Thursday, January 31, 2008

Woulda Could Shoulda Rudy

I give Rudy an "A" for effort. He'll go down as the "woulda shoulda coulda" candidate on the Republican side. Too many weaknesses. Too little experience. Too narrow platforms. Too weak a PR campaign. It left us Rudy fans with little more than his general tenacity to bank on. If only he could have answered a single question without squeaking in 9/11.

Consider how it coulda been:

The year is 2000 and Rudy is beating Hill by a few points for a Senate seat. He's riding high on a wildly successful mayorality in NYC, having turned the city around against all odds. He finds out he has prostate cancer. His wife finds out he's been cheating on her. She files for divorce and (the nerve!) forces him to move out of the mayor's official residence (Gracie Mansion). The news vultures have a feeding frenzy and he has to drop out of the race. Hill waltzes to victory, the first time she is actually elected (or hired for that matter) to a job representing anyone. She learns how Congress actually works. She weasels her way onto a few influential committes. She builds a legislative record. She gains some international affairs experience.

That coulda been Rudy. Had he not dropped out, he would have won the race, taken the seat, learned the Washington ropes, gotten the necessary experience in foreign affairs, and build his own legislative record. Fast forward to 2008: he'd actually be a viable candidate for president. Those weaknesses I opened this blog with ... presto! gone! Every single one. Hillary would never have been legitimized by a vote. Instead, she'd still be flitting around the world on Bill's coattails pretending she was someone. Had she played her cards right, she might have become another Gore ... or not. Do we really need another hanger-on who can only talk, not act? True, Rudy wouldn't have had those wonderful PR coup soundbites on 9/11. But being at the locus of NYC and Washington, how could he have avoided personifying the moment just as he, in fact, did? Were he "lucky" enough, he might have been in the City on that day and gotten his photo-op anyway.

In short, for Prez, he'd be in and she'd be out.

Friday, January 11, 2008

Econopsychology

A good friend recently asked me "why does cutting the interest rate avoid recession" ....

Cutting interest rates decreases the cost of borrowing for people, businesses, banks, and the government. Banks can "fund" (=borrorow in order to re-lend) themselves cheaper and thus are willing to grant more loans or lower interest loans. Companies can borrow more cheaply to fund new projects which, in general, return a profit. Similarly, people feel more comfortable borrowing money to buy "stuff" (cars, clothes, dinners out, houses) since they know they'll pay less in interest than before. Even if they don't borrow MORE, it still means that the % of their payments which goes to interest decreases, meaning they have more spending money to buy more stuff. In either case, it means companies get busier and make more money. Those companies hire people, give raises, buy "stuff", and pay higher dividends. Their stock price goes up. Both these eventually put money back in people's pockets, and the cycle repeats itself.

Supposedly, the cycle repeats 7 times ... meaning every dollar not spent on interest creates 7 dollars of "wealth" for the country. Part of this increase is due to the fact that, as the economy gets better, loan default rates decrease. This causes banks' "risk appetite" to increase. We see this in two ways:

  1. They lower the percentage of assets they hold in reserve. This means they can lend more money without increasing funding or interest rates. Economists call this "increasing the velocity of money" and it has the same effect on the economy as literally printing Ben Franklins.
  2. Especially recently with the implementation of Basel II, the become willing to lend to riskier people/projects who previously couldn't get ahold of any bucks. As an aside (to be followed up in a later blog post) this statement goes a long way toward explaining the sub-prime mortgage boom and bust we're currently witnessing.

Another way of answering my friend's question is to put it like this: Any person or company has X amount of income. They have 3 options: save, invest, or spend and they're constantly adjusting the percent of income they allocate to each. Lowering the interest rate DIScourages saving (since it pays less interest), ENcourages spending and investment (since it costs less to borrow). All of these things are good ... as long as they don't cause inflation.

Inflation is a complicated animal. You have to think of it like Sting's message in a bottle. To predict where it will end up, you'd need to know all the tides and storms, winds, currents, boat paths. And even then you'd still be subject to chance and randomness. Its an equation of a billion plusses and minuses which ultimately sums to nearly zero. Figuring out that "nearly" part is what keeps economists up at night. Greenspan is one of the best ever at figuring it out, but the biggest complexity is that, in the time it takes to add it all up, the numbers will have all changed on ya.... Having said that ... yes, too much money in the economy causes inflation ... but so does irresponsible lending, asset scarcity (think of the price of a superbowl ticket the day before the game),

Economics is a social science, not a quantitative one. Literally the only way economists can make their equations bear any resemblance to reality is to always include "plus E" like (1/y)*p = ( i*s / l*m) +E ..... where "E" means the general expectations of the population.

Corporate Newspeak 2

Take-away: (n) A marginally insightful observation which will only have relevance at some unknown future date, often used as a passive-aggressive method of delivering criticism. The verbal equivalent of that chinese food that's been in the back of your fridge for a month. Also: Lessons Learned.
Usage: "Hmm ... so you called our client a monkey in clowns clothing and he fired us ... hmm ... well, the takeaway is don't do that. I'll shoot out a lessons learned e."

Vet: (v) Review somebody else's work so they'll take responsibility for it. The lazy man's critical thinking
Usage: "Hey, I just shot you an E with a draft of some asks. Can you and John vet it before we send it out?"

Gap: (v) Figure out what's fucked up and who to blame, often used with "versus"
Usage: "Hey! Where's my diet Snapple? Jeannie, did you order my diet Snapple? Timmy, it looks like we need to gap our order versus what the caterer sent."

Administrivia: (n) Repetitive often menial bookkeeping work necessary for a large buraucratic organization to function, but outside of what you perceive to be your 'real job'
Usage: "I spent half my day buried in administrivia, so I didn't have time to make us any money."

Outsource: (v) Get someone else to do the work your laziess and ego won't permit you to do
Usage: "I'm going to outsource this administrivia to Mike so I can spend more time brainstorming."

Circle Back: (v) Discuss again as though the topic is new; often used to diplomatically end a discussion where the participants are not infomed, empowered, or cognitive enough to make a decision and everyone's attention span has been exhausted.
Usage: "Listen, you go have a cigarette with Sammy, and I'll read my emails and we'll circle back on this after lunch."

Think On: (v) Ponder; often used as an exuse for not being able to answer a question or to deliver work on time.
Usage: "That's a tough call. I'm going to have to think on it tonight. Let's circle back in the A.M."

Brainstorm: (v) Get in a room with other people and a list of issues with no solution. Then hope that solutions accidentally fall out of someone's mouth while they're arguing about the minutae of how to define the issues.
Usage: "Yes, sir, I know I'm a week late solving that problem. I asked Bob and Harry to think on it so we can brainstorm tomorrow."