The siren call of austerity

By David Cay Johnston
January 27, 2012

The World Economic Forum opened in Davos amid choruses of central bankers and economists calling for governments to cut spending.

This message of austerity is like the call of the ancient Sirens, whose music lured sailors to shipwreck.

We should take a lesson from Odysseus, who poured wax into the ears of his crew and had himself lashed to the mast of his ship to resist the Siren call.

Austerity supporters are selling the idea that governments, like families, must cut back when income shrinks. But economically, governments are not like families.

Firing teachers, cops and government clerks will, for sure, reduce public spending. But budgets, like the song of the Sirens, are only part of the story. Listen only to the alluring lyrics and, like the many voyagers before Odysseus, we will suffer disastrous consequences – in our case falling incomes and worsening economies.

The full economic story begins with this principle taught to every economics student: spending equals income and income equals spending. Cut spending and incomes must fall; cut incomes and spending must fall.

Those who disagree with this say that only private spending can create wealth and that government spending is inefficient. I think the first argument is wrong, but the second is often true, which is why citizens need to pay close attention to their government.

When private spending shrinks, then either government spending must grow to make up for it or the other side of the equation, income, must shrink.

If we increase spending today by borrowing, we create a claim on future income. Families with debt must divert part of their future income to interest and principal to service that debt or go bankrupt. Governments are different, provided they have monopoly control of their currency. By definition, no sovereign government can ever go broke in its own currency.

NO TO AUSTERITY

The United States government, which has a monopoly on its currency, is $15.2 trillion in debt, roughly the same as the entire output of the economy for a year.

That figure has been sung in a refrain about massive debt threatening to bring down the economy and cause inflation. Facts, however, show otherwise.

The country was much deeper in debt, relative to the size of the economy, in 1946 than it is today and yet what followed was decades of prosperity. The 1946 debt remains and, after six decades of growth, it is inconsequential.

In Japan, government debt is roughly twice annual economic output and yet the country continues to function because real interest rates are at or below zero.

To be sure, conditions can change and interest rates can rise sharply, though central banks have ways to limit that. But that is not the problem today. The problem today is shrinking incomes due to shrinking spending.

Austerity budgets, by reducing government spending, will only make incomes fall more. The only way to make incomes rise is to make spending rise, which in the short run means more borrowing by governments to enable more public sector spending.

After reading the news from Davos, ask yourself why we should listen to the Siren song of the financial elite. After all, the people who steered our financial ship into dangerous waters in the first place were at the very top of this group. We should listen more to those will suffer from austerity budgets: children who only get one chance at an education, the sick and disabled unable to support themselves and seniors too old to work.

If, like Odysseus, we wish to row past our current economic straits into a new sea of prosperity, the one thing we must not do is be driven to economic madness by the Siren call of austerity budgets.

36 comments

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David–I note that in today’s release of the fourth quarter 2011 GDP numbers, the Department of Commerce Bureau of Economic Analysis noted: “The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in PCE and in residential fixed investment that were partly offset by . . . a downturn in federal government spending . . .and a larger decrease in state and local government spending.” (The material that was omitted via the ellipses related to other factors that caused the downturn.)

Summary: You’re right. We’d have been better off with more government spending.

Posted by StuartLevine | Report as abusive

Odysseus obviously believed that the call of the ancient sirens was the primary threat to his voyage. He essentially placed the heads of his crew in the sand, like an ostrich. He first had the crew render himself incapable of reaction to events anticipated but yet to be survived and reported.

Had the storm winds required adjustments to the sails, they were out of luck and could have lost masts (and propulsion). Had the wind direction changed so as to take the ship towards the rocks, there would have been no way to avoid disaster. Locking one’s self into a fixed course of action when the demands of the immediate future are unclear is not a “lesson” to be learned or emulated.

Governments ARE like families on a fundamental level. If they shovel out more money than they take in there will come a day of reckoning that may take many forms, but none are desirable. The basic economic “model” today presumes, indeed requires, ever increasing population.

With SEVEN BILLION humans on this planet and more rapidly on the way one has to be having a bowl of stupid for breakfast every day not to know that this presumption is long past sustainable but everybody keeps rowing because they know nothing else to do. The first step to solution of ANY problem is to recognize that there IS a problem. Why is that so hard?

It is an academic absurdity that “…by definition, no sovereign government can ever go broke in its own currency.” The Weimar Republic may not have “gone broke”, but it ceased to exist, first economically and then politically just as day follows night follows day.

The fact that the huge U. S. national debt in 1946 “…remains…” but is “…inconsequential…” merely illustrates a tragic reality. All modern governments steal from their citizens deliberately and consistently by allowing their currencies to inflate.

This inflation creates “paper profits” as home values APPEAR to rise, and then local governments increases property tax “values” by the amount of this phantom income. Those taxes, however, are REAL! The vehicle I bought new in 1970 for $3,600 in today’s devalued dollars would cost $22,000.

An income tax adopted at the beginning of the last century applied, at the time, to the top 1/2 of 1% of taxpayers. Look at it today! So you suggest our “government in bad faith” is acting as it should to beggar retired people who expected interest on their savings to at least keep up with inflation to accept financial difficulties because the U.S. Government has had little or no fiscal sense or propriety or restraint and is NOW in deep yogurt? I don’t agree.

The problem today is NOT “…shrinking incomes due to shrinking spending.” It is that the government has far more employees than it needs that produce nothing of economic value. If all these people are thrown into the “real world” and have to make something or render a service of commercial worth, their efforts will change from a drag on our economy to thrusting it forward!

You advocate “…more borrowing by governments to enable more public sector spending.” I remember a hangover cure something like that, and I remember it made things WORSE, not better. Why bother with schools and all that if our government can just print more money and hire everybody to shuffle paper endlessly and the U.S. economy will “improve” as the population increases? More likely such would steer our ship of state straight onto the rocks of economic disaster!

The United States today must quit rearranging the deck chairs on the Titanic and see the iceberg in our path, which is a worldwide transition from a society driven by industry to one driven by information increasingly leveraged to produce whatever is needed where it is needed, when it is needed and at a profitable price.

Every sovereign nation will occupy a place in the planetary economic mosaic. If we open our eyes and act quickly America can secure a necessary and favored place in the “new world order”, or not.

Posted by OneOfTheSheep | Report as abusive

Love the analogy. As for the first comment..no, there is fundamentally a huge difference between families and governments. Jeez..get a clue.

Posted by dusty1215 | Report as abusive

All modern governments steal from their citizens deliberately and consistently by allowing their currencies to inflate.

Posted by teresah | Report as abusive

Good article and right on target!

Austerity for this country right now would literally destroy this economy.

But “just say no” is not a solution.

Income and spending does not happen in a vacuum.

The only thing missing is the underlying reason and solution to the problem, which is “job outsourcing” for over 30 years, along with our government’s abject failure to act to reverse that trend.

Without that reversal, the US economy will never recover.

An in-depth examination of that underlying reason would be be a worthwhile topic for a follow-on article.

PseudoTurtle
CPA/MBA

p.s. I have to admit your suggestion that “We should take a lesson from Odysseus, who poured wax into the ears of his crew and had himself lashed to the mast of his ship to resist the Siren call.” intrigues me.

Perhaps some modern version of that is required to get congress to listen to their own people for a change, instead of only the Siren call of the wealthy.

Posted by Gordon2352 | Report as abusive

Mr. Johnston, you and Krugman are both on the same, CORRECT wavelength. Please continue to keep us CORRECTY informed.

Had to write to commend you on your segment on ‘Up with Chris Hayes’ this morning regarding your comment on government and wealth when talking about Sheldon Adelson’s supposed self-made fortune:

“Like everybody in the gambling business, he got rich because gov’t made him rich. Gov’t gave him a privilege, a license. And we need to remember that government is instrumental in determining who gets rich and how is kept in poverty.”

THERE AIN’T NO FREE MARKET.

Posted by PitchingDoc | Report as abusive

A side note: “Odysseus obviously believed that the call of the ancient sirens was the primary threat to his voyage … Locking one’s self into a fixed course of action when the demands of the immediate future are unclear is not a “lesson” to be learned or emulated.”

This is a misreading of Odysseus. He had himself tied to the mast so that he could have full senses. However, he instructed his crew to overcome him if he fell under the Sirens’ spell. He thus was able to guide his crew in operation of the ship, but they were able to restrain him when he fell under the Sirens’ spell. This is classic checks and balances, and the problem is that there are no checks against the austerity economists.

Posted by nickjden | Report as abusive

Am I the only one who considers the following statement a contradiction: “After reading the news from Davos, ask yourself why we should listen to the Siren song of the financial elite. After all, the people who steered our financial ship into dangerous waters in the first place were at the very top of this group.”

Using a metaphor for an economy addicted to spending beyond its means, isn’t that like criticizing an alcoholic or drug addict who withdraws and sobers up, then starts advocating going “dry” which is like economic austerity for others in their shoes (and moderation for those not addicted)?

You’re basically saying that anyone who has an addiction problem is not qualified to help others avoid it, using a fable and superstition that has no basis in fact to buttress your argument. When in fact it’s those who caused this mess, when reformed, may best understand how to return economic equilibrium to the global economy?

Speaking of the logic of fables, suppose a ship sets anchor on an island because they hear what they think is “singing” coming from a meadow. While a shore party is investigating, unbeknownst to the crew, a hurricane a distance away is crossing the point where they would have been IF they hadn’t anchored at the island to investigate. You see, following an old superstition would have resulted in their continuing on their voyage, to be sunk to the bottom of the sea in a hurricane. Sometimes the sounds of “siren calls” are destiny and not doom.

Posted by DisgustedReader | Report as abusive

I take exception with the entire article. The notion that the United States in particular cannot find a way to restrain spending, and effectively “not worry” about the debt, belies one critical fact. While the United States is engaged in no less than 7 military engagements at present, none of these engagements ranks on anything like the great powers war of WW2, the entire activity of 9/11 would have ranked as a single act of sabotage, on par with say the Port Chicago explosion, of WW2 or the Federal building bombing in Oklahoma City. This therefore calls into view two failures of government policies.

1. Meaningful defunding of military expenditures after the end of the Cold War, never really occurred, leaving the US, to this day – military spending in excess nearly on par with the entire rest of the planet – combined. To suggest we could not “get by” with a 40% reduction (still 5 times our nearest possible combination of military competitors, China and Russia combined)

2. Serious re-evaluation of the entitlement systems, such that they are – sustainable – given the vast numbers of older citizens shortly to commence retirement – in earnest.

To suggest we don’t “have a problem” is not the case. WW2, was an extraordinary time, for an entirely different reason that the original author omits, the US was largely the only intact industrial economy – on the entire planet, China, India were still decades from meaningful industrialization, both still ravaged by war, famine and rampant poverty, and these conditions are never far from recurring in these vast unevenly developed nations. The other traditional powers, were literally in ruins, the major industrial cities of Russia, Germany, France, England and Japan lay in ruins. So the United States thus commanded 50% of planetary GDP and was a generous benefactor rebuilding it’s former adversaries. All of which was money well spent – and vast sums at that.

These days, of course, the nation that could most use a Marshall Plan for redevelopment of it’s crumbling cities, is of course the US itself, and this REALLY hits the point of the world of today and the near future.

Unlike the indomitable command and economic dominance of a previous century, now the US must compete economically, scientifically and even militarily with the rising national and super-national interests of China, India, the EU, and the other dozen or so rapidly developing regional powers. This is both good and bad, opportunities for trade and commerce abound, as does rampant and significant competition for natural resources.

Even a slight stumble , a “minor” miscalculation, can spell diplomatic, economic or industrial hardship for our nation, as we let technological dominance in materials science, energy production, IC related industries and advanced methods of mathematics, science and biology fall by the wayside, to entertain and indulge the war fetishism of our erstwhile allies and corporateering malfeasance on a scale most people can scarcely imagine.

We fetish entirely the wrong things, torturing some nameless private for divulging slightly embarrassing communiques, while leaving rampant and severe industrial/electronic espionage which seriously compromises our security continue unabated by our well ensconced lobbying interests, with hardly a mention.

While certainly there is blame to go around, the longer we let corporate interests and know-nothing punditry tell us “everything is wonderful”, the more rapidly our nation descends into the abyss of economic and industrial decay.

The American people, for their part, have been – long ago disenfranchised from the actual reigns of power, yet endure and struggle onwards, while the captains of industry insist we have nothing to worry about.

The solution of course is a revitalization of our civic structures, where the citizenry takes responsibility and removes crony capitalists in Congress and the Senate, systematically re-enfranchising themselves by demanding access to those avenues of industrial leverage that have served us in the past.

Take your pick, from a strong media, where corporate influence is reduced, or a revitalized educational system, or sensible energy and industrial policies centered around forward-thinking “10 year or 20 year” outlooks where are we likely to be, rather than , high-profit this quarter policies.

Without this renewal, I suspect the US will still endure as a nation, for many decades, but ultimately the great experiment in representative governance, and our prowess and capacity as a regional if not world-wide superpower will be only a memory.

Posted by markthomson_wi | Report as abusive

@OneoftheSheep – You need to go back to the history books. It wasn’t the inflation that destroyed the Weimar Republic, it was Bruening’s austerity measures in 1932-3 that brought you-know-who to power. The rest of your arguments are about equally accurate. Your handle is very well chosen.

@DisgustedReader – Why do you think they are “reformed?” Consider who benefits from austerity. Deflation benefits the rich while it damages the not-so-well-off. Granted we haven’t had serious, long-term inflation yet (well, overall prices did fall in the U.S. in 2009, not sure about the U.K.) that’s what austerity is meant to produce. You think those people “at the top” are interested in taking care of your interests?

Posted by Acharn | Report as abusive

Austerity is hardly a siren’s song.

The metaphor isn’t apt for the situation. Can’t argue with the point of Mr. Johnson’s article because it’s too late to do anything now. But the more apt metaphor would have been Scylla and Charybdis. The 9/11 attacks were the siren’s songs. The so called “War on Terror” was the leap into the sea. The Wars in the ME were Scylla and the resulting debt and recession are Charybdis.

The ship and crew are lost, or soon will be, because they will go down in Carybdis and not even the gods can save it.

OOTS is delusional and thinks he’s Ulysses.
I’ve been living with wax in my ears but was an unfortunate member of the crew.

But Greek myths so often involve the story of crime and punishment. And the Greeks loved the inevitably of fate and the punishment inflicted on hubris. Tragedy is retribution for sin and human frailty, after all.
.

Posted by paintcan | Report as abusive

Excuse me “inevitability”. I was never a very good oarsman and most of the people I knew were illiterate anyway.

Posted by paintcan | Report as abusive

There are a few points confusing me greatly…

If income and spending are so strongly and intrinsically connected, then how is the United States federal government taxing 15% of GDP and spending 25% of GDP?

You suggest that the Federal Government has broken the symmetry by mortgaging America’s future. You suggest, by historical precedent, that this debt MIGHT be inconsequential in the future.
How is this sustainable, when America’s current growth is less than 10%, and when America’s future real-terms growth is likely to be less than 10% annually? Who will continue lending to America under those conditions, unless the rest of the world is shrinking at 10% relative to the US economy? How can this be sustained ad infinitum?
* Massive immigration of young, healthy, skilled workers?
* Use propaganda and spending to encourage a new baby boom?
* Bomb the rest of the world into the stone age, and foment political unrest within rising powers?
* In the short term: Embark on a not-so-subtle whispering campaign, regularly expressing “concerns” about European economies whenever the U.S. economy starts looking shaky?

The US federal government/ Federal “Reserve”/ American people have magnanimously chosen “none of the above”…

> “Governments are different, provided they have monopoly control of their currency.”

Can every government or currency union resolve the problem by simply borrowing more heavily from each other at the same time? The U.S. federal government has been flying by the seat of their pants, defying the economic laws of gravity, since Bush II acceded to the presidency. Geithner and friends have shut down the rocket’s engines and put the ascending U.S. economy onto a ballistic trajectory. Everybody around the world is now joined together, holding the seats of each others’ pants (with some countries bearing more of the load than others). How will that work better?

The alternatives to austerity:
* Currency devalation
* ???
Perhaps this is why Chinese economics students laughed Timothy Geithner to scorn a few years ago… The West is essentially ascending an ever-narrowing mountain ridge, with ever-increasing winds threatening to blow its economies off-balance, drawing ever closer to an inevitable disaster: to be be blown either off the left side of the ridge (devaluation and inflation) or the right side (youth unemployment and deflation).

I believe that spending must be increased in the long term due to permanent increases in the intrinsic personal metastability (or permanent decreases in the intrinsic income mobility) in the free-market economy due to advancing technology, and advancing economies-of-scale. Unless government spending is increased in the long-term relative to private industry, we will see masses of unemployed, uneducated, uninsured: and many of these people will be the grandchildren of the hard-working folk who built America up in the post-war period and infused their children with a firm belief in the “American Dream”. Economic circumstances will eventually conspire against the majority of the American people unless efficient, accountable government can win the political debate.

But in the short term… We must both increase taxation AND decrease spending (electing a president who will veto any spending program that doesn’t advance America’s core objectives). To stop the debt from growing, both policies are surely required.

The first places we can start cutting spending?
* Corporate welfare
* “Aid” to corrupt 3rd-world countries [who are no better than their colonial masters, and in many cases considerably worse]; who STILL leave their people starving (to maintain a pool of willing labour), and STILL sell their land/ industries/ mining concessions to the Chinese. Aid SHOULD be made contingent on certain demonstrable standards of governance… All governments must regard themselves as holding primary responsibility for their own people’s welfare!

Posted by matthewslyman | Report as abusive

Man there are some real crazies that post here. Nice article, Dave. You need to get your economic nobel prize though (like Krugman) and write for the Washington Post or something. Krugman gets his fair share of crazies at the NYT, too, but they don’t make up 100% of his user comments.

Posted by JWG | Report as abusive

“The problem today is shrinking incomes due to shrinking spending.”

This is an oversimplification. The real problem is shrinking incomes due to an imbalance in the supply and demand for labor. This imbalance has been worsening for decades and merely masked by government spending. It’s now become so bad that the trillions spent by the federal government and the Federal Reserve in the last three years has been powerless to hide it.

The real problem is that, every day, the world’s labor force grows by 100,000 workers without a corresponding increase in the demand for labor. The real problem is the inverse relationship between population density and per capita consumption. As the world’s population explodes, worsening over-crowding is driving down per capita consumption. Since per capita consumption and per capita employment are inextricably linked, rising unemployment and poverty are inescapable. Government spending has become powerless to alter this fact. Japan is a case in point. In spite of Japanese wealth, the Japanese people can’t consume more because there is simply too little room to utilize any more products.

China is another example. The world has become frustrated with China’s inability to boost domestic consumption and become less dependent on exports. China can’t. Simply put, it’s too damned crowded for their people to become western-style consumers.

For the U.S., the situation is exacerbated by attempting to trade freely with such badly overpopulated nations as Japan, China, Germany and a host of others – all heavily dependent on manufacturing for export to employ bloated labor forces with weak domestic consumption.

Nothing will change until the world comes to grips with its overpopulation problem and its role in driving global trade imbalances.

Pete Murphy
Author, “Five Short Blasts”

Posted by Pete_Murphy | Report as abusive

I have seen a case where the auditor was fired (and reduced wage cost with 14.000$ a year), and the public entity manager signed after a few days a contract for washing a 10.000$ value car for 13.000$ a year, and reported a 1.000$ budget cut. This is a real case of “budget cut” that happened in 2008, in non-american irrelevant, but real, place. This can also be defined as a textbook case of changing budget focus on helping “private economy” trough public spending policy change.
Spending less does not imply spending better. It is efficiency of spending that helps, not the bare cut. To come back at my example, all employees got heavy wage cuts, some were fired, but spending was reduced only by 1%. Wonder why citizens find disgruntled, hostile treatment when they go to get some services… it must be the poor quality and lack of morality of the employees, not their poor morale and meager wages.

Posted by Bolos | Report as abusive

“Firing teachers, cops and government clerks will, for sure, reduce public spending.”

It is not necessary to fire teachers, cops, etc. Dramatic cuts can be made having those same groups contribute the same amounts to their medical plans and retirement plans.

Posted by 3thompto | Report as abusive

How is the world going to come to grip[s with overpopulation? Plug the young so they can’t have any until massive numbers of old consumers kick it? Do the Chinese ever expect to unplug the one China policy? It must be tough having no brothers and sisters? They are lucky to find a cousin. And will only the rich there get to have more than one?

The oceans wait and I am actually getting regular notices from a small group called Seasteading. They are starting to raise funds.

The sunk palace off Italy didn’t take more than a few years to build and it was a boon for the employees who built and were hired to work on it. Unfortunately – only those who can afford to spend $10,000 to $20,000 for a one to two week pampered pleasure cruise – with loads of low paid staff waiting on them – can do that.

If commenters can praise other comments – OO0-EEE slyman.
But what do you mean “The US federal government/ Federal “Reserve”/ American people have magnanimously chosen “none of the above”… I thought they were doing all of them – they just don’t work?

Posted by paintcan | Report as abusive

the truth is we’ve become overly Keynesian and our economy is unfortunately addicted to gov’t spending. If you look at the forward projections on spending and likely tax revenues, it’s very clear one of those curves is badly outta whack.

Bottom line, we’ve got to fix the spending side of the problem.

Posted by jambrytay | Report as abusive

low wage job because I’m used to it and designed my life for a low income. Should I loose my food stamps? I used to have a small business that tanked two years ago with the collapse of the real estate market. It is very unlikely to come back.

It is probably naive of me to expect that laws against age discrimination are really all that meaningful now. OOTS is always complaining about welfare cases and the undeservedly alive and would rather we remove ourselves from the planet. And I often want to agree with him. I am reaching a point of diminishing returns as far as my own maintenance. And I have had no health insurance for years. It would cost me more as a self employed person than I actually live on each year.

The trouble with e powers with imperial pretensions – is they want slaves of all shapes and scales. We all have civil rights now and that floor hasn’t opened under most of us “unworthies” YET.

Posted by paintcan | Report as abusive

The federal gov’t has become so large , it has become impossible to pay for it’s own costs. Nearly every corner of the federal gov’t is rife with duplication, mismanagement and special interest carveouts.

Each of these protected by an entrenched bureaucracy, a well financed lobbying group, an active and organized constituency and an entrenched politician, which time and again align to squander efforts to reform, cut or eliminate gov’t waste.

As Tom Coburn points to in his report Back in the Black, there are many ways to cut spending, increase revenues or both.

A previous commenter is correct in my opinion, we are ascending an ever narrowing mountain ridge with high winds ready to blow us off one side or the other leading to devaluation and inflation, or a deflationary spiral.

At $15 trillion in debt and over $60 trillion in unfunded future obligations, there will no opportunity to care for those the author states will suffer from austerity budget cuts.

Posted by DVM | Report as abusive

@matthewslyman,

Do you ever think out what you say or the principles you advocate? Seriously?

“Unless government spending is increased in the long-term relative to private industry, we will see masses of unemployed, uneducated, uninsured…”. Hello? Anybody home?

These “masses” are not only HERE, but the fastest growing part of our population. Their representatives are “Occupy Wall Street”!

“Economic circumstances will eventually conspire against the majority of the American people unless efficient, accountable government can win the political debate.” “ efficient, accountable government” is a laudable aspiration. Unfortunately, like the God particle in Physics, the existence of such an otherwise theoretical entity has not been proven or “found” in the real world.

“…in the short term… We must both increase taxation AND decrease spending…”. So again you would give MORE revenue to a government utterly without a “plan”, priorities, or even the ability to apportion EXISTING tax revenue efficiently and wisely on behalf of taxpayers?

Tax revenue is the crack cocaine of all political parties. Giving them more of it before they get their “spending habit” under control is like trying to put out a fire with gasoline!

Posted by OneOfTheSheep | Report as abusive

@paintcan,

Once again you misunderstand or misinterpret my comments.

You are a literate American with productive experience. You have both physical and mental resources and the advantage of geography and citizenship that give you advantage beyond mere money.

If you had a presumably previously successful “…that tanked two years ago with the collapse of the real estate market…”, why are you sitting at home in front of your computer with internet access whining about the unfairness of life? You are NOT logically one of the “needy” until, when life knocks you down, you don’t TRY to get back up.

If you had a real estate agency or escrow company that was in the top “half” of local competition, absent abysmal management it would still be around. A worker that is not in the top 50% of their trade is always at professional risk if unemployment ever reaches 50%. At present the country is below 10%.

Go to every real estate agent for 100 miles around and offer to survey and photograph each new listing and provide them with the printout(s) they need to promote it’s sale. With digital cameras that take high quality images relatively cheap and no film expense, this is NOT a capital intensive “business” to start up.

While you’re driving around, look for FSBO signs and give agents that utilize your services those leads. Comb the local paper(s) for tax delinquent properties and try to link up those about to lose them with agents willing to “work with them” without “front money”. In some states you can pay delinquent taxes for someone else and the local government will see that you either get repaid that amount plus around 10% interest or you wind up eventually OWNING that property. Lots of those who comprise the local “courthouse gang” do this.

The kid just out of college taught “the rules” and how to conform is ill equipped to think “out of the box”. The primary difference between those and a can of Alpo is that the can of Alpo has “content”. The shortest path to sustainability or success is to “find a need and fill it”!

The REAL money is not made by “knowing the rules” but by learning the exceptions, and THAT comes almost exclusively with experience and effective observation. Why would anyone choose live as a sponge, dependent on location and current to bring food to them? Better to live as a fish or a shark!

There are no “undeservedly alive”, but there are the unfortunately alive…those who do not and never will have a place in current or future society because they have passed up what choices or opportunities available to them or, by virtue of their birth circumstances should never have been brought into this world. There exist today whole generations of such hopelessness that are simply ignored until they riot.

As population increases in certain obvious parts of this planet, certain societies already lack the necessary flexibility to absorb a never-ending increase of basket case individuals for whom education, employment, land or a family is a never ending series of impossible and unsatisfactory challenges.

Be very glad you’re not in THEIR shoes.

Posted by OneOfTheSheep | Report as abusive

You are advocating being unscrupulous, that’s all. I have no idea how those real estate at no money down offers that i used to see late night used to actually fare. I was always convinced that they were frauds and that the only people making the money they claimed were actually those selling the course material. It takes nothing to get on TV and claim you made millions selling foreclosures.

Before I say another word – what did you really do for Sour living? How “professional” are you really?

I went on a fishing trip with my father and grandfather decades ago and most of what the passengers were catching were small sharks. The crew would take them by the tail and break their backs over the rail. The would spiral down to the bottom to die.

It doesn’t pay being sea-food at all.

If you don’t like the rules at all then you can expect very little from government. And none of the seafood you prey upon will have the slightest reason to respect you.

But right off the p bat – every real estate agent is probably already doing what you say and they don;t have to travel 100s of miles in all directions in a 19 plus year old vehicle.

The biggest mystery in my life has been what to charge for my services – however dubious. Tell me what I should charge for my
services as a starting for rate, for example? Gas, minimum wage and meals? I should I brown bag it? If century 21 is treading this they will undercut me before I walk out the door.

Posted by paintcan | Report as abusive

I have to agree with @OneOfTheSheep on this one.

Posted by tmc | Report as abusive

Hmmmmmm… the Pulitzer does not seem to be what it was.Has the author heard of Milton Friedman? Anyways I digress Thank God for my public education I always thought 1+1=3. Since the recession began I have lost 50% of my income according to Mr Johnston I should merely started spending more and my income would have gone up.

Posted by Bouncy | Report as abusive

@OneOfTheSheep:
> “These “masses” are not only HERE, but the fastest growing part of our population. ”
- I’m glad you noticed!

> “efficient, accountable government” is a laudable aspiration. Unfortunately, like the God particle in Physics, the existence of such an otherwise theoretical entity has not been proven or “found” in the real world.”
- Acknowledged, and undisputed. However, some governments are more accountable, efficient and coherently directed than the U.S. Federal Government. Why? Their accountability structures are stronger, they are in more of a long-term left-right political equilibrium, making sensible compromises in a culture of debate and negotiation. Their governmental structures and procedures, auditors and regulators are more efficient at preventing and then at weeding out “pork-barrel spending”. There’s a reason why that terminology originated in the United States…

You question my recommendation for increased taxation. I’ve cited a link several times to an article I’ve written on that general subject. The key issue here though is that the only way to narrow the gap between 15% and 25% quickly is to move the 15% up and the 25% down: they have to meet in the middle, with a gap defined by the GDP growth minus the desired budget surplus. My studies of recent historical American economic performance show that raising taxes from 15% to 18% or 19% will not have ANY negative impact on American GDP. On the contrary, it will almost certainly INCREASE productivity, for example by forcing some people with valuable skills out of early retirement, and by forcing other overpaid/ high-skilled folk to get their finger out and start WORKING for America and contributing to spending that has a real positive impact, rather than buying mansions in the Bahamas while USS America sinks under the feet of their less well-heeled neighbours.

@paintcan:
> “…what do you mean “The US federal government/ Federal “Reserve”/ American people have magnanimously chosen “none of the above”… I thought they were doing all of them – they just don’t work?”

- Irony of course! I’m moderately certain the USA is doing some of these four things I mentioned. My veiled accusations cannot easily be proven, and it’s not necessarily accurate to say the USA is doing “all of them”: we cannot prove, for example, that the USA is fomenting unrest in rising powers (something Mr. Putin has recently accused the USA of doing in Russia), and on the other hand there is plenty of evidence that most grass-roots revolts around the world are simply responding to increasingly oppressive & unequal administration of justice and economics, now that technology gives them new opportunities for organised dissent. I’m just not sure whether this spontaneous protest is the whole story.

What’s for certain is that no people or country can defy a fundamental mathematical law. Ultimately, unless policies are changed now so as to harness the power of the legendary American work-ethic, you’re going to be re-opening Ellis Island to sort out this mess; to leverage once again, the asset that North America has in relative abundance: LAND. [Nods to Pete_Murphy for once, instead of heckling him!] If you American voters don’t like this suggestion, you’ll know what to do…

Posted by matthewslyman | Report as abusive

BTW Sharks are one of the most primitive and least intelligent varieties of seafood. They swim and eat and that’s all they do. If they stop, they die because they can’t breath.

@tmc. what part of OOTS many posts are you agreeing with? Was my comment posted when you said it?

Posted by paintcan | Report as abusive

@matthewslyman,

I do NOT question your recommendation for increased taxation. I agree completely with you that this will be absolutely necessary if we are to “fix” the American economy.

I only question increasing taxation BEFORE my government publicly and conspicuously acknowledges the current reality; that it is:

spending more than it has to spend or can spend over time
No “plan” as to what our society should do and be, and what that costs (as to properly budget them)
No significant experience in recognizing the difference between those government functions that are absolutely necessary and those that are optional or even questionable, and mandating periodic and meaningful review of each.
No significant experience in prioritizing the expenditure of available revenue such that, for instance, infrastructure is expanded in reasonable proportion to concurrent expansion of economic activity before new government agencies, departments or functions or more federal workers are added to existing expenses.

In my opinion “we, the people” MUST force our government to mend it’s wasteful ways BEFORE giving it more money. Only on the “front side” do we have the necessary leverage to demand absolutely essential and fundamental changes to the manner in which it routinely “does OUR business”.

We have the necessary time if we have the courage and determination. I see no danger whatsoever of America sinking “…under the feet of their less well-heeled neighbors” because, as unsustainable as our current path may be, it is MORE sustainable than the great makority of other large economies. It remains true, in economic terms, that when America sneezes, Europe (and the rest of the world) catches a cold (or pneumonia).

Posted by OneOfTheSheep | Report as abusive

@paintcan,

“You are advocating being unscrupulous, that’s all.” I have NO idea what you’re talking about.

“The biggest mystery in my life has been what to charge for my services – however dubious.”

Talk to a few of your best prospects to get their input as to what services you could provide that they “need”. To everyone, time is money. When you specialize in a product or service you are setting out to do something they don’t like to do, or that takes an inordinate amount of THEIR time to do.

Presumably you can become more expert and efficient in doing this than they can possibly be. The “business model” is a productive “win-win” association for the long term. Of those things you think might prove profitable, ask them what it would be worth to them to not have to do that any more, how much of that work there is, and what is the necessary “turn-around schedule” for each service.

If it looks like there may be a “niche business” profitable once going, try it (even though you lose time make little more than expenses until you get better and more efficient). If not, ask them for ideas. It is human nature when someone is trying hard to help them help themselves.

An example is that most printers don’t print business cards “in house”. They order them from a specialty “trade source”. The order taking printer gets rid of a fiddly low-margin time sucking task so as to concentrate on other, easier and more profitable work, yet he still “provides” business cards for his customers from a source that will not contact them directly. The same is true for wedding invitations, banners, folders, even envelopes and business forms.

Posted by OneOfTheSheep | Report as abusive

You aren’t really telling me what I don’t already know but you are more a wind bag than a source of real information.

I know you don’t know what I mean about being unscrupulous. I hear it in your comments all the time. You don’t interpret your own comments very well either – I hope you realize?

BTW – there are computer printer programs that will do business cards at home now. That is one of my problems. My skill became obsolete and the downturn has meant the clients I had went to even cheaper options than even I could provide. That is, if they have much of anything to do themselves now.

The computer has been one hell of a two ended sword. In fact it is making it possible to live on peanuts and not buy a GD thing anymore. The economy is going to shrivel. Why waste gas, fuel rent and the other expenses for a second business premises, clothing, on traipsing around doing very marginal valued services when one can do so much at home now or not use those services at all? I don’t miss most of them except when the cabin fever effect sets in. Austerity isn’t a siren call, it is a way of life and I can’t say that it is really austere. Only more efficient. But it will never re-inflate home prices because most of the very crowded world you complain about is managing to live on even less than I am. The global economy is having a very severe leveling effect on everything. Even the most aggressive sharks are going to starve (sooner or later).

Perhaps it will be fatal. Perhaps the government is into it senior care and burial expense phase now?

BTW – I never feel the world is an overcrowded threat whenever I visit NYC. The numbers alone make for increased and very accessible business opportunities, but at naggingly high overhead costs. But up here in the sticks, a few cars at a traffic light feels like grid lock.

I like to think we are entering a very peaceful world. simply because war is a the playground for double talk and unscrupulous conduct with state sanction. But I am also a little afraid it will feel like a coffin as well.

Posted by paintcan | Report as abusive

@OneOfTheSheep: Spending cannot be decreased immediately without serious negative economic consequences, as well as large contractual penalties (except where that spending can be shown to be criminally wasteful, and where government can be released from contractual obligations). David Cay Johnston is right about this. Shut down spending all at once, and you’ll deliver the death blow to the economy.

Posted by matthewslyman | Report as abusive

@matthewslyman,

Good grief. I am reminded of the tale that copper wire was invented when two lawyers argued over a penny!

I am saying that we need to immediately stop the relentless EXPANSION of the size and scope of the federal government. We need to carefully throttle down DISCRETIONARY spending (that NOT required by contract).

As our troops return from Iraq and wind down in Afghanistan associated expenses in terms of equipment, armaments and salaries should decrease with associated troop reductions. The proposed military budget for next year is actually smaller, with more cuts scheduled unless Congress rescinds them.

The people leaving the armed services “network” well and have friends already “on the outside”. For every one that is successful in finding a civilian position, their income magically transitions from a drag on the U.S. economy as a government employee to a positive economic force as a productive civilian adding to Gross national Product.

While much of the federal bureaucracy SHOULD be found “criminally wasteful”, these people largely police themselves and seldom honestly. Their very culture is “them versus the taxpayer or the businessman”. I’m not going to hold my breath waiting for charges or convictions.

If the process halts or slows the recovery temporarily, the effect is little different than any normal ebb and flow of the business cycle. A steady but firm hand on the throttle allows appropriate response to any unexpected or unreasonably adverse effect. The choice is NOT “business as usual” or a Depression as you and others infer.

Posted by OneOfTheSheep | Report as abusive

Excellent article, David.

OOTS is oversimplifying things, as he seems to do often. In even the last example…where are all these recent veterans going to find jobs? If they “look hard enough,” will jobs that are well paid, provide benefits, etc…just pop out of the ground? You say “for every one…” Do you have any idea how many will, and how many won’t? You’re talking about a population that by and large have no real job skills, and are often victims of PTSD or other post-war issues. Which require medical attention, often times for years. Data from 2011 indicate the unemployment rate for recent US vets is much higher than that of non-vets. And, it’s actually increasing, not decreasing. So it seems like although most (all?) of them want to find jobs, there aren’t that many jobs out there. If there were, I’d think I’d see the unemployment rate of vets going down, when it’s actually going up.

So I’m confused. I feel like OOTS rests far, far too much weight on “for each one of them that is successful in finding a civilian position.” It’s not the job of the govt to find these people work (although a high proportion of recent vets DO go into public service fields), but at the same time, if they don’t find jobs, they will come needing govt services, which are much more expensive to have the gluttonous, wasteful spending govt provide than it is to provide in the actual marketplace. Unless each of these guys finds a successful job, they’re not only not going to be a boon on the US economy, they might actually be a drain. So I fail to see how it’s so easy to simply explain away like OOTS seems to think it is. If they can’t find jobs, they end up being EVERYONE’S problem.

I just don’t see how it’s so easy to explain away. I study the labor market for a living, and while it isn’t that *hard* to find a *job* in America, getting by is MUCH more complex than simply finding a job. OOTS seems to vastly oversimplify the process. You can’t just assume everyone can find not only a job, but a job that pays enough to support yourself and perhaps others, is close to home, and provides you the medical care (in this case perhaps moreso than others, w PTSD etc) that you need. I realize that OOTS does not assume “everyone” can find a job, but there is precious little script paid to those who might not be able to.

Posted by Adam_S | Report as abusive

@Adam_S,

There is a difference between “oversimplifying” and having focus on the subject of discussion. I was explaining that “The choice is NOT “business as usual” or a Depression…”.

You jump in and start speculating whether ALL of the returning troops will be able to get jobs and whether these will be permanent or decent paying ones convenient to VA centers, etc. While your questions are valid, they are moot and off point.

You don’t retain unnecessary soldiers in the service when wars end for the same reason that you don’t keep employees no longer needed. Those are practices that are inevitable and the chips fall where they must. I agree associated taxpayer expenses are EVERYONE’s problem, and they will be what they will be. I don’t know and neither do you.

You also infer that everything unfolds instantly. It doesn’t. Those who don’t find a job the first day keep looking and networking. If one is still looking six months after discharge, it’s not like discharge came unexpectedly and there was no time to prepare one’s living expenses for such a period without “normal” income.

If one has to take a job delivering pizzas until something better comes along, it won’t be the first time. Yes, “living” is a complicated process and different for each of us even from one year to the next. We have to “suck it up”.

What is America’s alternative? Keep printing dollars?

Posted by OneOfTheSheep | Report as abusive

“If one has to take a job delivering pizzas until something better comes along, it won’t be the first time.”

The local printer will do any jobs he can and most of them are small. I’m no help – I’m still using the brochures I had printed up over 20 years ago.

OOTS – you’re dreaming – pizza delivery jobs are some of the first to be taken by young kids. It seems all the service jobs in the little town where I live, or even in the nearest city, are staffed by young kids.

You always sound like a Pangloss. All I ever find is that my resume and application goes into the pile with all the others. I also missed the computer revolution and am more or less self-taught on this one. And all the online jobs listings I’ve seen require more extensive computer experience. I was quoted one year at home online tuition fees from two sources – Concordia and a design school out of Pittsburgh – of between $26,000 and $40,000 per year. And there is something very suspicious about them. They don’t like to talk course costs. I find that if I ask right up front, they loose interest in me. The most recent call said he would have to talk to his supervisor and I still haven’t heard from him. I have a hunch that a lot of people are being scammed by the online education business. But I know you don’t know the meaning of the word unscrupulous. I got one unintended compliment in a very sarcastic way from one caller. He said: “alright – so you did everything right”. I actually never thought I was doing anything “right”.

I have also experienced situations where my advanced degrees actually work to my disadvantage especially where the employer hasn’t had an education. They don’t really want to see someone with more education doing their job and succeeding. It is a direct challenge to their ego and sense of accomplishment. They want to believe that they didn’t need an education and “look what they accomplished”. To prove otherwise is the challenge their sense of self-worth.

It is also amazing to me that you can say that all job layoffs can be anticipated and that everyone has the ability to plan ahead for downtimes. You may have had significant money and/or benefits that cushion the shock all your life, but that hasn’t been the case for most people I know. It certainly wasn’t my situation.

And I could truly spit at an economy that has proved to me many times that the jobs that require the greatest efforts, both physical and mental, have been the minimum wage jobs. And those that required the least effort were the best paid. The best-paid employment I had was with a defense contractor and the problem I had most of the time was staying awake or finding something to occupy my days. And the insane joke of the situation is that the supervisor assigned all tasks and he had to make certain his older staff was fed first or they become unhappy. But they were also the highest paid. Go figure? The best thing I did on that job was study for my GRE and actually raised my math score (hardly ever use it) by 100 points over the SAT scores.

The world may be divided into the predators and the prey.
But I truly despise the predators and their inevitable sense of entitlement. Networking has always been elusive to me. You have to know people who know people who can do something for you and I never seem to meet them. It is why most of the world relies on extended family ties to obtain employment.

BTW – Kids should never listen to HS teachers that say – don’t study for the SATs. And they should also know that most advice is garbage.

Posted by paintcan | Report as abusive