Sunday, 13 March 2011

The financial cost of the wars and me

Many years ago I read ' Report from Iron Mountain' which satirically makes the point that peace is not in the interest of a stable society and that even if lasting peace could be attained it would almost certainly not be in the best interests of society to achieve it.  War was a part of the economy therefore it was necessary to conceive a state of war for a stable economy.  Several months after I read 'Report from Iron Mountain' the United States of America declared war on Iraq and the novel floated around in my mind.  Over the last ten years I gradually forgot about the book, until recently.

One of the ideas from the novel that stuck with me was that war is the only thing to exist outside of a country's natural economy.  It is literally the only event (for lack of a better word) in which the government has the ability to artificially create demand where there previously was none. When a war begins it creates a world of demand for weaponry, clothing, personnel, construction, and much more.  War creates a need and someone has to supply that need. And in doing so, this creates jobs in manufacturing and construction that without war would not exist.

This week I was considering the financial cost of the Iraq and Afghanistan wars and the trauma they have bestowed on the American deficit when I remembered that delightful novel and I had to ask myself.... What the fuck?  How has the cost of the war been estimated at Five Trillion dollars yet has seemingly had so little positive impact on the growth of the American economy.  If war exists outside the natural parameters of an economy, has the ability to be controlled by a government and requires phenomenal input to continue over a ten year period then...  Where are these jobs?  Where is the growth in the manufacturing sector?  Or more poignantly, where is the manufacturing sector?

And then it dawned on me... The world is a very different place than it was in 1967 when 'Report from Iron Mountain' was written.  The economic truth remains the same... War does in fact stimulate an economy... But not necessarily ones own in the new global world.  If a company that outsources to China has won the contract to supply uniforms then all the war does is add to America's financial debt and contributes nothing to its growth.

I loathe both wars for numerous humanitarian reasons yet they've continued to exist for nearly a third of my life now.  If they are going to exist for another ten years then let's at least play the economic game right, if nothing else.

Saturday, 26 February 2011

Planned Obsolescence and me

I'm told that Planned Obsolescence was part of the household vocabulary in the late 1950's.  So much so that Volkswagon incorporated it into their now famous advertising campaigns "We don't believe in Planned Obsolescence"... "We don't change for the sake of change".  Fifty years later the concept and execution of planned obsolescence has permeated consumerism and has dramatically evolved.  Yet,  I'm the only person I know that is nerdy enough to want to have a conversation or three about it.

For those of you that haven't yet been exposed to the idea of Obsolescence it's a pretty simple one that generated during the Great Depression.  People weren't buying things fast enough to stimulate the economy, they weren't replacing household items and the UK government brainstormed ideas to encourage people to do things like replace their wireless radio more frequently.  Their ideas were rubbish - such as fining people who didn't buy a new radio after five years.  Although, on the plus side, it might have created a lot of jobs at a time when there weren't many - can you imagine how many people it might have taken to knock on the door of every household in Britain and ask to see the receipt for their radio?  Eventually, the rather clever idea of making a key function of products fail after a certain period of time rose to the surface.  And boy did it take off.  Manufacturers used it in cars, kitchen appliances, light bulbs... whatever it was, it was built to break.  It still is.  Only worse.  And, we seem to have forgotten about it.

The best part of a century later, Planned Obsolescence has got a whole lot more sophisticated.  There's fancy names for a variety of methods to make people needlessly buy your product again, and again. One way whose evil genius I admire is Systemic Obsolescence....
The deliberate attempt to make a product obsolete by altering a system in such a way that it's continued use is difficult.  Think computers. Think new operating systems. Think software.   New software usually doesn't offer a whole lot more than an old version but you need to purchase it anyway because they're not built to be compatible.  (yes, I'm looking at you Microsoft).  And yet, as a majority we still buy it, grumble to ourselves and keep on using the product.  A few months pass and something else needs upgrading.  We might grumble to someone else this time, but ultimately we still willingly participate in the cycle.

Another form of planned obsolescence I admire for its boldness is Notification Obsolescence....
When the product itself tells you that it's time to buy a new one.  I associate this with razors mostly... the strip changes colour and you know to add razors to your shopping list and buy some more.  Inkjet printers are another one, only worse.  You know, the light starts flashing on your printer and you know it's time.  Only, usually there's a lot more ink left.  Some manufacturers actually install smart chip technology to disable the inkjet from working after it's been used for a certain number of pages.  Pretty smart stuff.

Planned Obsolescence annoys me.  For many reasons... the environmental impact, the waste, that corporations think that we're gullible enough to continue buying their products and most of all, that we do.

Style Obsolescence has occurred at the same time and it's the desire to want a new product because there is a prettier one to buy now.  To upgrade our TV because there is a thinner one available. Look, where it's got us.. to a place where we take out store credit and credit cards to buy things we can't afford to replace something that works perfectly fine.  It's crazy.  So this year, one of my resolutions is to replace nothing.  To use everything until it completely breaks down, and even then to use some cool MacGyver tricks to try and get it up and running again.  And if that doesn't work, I'll even take it to a repair shop, if they still exist.  No matter how ugly it is.

Friday, 25 February 2011

The USA Debt problem and me

As a semi responsible 32 year old mortgage owner I have a household budget. I created it in excel and it’s pretty nifty.  You can change one figure, lets say my income and it effortlessly auto-populates the net result changing what might have been a loss into a much more pleasing number.

It’s always tempting to play around with the numbers in a new budget.  What if there was another $1000 added to the weekly income?   Easy.  Saving for that trip to England would be a cinch.  What if that figure was $2000?  Easier.   I could take that trip to England and get the exterior to my house repainted.  A trip to England appeals to me.  Greatly.  I also very much want to change the colour of my light brown house.  The trim is a darker brown so you could see how desirable new colours are. The 22 year old me, would have considered taking out loans, credit cards and borrowing money in various ways to pay for these things I oh so desperately yearn for.  The 32 year old me, however, understands the fiscal irresponsibility of that seemingly easy option and has had some brushes with consequence over the last ten years.

Today I learnt that since 2008 the Statutory Debt Ceiling in the United States has been raised on five different occasions. At September 30th 2008 the total Federal debt was $10, 011 billion.  Today, February 2011 it’s somewhere in the region of $14,754 billion and rising.   Fourteen thousand, seven hundred and fifty four billion dollars in debt.  For a beautiful fleeting moment I thought, hey… if the United States Treasury can run a budget by raising it’s debt level every time it wants to pay for something…. Why can’t I?  They’ve got more experience than me.  Hell, they’ve established highly successful careers in accounting and economics.  Surely, they’re at the top of their game, managing one of the largest economies in the world.  Sadly, the fantasy of getting everything I wanted right now didn’t last for long because despite my complete lack of accounting or economic experience the one thing I can recognise is this is a recipe for disaster. 

So I asked myself why is the highly experienced United States Treasury committing such obvious Hare Kare? Because it has no choice.  The thing about balancing a household budget is – it’s easy.  Even when it’s hard.  If you don’t have enough to cover your expenses there are really only two options to consider – earn more money or reduce your costs.  In a home this could be as difficult as getting a second job or stopping the cable, internet, phone and other essential-non-essential monthly bills.  For the United States Government it’s as difficult as raising taxes and cutting essential programs, funding and government payments.  Each of these ideas are incredibly difficult for a government to broach that wants to consider the concept of re-election and in today’s political climate they seem impossible fullstop.
Since I was 22 the United States Government has been spending more than it’s been earning.  While I acted smarter with my money the United States Government acted more irresponsibly.  And now it’s fucked.  Utterly.  The debt has ballooned a staggering 151% since 1997 and 60% of that has happened in the last four years.  The problem with this isn’t just the amount of money they now owe, it’s the financing costs.  See, even I knew at 22 the more I owed the more interest I had to pay and the more I had to earn.  As an individual the decision to burden myself with debt is a fairly uncomplicated one.  Although the outcome is painful, all it involves is putting on my big girl pants and getting another job or living without the things I want to need so I can make the repayments.  For the United States Government being weighed down with fourteen thousand billion dollars in debt and change is an extremely complicated matter.  The only way to get out of the nightmare is for two hundred million people to have to share the weight of a burden they didn’t create.  It’s asking everyone to man up for something they had no hand in creating.   Unfairness aside, it also demands political will, courage, reform and collaboration – All of which are sadly underrepresented in all levels of government. 

Fear not, there is another option and it involves no political will, courage, reform or collaboration. Although, it will require two hundred million people to make a bold change in the next ten or so years.
Keep doing what you’re doing and don’t affect any change.  Hear me out, this is quite a well thought out plan of avoidance.  Currently, 46% of federal debt is owned by foreign countries.  The largest holder of US Treasury bonds is China.  They’re also stockpiling US currency.  So, here are the fundamentals.  Sell China more US Treasury bonds (aka federal debt made to sound all investmenty) - they can easily afford to purchase them with the vast sums of dusty US dollars they’re sitting on. Keep selling them as fast as you can, not just to China but Germany, the UK and any other country that shows interest.  When the bonds start to mature and the government can’t make the payments everyone packs up and moves into Canada.  All the foreign countries that own the treasury bonds can divide between them the land of what once was the United States of America as payment. Obviously, the land has isn’t going to quite cover all of what the United States Government will come to owe in foreign debt but if each of those countries are free to re-sell each state, put it on the real estate market and get what they can for it the trade is pretty fair.  And so what if “neighbourhoods” like New England drop in value because all the states are on the market at once.  It’s not really our concern.  We’re ok because everyone gets to start all over again in Canada.   Maybe there we’ll find the American Dream.   

Disclaimers -

* The author of the above words has no formal or informal qualifications, experience, or foundation for knowing anything regarding financial matters either governmental or otherwise.

** Nor is she a citizen of the United States, Canada, China or any of the countries mentioned in the above words.