Friday, March 20, 2009

The "Can't Do" Spirit
March 20, 2009

The enduring myth of America is that we have a "can do" spirit. Now we have devolved to a "can't do" spirit in which nothing is possible except generate excuses for ourselves and borrow/print more money to stave off the day of reckoning.

I know I am treading dangerously close to adding /rant tags to this entry, but please consider it what we now call "intervention," when addicts and enablers are presented with the consequences of their choices.

My esteemed colleague Karl Denninger presented the reality of financial devolution very well yesterday in Bernanke Inserts Gun In Mouth:

Now look at that chart (of Federal spending)- you can't remove the "net interest" (about $250 billion), because that has to be paid. "Other spending", that is, other than defense, interest, and social programs, is about $700 billion. Defense is also about $700 billion.

If we find ourselves unable to sell debt to actual investors with actual money, we are circle-jerking ourselves; to balance this budget we would need to contract spending to roughly $1.0-1.5 trillion in total.

Since the interest payments are inviolate, that leaves us $1.25 trillion for everything else. Assume we can cut half of the defense budget, we've got $800 billion left. Cutting "other spending" (that is, all other programs) by 50% would leave us with about $500 billion net-net for social programs - forcing a reduction of about sixty percent in Social Security, Medicare and Medicaid - all at once.

I have long gone on record predicting we will soon be borrowing $500 billion a year just to pay $500 billion in interest, at which point the "borrow and spend" game will be over.

So what do you think the response is when you tell Americans that Medicare and Medicaid and Social Security and the DoD (Department of Defense) will all have to be cut in half if we are to live within our means as a nation? "It can't be done. No way, etc."

So much for the "can do" spirit. In reality, all of these program could be cut in half and will be cut in half; the only question is how deep a fiscal hole will we dig ourselves before reality breaks through the dikes of denial.

There are readers of this very blog, working doctors and nurses, who could outline exactly how we could cut Medicare and Medicaid in half without sacrificing as much in the way of actual health care as you might think. But "it can't be done" because numerous "rights" and Sacred Cows cannot be touched, no matter how dire the financial straits may be. Just borrow the money from somewhere, we don't care how, just get it! This is my right!

There are a number of young active-duty officers who read this blog, and they too could quickly outline how to save billions of DoD spending by streamlining and eliminating low-return procedures, programs, etc.

The U.S. Navy's shipbuilding program is a disaster--a fact everyone agrees upon. But cutting it "can't be done." So we have a supposedly "cheap" ship like the LCS which quickly ends up costing $400 million each--fully loaded, $500 million.

While our potential enemies produce dozens of capable diesel submarines a year, we build two "best of class" nuclear subs a year and each one costs billions. Sadly, a $3 billion sub can be sunk by a $1 million mine or torpedo as easily as a $200 million sub.

The new F-22 fighter costs $300 million each--yes, each. By the time the final price tag comes in with the usual over-runs, it will be $400 million. So as a result, our Navy and Air Force are shrinking because no country, even an Empire which can print trillions of dollars, can afford these costs.

Build a capable fighter for $30 million? It can't be done. Build a capable littoral fighting ship for $100 million? It can't be done. True, it can't be done with the procurement system we have now, in which every weapons system must be "the best ever" and must be capable of handling every possible mission under the sun.

Here's how to fix it. Take the program away from Congressional meddling and DoD, sit some experienced war-fighting officers down and tell them that the budget for the next generation fighter is $30 million--that's it. Now design the best that we can afford. No, it won't have the radar signature of a sparrow, and it won't be able to handle every mission; but by using existing airframes and off-the-shelf engines and electronics, you could put together a pretty decent aircraft.

Even better, you could develop cheap drones and stand-alone HARM (anti-radar) vehicles which could drift around waiting for the bad guys to flip on their radar, and then bam, nail the radar site without even risking an aircraft or pilot.

Improve the Sidewinders (air-to-air missiles) and electronics--that's extending capabilities without spending $300 million per aircraft.

As for the shipbuilding program: maybe it's time to give our allies a chance. The Koreans and Japanese have decades of experience in shipbuilding; tell them the budget is $100 million per ship and see what they come up with.

It's really very simple: we as a nation can no longer afford the weapons procurement system currently in place. Changing it "can't be done," of course, until there's no money left. But by then it will be too late.

Taking up the theme of adolescence from yesterday: here is a short list of the minimum characteristics of adulthood:

1. self-control

2. self-discipline (not the same as #1)

3. accept responsibility for one's actions and the consequences of one's choices

4. be able to look past tomorrow, i.e. long-term planning

5. understand life is contingent, i.e. always have a Plan B

Education or status are not factors. Someone with an 8th grade education who achieves adulthood will do OK in life while the person with higher education and all the advantages of life will not do OK if they never grow up.

Those of us who have always lived on the fringes of the economy, i.e. either running a business or working for small, vulnerable enterprises, understand General Douglas MacArthur's statement: "There is no security on this earth; there is only opportunity."

From this point of view, it is peculiar indeed how the supposedly "can do" citizenry now look to institutions to make everything right: schools should teach my kid, doctors should fix my ailments, the gummit should give me a job, mortgage, etc.

I know this may come as a shock, but it's painfully obvious that the welfare state, and indeed the state itself, is in the process of devolving into insolvency. We as a nation have chosen to forstall difficult choices by borrowing trillions of dollars, and currently that's Plan A: keep borrowing and spending trillions until some new financial bubble arises which bails us all out.

But suppose that doesn't work; how about Plan B, living within our means? As Karl so succinctly described, that means a Federal budget of $1.5 trillion based on revenues of $1.5 trillion, not a spending spree of $3 trillion based on revenues of $1.5 trillion.

The same can be said of every state, county, agency, city, university/college, etc. Government currently takes about $5 trillion of the $13 trillion U.S. economy. As that economy shrinks from dependency on credit/debt bubbles, then government will also have to shrink. Isn't that common sense? As we borrow more, we have to pay more interest on our growing debt, and that rising interest squeezes out other spending. Isn't that common sense?

Perhaps we should consider what our "rights" may shrink to: life, liberty and the pursuit of happiness. Maybe before we ask the doctor/nurse to fix us, we should ask ourselves: what have we done to heal ourselves? Have we done everything within our power to become healthy and stay healthy?

Before we demand that schools teach our kids so they can prosper, maybe we should ask: how many hours did we spend with our kids this week going over homework? How many hours did we set an example by learning something new and difficult ourselves? How many hours were wasted with TVs, PCs, cell phones, videogames and iPods in our household?

Before we demand that the government somehow make us all healthy, maybe we should ask: what did we eat this week, what did we cook this week, and was it healthy for us or not? How much fitness did we work in? Kids love doing cartwheels; did we show them how? It doesn't take much to observe that kids generally like what their parents like; if adults are eating fruit and vegetables because they're yummy, then the kids will generally find them yummy, too.

So government is unresponsive and influenced by special interests; how many times did we contact our elected officials this month? Did we contact our city councilperson even once this year? How many school board and city council meetings did we attend? If we provide no input and oversight, then exactly why should government be responsive and accountable?

Quite honestly, I have been a moron with money most of my life, not from indulging in overspending, because I'm a complete tightwad (those Scots genes, heh), but from taking insane risks like starting businesses in recessions and building houses when I didn't have a job, playing with options when I didn't know what I was doing and dumb stuff like that. As a consequence, I am not wealthy. But those were my choices and it's my character to jump in enthusiastically and then suffer the consequences of a steep learning curve.

This is a poor strategy; it's better to build up to higher levels of skill and understanding over time (see #4 above.) As a completely average person, it takes me a long time to learn things and work myself up to bare adequacy. After many years of training and effort, and lots of practices and benchwarming, I transformed myself from woeful athlete to mediocre athlete. Starting from a low level, that was a big accomplishment, though it certainly didn't look like it from the outside.

I have been down to my last $100. I have had to mortgage my house to pay my suppliers and subcontractors. I have moved to towns or cities where I knew no one (or one person) and somehow established myself. I have been unemployed. I have been injured. I have made just about every possible financial mistake other than losing it all in Vegas, and that's not because I'm so smart but because gaming doesn't appeal to me.

Thus I sympathize with the people described in this story: Financial fears grow More consumers are just a paycheck or two away from ruin.

There are no simple fixes to insolvency. All we can do is focus on items 1 through 5, and on the inalienable rights of life, liberty, the pursuit of happiness--and the opportunity to make mistakes and change things in ourselves and our lives.

Right now we are in national denial. We are hoping that borrowing and spending trillions of dollars will somehow "fix" the devolution of a top-heavy, inefficient, credit-dependent economy; it won't. We are hoping that some miracle pill will "fix" our many self-induced illnesses; it won't. We wish we didn't have to think of a Plan B, but we do.

What's for dinner at your house? has been updated with a new recipe: Eggplant Parmesan . This a mouthwatering photo-illustrated PDF from longtime contributor Bill Murath.

NOTE: The serialization of my new ebook "Survival +" starts March 23.

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Operation SERF, Part 12
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