Archives for: February 2010
Good Debt, Bad Debt
Suppose you have a large mortgage, you are paying off your car and you have $30,000 hanging on your credit card. In other words, you are up to your ear tips in debt. Would it be economically prudent to take on some more?
If you are about to jump from your chair and exclaim "Noooo!", hold your horses and give it a little thought. There is actually good debt and bad debt, and the answer really depends on what you are going to do with it. In the first scenario, you borrow money in order to put yourself in a position that will create a positive cash flow in the future. You could use your debt to increase your education level and pay for a tuition at a respectable college, or you could buy an equipment that would help you start a new business. If all went well, you would soon be able to make enough money to pay off all your debts. In the second scenario, you would use the new debt to merely help cover your living expenses, or worse to pay for some luxury items, like a plasma TV or a vacation in Bermuda. This kind of borrowing would clearly exacerbate your financial predicament and send you on the way to a bankruptcy spiral.
National finances, albeit operating on a scale several orders of magnitude larger, have to obey the same laws of economics, much like all material objects, whether the Earth or a snowball, have to obey the laws of physics. Going into debt may not be a bad thing if you know what you are doing. Republicans like to reminisce that Reagan proved that budget deficits don't matter and that a nation's borrowing power is virtually unlimited. But the reality is not that simple. Nations have to heed what the debt is used for as well, they just have much larger leeway in dealing with consequences.
Contrary to what the Greenspan/Bernanke school of thought would make you believe, money does not grow on trees. It is supposed to represent value. Just because Central Bank can create money out of thin air, does not mean that it can solve all our problems by dunking them in a vat of dough. Just ask Rudolf of Havenstein, one of the Weimar Republic's central bankers, who learned the hard way that you cannot have something for nothing. He controlled the German financial system in the early 1920s when runaway hyperinflation basically wiped out their currency. His undoubtedly good intentions eventually paved the political way for one Adolf Hitler. And we all know where the road paved with good intentions leads to.
In the past two years our national debt increased dramatically. That means it is about time for us to start paying very serious attention to how that money is being spent.
We could spend our financial resources on education grants to talented kids from poor neighborhoods, on laboratories developing new generations of materials that the world would love to buy, on upgrading our aging infrastructure (whether introducing fast trains or superconducting grids) to facilitate future economic activity or on reducing our energy needs and steering the whole industry towards alternative and green sources. That would be the good debt. But we could also spend the borrowed funds on supporting overgrown bureaucracies at all levels, on rectifying grave investment mistakes of private banks, on recapitalizing institutions hollowed out by their greedy and incompetent management, or on bankrolling unproductive pork barrel projects, such as building water pipelines to money losing golf courses or funding research of Icelandic Arctic Environment in Viking Era.(*)
(*) Both of these examples came from the recent stimulus bill. I understand that pork barrel projects serve as important bargaining chips in political maneuvering, but I think it would be entertaining to hear the legislators publicly explain how these projects will contribute to the nascent recovery.
At the end of the day, it is our choice how we use the money we borrow and that choice will determine our economic future. We can either educate our population, modernize the production lines and repay our debt with something of value, or we can follow in the footsteps of Rudolf von Havenstein and annihilate our economy by gradually monetizing our obligations (i.e. paying them off by printing more and more of an increasingly worthless currency).
The report card is not very impressive so far. I hope Paul Volcker will take a hard look at it.
The Winter Takes All
This winter just keeps on wintering.
Not so long ago, a rogue December snowstorm dropped 20 inches on DC and we thought we had experienced history in the making. Little did we know what was coming down the atmospheric pike. Nobody saw the frozen tsunami until it hit the celestial ice shredder. Now, 2 blizzards, 30 inches and 4 snow days later, it is clear that this winter will be the snowiest on record. Ever.
Three days ago a friend of mine sent me a short message complaining about the snow's unwillingness to melt speedily and opined that clearing 6 inches of snow four times would be much easier than facing all 24 that were dumped on her (and her driveway) in one lump sum. I told her that my view was exactly the opposite. I would take the full 24 inches over the four easy installments any day.
The thing is that dealing with 2 feet of snow gives you the extra strength that comes from engaging in a fight of cosmic proportions. Think Star Wars on Ice. Even as I had to extricate my car from a deep snow drift twice within one week, I felt that every dig of my shovel made me part of history. A face off with a snowstorm of such epic magnitude arouses deeply embedded survival instincts worthy of Hemingway's pen. It is the classical Man versus Nature thriller. On the other hand, removing six inches of snow four times is but a repeated nuisance, a vexing toil. Nothing to write home about. You can't count that as a heroic endeavor. Being a rowdy bar bouncer four days in a row is not going to make you into a war hero the same way a day spent on a battlefield front line does. So there.
When the first wave of the flurricane passed by, I was thinking about an appropriate way to celebrate this momentous white siege. At first, I placed 3 fresh snowballs in my freezer to be tactically launched from my balcony on a hot July weekend. That didn't seem to be festive enough for the occasion though. So next I sent an email to one of my friends challenging him to a game of tennis at a nearby public court. He thought I was joking. But when I laid out for him the unique photo op of serving over the snowed in net, he agreed.
Who would have thought that walking to a tennis court could be a trekk worthy of Roald Amundsen. On Sunday afternoon, we gathered in a parking lot and set on our way. Snow was thigh deep and pristine, the skies perfectly cloudless, and the familiar public park turned into a laconic verse of Siberian poetry. A scenery Doctor Zhivago might have relished. But the strenuous trip was well worth the effort. The court looked surreal and although we had to stork step our way around it, practicing a diving backhand into the deep drifts was a snow owl hoot and brought about a welcome addition to my hitting repertoire. We both took a couple of serves for the camera, and after our clothes got unseasonably cold and wet, we hurried back home.
So that was the day when I finally figured out why they call tennis a white sport.
Imagine and Tonic
Stretching the rules is the essence of beauty. The trick is not to abandon them completely.
No one understands this better than a patron of a blues alley. Jazz may be anchored in classical tonality, but as it sluices past chromatic horizons, it restlessly forays into different keys and scales. After all, there is only so much beauty that can be evoked within the confines of a single key. A good pianist may take an innocent phrase in say G major and spike it with an E-flat major 7th chord on a whim. Sure, that chord has no business in the G major key, even Johann Sebastian Bach couldn't come up with a solid justification, but if you stick it there anyway, the sky will suddenly swing its color. The notes will tickle your ears and their echos will jive on the trail winding along the crest of the Zingy Mountains, that eternal continental divide between the lively and the boring. Such is the power of a little twist. It is a preview of a different state of mind, sometimes a vista into the harmonic future. Just make sure you won't pack too many zingers into your compositions - since they might tear down your delicately balanced musical structure and deluge its vacated church with an ear-splitting cacophony of lawlessness.
What harmony is to music, grammar is to literature. I think that the best writing thrives in disputed regions where the Great Empire of Propriety gets regularly challenged by invasions of linguistic Vandals and Visigoths. The only difference is that they pelt the ramparts of established structures with gobs of slang instead of diminished chords. But the end result is the same - an army of words rushes through the breach and a free joy ride on a lexical roller coaster ensues. That is why I like novels by Carl Hiaasen or Rolling Stone articles of Matt Taibbi. Their verbal imagination canters effortlessly like a black mustang and if you tag along, sitting comfortably on its bucking back like a curious fly, your mind may discover ravines and promontories you never knew existed - all rendered in vivid colors and served at a breathtaking tempo. If it wasn't for the literary cowboys, we'd all be reading moldy sentences strained together by meticulous monks from the times of Good Ol' King James.
Human behavior has its grammar too. It is called politeness. And I would not recommend completely abandoning it either. Without it, uncontrollable hordes of loutish sociopaths would rule the Earth, littering our concert halls with their loud and off-key burping. But just like any other set of rules, etiquette is amenable to creative bending. An occasional misdemeanor can be quite charming. I love people who can skewer a manzanilla olive with their steak knife in the middle of a formal dinner and transport it non-chalantly into their oral cavity, right in front of the rolling eyes of gasping schoolmarms. They are the 7th chords of the social order, the trailblazers who will hop over the fence without hesitation and cut straight across a meadow if need be. To them we owe our diamonds - for on this planet, the precious stones are rarely found alongside the well marked trade routes. They are usually hidden out there, in the wild land of chance and the rule breakers can lead us to them.
Many, many summers ago, an officer of the British East India Company sat idly in a shaded corner of a local watering hole and pondered the vagaries of the British Empire. A glass of gin in one hand and a glass of tonic in the other, he stared blankly at his choices. And although his Mamma was telling him time and time again that nice boys do not mix their drinks, something inside him snapped. The elbow of Lady Fortuna nudged him gently in the ribs. With a sudden blast of resolution, he emptied the contents of his gin glass into the tonic and kicked the resulting potion down his parched throat. And blimey and crikey - did he like it. And so did generations and generations after him.
So here is to all those who tirelessly stretch the rules we live by and in the process put sparkling bubbles in our daily drinx.