Snapshot: The Federal Reserve System

The Federal Reserve System is now in the news, not least divergent views within the system. The New York Times, this morning, for instance, brings a profile of Thomas M. Hoenig, the soon-to-retire president of the Federal Reserve Bank of Kansas City. I’d read about Mr. Hoenig’s conservative and sensible views quite some time ago for the first time; they were unheeded outside and inside the Fed. He predicted the troubles we’re now seeing and has long been an advocate of severe management of risk. How? He advocates denying risk-taking banks government backing of their deposits. He also wants to reduce their access to emergency loans. Such is our celebrity culture, however, meaning so short our attention span, that only the Chairman of the Fed has any visibility in the media.

The Fed is rather an extensive and diverse sort of institution. Here a snapshot of its geographical extent, courtesy of this site maitained by the Federal Reserve Board:

The star emblem over Washington, DC shows the location of the seven-member Board of Governors. These are political appointees subject to Senate confirmation. The President appoints the Chair and Vice Chair from among sitting governors. They all have 14-year terms.

The Fed has 12 banks, marked on the map by black bullets. Five of the 12 bank presidents, alongside the seven members of the Board, form the Federal Open Market Committee (FOMC) where all the monetary policy is hammered out and decided by majority vote. One of the presidents, the president of the New York Fed, is a permanent member of the FOMC. That's the position Secretary Geithner held as his last job. The other four on that committee serve rotating one-year terms. Mr. Hoenig is not on the FOMC at present. Despite this limitation on voting, all presidents attend committee meetings and take part in the discussions.

Nine of the banks also have branches, marked by blue triangles on the map. The cities, shown by the district to which they belong, are these:

•   4 (Cleveland):  Cincinnati, Pittsburgh
•   5 (Richmond):  Baltimore, Charlotte
•   6 (Atlanta): Birmingham, Jacksonville, Miami, Nashville, New Orleans
•   7 (Chicago): Detroit (alas, we’re just a branch around here)
•   8 (St. Louis): Little Rock, Louisville, Memphis
•   9 (Minneapolis): Helena
• 10 (Kansas City): Denver, Oklahoma City, Omaha
• 11 (Dallas): El Paso, Houston, San Antonio
• 12 (San Francisco): Los Angeles, Portland, Salt Lake City, Seattle

I’m fond of the Fed, in a general sort of way. It points the way to rational governance in this high-tech, extremely complex age. The very fact that the Fed has problems getting its policies right—despite being well structured to do so—underlines our problems in other regions of governance where the structures are much more influenced by passions, ideology, and the new kind of bribery we call campaign contributions.

Years ago I did a job for the Minneapolis Fed. I invented, designed, and then programmed a game for the Apple computer. The game simulated the behavior of a central bank in the guise of a science fiction adventure called Return to Fraxla. Oh, the memories... The game was intended as an educational product to be distributed to schools—part of the Fed’s unfailing, and also always anxious efforts to reach out and to connect to a public that has MAJOR difficulties understanding this bastion of arcane mystery. One character in my Fraxla fiction was a little robot, QT. I had him playing the guitar, too, and right good music came out of the Apple II when you played the game...

A Hundred Years of Chevrolet

The actual anniversary will come on November 11, the day when auto-phenom William C. Durant (1861-1947) founded the company a hundred years ago. Durant also founded General Motors, by the way. He came from Boston, a high school drop-out, lumberyard hand, cigar peddler, carriage salesman. Durant got fired from General Motors when his efforts to purchase Ford in 1910 fell through because the banks would not back him. No matter. Durant founded Chevrolet in 1911. Within five years Chevrolet had produced sufficient profits so that Durant could acquire a controlling share in GM again. He got back in the saddle and brought Chevrolet back with him. So, in a sense (as I’ve always thought), Chevrolet is General Motors.

Now for that name. The name came from Louis Chevrolet (1878-1941), a Swiss immigrant to the United States, a famed race car driver. Chevrolet (the man) worked for Durant at Buick. They became friends. Louis was one of Chevrolet’s co-founders with Dr. Edwin R. Campbell (who was Durant’s son in law), and William H. Little, creator of the eponymous Little automobile. Louis and Bill Durant fell out in 1914—the dispute was about a car design. Durant bought Louis’ shares, but Louis left his name. Those were the days! That picture above, by the way, shows Louis Chevrolet, race driver, not Bill Durant, auto magnate; it comes from this GM site.

Chevrolet was also—my first car! I was born a Chevy, you might say, but married a Honda. Here she is, a 1952 Chevrolet Styline. My own looked very much as the car in this photograph. I bought it used while I was in Germany, in the Army—a truly splendid vehicle, lovely to look at, tight, swift, fast, roadworthy, all that a young man could wish for. I’d already sold it by the time Brigitte and I met, but borrowed it back so that we could drive it on our wedding day. (Alas, that was a practical, not a romantic business; we needed to pick up some documents many miles away; but it has become a romantic memory).

It’s been a good hundred years, Chevrolet, of which I’ve shared seventy five. The year I was born, Chevy turned twenty-five.

Strong-ARMed by the Subprime Bubble

Thanks to another econ site we follow around here, I became aware of the superb services rendered to data mavens by the St. Louis Federal Reserve Bank’s FRED program (FRED stands for Federal Reserve Economic Data); the site is accessible here. More specifically, Modeled Behavior, the econ blog, alerted me to construction data on FRED in this interesting post, featuring expenditures on churches; check out the downward slide. That in turn led me to see if I could find data on residential construction. Yes. I found them. That led to more investigations into the roots of our current economic problems—and FRED once again obliged. The three graphics presented below come from that site—and shown, although re-graphed by me using Excel, in the same style used by the St. Louis Federal Reserve.

My subject is the Subprime Bubble. It is—if not a singular then an instructive—indicator of what happens when greed, vanity, and ambition align with flagging oversight in a hot, free economy to produce a great storm that ravages the innocent and guilty alike for years on end.

The roots of the Great Recession where “innovations” in real estate practices. The first of these was the introduction of adjustable rate mortgages (ARMs). You borrow at a low rate—thus you can realize your “dream” (a God-word of our times) before you can really afford it. The rate is adjustable upward, if interest rates rise; but ARMs were not (and could not be) designed to raise your income automatically as well—therefore, if rates spiked, you could lose your house. ARMs allowed more people to buy homes—read increased demand.

The next innovation was subprime lending. But what does subprime mean? The word is deceptive because sub means below. If you are careless, you might assume that subprime refers to the interest rate and means lower than then prime rate. It means the exact opposite. Subprime lending means lending at higher rates to people who are sub—thus less qualified to borrow. Those with adequate assets and income qualify for the lower prime rate; its prime, desirable, because it’s lower. Subprime borrowers can only get mortgages at higher interest rates.

Subprime lending was much touted as a service to the young, the needy, and those who had been discriminated against for lack of qualifications. As subprime lending took hold—guess what? more people came into the market, demand increased—and pushed up prices. The first graphic shows what happened as a consequence:

Home prices began a precipitous climb. The graph shows Standard & Poor’s 10-city home price index, which goes back to 1987 and is the best-known measure of home pricing. S&P’s 20-city index is slightly lower but shows the same pattern; it doesn’t go back as far. Rapidly, indeed dramatically appreciating real-estate values, triggered by these “innovations,” also fuelled it. With property values reliably rising, people thought they could easily refinance if they got in trouble—the underlying asset, after all, had appreciated. The bubble peaked in May of 2006 and soon came a precipitous drop in home prices. This, of course, chilled the market and resulted in…

…a steep rise in delinquencies. They stood at 1.53 percent of all mortgages in the second quarter of 2006, peaked at 11.36 percent in the first quarter of 2010, and were still at 10.52 percent of mortgages a year later in the first quarter of 2011. Add this another “innovation,” namely the securitization of mortgage debt. I’ve posted on that complex subject here on the old LaMarotte under the title of “Let’s Build a Pyramid.” What securitization did was to spread the liabilities of subprime lending into the financial system. All manner of instruments were sliced, diced, tranched, and sold—secured by questionable mortgages. When the nature of those mortgages became clear, the finance system began to quiver and shake. Not surprisingly, all this resulted in—recession. A Great Recession. And recessions have consequences. One of these, most closely associated with real estate is …

… a sharp down-turn in residential construction. That began in April of 2006, right on time, and foreshadowed the recession that would begin a year later. Such curves mean loss of jobs. And when we consider that housing, as an industry, is a fundamental support of economic well-being, the drop you see here signals radiations which we feel now and expect to feel for some years to come.

The Hidden Hand? Well, it can also slap you, and real hard. But this didn’t have to happen. It happened because, for that Hand to be Hidden, the Eye has to be Closed.

Template Tedium

Sorry about these too frequent changes in this blog’s appearance. Ever since I moved LaMarotte from WordPress to Blogger, I’ve had problems of one sort or another. I made the move because WordPress began running ads whereas Blogger leaves me the right to advertise or not to, which I appreciate. But it seems to me—and I am not alone in noticing this—that Google might be experiencing troubles with some of its newer templates. The old templates, of which this one, Scribe, was one, are no long available—but they still run. If you have a saved copy of it, you can apply it. My hope is that the old will work better the new. That often is the case. If not, other experiments are still ahead.

Government’s Prayer: Please Consume!

The Federal Reserve Bank yesterday announced, although with some demurrals, that it would keep the interest rate at zero or near zero into 2013. Why? Because the governors want people to invest. But does investment drive growth—or is it the other way around? What low interest rates signal is that cheap money will be available—and the markets liked that message. The Dow rebounded as soon as traders actually grasped this fact.

In his last speech President Obama urged renewal of the payroll tax cut (on which more here) into 2012. Why? Because he believes that the economy needs stimulus. Thus a few more dollars in the pockets of consumers will make them go out and consume. Other Keynesian economists wring their hands because huge budget cuts and a debt ceiling that must be lifted like every quarter from now on (it seems) against huge opposition, signals that stimulus will not flow. The prevailing view here is Paul Krugman’s: Stimulate and then, when things are up and running again, then worry about deficits.

This made me curious about consumption. Just how are we doing on the spending front. Herewith a graphic that shows Personal Consumption expenditures from 1990 through the second quarter of 2011.

The chart is rather informative. We’ve had three recessions in this period. As the curves show, personal consumption did not flag through the first two. At most, in two of its subcategories (nondurable and durable goods) it flattened just a little. But in the Great Recession, another story. There we see a quite visible dip in consumption overall as well as in every subcategory. But since the last one ended, consumption has resumed—if, to be sure, from a new low. The one exception is durable goods.

On this chart you see markers and numbers showing personal consumption in the second quarter of 2007, thus a time when things were still normal. The numbers at the extreme right show consumption in the second quarter of 2011, the last data point charted. They are all higher than the values clocked in the corresponding quarter of 2007 except durable goods. That category has not recovered and is still below the 2007 level. Negative growth.

Now it is interesting to note that in 2011 32 percent of that category is motor vehicles and parts, and that that sub-subcategory had the most negative results of all. In 2007, motor vehicles/parts represented 33.9 percent of expenditures. Two other categories, furnishings and household equipment and recreational goods and vehicles were also negative. The only redeeming sub-sub was other durable goods not further detailed.

Gasoline and other energy goods fall within the nondurable category. You have to have gasoline. In 2011, compared to 2007, people spent less on food and clothing and footwear and more on gasoline and other nondurable goods. In the services category, shifts between sub-sub categories were toward more expenditures on health care (the largest increase) and on food services and accommodations (eating out, in other words). All other categories, including the largest, housing and utilities, lost share.

We see significant and interesting shifts in categories. In the durables category, people are not buying cars, appliances, and furniture. In the nondurables category, gasoline dominates the picture. In services health care—a sector that is showing job growth—is the important category.

But what Personal Consumption expenditures exclude is purchases of housing (except rentals). The odd thought occurs: Is owning the family home the real root of the American Dream? And is the appreciation of that property the root of confidence? And when that sector starts tottering, does a rude awakening from the Dream cause people to purchase what they need—and not much more than that?

And that in turn suggests another thought. If the home has lost its value (never mind if you actually lost your home), does that improve your credit? And how much of the growth in durables depends on credit? Most of it, it seems to me. People are having problem borrowing, and this despite a financial market awash in cash. Why? The lenders have also been chastened. All of these factors play a role especially in the durables category—the category where jobs are not growing with any visible vigor at all.

The data shown here are available from Table 2.3.5 of this BEA source.

Transportation Modes

Transportation statistics, published by the Bureau of Transportation Statistics, tend to lag reality by several years—echoing, perhaps, the broad public interest in this fundamental economic activity. The public’s eyeballs are on cell phones and pads, not on the big roaring trucks—and the near-invisible barges and rails. Today I present some data for 1993 and 2007—and 2007 seems so yesterday, doesn’t it. But the trends are important. And with minds now focused on the ephemeral (the Dow, the Debt Limit), it might be a nice moment to remember that some 12.5 billion tons of goods are moved in this country every year—by trucks, rails, barges, air, and pipeline—and that this tonnage is moved a staggering 3.3 trillion ton-miles. A ton-miles is one ton moved one mile, and the huge figure therefore suggests that on average every ton of freight moves nearly 267 miles.

This graphic shows the shares, in percent, of total tonnage moved in 1993 and in 2007, by modes of transport. The dominant transportation here, based on weight alone, is intercity trucking. It commanded a 70 percent share of all tonnage. Note, please, that every other mode, with the exceptions of pipelines and multi-mode transport, lost share to trucking. The difference between Trucking and the nearest other mode, Rail, being a huge difference of 55.2 percent tells us that, for all practical purposes we transport everything by truck. But in the transportation sector a more meaningful measure is the ton-mile, fusing both weight carried and distance.

Most freight classified as “multi-mode” falls under parcel deliveries by freight services or the Postal Services. Another instance would be rails carrying already-loaded trucks. “Unknown mode” means that the U.S. Department of Transportation had real data on hand but not enough information to classify the transporation system used by mode of carrier.

What we note in the second graphic is that trucking and rail are close to equal in their share of ton-miles. Indeed, rails just beat trucking by a very slender 0.1 percent. Data for pipelines, while BTS does have them, are not published because of high sampling variablity. The data shown account for 98 percent of total ton-miles in 1993 and 98.6 percent in 2007; the missing points are probably due to pipelines. The gain experienced by trucking that we see above, between 1993 and 2007, is greater than the gain experienced by rail. And most troubling is the more than halving of water-transportation’s share. Why does that matter? Well, in terms of energy consumption and environmental protection, the best mode of transportation is by barge, then by rail, and finally by truck. Therefore any gains by trucking represent a negative from a perspective of long-range sustainability. To be sure, commodities like grains, sand, rock, and liquids travel by water—and the loss of water-transportation’s share indicates and change in total consumption of goods. We move more manufactured and packaged than commodity goods. And the closer to sale the freight is (meaning ready to sell to consumers in a store) the more speed and time matter. And barges are slow.

In about four years or so—the Department of Transportation is as slow as the barges—I might be able to bring you numbers for 2011—but by that time 2011 will seem so yesterday.

The data source here is the BTS (link). Look for Table 1-52.

Employment Change: A Longer View

While we’re on the subject of employment change, I thought I get the data (here) and graph monthly employment change for a longer period—the last twenty-plus years. The graphic above, with recessionary periods marked, is the result. In this period we’ve had three recession with increasing durations, and increasingly deep dips in employment, most dramatically in the 2007-2009 period. The official dates of that one are from the first quarter of 2007 to the first quarter of 2009. The graphic shows that employment losses and recessions do not always coincide neatly. Recessions begin when the GDP stops growing. In the 1990-1991 recession, falling employment signaled the recession four months ahead of time. In the 2001 recession, employment still grew in the first month. In the “great” recession employment growth was present in 10 of the first 13 months. In none of the three cases shown here was employment recovery after the recessions “symmetrical,” meaning increasing in the same way as it dropped during the recession. A zigzagging pattern is “normal.” Indeed, fluctuations mark periods of strong growth as well, although month-to-month changes are typically always in the positive range.

Jobs by Sector, June-July 2011

If we look sector by sector, in the June to July period this year all gains have been in the private sector and the largest offsetting losses in the public: total gains of 154,000 jobs were offset by 37,000 jobs lost in government, 4,000 in the finance sector and 1,000 in Information, the last two both private sector activities.

The private sector with the largest gains was Education and Health Services. The large gains within this sector came in the Health Services category. That category (and occupations within it) are almost guaranteed growth in the foreseeable future because the huge Baby Boom segment of the population is aging. Professional and Business Services came in second, with increases of 34,000 jobs. This can be interpreted as a weakness, rather than as a strength, in the economy: industry is hiring services, not adding to its own employment. Weak performance by Construction and Manufacturing underlines this weakness.

General weakness in economic activity, exacerbated by the debt limit crisis which certainly sapped confidence, is reflected in the job losses experienced by the finance sector, shedding jobs for the second month in a row. BLS reported 15,000 jobs lost in that sector in June—which it adjusted further downward, to 18,000 this month. July’s losses of 4,000 may also be revised downward in the August release.

Within the government sector, the Federal government gained jobs (+2,000). The largest losses came in state government (-23,000). Of the negative job change at the local level (16,000 jobs lost) 12,000, thus most, came from education at the local level. Have we had a sudden die-off of school-age children? Was there a huge surge in our “output” per teacher?

Employment: Update July 2011

The monthly news on employment change is good news. We needed that. The economy gained 117,000 jobs in July. But the news are actually better. Revisions to May and June data by the Bureau of Labor Statistics also added additional jobs by upward revisions of 28,000 for each month. This sort of thing happens. Last month we had severe downward revisions, this month we went the other way.

The two graphics showing month-to-month changes and a summary of recovery from the Great Recession follow:

The data for these charts comes from the monthly BLS press release (link).

When Government is Handy

If you are interested in the dreary aspects of bank bailouts and the like, you can track the numbers on a website maintained by the Real Economy Project of the Center for Media and Democracy (link). The site tracks expenditures by the Federal Government under the Troubled Assets Relief Program (TARP). The data are updated monthly. Significant detail, by agency, program within agency, purpose, and progress toward repayment are posted there. The data shown are peer-reviewed by economists at the Center for Economic and Policy Research. These are pretty good numbers, not rant-hype.

I am showing here a kind of summary as of July 2011:

What this graphic shows is that in a period of about two-and-a-half years the federal government disbursed or made available in other forms nearly $4.8 trillion in various ways to keep the financial system from collapsing. Of that total $3.2 trillion has been paid back (or the government liability has been removed), leaving $1.5 trillion still owing to the public.

Brutal barbarian that I am, I favored, back then, letting the too-big-to-fails fail rather than vast bailouts. Yes. That would have threatened at least a portion of our life-savings; we lost a good third of them anyway. I also think that the sky would not have fallen if Goldman, Merrill, AIG, and all the rest of the “exposed”—exposed to the mortgage crisis—had joined Enron in falling over the cliff. The responsible speculators would have lost a little of their wealth as well. Not this way.

In any case, when things to really sour, Government turns out to be handy. But when it comes to bailing out the speculators, nobody is talking deficits. But the government doesn’t just happen to have nearly $5 trillion of cash lying around idle. Therefore these bailouts had to come from somewhere. They were borrowed. So who caused the deficits? Was it Government or was it the venal private sector?

Our national “dialogue” has turned stark crazy. We can’t pay our FAA inspectors. We’re thrilled over trillion-dollar cuts to basic programs for the little people. But this morning’s New York Times tells me that even with huge mark-ups, luxury goods marketers can’t keep their shelves stocked because demand for luxury goods is soaring. How about a pair of Christian Louboutin “Bianca” platform pumps for $775? And hurry, please, I don’t want to keep the limo waiting. You know the problems one has with domestic help these days…

Stimulus v. Confidence

Under the Tax Relief Act of 2010, individuals get a 2 percent reduction in their Social Security contribution to payroll taxes. That contribution is 6. 2 percent of gross earnings. In 2011, the deduction is 4.2 percent. This applies to earnings up to and including $106,800. Thus a person earning $45,000 would have paid $2,790—but in 2011 pays only $1,890. This amounts to $900 or, taken at a monthly rate, $75 a month.

I bring this up because the administration is pushing for an extension of this tax cut to 2012—in the name of stimulus. The presumption is that people will rush out and spend that $75 a month, lift consumption, and therefore create jobs.

Now in my mind Stimulus does not stand alone, as it were. It is intimately associated with Confidence. Pushing for a stimulus measure without improving public confidence—indeed by eroding it in wave after wave of public events that signal doom ahead—has only one absolutely predictable consequence. In this case it means that the Social Security Trust Fund (so-called) is forgoing revenues. In today’s environment, the public is at least as likely (1) to pay down still staggering credit card debt or (2) put that $75 in savings against the possibility of losing the job, or the necessary second job.

The minor stimulus the administration is advocating is, it seems to me, way more than matched by the defunding of government that it cannot stem. Meanwhile confidence is low—and zigzagging like employment gains. Here the temporally near-term and the longer-range view of confidence:

The first shows the Consumer Confidence Index from mid-1997 to January 2011. This index is produced by the University of Michigan and published by the Conference Board. The straight line is the trend of confidence over a 14-year period. Notice, please, that the "leveling-off" after each drop has taken place at a lower level—which is that supports the downward trend.

The second, which I have from an April 2003 paper from the Regional Economist, a publication of the St. Louis Federal Reserve Bank (link), shows us much more history of confidence using the same series, going back to the 1960s and ending in 2003. What that chart shows is that we’ve had periods of very low confidence twice before, once in 1973-1974 and again in 1993 or thereabouts. Current levels, not shown on that chart, are matching those.

You can measure confidence in surveys, but the feel is the thing. The current level of confidence, it seems to me, is lower than any earlier periods’. That measly stimulus of $75 a month, or much less for many, does not automatically cause the kind of spending-frenzy the administration really wishes to achieve. What we’re thinking, here in the boonies, is that a trillion in cuts is bound to cause massive layoffs somewhere. And that we have unpaid FAA employees inspecting things for safety because Congress has denied them the dough.

Designed for Stasis

It struck me this morning brewing coffee (one of those cases of being thunderstruck by the obvious) that the minimum number of judges needed to decide lower-court cases is three—and that they always decide cases unanimously or by a two-thirds majority. Having recovered from discovering that two-thirds of three is two, I went on musing about majorities and their meanings.

We need three-fifth majorities to pass any law in Congress—the proportion required in the Senate to limit debate, thus to overcome the filibuster. That’s 60 votes to reach cloture, lower than the 67 needed to over-ride a presidential veto. But neither party currently has sufficient votes for either—cloture or an override. This increases negative power in government. The president can certainly say No and get his way, but that’s a negative, isn’t it? The minority party can deny the majority the opportunity to vote by filibuster. The distribution of power in the senate is technically 53 to 47 in favor of the Democrats—but with the caution that of the 53 one is an independent (Bernie Sanders) who’s always willing to vote way, way, way to the left, so make that 52 for sure; and the other is Joe Lieberman, who is not reliably a Democrat, so make that 52-and-a-half. In any case—51, 52, 53—those numbers are far from 60 or 67 votes—unless the issue is uncontested. Stasis.

To this we add the requirement that two-thirds majorities are required for proposing constitutional amendments by both houses, and two-thirds of states must ratify these amendments no doubt by two-thirds votes in their own legislatures.

In a recent post I suggested that economies behave like bio-phenomena. In a very similar way, government decision-making is almost as if by design very conservative, powerfully biased towards equilibrium, thus toward doing nothing unless we absolutely have to. Arguably parliamentary systems are more responsive in that governments live or die by maintaining simple majorities when votes of confidence are moved. But one could counter by saying that the U.S. form—in which the executive cannot simply be removed by a failed vote of confidence—is more stable by preserving the executive function no matter what—until it’s Time.

In this sort of brown study—set off by brewing my brown coffee—I’m inclined to look for parallels. Thus I went back to refresh my memories about neurons. How do they reach decisions? Well, if you think that Congress is a complicated mess, our neurons’ decision-making process is something even more wondrous. More actors are involved. But I had to smile when I saw that, under stimulus to act, the neuron activates a pump. This pump then causes three sodium ions to leave the cell while replacing them by two potassium ions. There we have it again, I cried silently, the two and the three, and the three-fifth rule, all present and accounted for. In this process the negative voltage of the neuron diminishes, for a millisecond, from minus 70 millivolts to maximally plus 30 millivolts, and when that happens the neuron votes Yes. Otherwise it votes No by doing the right honorable…nothing. Stasis also rules the cells—unless, of course, real danger threatens.

Not surprisingly, therefore, Defense is not only the largest expense of government but also the function with unfailing political support, from either party. As in the body, so in the body politic. We starve slowly but we’re quick to flee or fight.

A Clash of Philosophies

August 2 and soon a Senate vote will lift the ceiling. Throughout this surreal crisis, I’ve been presenting the simple facts and trying to say, directly or by quoting others, what the simple truth of the matter is: revenues fall short of expenditures.

That’s the technical expression of it. The more basic problem has been philosophical (as always). We’re engaged in a massive clash of cultures. One side views government as if it were something not only external to the collective but, in addition, something evil. The other still operates on the assumption that government is simply one aspect of the collective life. Neither side is able to muster the necessary and overwhelming majority required to carry out its agenda. As a consequence we’re forced to undergo surreal crises, one after the other. The by now traditional left (traditional because it reflects humanity’s long-term collective experience—namely that government is here to stay) cannot pass effectively legislation to match modern ways of governing populations by providing them basic human rights—such as effective health care. The reactionary right cannot shed its love-affair with global power which demands abnormal expenditures on the military. It does not have the real power to cut budgets. It must reach for indirect tools to create crises. The first to discover that separating revenue on the one hand and its complement, expenditures or outlays on the other can create massive deficits was President Reagan. He thought that that would work in due time to shrink government. But that didn’t work. Now we’ve progressed to the next stage—creating deficits but trying by law to prevent their funding by borrowing.

What the Right has managed to achieve is to stop revenues growing alongside expenditures. We are thus supposed to solve our problem by breathing out—but never breathing in. Doesn’t seem to work. The problem is that the collective includes government, and if government is supposed to die, the collective will also suffer.

Herewith some charts to make the point once again.

Note here that revenues and outlays nicely match each other (not perfectly but closely, from 1950 through 1981, Reagan’s first year in office. Thereafter the gap widens with a brief interruption during Clinton’s second term. Then deficits start growing as two events coincide—the war on terror and further drastic tax cuts under Bush. Next comes the mortgage meltdown, more war, and the very weak presidency of Barack Obama.

This chart shows the percent that deficits and surpluses represent of outlays. In this 62-year period, we only experienced eight years of surplus. In the first 25 years of this period, the deficit stayed below 10 percent of outlays in all but three years. In the 1980s and forward, the deficit bars dip lower except under one president, Clinton.

Evidently we will keep spending. But the Right’s view is that spending is only legitimate on military budgets. Militarism has killed just about every culture on record. To load that burden on the weakest elements of the collective—the children and the elderly—is not just surrealism. It’s crazy.

Data for the graphic are from the Office of Management and Budget here, Table 1.1.