Wednesday, December 31, 2008

Ring in the Old

With a sort of victory in Iraq (i.e., non-defeat) and a record collapse of oil prices, the New Year should be being greeted with optimism. Instead, the public mood is sour. Current and future economic conditions are adjudged terrible by consumers and business people alike. Why?

The problem is that there's nothing new and exciting. Record low Treasury borrowing costs are new, but not exciting. Neither is another refi wave, tonic though it may be for a while. Neither is, anymore, the digitalization of the world. The stock market is boring. Stocks are Old Economy, manipulated, and suffer from prices that are a decade old. Old institutions such as broker-dealers are despised, but nothing new is apparent to take their place. Large companies that own banks also own lots of their own bad loans and have sucked the life force out of the economy. The result is that an equally old industry, retail, has received no government largesse and is collapsing. An old but less old industry, automobile assembly, has maxed out and is in at best a no-growth state in the industrialized world. Margins have nowhere to go but down. The war in Afghan-land is old, boring and depressing. That there is steady progress in medical therapy is marvelous, but we take it for granted and so is no longer new or exciting on a big-picture basis. Even our very safe country, with the fear following 9/11 faded, is (happily) boring.

The newest new thing, a President with an African father, is proposing a very old solution to our economic problem: build and repair roads. One can imagine a Roman emperor prescribing the same remedy. To keep people off the streets, put them to work on the streets. The problem is that unlike in FDR's time, or even Jimmy Carter's, the US Gov is itself financially over-leveraged. It beggars common sense to believe that what is wrong with America's economy is insufficient well-paved roadway. It therefore beggars common sense to believe that borrowing and printing money to improve the quantity and quality of roadway will fix our problems. More likely, it will just lead to more traffic delays. Motorists will be treated on a larger scale to viewing lots of heavy equipment by roadways with no one working, or perhaps a road crew here or there. So this new President hasn't yet proposed an exciting solution.

And it is hardly worth mentioning that the current crew in DC hasn't come up with anything new or exciting. Even though an economically dysfunctional Executive Branch is leaving, a dysfunctional Congress remains, and a dysfunctional Fed continues to bail out no one you know. The three most important Cabinet posts in the Obama administration are going to: Clinton's last Treasury Sec'y, Clinton's wife, and the current President's Sec'y of Defense. This is not change anyone can believe is change. It's not new and it's not exciting. It is at best competency/experience and at worst evidence of the thinness of our "bench" and/or of Obama's real lack of zest for change.

We would love to put old bad things behind us. The problem is that there is no new new exciting big thing visible. And so we slouch toward the new year that feels like the old one.

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