I like my banker, Scotty. We are close in age, entering our supposed “prime earning years,” raising young children and living the Long Island dream. He’s Patchogue, I’m Glen Cove. We forgive each other this.
The reason I enjoy talking to Scotty is that I appreciate his take on things. He calls it like it is. Prior to the complete collapse of the banking system last year, he and I were having lunch and lamenting the state of the local economy. While the entire country had not yet gone to hell he pointed out that out of nowhere his morning egg-and-cheese sandwich and cup of coffee were closing in on $10.
“Is this the result of the price manipulation of raw goods such as the grain needed to produce the bagel and feed the chickens that produce this egg sandwich?” I inquired.
Before he could answer I blurted out that perhaps his breakfast was “the coalescence of a vast conspiracy in the commodities market to artificially drive up the price of food to control the third-world population.”
I ignored his eye rolling to sum up my argument that “clearly Monsanto is behind it!”
I had by this time worked myself into quite the lather, undoubtedly quelling his appetite for lunch, never mind the innocuous egg sandwich that started us down this path.
“It means the little guy is getting squeezed” he answered dryly. “Shit rolls downhill and stops when it hits the guy at the deli. At that point there’s nowhere left for it to roll but the customer. It makes me nervous.”
Scotty and I have had our verbal sparring sessions before and since this conversation but no argument has ever rung so true as his egg sandwich analogy. This explanation was far superior to any that I was to receive in the coming months while the economy went into a death spiral. When everything you know is suddenly cast in doubt, common sense is a remarkably calm voice of reason and painfully hard to find.
The nonsensical view of the moment being proffered by economists is that things are looking up. Yet if you look at the Alternative Measure of Labor Underutilization for States, the real unemployment in the nation ending second quarter was 13.7 percent. Of course we only talk about the fake unemployment figure of just below 10 percent because it sounds better. The real figure takes into account people who have stopped looking for a job—therefore sitting down during the unemployment roll call—and those who have taken part-time or temporary positions instead of full-time employment.
The optimistic economist is undaunted, despite yesterday’s UN report that 1 billion people on Earth are now “food insecure,” which is code for “starving.”
They use words like “uptick” and “green shoots.” They talk about the “cyclical nature” of the markets and “trend lines.” I recently attended a luncheon with Scotty to hear an economist do his “aw shucks” best to temper our expectations about the recovery while biting his lip and giving us that “we’re all in this together” face. But based on the “trend lines” and the “cyclical nature” of things he seemed to think it was reasonable to expect an “uptick” and some “green shoots”—that we were over our “irrational exuberance” and looking forward to a “long and steady recovery.” I wondered if he was of the guys 18 months ago humping shares of Lehman and Bear Stearns into the ground like Slim Pickens riding the atomic bomb in Dr. Strangelove, a hoopin’ and a hollerin’ and waving his hat.
When pressed to identify what exactly would bring us out of the recession, he actually offered up “good old fashioned American ingenuity.” Because in America, “where there’s a will there’s a way.” No, he wasn’t kidding. That’s the beautiful thing about being an economist, meteorologist or Mike Francesa—you don’t have to be right to have an audience.
Sometimes, something as innocent as the price of an egg sandwich offers greater insight into complicated matters like the U.S. economy than any theory or chart ever could. An economist who spoke at a luncheon I attended was espousing the virtue of American ingenuity as the sole reason why he, and many other economists, believed America would eventually pull out of the recession.
Ah yes, the indomitable American spirit will once again deliver us from our financial predicament. It’s far more effective to apply the common-sense egg sandwich logic to what we see everyday around us than cross our fingers and hope things will get better because they always have before.
We are in for a rude awakening in 2010 when we run out of the stimulus funding that helped fill local and state deficits, such as the more than $40 million Nassau County utilized to plug budget gaps this year. Moreover, I have a complete lack of confidence in how the Recovery Act money is currently being spent. With these funds the federal government claims to have created 655 jobs in New York State where there is almost 9 percent unemployment.
Talk about pissing in the ocean to warm it up.
So where is the money being spent effectively? Recently I had a great opportunity to search for the answer to this question. A couple of weeks ago my father and I took a father/son road trip across the country. In addition to an unforgettable bonding experience, we got a firsthand look at how some of the Recovery Act money was being spent on infrastructure.
First, a little historical perspective. During the Great Depression Roosevelt threw everything in his arsenal against the wall to stimulate recovery in the United States. Spending on infrastructure and the ramp-up to a wartime economy are usually credited as the reasons that America eventually recovered.
This isn’t entirely true but let’s assume that these were at least parts of the equation, which is somewhat accurate.
After failed attempts such as the Tennessee Valley Authority (TVA) and other massive infrastructure projects, Roosevelt kept at it with the creation of the Work’s Progress Administration (WPA), which built notable projects like the Hoover Dam and the Lincoln Tunnel. So at first I was heartened at the site of construction crews dotting the American landscape with signs touting the expenditure of money from the American Recovery Act. After passing through a couple of Midwestern states, however, it dawned on me that this money is going to repave existing stretches of highways or create new lanes adjacent to them. The projects, agencies and programs that have succeeded throughout the 20th century did so because they enabled the nation to move new initiatives forward. Temporary job creation of ambitious infrastructure projects is a benefit in and of itself, well, temporarily.
The positive lasting effects of these projects are that they enabled us to move goods efficiently and cost effectively throughout the United States. The speed with which business was conducted through subsequent related gains in technology, and infrastructure allowed us to become more competitive. Frankly, after assessing projects like the east side access, the Big Dig and the Roslyn viaduct I’m not sure we should be building bridges and tunnels anymore.
One of the benefits of the transportation and energy infrastructure enhancements under the New Deal was that it made farmers more competitive. After the disastrous effects of the dustbowl that poured salt in the farmer’s gaping wound, Roosevelt focused a great deal of attention on farm assistance and gains in farming technology. The casual observer on our road trip would have noted the incredible stretches of farmland that we take for granted in our suburban environment. Yet alongside the stretches of highway it was impossible not to notice that the population of the entire Midwest has apparently been taken over by corn.
What’s so interesting about our obsession with corn manufacturing of course is how very little of it we wind up eating. We have figured out how to turn corn into plastic, glue, tires and chemicals. We can even pour it in our gas tanks. The problem with corn as an industrial ingredient has less to do with what it’s being used for and more to do with what it has taken the place of. The agricultural landscape of the farm belt has been dramatically altered due to the federal subsidy programs in place for farmers and the industrialization of corn. As industry finds more uses for this crop, the demand drives prices further down, thereby creating a greater need for farm subsidies. Our insatiable demand for industrialized corn has consolidated smaller farming systems into large conglomerates bent on growing corn on every square inch of land in the Midwest thereby destroying the diversity of crops. This has had deleterious effects on the soil and been partially responsible for the rise in the prices of other commodities that have been pulled out of the ground to make room for corn.
So let’s apply some common sense “egg sandwich” logic to this issue. One novel idea would be to curb the madness related to the corn ethanol, the most inefficient means of producing bio-fuels and actually—stay with me here—feeding the corn to people. I know feeding people is a radical modern day notion but it just might work.
After three days in a pick-up truck we arrived at our destination on the other end of America. It was a great trip. No, it was awesome. I have always wanted to see this great nation of ours, and I’m lucky to have been able to do this with my dad. It’s a true gift. Beyond this, though, I was able to really reflect on the nation’s predicament and think about how it applies to this Island of ours and what we can do to prepare for a hailstorm in 2010 and beyond.
Time to “bring it home” as they say. I have been extremely pessimistic about our immediate economic future and critical of the claim that the recession is coming to a close. In fact, I wholeheartedly believe that once the stimulus funding runs out, the recession will deepen, unemployment will rise for the next couple of years and interest rates will climb.
Why so gloomy you ask? Let’s start at the top and work our way down.
Lightning Round Recap: The federal government, the private sector and home owners are riding high during an extended period of “irrational exuberance” fueled by the greed of Wall Street. The global economy opened up new markets for investment bankers to screw over with prepackaged investment vehicles loaded with lousy mortgages guaranteed by no one. The homeowner loses phantom wealth they’ve already spent, banks either collapse or freeze lending and the private sector companies get squeezed. President Bush calls an audible at the end of his term and provides bailout money for big bankers. Congress throws a reversal and gives the ball back to the new president who throws a Hail Mary down the sidelines and into a crowded end zone.
Current Status: New jobless claims are leveling off, home prices seem to have found their bottom and some of the TARP recipients are starting to pay back funds. Taxpayers can even log onto Recovery.gov and track the path of stimulus money through fun color graphs and charts. Watch the government employ seven people in Kansas, award a road paving contract in Arizona and winterize a home in Ohio! Fun for the whole family!
The Issue: Okay, back to basics and common sense. Use your own finances as the analogy. You lose your job but are receiving unemployment benefits. Instead of looking for a new job or learning a new skill you decide the prudent thing to do is to refurbish your kitchen, lease a newer model car and start collecting glass figurines. Arguably each one improves the value of life’s balance sheet. Your home is worth more, your car gives you status and those precious figurines will surely appreciate over time therefore protecting your future. And then, your benefits run out.
This is what is happening right now. We’re fooling ourselves thinking that things are going to turn around. As soon as the stimulus funds (benefits) run out the nation is going to plunge further into the hole because the funds we have allocated aren’t going toward things that will make us more efficient or give us a competitive advantage. They are going toward needed repairs of our aging infrastructure which will hold it in place for longer but not move it forward. Or, if you prefer, whipped cream on shit.
New York State is staring down the barrel of a $4 billion budget deficit and admits that this number may grow between $18 billion and $30 billion over the next two years. Press down further on the pressure point and we have Nassau and Suffolk Counties. Nassau is all but bankrupt. Steve Levy has done a far better job of keeping the wheels on than his neighbor in Nassau but still faces a looming budget crisis if the state continues to mandate disproportionate payments and sales tax revenues continue to decline.
The Fix: (1) This past summer the state legislature passed a consolidation bill that gives citizens the right to dissolve local governments. Let’s get it done. There are too many special taxing districts and villages on Long Island even though the Long Island senate delegation mysteriously voted against the bill. (2) Our Congressional representatives should be asking for stimulus money to do one thing and one thing only: retire the $6 billion in outstanding debt of the Long Island Power Authority that is due to the Shoreham plant. We didn’t ask for it. We don’t deserve it. We can’t move forward with it. (3) Allow Charles Wang and Scott Rechler to put their shovels in the ground. This isn’t about the Islanders or skyscrapers on the Island; this is about establishing a central commercial and residential district that proves we still have economic mojo. (4) Suspend county real estate taxes on all Long Island-based manufacturing companies who employ more than 50 percent of its workforce locally for the next five years. (5) Finish one final round of tax certiorari negotiations with commercial property owners, pay them out then abolish it. (6) Bring the teachers unions to the table and demand that middle and high school teachers add one more hour of teaching to their day. (That’s the one I expect the hate mail for.)