More on Dysfunctionology: Minority Rules

September 27th, 2013 at 5:58 pm

Good speech by the President earlier on the scene at dysfunction junction as we nudge closer to upcoming fiscal deadlines.  He makes a strong point when he argues that raising the debt ceiling is not a concession to him in return for which he must serve up a plate full of Republican goodies.

Here are some further thoughts on the critical topic–now an accredited course of study here at OTE–of dysfunctionology, over at the NYT Economix blog.

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4 comments in reply to "More on Dysfunctionology: Minority Rules"

  1. Alex Zaffron says:

    Jared-As an equity trader, I’m offering an analysis from my perspective, condensing what you’ve been trying to tell folks,but just doesn’t seem to register with some. If it’s at all helpful, please use any of it.

    A lesson in markets to congress:
    The core irony, here, is that these people, who elevate ‘The Market’ to something approaching a perfect deity, clearly have no idea, or simply don’t care, how markets work. Markets are simply arenas of exchange. For them to function, all participants must have some level of confidence in the institutions under which they function, and the media of exchange underpinned by those institutions–In this case, money, and credit.

    While damaging, a government shutdown, in and of itself, is not catastrophic. Potential debt default is. What these people fail to recognize, is that markets do not simply react to events, but move in anticipation of them. And violent movements, once begun, are very difficult, if impossible, to arrest. Why? Because despite Milton Friedman’s endlessly, empirically debunked theory of ‘rational, efficient’ markets, they are anything but. They are guided by emotion–greed, and fear. And fear is by far the most explosive: That’s why cataclysmic market events are called ‘panics’.

    This is why congressional republicans’ game of ‘debt ceiling mumbletypeg’ is likely to blow up before the actual date of ‘technical default’–the day, or hour, that the Federal government will have to ‘prioritize’–which in reality means, to decide which obligations not to pay. Let’s be clear: servicing the debt is not the only obligation that throws the nation into default. Every dollar allocated by congressional action is a legal obligation to pay. Period. Failure to do so, is a default.

    When markets begin to believe that the United States government may not meet these obligations, credit will begin to freeze, stymying the cash flow to institutions large and small, stopping their ability to do business. Equity markets will crash as investors pull funds, triggering margin calls which will accelerate liquidation (lesson: Trillions in equity are held on ‘margin’-stocks, commodities and debt instruments bought on credit–When those equities decline in value, owners are required to liquidate to meet ‘margin’ obligations.). Then come the ‘shorts’: Short sellers are a sociopathic breed who thrive on destruction. Without going into the mechanics, shorts bet on the failure of companies and economies and profit from decline. For the shorts, it’s a zero-sum game: they only profit if someone else loses. In a decline, shorts pile in, accelerating the process.

    The central point, is that this cascade of events may begin any day between today, and the date of actual default. Because, once again, it’s all about confidence. And if the largest single economic entity in the world, the United States Government, arrives in a position where it’s obligations are only as good as a congress that may decide to welch on their own obligations because they don’t like what previous members of their own institution have passed as a matter of law, markets will determine that institution unreliable. This will kick off a panic. And, once begun, as illustrated above, is likely to be impossible to stop before trillions of wealth, in equity value, real estate value, and any other assets denominated in the dollar, are destroyed. And, if goldbugs think they’re gonna escape, they are sadly mistaken: As the currency becomes scarce through credit freeze, and the deflationary cycle it kicks off, all commodities will tank.

    Congress is running out of time to forestall this catastrophe. Because it is not in their control when markets decide that their actions make them an unreliable debtor. And once the markets do, there is no one, and nothing that can stop it.

  2. readerOfTeaLeaves says:

    Wonderful – although unsettling – comment by Alex Z.

    After viewing Lizza’s terrific map, I clicked over to the US Census website to see whether I could find any maps of US economic data that might help explain what’s going on in these GOP ‘suicide’ districts. If CPPB has this kind of data (particularly *maps*), it would be interesting to identify correlations between these GOP ‘suicide’ districts and economic stress.**

    I wondered whether these GOP ‘suicide districts’ might be at the low end of the national scale for income inequality. The WaPo has an interactive map of how inequality has grown in the US since 1971:
    Judging from this map, there appears to be a rough correlation between these GOP ‘suicide’ districts and economic inequality++; however, I can’t quantify my hunch with specific data. Consequently, my hunch fails to meet the OTE threshold for evidence, but maybe some other reader has this data.

    At the US Census website, I also came across an item that seems relevant: “Number of People per Doctor’s Office by County and Counties with No Doctor’s Offices — 2009 County Business Patterns Program”
    From this map, it appears that there is a rough correlation between counties with few (or no) doctors’ offices, and the GOP ‘suicide districts’. In other words, it looks as if these districts have fewer-than-average medical resources. If that is true, it’s worth noting.

    Because I live in the Puget Sound region, and know a number of people who live, breath, and dream health care policy, this whole Obamacare conflagration has been amazing to watch. Large managed care programs like Group Health (and in the Portland/Vancouver area Kaiser-Permanente) are part of the culture here. Fitness and health are veritable industries in my region, and some major companies have implemented wellness and fitness programs on-site; people can get reduced medical premiums for engaging in specific (voluntary) ‘wellness’ activities, like aerobics at lunch hour. Washington state has operated a health care exchange for a number of years now (Uniform), and the idea of a health care exchange is a no-brainer for many in my state.

    Given my perspective, watching the incredibly destructive, irresponsible conduct in D.C. is mind-boggling. If the President insists on ensuring health coverage to millions, these GOP ‘suiciders’ are willing to tank the US economy and severely damage international markets?! We’re in uncharted waters…

    There has to be more than demographics to explain this level of crazy. It’s time to call in the social psychologists.

    ** If US Census has *maps* of Medicare/Medicaid dispersements that could overlay Lizza’s map, I didn’t see them. Census has loads of great data, but on a Saturday am, I just want quick maps.

    ++ After reading “The Spirit Level”, my attention to the relationship between income inequality and public health has increased.

  3. purple says:

    The Tea Party Republicans are just doing the dirty work that a whole lot of wealthy people agree with in principle. They are pushing the debate far the right. And they won last time with the sequester, which slashed government spending and the ‘world didn’t end’.

    A very large section of the wealthy in this country think working Americans have it to good, and they want to slash the safety net to the bone. Ever been in a shanty town ? That’s how they think you should live.

    There is always the danger that this Frankenstein political movement could spin out of the control, but it hasn’t so far. It’s been very effective, not ‘crazy’ or stupid. It thrives on that type of name calling.