People reasonably get caught up in all the details of the current debates on federal spending and taxes, and we seldom really step back for a long term view. Let's look at what should be reduced and what new taxes should be enacted.
What to Cut
Let's look at the estimated 2008 Federal Spending. The Census Bureau gives the 2008 estimated Federal Outlays by category, showing among notable large categories.
Estimate of 2008 Federal Outlays ---$2,931B ($2.93T)
Social Security ----------------21% ($615B)
National Defense -------------21% ($607B)
Medicare -----------------------10% ($396B)
Interest on Federal Debt ----8.3% ($244B)
We all know that Social Security as structured will eventually run into a squeeze decades from now, Medicare is expected to balloon much sooner, and interest on the Federal Debt will go up within years (despite the current low rates at which the US can borrow).
Can we really expect to pay for our increased healthcare standards and longevity of today while retiring at the retirement age of yesteryear?
The obvious reality we face is that if people live longer than they did 40 or 70 years ago, then we have to work longer than the traditional social security retirement age. If your life expectancy rises to 78, you need to work longer to than you would if your life expectancy were 72.
In this example, would you need to work six years longer? Probably less than a full 6 years would be required, but....we need to face the reality that living longer means we have to build up a higher level of retirement funds. Living longer means working longer. It's just that simple....
This is just common sense.
It is not a difficult political sale. Many already plan to work longer than they had thought to years ago, due to simply looking over the math.
It's not even really a hard choice.
Most people will accept this readily. Especially since it can be entirely voluntary.
The adjustments is simple and straightforward -- updating the expected payout levels for different retirement ages to be accurate (to reflect what Social Security taxes can sustain).
Just as before, you get a higher payout level if you retire later.
If the accurate math says there is less available for those retiring early (at 62 for instance), then update the expected payout level for age 62 retirement to reflect that fact.
One extra age-of-retirement option could be added for instance at 72, so that those choosing to work even longer have a choice without penalty.
This whole adjustment could be just updates with one extra option for even later retirement.
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The next big picture issue is whether we need to police the world, really, in order to be safe at home.
Why don't we face up to reality and admit that we can't afford to police the world?
Let's bring our troops home sooner rather than later, and assume a posture of defense only.
Our ability to defend ourselves at home through security isn't weak (we have several instances of intercepting and preventing attacks since 2001), and it can be made stronger, and it doesn't cost much compared to the overseas military activity.
We could accomplish more by subsidizing charities overseas than by trying to control the chaos with force of arms. We can adequately defend ourselves here at home with half the ships, troops, and aircraft. We could cut back over the next two years our orders for new aircraft and weapons to levels adequate to maintain modest productions lines for selected key systems so that a more gradual turnover of equipment would be established. We'd still maintain weapons manufacturing expertise and an ability to ramp up production in need.
We could stop spending so much on military power, and begin diverting more of our labor (troops, scientists, engineers, technicians) and funds into creating more economic power here at home in the form of *all* the necessary components of energy independence. Progressively, over time, we would lower our oil import needs more and more.
Whenever anyone objects to our vast military spending -- far more than any other nation, by any measure of any kind -- they are met by comparisons of current military spending to current GDP.
The argument is that current spending isn't so high by standards of the last century, compared to GDP, only 4.2%. Well, significant military spending (such as 4.2% of our previously larger GDP) makes sense if we face a current threat of proportional magnitude.
Currently, the U.S. faces no sizable threat from any group or nation. Russia does not threaten to overrun France or Germany. China is not threatening to take over Australia. Al Qaeda is not threatening to take over Iran or Egypt. In fact, the Muslim Brotherhood in Egypt is a greater power by far, cannot be overrun by Al Qaeda, and does not threaten other nations.
As we withdraw from Iraq, stabilize Afghanistan and begin to wind down, we should not plan anymore to fight two medium sized wars simultaneously. We can begin scaling back some future equipment plans today.
Overseas aggression is better handled by the UN and by sanctions, and in the worst case, finally by coordinated effort of an alliance of nations. The U.S. does not need to patrol the world, or feel it has to contribute most of the world's security.
Defense means to protect oneself or one's allies from aggression. It does not include preemptive wars on the possibility a nation could threaten us.
National Defense ultimately requires far more than only military might. It requires economic strength and also the morale that comes from being on the principled side of conflicts. The American presence in Iraq (and even Afghanistan) is lessening our long term security by inspiring new hatreds through appearing imperialistic. Even if Iraq becomes successfully independent and stable this doesn't change the fact that being in other peoples' business inspires hatred. Being involved in other peoples' wars is not a safe way to live. In contrast, participating in United Nation police actions as only another equal participant can accomplish the same goals many would have us fight alone for.
By now the fallacy of holding down oil prices by protecting the Middle East should be exposed for the pipe dream it was. Oil prices rose even as we dominated the region. And oil will rise again, sooner or later. Real oil security would come from increasing energy independence. Even better, building energy independence creates American jobs.
....
New Revenue
Obama proposals on the tax side already have some good ideas: reducing taxes on the middle class, which needs it, and increasing taxes on the top earners and on capital gains such as on stocks, one of the forms of income of Warren Buffett, who advocates higher taxes on the wealthy. The capital gains tax increase should have at least one step in relation to income, as it would if the rates simply reverted back to the pre-2003 levels. In fact, this can be achieved simply by allowing the capital gains rates to revert to the pre-Bush-tax-cut levels without any new legislation.
Are there other tax adjustments that would be beneficial? Many favor a targeted investment tax credit that would encourage more manufacturing here in the U.S.
On the increasing revenue side there is one less talked of tax increase that makes great economic sense.
One tax that ought to appeal to everyone is for the fuel (gasoline and diesel) tax levels to be set to include all the expenses of fuel use we are already are paying through other taxes and indirect costs.
Cost we are already paying.
But not in proportion to our fuel use.
Most people would prefer that everyone pay their own way. None of us want to pay the extra costs for others' driving, in addition to our own costs.
Neither would we want to give special favors to certain businesses by forcing other businesses that choose more efficient vehicles to subsidize the businesses that choose less efficient vehicles.
In short, we want the complete costs of fuel use to be paid by those using the fuel.
This would not increase overall fuel costs -- it would simply stop robbing Peter to subsidize Paul through national defense taxes and other costs elsewhere.
Currently the Highway Trust Fund year end balances are projected to go negative sometimes near early 2010, though many factors could change the timing (some info here). At the pump fuel taxes are not covering Highway Trust Fund expenses for roadwork, right now.
Under the stimulus package much new money for roadwork will be allocated, and aid to state budgets will also be included. So the "robbing Peter to pay Paul" effect would be increased.
But if we set fuel taxes to equal all the costs of fuel use, businesses and consumers could adjust and also plan for the future in their vehicle purchases. The real complete costs could be phased in over 8-10 years.
Giving new car and truck buyers a more visibility of at least part of future gasoline prices allows them to choose vehicles more effectively and gauge how much to pay for higher fuel efficiency.
Among the actual real costs of vehicle fuel use are costs of national defense expenses protecting Persian Gulf shipping lanes (perhaps $70B/yr), increased national health costs due to ozone and other vehicle exhaust (taking a middle value of many studies, perhaps 7 cents per car mile, and 40cent/gal).
And then of course we have road and bridge construction and maintenance.
100% of all of these costs should be in the fuel taxes.
Since the stimulus package includes the middle class tax cut of $400/year per person, it makes very good sense to consider raising the gasoline tax now, especially now while fuel prices are low (under $3/gal). As an offsetting extra stimulus, we could include a temporary $70/household fuel-tax rebate for instance, which could be mailed to households in a similar manner as the 2008 tax rebate.
It's important to allow people to plan ahead for their vehicle purchases and use, so the fuel taxes must be phased in over time.
I think we could try to get close to either a sum of costs as above or alternatively to the European levels of fuel tax over about 8-10 years, in a transparent way that allows everyone to plan ahead.
As a preliminary example of the correct way to phase in fuel taxes, consider if we expected to eventually have a federal gasoline tax of about $2.50/gal 10 years from now.
One way would be to simply add 25 cents/gal each year, after immediately setting the federal tax from the current level near 18 cent up to 25 cents for 2009.
Even better I think is to allow more consumer planning, by delaying most of the increase until later years after an initial step up, so that recent buyers of autos will not be penalized so much after 3 or 4 years.
For example, the federal gasoline tax could be set to 50 cents now, in 2009, and then be left at 50 cent for 5 years, scheduled to rise again by 40 cents/yr from 2015 until it hits the target in 2019. This kind of sequence is much fairer to auto manufacturers and recent purchasers.
Everyone could see the increases eventually coming, and plan ahead.
The conventional wisdom that fuel tax increases aren't politically possible I think is a red herring, and not realistic anymore. If an presented as paying our own way, and with an offsetting rebate, and a gradual phase-in removed to the future 5 years down the line, this kind of program would gather popular support as a way to help move the nation towards energy independence.
....
So, simple common sense could go a long way to ending America's budget problems.
January 28, 2009
January 27, 2009
How Obama's Middle Class Tax Cut Will Save Jobs
Debate has intensified in the last few days about whether the Obama tax cut proposals in the stimulus package will be effective as a stimulus.
Among the majority that believe a stimulus package will indeed create and save some jobs on net versus no stimulus, the big issue is whether the stimulus size is enough to counter the large fall in consumer demand, and thus prevent higher and higher joblessness.
Keynesian stimulus in a nutshell is that government spending can increase demand in the economy to replace the fall in demand during a recession, saving jobs and creating jobs.
Several important side debates have been ongoing, and let's quickly dispose with a couple of those and get back to the main question of this post.
Objection A) Government spending does not create new jobs, since it relies on taxing or borrowing which in turn removes money or available investment and discretionary funds from the general economy -- simply shifting spending and investment from one place to another without a net increase.
For investing, this is called crowding out, and it certainly does happen when an economy is running at or near full steam, so that resources (machines, workers, money) are being fully or almost fully utilized, so that all new output of the economy requires new investment dollars. In that situation, private investment competes for those new dollars with government. But when an economy has much slack, as ours does now, so that more money is sitting in money market accounts and short term treasury bills, there is plenty of available money for government borrowing and investing, and still plenty left for any private borrowing and investing the private sector chooses. A similar situation applies to spending -- government spending does not compete so much with private spending during a recession -- concrete prices are down sharply, for instance, so government infrastructure spending on concrete will not be competing much with private demand for concrete to a level that would strain available output.
Objection B) Government spending/investing is top-down, and is thus less informed/knowledgeable than private spending/investing -- less effective at producing the goods and services people actually want for their lives and standard of living.
Example -- Joe would rather buy a new car instead of paying more taxes (or having future taxes) for more city bus service.
This again, as above, is true during a time of economic expansion, but is it true during a time of recession? Currently consumers who have jobs have sharply pulled back in spending, and are saving on the whole, which of course has led to a sharp drop in consumer demand, and thus more and more job losses. Consumers are choosing that they don't want as many consumer goods and prefer instead to pay off their credit cards, or build up their emergency fund.
As they save, more money is available for investing also, and some of it flows into safe US Treasuries. When the Government spends more now, it is not removing money from current consumer spending.
------------------------------
Ok, now let's consider the Obama Middle Class Tax Cut (MCTC) as a stimulus....
We know that tax rebates of a size like that of summer 2008 are much smaller than average consumer credit card debt, and it's little surprise that much of that rebate was saved (or paid against debt), and yet helped the economy in a dramatic way not widely understood. (see link)
We can surmise that much of the coming MCTC will also be saved, at least for a while.
Until when?
Well, that's an individual level decision.
For someone who's been paying off credit card debt for example, they may continue paying it off at the same rate, or even add in the extra take-home pay from the tax cut and make even larger payments (saving all the tax cut). Until....
Until they have paid off the credit cards to zero.
Then what happens?
If you could imagine celebrating upon paying off a card or the last card, I bet you are like most people.
Might you go out to eat? Might you finally get your car repaired? Might you stop putting off that gym membership?
Yes, when consumers have less debt, they will respond by spending more, resulting in more jobs. Some will spend more, some less, but overall spending will increase in response to debt going down (or savings up). Poorer families will spend more, and the sad truth is many "middle class" families are practically poor.
Even while consumers spend less in 2009 with the new tax cut than they did in 2008, the issue is how much less. A tax cut will make a difference in consumer spending, immediately and progressively, both. Many jobs will be saved, adding to the positive effect of those newly created.
Among the majority that believe a stimulus package will indeed create and save some jobs on net versus no stimulus, the big issue is whether the stimulus size is enough to counter the large fall in consumer demand, and thus prevent higher and higher joblessness.
Keynesian stimulus in a nutshell is that government spending can increase demand in the economy to replace the fall in demand during a recession, saving jobs and creating jobs.
Several important side debates have been ongoing, and let's quickly dispose with a couple of those and get back to the main question of this post.
Objection A) Government spending does not create new jobs, since it relies on taxing or borrowing which in turn removes money or available investment and discretionary funds from the general economy -- simply shifting spending and investment from one place to another without a net increase.
For investing, this is called crowding out, and it certainly does happen when an economy is running at or near full steam, so that resources (machines, workers, money) are being fully or almost fully utilized, so that all new output of the economy requires new investment dollars. In that situation, private investment competes for those new dollars with government. But when an economy has much slack, as ours does now, so that more money is sitting in money market accounts and short term treasury bills, there is plenty of available money for government borrowing and investing, and still plenty left for any private borrowing and investing the private sector chooses. A similar situation applies to spending -- government spending does not compete so much with private spending during a recession -- concrete prices are down sharply, for instance, so government infrastructure spending on concrete will not be competing much with private demand for concrete to a level that would strain available output.
Objection B) Government spending/investing is top-down, and is thus less informed/knowledgeable than private spending/investing -- less effective at producing the goods and services people actually want for their lives and standard of living.
Example -- Joe would rather buy a new car instead of paying more taxes (or having future taxes) for more city bus service.
This again, as above, is true during a time of economic expansion, but is it true during a time of recession? Currently consumers who have jobs have sharply pulled back in spending, and are saving on the whole, which of course has led to a sharp drop in consumer demand, and thus more and more job losses. Consumers are choosing that they don't want as many consumer goods and prefer instead to pay off their credit cards, or build up their emergency fund.
As they save, more money is available for investing also, and some of it flows into safe US Treasuries. When the Government spends more now, it is not removing money from current consumer spending.
------------------------------
Ok, now let's consider the Obama Middle Class Tax Cut (MCTC) as a stimulus....
We know that tax rebates of a size like that of summer 2008 are much smaller than average consumer credit card debt, and it's little surprise that much of that rebate was saved (or paid against debt), and yet helped the economy in a dramatic way not widely understood. (see link)
We can surmise that much of the coming MCTC will also be saved, at least for a while.
Until when?
Well, that's an individual level decision.
For someone who's been paying off credit card debt for example, they may continue paying it off at the same rate, or even add in the extra take-home pay from the tax cut and make even larger payments (saving all the tax cut). Until....
Until they have paid off the credit cards to zero.
Then what happens?
If you could imagine celebrating upon paying off a card or the last card, I bet you are like most people.
Might you go out to eat? Might you finally get your car repaired? Might you stop putting off that gym membership?
Yes, when consumers have less debt, they will respond by spending more, resulting in more jobs. Some will spend more, some less, but overall spending will increase in response to debt going down (or savings up). Poorer families will spend more, and the sad truth is many "middle class" families are practically poor.
Even while consumers spend less in 2009 with the new tax cut than they did in 2008, the issue is how much less. A tax cut will make a difference in consumer spending, immediately and progressively, both. Many jobs will be saved, adding to the positive effect of those newly created.
January 26, 2009
The Tax Rebate & TARP Worked Better Than Advertised Against The "Greater Depression"
One of several memes we've heard over and over now to the point of becoming conventional wisdom is that "the tax rebates didn't work".
Now, before you think I'm simply on one side of a partisan debate, let me say first I think taking sides itself a mental error that leads to further errors. I'm not on any side, unless it turns out Obama keeps doing everything right as we go along. I think most of the large publicized pieces of spending in the stimulus proposal are good ideas, and good together as a large package (though not bringing enough timely stimulus in 2009, see why speed matters). My view is that A) we need many different kinds of stimulus, both government spending and tax cuts, but that B) the stimulus, however large, will not suddenly bring us into a roaring recovery, that C) the deep recession is likely to last for years in terms of feeling like we are in a recession. In certain ways, all of this is beside the point. There are fundamental reasons why America cannot have another golden age where it is always wealthier than other nations. And worse, it's even likely that the unemployment and economic challenges we face cannot be fixed completely through most kinds of government stimulus -- that the temporary setup where China grew rapidly while holding down American inflation and interest rates (by providing cheap goods and exporting their excess savings to us also) has played out to an end, bringing back more normal economic turbulence. Only special, unique conditions like those of the 1950s or 1990s can create economic ease, and only temporarily. (I'll post about this interesting question later.)
But today, it's popularly understood we are under threat of another Great Depression. Some even speculate we may face a Greater Depression, due to the profound debt overhang weighing on our economy.
This housing price bubble was more pronounced than any before, implying a deeper fall and heavier than normal fallout. Arrayed against this danger is a more knowledgeable and aggressive Federal Reserve and Federal Government than in the 1930s.
Most people now understand there is a feedback loop of job losses increasing fear -- which in turn leads to further pullbacks in consumer spending, creating more job losses.
So the public at large widely understands that this recession could deepen and keep deepening without intervention.
And while the two sides of the debate argue about what kind of stimulus will "work", the real picture is both more complex and more simple than commonly presented by major columnists, news reports and economists.
It's more simple in that ultimately all the financial crisis is one simple process -- the inevitable fallout of an enormous decades-long world-wide credit bubble. Another element in the popular view of what is happening -- "letting Lehman Brothers fail worsened the crisis" -- is also false. The whole picture of a "credit crisis" worsened by "letting Lehman fail" presumes we could always have grown debt, ever more and more -- more mortgage debt, higher debt to income ratios, more consumer spending and less saving, without limit. Thinking that allowing Lehman to fail caused more crisis implies that if Lehman was saved, the crisis might pass, and things could continue as before the crisis. In this view, a "crisis" or "shock" happened which should and could have been contained. So the story goes, or went, with the support of some prominent voices.
Nevertheless, there is more and more recognition spreading that we had a more genuine problem of a true out-of-control bubble -- that the housing bubble is part of a more fundamental story.
The implication of having a real bubble is that it will indeed eventually burst and collapse, and that falling house prices are not just caused by foreclosures or psychology alone -- are not merely a by-product of some other chance financial events.
Saving Lehman Brothers would have been like patching one significant hole in a slow motion bursting bubble -- it would not stop other from holes opening and growing in the ever thinner bubble surface.
So the story is more simple than often portrayed -- we ran up debts much faster than our average incomes grew, leading to an inevitable hitting-the-wall moment.
By late 2004, there were no actions by the Fed, by the Federal Government, by regulators, by anyone, that could have made any difference. House prices had already become out of reach of average families with conventional mortgages in too many places.
If it hadn't been New Century Financial hitting the wall first, it could have been American Home Mortgage Investment Corp. If it hadn't been Bear Stearns collapsing before Countrywide, it would have been Countrywide collapsing before Bear Stearns.
If Lehman had been saved, at you and your children's expense, instead of at the expense of various investors, that would not have saved Washington Mutual (as an independent bank), IndyMac, Wachovia, Merrill Lynch, etc.
One of the more disturbing political processes I've seen up close is the evolving political story of the TARP. At this point the story has evolved to say the initial phase of TARP under Hank Paulson failed and was opaque. But Paulson originally presented TARP as a way to stop the ongoing crisis of banks failing and our financial system appearing in danger of collapse. This was not something that could be easily talked about -- even if more Congressmen understood the real picture, it tends to increase panic for many leaders to talk of most well-known banks failing. Instead Paulson had to warn simply of a general financial crisis intensifying. TARP, then, was easy to re-define into the ultimate political football. When Paulson flailed about at first due to the impossible contradictions of his initial plan of buying bad mortgage securities, and then later finally followed the mainstream advice of most economists to inject funds directly into banks -- the plan that was actually used -- he gave a characteristically brief announcement, perhaps presuming it would be understood.
But while his announcement made sense to economists and well-read followers of the situation, how many average people understood the whys and hows of the new plan? While Paulson efficiently and effectively shored up the surviving banks -- and did so openly and in full view -- it seemed to me everyone would be pleased the best possible plan had been enacted. The best possible outcome to that moment had been found.
But Paulson's actions were subsequently portrayed as opaque ("lacking transparency") and against the will and intent of Congress!
I wonder if many of our elected representatives realize that many average people are not fooled at all by the political rhetoric. Many more people than they realize are quite aware this was the Big One, and more banks were heading to the chopping block. More people than they'd guess have paid attention to the fact the big bank failures stopped after TARP, at least those with names everyone knew, the kind that kept everyone on edge.
The initial TARP money stopped the accelerating large bank failures (Washington Mutual and Wachovia were the last for a while), and reduced the panic, just as it was proposed to do.
TARP was initially proposed to "stabilize the financial system." TARP indeed did so, to the extent possible with that amount of money. But "stabilize the financial system" is too vague a term it turns out, and has been re-defined quite easily to mean things other than what close observers understood.
Often we'll hear a bit on a newscast of someone who wonders why TARP didn't stop the financial difficulties entirely. Some even believed TARP was meant to also save homeowners near foreclosure. This was certainly a communications mess.
The initial TARP was successful in a sense that mattered. A panic that threatened to escalate to complete collapse of all large banks was averted, along with the psychological damage that would have added against already weakening confidence.
TARP so far has been similar to strapping parachutes onto the passengers (banks) falling out of the disintegrating airplane of banks-that-took-risky-bets.
Those with parachutes are still drifting downward of course, but for now they are still breathing. Some banks receiving funds weren't in that shaky airplane, but rather stood safely on the ground, with few risky bets, and are in far better shape.
Ideally those sounder banks could actually buy out the weaker, poorly-managed banks at low prices, resulting in the best possible outcome for the nation.
But some in Congress actually objected to the beneficial effect of well-managed banks using TARP funds for acquisitions!
Does it occur to many in Congress that their political rhetoric is part of why the level of trust for Congress is so low? Even when we don't know exactly what the political misdirections are, we intuitively sense we often aren't hearing the real story.
Much of Congress played the blame game -- trying to make it appear the other partisan side was responsible for what few wanted to admit was inevitable.
It's estimated that American banks would need more than $1T (that's trillion, and some estimate more than $2T) to be effectively re-capitalized to the level of being able to do significant lending without worrying about failing in the next few years. (see George Soros on this)
Why so much? Because the realistic losses from the credit bubble (mortgages, credit cards, commercial real estate lending, etc) are expected to be this much or more when we aren't pretending things are better than they are. But the jobs of the Fed chairman, Treasury Secretary, and other public officials are to instill confidence. They must acknowledge things are only as bad as we can see in the rear view mirror, and by the way -- don't panic.
The gigantic losses of banks and across the economy are the result of the end of a decades-long credit bubble.
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So....the tax rebates of summer 2008... Seems like a while ago, doesn't it?
Consider this graph from the Minneapolis Fed of The Recession in Perspective (our current recession is in red):
Notice something?
Yes, it seems this recession didn't drop off as steeply in its early months as normal. During the Summer of 2008 (months 5-8 in the graph), when things should have deteriorated more rapidly....the pace of the downturn was somehow slowed....business failures were slowed, bankruptcies were slowed, bank withdrawals (runs) were slowed, mortgage defaults were slowed, housing sales held up a little better....
What we know is the powerful recession we are in acted like a mild recession for many months, quite different from the typical pattern.
Did the tax rebate anticipation and arrival hold off the real power of this recession for many months? If so, did this slowing of the downturn help the "crisis"?
Well, the recession, like all recessions is in part psychological, and depends on confidence. The crisis is in part fear, and fear is the most powerful force in it, able to stop consumers, businesses, banks and jobs in their tracks.
Fear tends to feed on itself. The unusual staying power of confidence in the first 7 months of the recession held off a lot of effects. By slowing the downturn, the level of fear was held lower than it would have been and the "crisis" unfolded more slowly, giving the Fed and the Treasury and the FDIC more time to plan and act and learn.
We know the powerful driver of the recession is the collapsing housing bubble, and the associated consumer debt bubble and commercial real estate bubbles. The gasoline price spike added a powerful drag during the summer, and without rebate checks to offset the high prices, would likely have collapsed consumer spending much faster during the summer. The other powerful factor in any recession is the level of confidence. Consumers felt more confident for many months than is typical in a strong recession like this one.
Why? Well confidence is a combination of expectations and news and popular stories about what is happening. Consumers were told the stimulus was coming and it was thought it would help. Both the tangible reality of extra cash in our pockets and the belief it would help buoyed confidence.
The Tax Rebate of 2008 was the cause of the gentleness of this recession for months, in spite of the other huge forces that would make it a powerful recession, as is now evident.
We are also told the tax rebate failed because most of it was saved.
Consumers, instead of spending like nothing was happening, chose to pay down part of their credit card debts or save a good part of their rebates. Because they saved more, they've felt a little less pressure and a little safer ever since (than they would have at without that extra savings). Because we all have a little more money at hand still, it's likely we choose to eat out or buy discretionary items just a little more often than we would otherwise.
Put another way, as we have cut back spending, we haven't cut back as much as we would have without that extra in our pockets (or lower card balance).
Do the particular theoretical "multipliers" for different categories of stimulus spending favored by those opposed to tax cuts measure the effect of reducing fear and adding residual extra spending months later? If your guess is no, I bet you are right.
Having saved more, many of us now are spending a little more, supporting each others' jobs just a little better than we would have without that summer 2008 rebate.
Now....do you really think the Tax Rebate of 2008 didn't work?
Now, before you think I'm simply on one side of a partisan debate, let me say first I think taking sides itself a mental error that leads to further errors. I'm not on any side, unless it turns out Obama keeps doing everything right as we go along. I think most of the large publicized pieces of spending in the stimulus proposal are good ideas, and good together as a large package (though not bringing enough timely stimulus in 2009, see why speed matters). My view is that A) we need many different kinds of stimulus, both government spending and tax cuts, but that B) the stimulus, however large, will not suddenly bring us into a roaring recovery, that C) the deep recession is likely to last for years in terms of feeling like we are in a recession. In certain ways, all of this is beside the point. There are fundamental reasons why America cannot have another golden age where it is always wealthier than other nations. And worse, it's even likely that the unemployment and economic challenges we face cannot be fixed completely through most kinds of government stimulus -- that the temporary setup where China grew rapidly while holding down American inflation and interest rates (by providing cheap goods and exporting their excess savings to us also) has played out to an end, bringing back more normal economic turbulence. Only special, unique conditions like those of the 1950s or 1990s can create economic ease, and only temporarily. (I'll post about this interesting question later.)
But today, it's popularly understood we are under threat of another Great Depression. Some even speculate we may face a Greater Depression, due to the profound debt overhang weighing on our economy.
This housing price bubble was more pronounced than any before, implying a deeper fall and heavier than normal fallout. Arrayed against this danger is a more knowledgeable and aggressive Federal Reserve and Federal Government than in the 1930s.
Most people now understand there is a feedback loop of job losses increasing fear -- which in turn leads to further pullbacks in consumer spending, creating more job losses.
So the public at large widely understands that this recession could deepen and keep deepening without intervention.
And while the two sides of the debate argue about what kind of stimulus will "work", the real picture is both more complex and more simple than commonly presented by major columnists, news reports and economists.
It's more simple in that ultimately all the financial crisis is one simple process -- the inevitable fallout of an enormous decades-long world-wide credit bubble. Another element in the popular view of what is happening -- "letting Lehman Brothers fail worsened the crisis" -- is also false. The whole picture of a "credit crisis" worsened by "letting Lehman fail" presumes we could always have grown debt, ever more and more -- more mortgage debt, higher debt to income ratios, more consumer spending and less saving, without limit. Thinking that allowing Lehman to fail caused more crisis implies that if Lehman was saved, the crisis might pass, and things could continue as before the crisis. In this view, a "crisis" or "shock" happened which should and could have been contained. So the story goes, or went, with the support of some prominent voices.
Nevertheless, there is more and more recognition spreading that we had a more genuine problem of a true out-of-control bubble -- that the housing bubble is part of a more fundamental story.
The implication of having a real bubble is that it will indeed eventually burst and collapse, and that falling house prices are not just caused by foreclosures or psychology alone -- are not merely a by-product of some other chance financial events.
Saving Lehman Brothers would have been like patching one significant hole in a slow motion bursting bubble -- it would not stop other from holes opening and growing in the ever thinner bubble surface.
So the story is more simple than often portrayed -- we ran up debts much faster than our average incomes grew, leading to an inevitable hitting-the-wall moment.
By late 2004, there were no actions by the Fed, by the Federal Government, by regulators, by anyone, that could have made any difference. House prices had already become out of reach of average families with conventional mortgages in too many places.
If it hadn't been New Century Financial hitting the wall first, it could have been American Home Mortgage Investment Corp. If it hadn't been Bear Stearns collapsing before Countrywide, it would have been Countrywide collapsing before Bear Stearns.
If Lehman had been saved, at you and your children's expense, instead of at the expense of various investors, that would not have saved Washington Mutual (as an independent bank), IndyMac, Wachovia, Merrill Lynch, etc.
One of the more disturbing political processes I've seen up close is the evolving political story of the TARP. At this point the story has evolved to say the initial phase of TARP under Hank Paulson failed and was opaque. But Paulson originally presented TARP as a way to stop the ongoing crisis of banks failing and our financial system appearing in danger of collapse. This was not something that could be easily talked about -- even if more Congressmen understood the real picture, it tends to increase panic for many leaders to talk of most well-known banks failing. Instead Paulson had to warn simply of a general financial crisis intensifying. TARP, then, was easy to re-define into the ultimate political football. When Paulson flailed about at first due to the impossible contradictions of his initial plan of buying bad mortgage securities, and then later finally followed the mainstream advice of most economists to inject funds directly into banks -- the plan that was actually used -- he gave a characteristically brief announcement, perhaps presuming it would be understood.
But while his announcement made sense to economists and well-read followers of the situation, how many average people understood the whys and hows of the new plan? While Paulson efficiently and effectively shored up the surviving banks -- and did so openly and in full view -- it seemed to me everyone would be pleased the best possible plan had been enacted. The best possible outcome to that moment had been found.
But Paulson's actions were subsequently portrayed as opaque ("lacking transparency") and against the will and intent of Congress!
I wonder if many of our elected representatives realize that many average people are not fooled at all by the political rhetoric. Many more people than they realize are quite aware this was the Big One, and more banks were heading to the chopping block. More people than they'd guess have paid attention to the fact the big bank failures stopped after TARP, at least those with names everyone knew, the kind that kept everyone on edge.
The initial TARP money stopped the accelerating large bank failures (Washington Mutual and Wachovia were the last for a while), and reduced the panic, just as it was proposed to do.
TARP was initially proposed to "stabilize the financial system." TARP indeed did so, to the extent possible with that amount of money. But "stabilize the financial system" is too vague a term it turns out, and has been re-defined quite easily to mean things other than what close observers understood.
Often we'll hear a bit on a newscast of someone who wonders why TARP didn't stop the financial difficulties entirely. Some even believed TARP was meant to also save homeowners near foreclosure. This was certainly a communications mess.
The initial TARP was successful in a sense that mattered. A panic that threatened to escalate to complete collapse of all large banks was averted, along with the psychological damage that would have added against already weakening confidence.
TARP so far has been similar to strapping parachutes onto the passengers (banks) falling out of the disintegrating airplane of banks-that-took-risky-bets.
Those with parachutes are still drifting downward of course, but for now they are still breathing. Some banks receiving funds weren't in that shaky airplane, but rather stood safely on the ground, with few risky bets, and are in far better shape.
Ideally those sounder banks could actually buy out the weaker, poorly-managed banks at low prices, resulting in the best possible outcome for the nation.
But some in Congress actually objected to the beneficial effect of well-managed banks using TARP funds for acquisitions!
Does it occur to many in Congress that their political rhetoric is part of why the level of trust for Congress is so low? Even when we don't know exactly what the political misdirections are, we intuitively sense we often aren't hearing the real story.
Much of Congress played the blame game -- trying to make it appear the other partisan side was responsible for what few wanted to admit was inevitable.
It's estimated that American banks would need more than $1T (that's trillion, and some estimate more than $2T) to be effectively re-capitalized to the level of being able to do significant lending without worrying about failing in the next few years. (see George Soros on this)
Why so much? Because the realistic losses from the credit bubble (mortgages, credit cards, commercial real estate lending, etc) are expected to be this much or more when we aren't pretending things are better than they are. But the jobs of the Fed chairman, Treasury Secretary, and other public officials are to instill confidence. They must acknowledge things are only as bad as we can see in the rear view mirror, and by the way -- don't panic.
The gigantic losses of banks and across the economy are the result of the end of a decades-long credit bubble.
------------------------
So....the tax rebates of summer 2008... Seems like a while ago, doesn't it?
Consider this graph from the Minneapolis Fed of The Recession in Perspective (our current recession is in red):
Notice something?
Yes, it seems this recession didn't drop off as steeply in its early months as normal. During the Summer of 2008 (months 5-8 in the graph), when things should have deteriorated more rapidly....the pace of the downturn was somehow slowed....business failures were slowed, bankruptcies were slowed, bank withdrawals (runs) were slowed, mortgage defaults were slowed, housing sales held up a little better....
What we know is the powerful recession we are in acted like a mild recession for many months, quite different from the typical pattern.
Did the tax rebate anticipation and arrival hold off the real power of this recession for many months? If so, did this slowing of the downturn help the "crisis"?
Well, the recession, like all recessions is in part psychological, and depends on confidence. The crisis is in part fear, and fear is the most powerful force in it, able to stop consumers, businesses, banks and jobs in their tracks.
Fear tends to feed on itself. The unusual staying power of confidence in the first 7 months of the recession held off a lot of effects. By slowing the downturn, the level of fear was held lower than it would have been and the "crisis" unfolded more slowly, giving the Fed and the Treasury and the FDIC more time to plan and act and learn.
We know the powerful driver of the recession is the collapsing housing bubble, and the associated consumer debt bubble and commercial real estate bubbles. The gasoline price spike added a powerful drag during the summer, and without rebate checks to offset the high prices, would likely have collapsed consumer spending much faster during the summer. The other powerful factor in any recession is the level of confidence. Consumers felt more confident for many months than is typical in a strong recession like this one.
Why? Well confidence is a combination of expectations and news and popular stories about what is happening. Consumers were told the stimulus was coming and it was thought it would help. Both the tangible reality of extra cash in our pockets and the belief it would help buoyed confidence.
The Tax Rebate of 2008 was the cause of the gentleness of this recession for months, in spite of the other huge forces that would make it a powerful recession, as is now evident.
We are also told the tax rebate failed because most of it was saved.
Consumers, instead of spending like nothing was happening, chose to pay down part of their credit card debts or save a good part of their rebates. Because they saved more, they've felt a little less pressure and a little safer ever since (than they would have at without that extra savings). Because we all have a little more money at hand still, it's likely we choose to eat out or buy discretionary items just a little more often than we would otherwise.
Put another way, as we have cut back spending, we haven't cut back as much as we would have without that extra in our pockets (or lower card balance).
Do the particular theoretical "multipliers" for different categories of stimulus spending favored by those opposed to tax cuts measure the effect of reducing fear and adding residual extra spending months later? If your guess is no, I bet you are right.
Having saved more, many of us now are spending a little more, supporting each others' jobs just a little better than we would have without that summer 2008 rebate.
Now....do you really think the Tax Rebate of 2008 didn't work?
January 21, 2009
Coming Topics
Some coming blog posts I'm working on sporadically:
o What to do about Banks.
o Economic Theory vs Reality
o Balancing the Federal Budget in the Long Run
o What Factors Matter Most for Economic Growth and Prosperity
update 2/3: Since what to do now about the US financial system is a hot issue, I'm reading and thinking more on my ideas and plan to post soon on this.
o What to do about Banks.
o Economic Theory vs Reality
o Balancing the Federal Budget in the Long Run
o What Factors Matter Most for Economic Growth and Prosperity
update 2/3: Since what to do now about the US financial system is a hot issue, I'm reading and thinking more on my ideas and plan to post soon on this.
America Lives
(after midnight, after Inauguration)
I went again to hear Aretha from that link (previous post).
Never have so many different threads that matter been woven together into one moment for me.
We are all here so briefly. Like a butterfly -- a moment in the sun, when our wings are still bright and agile -- we have only the here and now, and we will all pass away, and everything that we have known will pass and be no more.
This great nation, here in the storm of this moment, with the struggle to find our lives and live together....
Here today, we had one of our finest hours.
And to see the greatness that America is, and why it is the shining beacon on the hill, the last best hope, the nation that all peoples in the world look to with hope....to see why America is so great, you need only look at how we brought one of our truly liberated human beings, Aretha, onto the stage of one of our most amazing moments.
A moment when the hatreds of the world were defeated.
A moment when the Love that is in our spirits ruled our lives.
Aretha
I went again to hear Aretha from that link (previous post).
Never have so many different threads that matter been woven together into one moment for me.
We are all here so briefly. Like a butterfly -- a moment in the sun, when our wings are still bright and agile -- we have only the here and now, and we will all pass away, and everything that we have known will pass and be no more.
This great nation, here in the storm of this moment, with the struggle to find our lives and live together....
Here today, we had one of our finest hours.
And to see the greatness that America is, and why it is the shining beacon on the hill, the last best hope, the nation that all peoples in the world look to with hope....to see why America is so great, you need only look at how we brought one of our truly liberated human beings, Aretha, onto the stage of one of our most amazing moments.
A moment when the hatreds of the world were defeated.
A moment when the Love that is in our spirits ruled our lives.
Aretha
What a Day (Aretha Sings)
While the day, the inauguration, was shaping up interestingly, and we were thinking surely Barack would need to let our higher selves rest some from the upraising he has given us so much of already....
then....out of nowhere, suddenly...
Aretha Franklin sang My Country Tis of Thee...
Aretha Sings
Words are a poor thing to describe such as this.
I had to say "wow" as she finished the first "thee".
While perhaps the unusual soul and beauty of her singing is like a very fine wine or fine piece of art -- it will appeal to only some people enormously -- I'd like to think that even among those not accustomed to sounds such as these, and inclined to dismiss them out of hand, that on an unconscious level the soul listens. That even if the mind says "this is yesterday's sound", the heart and spirit are warmed and strengthened, and without knowing why, a change comes over us, and we breathe deeper and stand taller. A voice like this makes us feel again a sense that Love is possible, and feel again that way we sometimes felt as children when we wanted to meet some stranger, effusive and eager for a connection.....that this possibility isn't entirely gone, after all....
In this Day, in this Moment, all of it together.
As a lifelong lover of music, this is some of the finest singing combined with one of the greatest moments to create the greatest song I've ever heard.
then....out of nowhere, suddenly...
Aretha Franklin sang My Country Tis of Thee...
Aretha Sings
Words are a poor thing to describe such as this.
I had to say "wow" as she finished the first "thee".
While perhaps the unusual soul and beauty of her singing is like a very fine wine or fine piece of art -- it will appeal to only some people enormously -- I'd like to think that even among those not accustomed to sounds such as these, and inclined to dismiss them out of hand, that on an unconscious level the soul listens. That even if the mind says "this is yesterday's sound", the heart and spirit are warmed and strengthened, and without knowing why, a change comes over us, and we breathe deeper and stand taller. A voice like this makes us feel again a sense that Love is possible, and feel again that way we sometimes felt as children when we wanted to meet some stranger, effusive and eager for a connection.....that this possibility isn't entirely gone, after all....
In this Day, in this Moment, all of it together.
As a lifelong lover of music, this is some of the finest singing combined with one of the greatest moments to create the greatest song I've ever heard.
January 18, 2009
There Were Signs of Distress
There were signs of distress about the economy: 60 [Sixty!] percent of respondents said that they were very or somewhat concerned about being able to pay their home costs, and 39 percent said that the decline in home prices had affected them personally.These numbers are surprisingly high -- even though we knew many American families were under an economic squeeze. Would you have thought that 60% were concerned about being able to continue paying all the costs of their home? This alarming number makes sense though if you consider that about 1/2 of American households have "just enough money to pay their bills" as the poll reveals.Slightly over half said that their household income provided them with just enough money to pay their bills.
-- NYTimes
This is a dramatic confirmation of the one key fact that underlies our economic woes.
Every time a nation has a housing price bubble -- when house prices rise well over the limit of about three times annual household income (of the household when purchasing the home), then the crushing burden of making this proportionally high mortgage payment *every month*, over time, gradually destroys so many household budgets that a large portion of the population progresses deeply into debt....
Deeper and deeper into debt, until....
Until the easy credit ends when the house prices finally stop shooting upward.
Then, as households are forced to pull back on their credit-fueled spending, it becomes clear that the level of economic interaction (making and purchasing) throughout the whole economy cannot be maintained.
And then, like a flexible latticework bridge with more and more pieces being pulled out of the structure, the economy begins to creak and sag. The sagging can threaten to become a major slump downward.
Outright depression is only held off by the efforts of governments.
This is how a house price bubble is one of the most destructive things that can happen to a nation. It gradually removes more and more actual (non-credit) discretionary spending power from the economy as housing costs escalate and eat more and more of available income (as gradually more people begin paying larger mortgage payments). Then, finally, as the bubble stops expanding and easy credit ends, there is a sudden drop in credit-fueled discretionary spending. So the demand for goods and services suddenly drops off to a lower level. It's like the bubble forces a hard fall.
It happened to Japan.
And now it has happened to many nations at once: the US, Ireland, Spain, the UK, Sweden, Australia, and those are not all. The fallout is not going to be easy to work past.
It would be reasonable to expect the economic difficulties of the world to last for a long while, in part because the adjustment itself -- production and wages being adjusted downward to a significantly lower level of demand (less purchases of goods and services by consumers) -- is a circular process, and even the aid of government for lending and credit makes the adjustment slow.
A slow adjustment implies a long time of economic weakness and uncertainty.
As I see it, the only thing that can speed a real recovery (instead of a painful stagnation) from a house-price bubble is exactly to achieve house prices falling all the way back down to their normal long term average levels in ratio to household incomes, and to have households that can't really easily afford their mortgage payments get out of them.
When homes are generally affordable in most places again, then the nation can recover.
It is exactly house prices falling back to where they have to be in terms of incomes that allows house prices to finally stabilize, and confidence to return.
Ironically, foreclosures, so often spoken against by our politicians, can aid many families in two important ways.
First, foreclosures help to push house prices down more quickly, so that the inevitable and necessary fall in prices ends sooner. After prices are low enough and buyers increase, confidence spreads and people feel their wealth will increase instead of falling. As an added benefit, the lower prices allow young families to afford their first home.
The subsequent turnaround from this lower house price point allows a general recovery.
Second, for many or most families that "lose" a house in foreclosure, the family budget becomes much easier when freed from especially large housing costs. They have room to breathe.
They have escaped the crushing monthly payment that not only stressed their finances and sometimes their relationships and even their health --they have also escaped the monthly burden that robbed them of a chance to save money for the future.
For many families, a foreclosure is a reprieve, and a chance to move towards a healthy monthly budget, with some savings for the future.
A family that has a mortgage modified so that instead of a crushing 40-50% of their income going to mortgage payments they are set to pay only 38%, for instance (one program under Bush), is *not* so lucky a family as we might think at first.
38% of the monthly income paid on the housing payment is still a crushing burden, even if the crushing squeeze it creates over time is slower. Slowly being crushed is not better than rapidly being crushed. In fact it is worse. Seemingly 38% can be just afforded, until....until the car needs one too many repairs or the medical co-payments add up a little too much....
A lucky family is one that escapes from any crushing 35% or 40% or 45% of income going to their housing payment and moves into a cheaper place with a payment of 28% or less of their monthly income.
But it is not widely understood by many people or many in Congress that paying over 30% of your monthly income for your housing payment leads to financial stress and even harms the general economy.
We have a ways to go yet, as few in Congress seem to understand that high house prices damage our economy.
High house prices damage America, Congressmen and Congresswomen, Senators.
They prevent us from having much of an economy, once the bubble illusion of wealth -- which is actually based on ever-higher mortgage debt -- comes to an end.
When we spend almost all our money just paying for the house, the insurance, the car and the health care, how can we afford to go out to eat or pay someone to mow the lawn or buy more gifts or the other myriads things that are the output of...
...the output of our jobs?
January 16, 2009
The Direction Forward
As this blog begins, America faces a special moment in history.
Never before have so many possibilities, dangers, needs and desires, often conflicting, been set swirling in the air all at once.
At the beginning of 2009 the world faces a possible general economic collapse, as people around the world pull back on their purchases in fear of possible seriously worsening conditions. While it's wise to have more savings and to reduce debts, when everyone moves the same way at once, the boat does tip over.
Noticing that a lot of people are already in the water, pundits have a range of suggestions and prescriptions.
We've been told to all rush to the side of the boat (save more, spend less). Reasonably, we've been told we need more stimulus to support spending. While we throw lumber (unemployment benefits) from the boat down to those (jobless) in the water, many plans are made.
Some say we should haul swimmers from the water to work on building old fashioned boats (the technology of the past -- roads and bridges), and some say set more of the rescued to work to harness the wind and sun in case our fuel runs low, as we must keep the ship pushing into the wind. But in the meanwhile, the ship itself seems to be sinking lower in the water.
Is it the nature of a ship of this kind (an interconnected modern economy) to right itself? Will more rescued swimmers working more bilge pumps be enough? What of the weather and the sea?
But this single metaphor reaches its limits.
We do want to think in terms of natural systems, though. An economy is like a natural system. In fact, an economy is a complex system, just like global climate or a continental ecosystem. This has profound implications for economics and policy choices. I will be writing more on this soon.
In some ways, modern market economies (like that of America or most nations of the world) act like forests on the North American continent.
Growth is rapid when there is enough rain and not too many beetles. Yet the trees do not live forever, and weaker trees often die when normal drought arrives. Fires (recessions) then burn through. The overgrowth burns to leave a seemingly empty world of ash -- or ash and blackened trees, some still alive. Miraculously new life appears in the spring. Soon the cycle begins again. Yet there is no easy way to say if this is what we want.
Lodgepole pines 10 years after 1988 Yellowstone Park fires - north of Madison River; Jim Peaco; September 1998
One may wish to save certain large old trees (GM, Bank of America), even when many tree beetles linger.
In fact, sometimes saved trees flourish, and the old beauty is maintained.
If our metaphor serves, we might imagine a diverse ecosystem of many kinds of trees and plants, naturally resistant in part to any natural menace, insect, animal or climate. Variety insulates the ecosystem from catastrophe. If some kinds of plants die, others take their place.
Flowers amongst burned Douglas firs near Tower Junction; Jim Peaco; Late August 1989
http://www.nps.gov/archive/yell/slidefile/fire/postfiresuccession88/page.htm
And perhaps here our metaphor tells us something quite useful.
We should not seek to control every part of what grows and where and how and when, even as we seed some fields or scatter fertilizer in some places to speed things along. We might indeed wish to save some of the old trees, even while other spots are opened up for new growth of new kinds.
Uniformity is not the American way. Yet neither are we only plants and trees subject to the whim of nature.
We should take this lesson from Nature, and combine it with our free will.
We'd like to see both new meadows full of new life, and deep old groves of tall, tall trees, as we walk through our woods.
Never before have so many possibilities, dangers, needs and desires, often conflicting, been set swirling in the air all at once.
At the beginning of 2009 the world faces a possible general economic collapse, as people around the world pull back on their purchases in fear of possible seriously worsening conditions. While it's wise to have more savings and to reduce debts, when everyone moves the same way at once, the boat does tip over.
Noticing that a lot of people are already in the water, pundits have a range of suggestions and prescriptions.
We've been told to all rush to the side of the boat (save more, spend less). Reasonably, we've been told we need more stimulus to support spending. While we throw lumber (unemployment benefits) from the boat down to those (jobless) in the water, many plans are made.
Some say we should haul swimmers from the water to work on building old fashioned boats (the technology of the past -- roads and bridges), and some say set more of the rescued to work to harness the wind and sun in case our fuel runs low, as we must keep the ship pushing into the wind. But in the meanwhile, the ship itself seems to be sinking lower in the water.
Is it the nature of a ship of this kind (an interconnected modern economy) to right itself? Will more rescued swimmers working more bilge pumps be enough? What of the weather and the sea?
But this single metaphor reaches its limits.
We do want to think in terms of natural systems, though. An economy is like a natural system. In fact, an economy is a complex system, just like global climate or a continental ecosystem. This has profound implications for economics and policy choices. I will be writing more on this soon.
In some ways, modern market economies (like that of America or most nations of the world) act like forests on the North American continent.
Growth is rapid when there is enough rain and not too many beetles. Yet the trees do not live forever, and weaker trees often die when normal drought arrives. Fires (recessions) then burn through. The overgrowth burns to leave a seemingly empty world of ash -- or ash and blackened trees, some still alive. Miraculously new life appears in the spring. Soon the cycle begins again. Yet there is no easy way to say if this is what we want.
Lodgepole pines 10 years after 1988 Yellowstone Park fires - north of Madison River; Jim Peaco; September 1998
One may wish to save certain large old trees (GM, Bank of America), even when many tree beetles linger.
In fact, sometimes saved trees flourish, and the old beauty is maintained.
If our metaphor serves, we might imagine a diverse ecosystem of many kinds of trees and plants, naturally resistant in part to any natural menace, insect, animal or climate. Variety insulates the ecosystem from catastrophe. If some kinds of plants die, others take their place.
Flowers amongst burned Douglas firs near Tower Junction; Jim Peaco; Late August 1989
http://www.nps.gov/archive/yell/slidefile/fire/postfiresuccession88/page.htm
And perhaps here our metaphor tells us something quite useful.
We should not seek to control every part of what grows and where and how and when, even as we seed some fields or scatter fertilizer in some places to speed things along. We might indeed wish to save some of the old trees, even while other spots are opened up for new growth of new kinds.
Uniformity is not the American way. Yet neither are we only plants and trees subject to the whim of nature.
We should take this lesson from Nature, and combine it with our free will.
We'd like to see both new meadows full of new life, and deep old groves of tall, tall trees, as we walk through our woods.
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