Why? We are winning there. Our troops are taking on fewer combat roles, and we are establishing an essential strategic relationship in an important part of the world. Withdrawal 3 years ago, when things were looking bleak, at least made sense to consider (though I think it would have been a mistake). And to show that it’s not about being a wimp, Obama rattles his sword with respect to Pakistan. This shows a total lack of strategic thinking. On domestic policy: I honestly believe Obama will take the United States down a path we will very much regret, and which will be very difficult to correct. Since I discussed some of this in my previous three posts, I won’t rehash it here.

To be completely honest, this is the first election in a long time, maybe ever, in which I’m actually worried about the outcome. The closest thing to it was 1992, when Bill Clinton was poised to take over with a House and Senate controlled by the Democrats. But Clinton, while basically a Liberal Democrat, never seemed to be much of an idealogue, and the Senate was at least pretty well balanced. In 1996, Clinton had a Republican House and Senate to keep him in check. In 2000, if Gore would have won, he also had a Republican Congress (at least the House) to keep him from going overboard. And, although I thought Kerry was a terrible candidate, his wishy-washy nature and a Republican Congress would have limited his choices. But this time, we have an inexperienced Liberal Democrat, with big-government ideas, and overwhelming majorities in a Congress controlled by a leadership that leans toward the left wing of the Democratic Party.

I understand that everyone has issues that are important to them, and that some, particularly social issues, are very difficult to set aside. But what we’re talking about here is the potential for the federal government to grow in unprecedented ways, to become involved in the lives of citizens more deeply than anyone should be comfortable with. Any short-term victory you may get by having your guy win could easily result in a long-term loss when someone from the other side wields the same greatly expanded power.

Election 2008 Series:

• Why Fear “President Obama?” – Part 1: Wealth Redistribution
• Why Fear “President Obama?” – Part 2: Health Care
• Why Fear “President Obama?” – Part 3: One-Party Rule
• Why Fear “President Obama?” – Wrap Up
• And What About “President McCain?”