Marty: The real spending issue

A recent Free Lance letter by Hollister resident Tom Lantz took
exception to Marvin Jones’ complaints that there has been excessive
government spending. Mr. Jones is a good friend of mine, but both
he and Mr. Lantz are missing the boat.
 
A recent Free Lance letter by Hollister resident Tom Lantz took exception to Marvin Jones’ complaints that there has been excessive government spending. Mr. Jones is a good friend of mine, but both he and Mr. Lantz are missing the boat. 

It’s not just about how much you spend – it’s also about how you spend it – in that respect the government bailouts have been a colossal failure. Anyone can buy bad debt for hundreds of billions of dollars, there is no trick in that. They saved the lifeboat by risking the ship.

To bolster his argument Mr. Lantz points to his degree in macroeconomics; however, the way the economy is going, if I had a degree in economics, I’m not sure that I’d be anxious to admit it. Almost everyone involved on all sides of the current crises has an advanced degree in economics. The predictions of about half these well-credentialed economists are always right – the problem is that it’s never the same half.

Theoretical economics is a specialty that comes with no grading system. If you’re a businessman, a doctor, a baseball player or a house painter someone is always looking at your work, your scorecard or your profit and loss statement. If you’re an economist, you make a prediction – if you’re wrong, you just make another prediction. The excuse of “unexpected influences” is always available.

One serious investing book points out that if 1,000 monkeys are randomly assigned to make economic predictions for next week, half will always be right. If you eliminate the losers and repeat the process, half will be right again.  Do it four more times and you end up with 15 monkeys who “predicted” the market correctly six times in a row.  That record will get you a great job at many Wall Street firms – monkey or not. If economic futures were truly predictable, no economist would ever have to work for a living.

Yes, Nobel laureate Paul Krugman predicts disastrous results if we curtail spending, but what happens when Nobel winning economists meet reality? In 1994, M. Scholes and R. Merton helped found the hedge fund Long-Term Capital Management. In 1997 they won the Nobel Prize in Economic Sciences, by 1998 that fund had collapsed leading to one of the most massive bailouts in U.S. history. Years later, they tried again with the same results – two Nobel Prize winners – two attempts – two economic failures.

That 1998 collapse occurred during “the longest sustained economic recovery in history” and so did the Dot-Com bubble; anyone remember that? The truth is that government at all levels has been hiding debt for generations; it has nothing to do with political philosophy. If 9-11 had occurred on Clinton’s watch or the Dot-Com bubble on Reagan’s watch, everyone would be arguing from the other side. The truth is it’s been one growing bubble for many decades. When you’re looking for a fast buck or reelection, you can always find somewhere to place a bet or buy a vote.

If the government, lenders, homebuyers and investors had taken care to make sure they got their money’s worth, things would be very different. Unfortunately, what we are seeing now is more of the same – not just spending, but spending for sending’s sake – wasteful, unfocused, unaccounted for and process, no result, oriented. When the government starts talking about “jobs saved” – a number no one can verify – instead of private sector unemployment rates, you know we are in deep trouble.

I hope that Mr. Jones and Mr. Lantz will agree with me – when your spending buys nothing of real value, you’re certainly spending too much, even if it’s only a dime.

Marty Richman is a Hollister resident.