Retro-economy

Now a facebook friend of mine asks if we think it irresponsible to abandon her job and everything else and take a year off to travel the world (or whatever else). The verdict was resoundingly . . . "Go for it!" But one of the comments touched me particularly:

"If you find . . . create a coop somewhere for us let me know and I am in!!!"

Now, notwithstanding three exclamation points where zero would do better, this is the kind of sentiment I like to see. Essentially, my theory is that as a society we are turning away from acquisition and to sustainability as our value set. And part of sustainability means more people growing more of their own foods. And eating more of stuff that they can grow, rather than buying it at McDonald's. Or even Kroger's.

For a few years now, I have dreamed of a business putting Americans back on the farm -- designing collectives that work for people across a broad range of demographics and targeting specifically the big American demographic -- aging baby boomers. Instead of a retirement where they can continue unabated the same (disatisfying) lifestyle they have been living for the past 35 years, let's put the boomers back on the farms and let them build a "Little House on the Prarie" lifestyle for their golden years.

Essentially, I wish I had the resources to buy a 160 acre farm, cut it in 10-15 separate plots, set up a community of farmers who share ideas, responsibilities and produce and move some urban families out into rural America.

Leave the debt cycle behind and get reconnected to the earth's cycles.

Doing Busy-ness?

Well today the markets seemed cheery about Treasury's new plan to save the banking system even if Paul Krugman didn't. However, I don't want to talk about markets, banking or new plans today. Well, maybe I want to talk about my new plan.

My new plan is to create, develop, find and enjoy a life that entails less busyness even if that means less money, less affluence and temporary discomforts along the road. Now that I am over 50, I finally understand what Socrates meant when he instructed the young men in the marketplace that the true value we ought to all be chasing is leisure. Now I am seeing that endless cycles of debt, student loan payments become car payments become mortgage payments and then all of those on top of one another are dehumanizing and debilitating. How much is enough? Don't I have enough stuff already?

I have a lot of confidence that I could easily transition to a much more relaxed and comfortable (for me) lifestyle and I have a feeling that it is coming, regardless of what I think.

Adding and Subtracting

Hendrik Hertzberg offers a compelling discussion of tax policy in this week's New Yorker. He makes the case that the time has passed for our most regressive federal tax -- the payroll tax. In fact, he argues, why are we taxing jobs at all? Don't we, as a society, want people to work and other people to put people to work? If we do, then why penalize both classes through the payroll tax?

Well, that reminds me of a story. A new and young husband caught his wife cutting off the end of the Easter ham before baking it and, feeling brave, he asked her why she did that. "Because my mother always did." So on Thanksgiving, he remembered Easter and asked his mother-in-law why she always cut off the end of the Easter ham before baking it. "Because my mother always did." On Christmas, Grandma showed up and by now the whole clan was bubbling with curiosity. The question was put to Grandma, "Why do you always cut off the end of the Easter ham before baking it?" She replied,"What? Oh, I used to do that years ago because my baking pan was too small, but then I got a bigger pan and I don't do it anymore."

Social Security and Medicare were originally funded by payroll taxes and sold to the wary public as a sort of "insurance" program. Thus, if you wanted to draw out, you had to pay in. Benefits were also tied to contributions, not just need. But from the beginning these programs were never insurance and the taxes collected have, for all practical purposes, been treated as general revenues for the government to raid during demographically booming years (the 90s) and creating a big fat looming issue coming due in about 15-20 years or so as baby boomers move out of their peak earning years and into retirement.

The payroll tax is a tax on everyone who works (regardless of income level, except that it actually phases out for high earners) and on everyone who employs anyone who works. As such, it is both the most regressive and most counterproductive tax that I can conceive of. We hit everyone except the rich with this tax and we hit everyone who wants to put people to work with this tax. Talk about bad policy.

Nonetheless, Social Security and Medicare are not going away anytime soon, nor should they. Hertzberg makes the very sound suggestion that these programs be funded not by taxing socially useful activity like work, but by taxing socially undesireable products and activity like dirty energy or using dirty energy especially in a wasteful manner. This is a great idea that needs to be taken even further.

The new healthcare plan should be funded by a tax on unhealthy foods like ice cream, cheese, fried potatos, etc. Schools should be funded by a tax on inefficient housing (huge, single family, energy leaking McMansions, for example). Police departments could be funded by taxes on alcohol and firearms. Police budgets could be slashed and additional revenues raised by taking a more liberal approach to legalizing recreational drugs, subject to heavy taxation and regulation.

In short, there are a lot of things that as a society we find socially undesireable but we are willing to allow people to choose to do. Let's fund the safety net programs we need by allowing, but discouraging these activities.

Staying in the Near Now

Now that we have discussed downsizing and belt-tightening and overhead reduction, ad naseum, we can get to the real center of financial (and every other kind of) security -- the present moment and its environs. Living in the near now, even while temporarily underutilized, it is possible to feel entirely safe and secure. Most of us have enough resources to get to the end of the day, or even the week, and possibly the month, with excess left over. It's when we start to look at the six month, or three year, plan that we manage to cause ourselves anxiety.

As to those three year plans, do the numbers 70, 130 or 50 mean anything to you? Those are the approximate prices of Lehman Brothers Holdings, Bear Stearns & Co. and Merrill Lynch respectively approximately three years ago today. Nice, sound, safe, secure companies one and all back in 2006. Three years later? Devastated, all of them.

We have to reel our focus in and concentrate on the present moment. Build a better today and tomorrow will take care of itself. Focus on what makes you feel happy, or safe, or excited, or useful, or any other good feeling that you seek today and you will be building a tomorrow that will be full of the same. Similarly, press your nose to the grindstone, tough it out, show some guts, no pain no gain today and you will be building a tomorrow that is full of the same. Your choice.

Now I know that a lot of the American (and derivatively the world) economy is built upon a more, bigger, newer, faster premise, but I'm going to suggest that the time has come for national down-sizing. Let's get more out of less ... or if we can't do that, let's settle for less out of less. Less financial stress and strain means more quality of life -- more time in the garden, or on the bike path, or taking a walk, meeting your neighbors, riding the bus, becoming a part of a community and not just someone who quickly races from the car to the house before anyone can talk at us.

The simple life is likely the better life so why not choose it? Or for some of us, why not allow it to choose us?

Re-creating Ourselves

Yesterday I heard from yet another professional previously employed in the sector formerly known as finance. The story was again tragic and at the same time in an outside the box thinking sort of way hopeful. We went through old names from rolodexes long discarded (does anyone even know what a rolodex used to be any more?). Name after name from entire institutions long since gone up in smoke.

Whole rolodexes, once the prized resource of the on the move finance professional, rendered entirely worthless. The world of finance as we once knew it gone.

Now it seems as if we have no choice but to re-create ourselves. Being a finance professional is no longer an option for about 50,000 of us as the sector has shrunk by approximately that many jobs in the last year. So what do we do?

Some of us will pick over the carcasses of institutions like Bear Stearns, Lehman and AIG to see if there is any remaining value there. But many more of us will launch out into totally new and hopefully creative and fulfilling directions. Many of us are about to discover the joy of life without the monster mortgage, without the four figure per month auto expense, without the private school tuition bills for the children. Many of us will be returning to the simpler life of the last century.

Is a slower, less frantic, easier and simpler, if somewhat less monetized, life all that bad? Well we are about to find out. Let's hope not.

Is it over?

As of this evening the S&P 500 has closed up for three consecutive sessions. There was no real blow off capitulation sale, but the market did drop with dizzying speed falling nearly 40% in just three months between the Obama election and the beginning of this week. As usual the CEOs blame the drop on short selling, and in this case it seems they may have a point. These explosive rallies off of intermediate bottoms certainly bear all the signs of short covering rallies.

Of course, it's impossible to tell what is really going on in the stock market even in the best of times, let alone today, when our entire economy appears to be undergoing a major transformative process. For the past . . . perhaps one should say 75 years, definitely one could say 6 years, a pretty strong argument could be made for 30 years . . . for the past whatever the relevant period, the American economy has grown primarily by growing the outstanding debt.

In recent years (whatever the appropriate time frame) the expansion in debt has come at least in part through an expansion in available debt products that reached deeper and deeper down the credit quality scale to less and less credit worthy borrowers. But recall that in the subprime housing market at its peak (2006) loans were being made to borrowers with no equity, no positive credit history and no apparent means of repayment. I have no idea how we can go further down the credit scale than that. Credit was so loose that it was cheaper to buy into a house than to rent.

Now credit is contracting and continues to contract. This does not appear to be a formula for growth in the American economy. However, neither the banking system nor the government can survive continued contraction.

Can the government stop the bleeding? Well obviously they could literally just "print money" instead of their current practice of issuing debt to sell and so bring money into existence. Printing money would be a RADICAL departure from past practices, however, and will be used as a last ditch effort, if at all. It is not clear to me that the government can stop the contraction otherwise. They have certainly thrown a lot of weight behind the effort lately. And borrowing has picked up in the last two months -- January and February were the two largest months for bond issuance ever.

Another good sign is that the financials led the recent three day rally, and even more, that Citi led the financials over the last three days (albeit admittedly from pretty beaten down prices). If the market becomes convinced that Citi is going to survive (even thrive as they are promising profits (finally) this quarter), it is probable that a rally will follow -- in both the financials and the general market.

For the financials, a stock market rally becomes something of a self-fulfilling prophecy and strength in the riskier asset classes begins to unwind the massive losses of the last several quarters and mark to market devours the bears, perhaps as rapidly and as violently as it did the bulls.

Time will tell, but tonight my schizophrenic gut is pointing optimist.

Taking a Day Off

Every once in a while we need a break. The body, mind and spirit can only take so much stress and strain and then they snap. We all need a vacation every now and then. So that's my advice today . . . Take a vacation.

Not from your job. From worry. Guess what? Our problems aren't going to get any bigger if we just ignore them for a day. I'm not talking about burying your head in the sand forever (although I wouldn't necessarily oppose that idea). I'm talking about playing Ferris Beuller for one day and just forgetting about the bad economy, the zombie banks, the annihilated securitization markets. Just take a day off and play. Play and have fun.

Go to the park, ride your bike, jog at the beach, go horseback riding, catch an afternoon movie matinee, take $20 (no more) to the 99 cent store and spend it all. Play a practical joke on a friend. Surprise your spouse, significant other or self by preparing a meal that costs less than $3 total. Write a story about the most fun you ever had in one day. Go out at night, or early in the morning, when the city streets are deserted. Count how many stars you can see. Notice the phase of the moon.

When you get back home, pick up a novel. If you don't have one, go to your local library and check one out. Maybe even sit in the library for a couple of hours reading it.

Here are some things NOT to do on your day off: Read the newspaper, watch TV, listen to the radio, surf the internet or connect in any way with the real time, real world media. These days, reality sucks. So let's take a one day break from it. And don't plan your life on your day off either. Don't turn some problem or another over and over and over in your mind until your have examined every square millimeter of it.

Try to take one day, just one day, to find all the things you appreciate about life right now and to experience as many of them as possible in this one free 24 hour day off from worry and negativity.

Who knows? You may like it so much that you decide to go on permanent vacation from worry.