The Skeptical Optimist

Deflation, Inflation, and Money from Thin Air

In case you haven't heard, the Federal Reserve has been flooding the banking system with additional reserves (i.e., "printing money") in recent months. Take a look at the 12-month change in the Fed's balance sheet (3rd column on this page): a $1.35 trillion increase in reserves—more than a doubling—in 2008. That's the amount of money the Fed created "out of thin air" to purchase assets from the private sector.

Here's a diagram showing how the Fed creates new money:

That "thin air" thing infuriates some people, such as Ron Paul and his supporters. To them, "fiat money" is the dirtiest word of all, and "printing money" is the economic equivalent of skewering our grandkids and roasting them over red-hot charcoal. I personally wish Ron Paul would stick to the real goods and services side of the economy and stay away from monetary economics, because printing truckloads of new money in this economic environment is exactly what we need to be doing. For several months, I have been shuddering at the mental image of our economy plummeting into oblivion under Ron Paul's preferred gold standard, the economic equivalent of the iron maiden torture device pictured at this link.

Why is there such a disconnect about what the Fed is doing? Why do most economists agree that pumping large quantities of new money into the economy is just what we need these days, while a small contingent of Ron Paul supporters protests loudly that it's absolutely the wrong thing to do? Well, a good place to start would be a diagram of what typically happens to new money when it's injected into our economy.

Money in motion
Under normal conditions, most of the new money enters the transaction stream, where it's used as a "medium of exchange" by the public for consuming and investing in real goods and services.

Money at rest
However, not all of the new money becomes transaction money; some of it is used as a "store of value"—and takes several forms, such as currency sitting in safe deposit boxes or stuffed in mattresses, money sitting dormant in bank deposit accounts, or currency circulating overseas (in areas where it's perceived as safer to hold than the local currency).

Inflation/Deflation
If there's just enough money-in-motion to satisfy the economy's production of real goods and services, there is no price or wage inflation. A corollary: If the production of real goods and services grows, the money supply must grow at the same rate (or slightly more) to achieve price/wage stability.

To illustrate, here are two diagrams. The first is a balancing scale showing the stable price/wage condition achieved when money-in-motion matches the production of real goods and services. The second shows the inflation condition driven by the imbalance of too much money for the real goods and services.

It's easy to assume that the typically-running economy is all we ever have to worry about; and once we make that comfortable, naive assumption, we can spend the rest of our lives arguing our own pet opinions on what causes and what prevents unanticipated inflation. But the typically-running economy is not the only one we ever have to worry about. The dysfunctional economy is one we have to face every now and then, and guess what: the head-in-sand approach is not the way to handle it.

Specifically, there are conditions that can throw the scale out of balance in the other direction, with consequences arguably more severe than inflation. An economy can become dysfunctional in several ways; ours became dysfunctional because of a sudden shift in the public's preference towards money as a "store of value" instead of a "medium of exchange." [By the way, I've never heard Ron Paul address this condition.] Here's a diagram depicting the dramatic shrinkage of money-in-motion, due to the public's sudden preference for liquidity (money at rest). It also depicts why the flood of new money is not causing inflation; the Fed's attempt to stimulate money-in-motion has been largely diverted into mattresses and balance sheet "cash" accounts. The public hasn't been spending, borrowing, lending, and investing; it would rather avoid those risks by sitting tight on its most liquid asset—and that is what the textbooks call a "liquidity trap."

What happens when money-in-motion shrinks rapidly? It throws the scale out of balance in the other direction, towards deflation. Insufficient money-in-motion fails to support the production of real goods and services, as depicted below.

The result is price/wage deflation pressure, and it causes the real economy to shrink in compensation. If the money-in-motion side keeps shrinking (for whatever reason), the real economy keeps shrinking, too. That's called a deflationary spiral, and it is NOT pretty. At best, it means high unemployment and misery; at worst, it leads to the overthrow of governments. In any case, it eventually bottoms out at a much smaller level of economic activity.

Oh, I suppose the Ron Paul crowd would be popping champagne corks at each other, celebrating the fact that "inflation" had been defeated. Nonetheless, when the deflationary spiral finally hit bottom, we'd all be a lot poorer. And, sadly, so would our grandkids' generation: we would bequeath to them a shrunken, stagnant economy—if we chose today to ignore the dangers of deflation. That's what the Fed is currently fighting against, and that's why all that "money from thin air" has not even come close to generating wage/price inflation.

Can the Fed pull it off?
Let's say the Fed succeeds in challenge number one, preventing a deflationary spiral. In that scenario, the public gains its confidence back, and the huge stock of "money at rest" starts to tranform into "money in motion." Well, at that point we'd better leave the champagne sitting on ice for a while, because we wouldn't be finished yet—not by a longshot. The Fed would be facing challenge number two: recapturing enough money (making it disappear into "thin air") at a pace sufficient to prevent subsequent high inflation. Why? Because there is no way the real economy could grow fast enough, all of a sudden, in order to balance the vast quantity of money-at-rest if most of it were to become money-in-motion. The Fed would have to throw its Open Market Operations into reverse, and sell back a substantial portion of the assets it bought, in order to keep the scale in balance.

As the diagram below depicts, that is the process of making fiat money disappear into "thin air"—a scenario that presumably sends the Ron Paul crowd into blissful ecstasy.

I'm not sure the Fed will get its timing just right, on either of the two challenges. It might not blunt the deflationary pressures as effectively as it could, and it might not blunt the subsequent inflationary pressures with perfect timing.

But one thing is for sure: I thank my lucky stars that the Fed is there for us, wielding its weapons as effectively as it knows how. The alternative of a gold standard Iron Maiden would be Great Depression II, if not a total collapse. I'm glad we are dependent on our own Federal Reserve, and not on Russian and South African gold mine owners, to manage our money supply ups and downs on short notice. Aren't you?

If you'll excuse me now, the night sky is clear. I think I'll go out and thank my lucky stars one more time.

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End note:

The total money supply is equal to base money created "out of thin air" by the Fed, plus bank money created "out of thin air" whenever any bank makes a loan. It sounds complex, and it is — but it boils down to this: the Fed and banks create fiat money. The supply of fiat money is able to expand and contract with more flexibility than the supply of gold coins would be able to (under a gold standard). The Fed's job is to expand and contract the base money supply to support its target interest rate, which in turn is set periodically to control inflation and deflation, i.e., to achieve the goal of a steady, predictable aggregate price level.

How Russia enforces corporate welfare

Russian automobile manufacturers and workers (similar to their counterparts in America) wish their country's consumers would buy more cars manufactured by their homeland companies. To make that happen, they slapped an import tariff on imported cars, which come mostly from Japan. Russian consumers are now finding out just how serious their government is about enforcing their corporate welfare program. Here's the breaking news in Vladivostok.

American consumers, however, have one advantage over their Russian counterparts: Most of the "foreign" cars Americans have been purchasing are already manufactured in America by Americans, so an import tariff wouldn't be nearly as effective. Corporate welfare here for government-preferred companies takes a different form: the government lends them money, and funds it by taxing or borrowing it from us.

In the end, though, I guess it works pretty much the same: the government will come after us if we don't pay our taxes.

The USA's debt burden, according to the TIT Ratio

 
Because of the growing hysteria over the growing federal debt, I've decided it's time to introduce a new, objective measure for our debt burden — or, more accurately, for our federal government's ability to afford the federal debt. [Believe it or not, it's more affordable today than it was ten years ago.]

The publicly-held debt has been increasing rapidly because of recent actions by the Treasury and the Federal Reserve, and it will continue to increase rapidly until we get our economy moving again. The question is this: Can we afford all this debt, on top of the debt we already had on the books?

Well, that begs the question, How should we measure "debt affordability"—also known as "creditworthiness"? Few of the hysterical debt-phobes ever seem willing to answer that important question. Although ex-Comptroller General David Walker offered a ray of hope by touching briefly on the debt/GDP ratio in his doomsday movie, IOUSA (see my review here), my hopes were dashed when he devoted most of his film to the more sensational debt numbers ending in lots of zeroes. Too bad, but that's symptomatic of debt phobes — especially those who'd rather peddle fear, for personal or political gain, than solutions for aggregate economic gain.

Anyway, I think I've come up with a simple little number that could help steer the conversation away from hysteria, back towards objectivity: I call it the "TIT Ratio," which stands for "Times Interest Taxed." (I mentioned it at the end of my review of Walker's IOUSA movie.) It's simply the number of times our federal tax receipts covered the interest obligations on the publicly-held federal debt.

I like it a lot better than the debt/GDP ratio because it's more to the point. In debt/GDP, debt (a "stock") is just a crude proxy for interest payments because it ignores the interest rate, and GDP (a "flow") is just a proxy for tax receipts. In contrast, the TIT Ratio is a coverage ratio that directly measures interest payments and tax receipts (both "flows"), and it's more timely. It's similar in concept to "Times Interest Earned" used in private sector finance as one gauge of a firm's creditworthiness. Here's a chart of the USA's TIT Ratio since 1998. [I plan to take it back to at least 1980, if I can get the Treasury folks to point me to their older reports.]

Click to enlarge:

[source: Monthly Treasury Statement]

Notice that our current ability to afford the federal debt is better than it was at the end of 2000 — even though we've been adding debt at a fast pace recently. (Reasons: our economy has grown, and the interest rates have dropped.) The good news today: we have lots of room to borrow because there are plenty of investors willing to buy Treasury securities at low interest rates (near-zero rates, in fact). The bad news: nobody should interpret that to mean we have infinite borrowing capacity (as opposed to merely a comfortable cushion with no near-term limit in sight).

Federal debt: the principal, the interest, and the market
Keep in mind that (1) we'll never, ever have to pay back any of the principal on the debt if we just keep rolling it over (see this article); (2) the interest is the "debt service" we must never, ever, ever, ever default on; and (3) maintaining our status as the large, reliable, predictable borrower supporting the large, liquid, worldwide market for US Treasury securities should always be one of our top financial priorities. To maintain the bond-buying public's confidence that we'll always be able to afford to pay them their interest in stable-value dollars, and to roll the debt over into a large market full of willing buyers, the proceeds from the taxing power of the federal government must comfortably cover our interest obligations. Hence the TIT Ratio.

Growing the economy
Federal tax receipts grow when the economy grows, even when tax rates do not change at all. That's why "growing the economy" is so important for our future, and why getting it back on track is so much more important than worrying about short-term increases in the debt level. [Along those lines, I'm glad to hear Obama and his team now giving "growing the economy" a lot more emphasis than increasing anyone's tax rates; tax hikes for the rich now appears to have been merely tax talk for the votes—at least until 2010. I find that very encouraging.]

So far, the USA's declining TIT Ratio is saying that the debt we've added, in spite of the ratio's downward slope, is more easily affordable today than our debt level was a decade ago. [That's worth repeating: "The debt level is more affordable today than a decade ago." Try to think of anywhere else you've heard that besides this blog.] We should expect the decline to continue for months, but we should patiently understand that it's necessary to get the economy back on the growth track, and that it's therefore not yet cause for alarm, let alone doomsday talk.

In short, it's a level-headed, objective measure. For me, that's a nice respite from the caterwauling of the hysteria peddlers.

[I'll begin publishing the TIT chart once a month, soon after the Monthly Treasury Statement is available. Also, it's safe to assume that, for now, a bigger TIT is a better TIT, but don't forget that too much of a good thing is bad, not good. If the TIT ratio approached infinity, as it would if we eliminated the debt, we would be grossly underleveraged, and would be stifling economic growth.] 

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Last and possibly least...

Two years ago, I posted the graphic below in an article I wrote responding to the fear peddlers' road show. [You'll get the joke if you saw the movie Bill and Ted's Bogus Journey; if you missed it, that's too bad, because it was one of Keanu Reeves' finest performances.]

Anyway, David Walker and the Concord folks never gave me any feedback on it, so I guess they didn't think it was funny.

Here's the Bill & Ted graphic, just for fun.

One homeowner's Christmas wish

Someone I know read an article in the Wall Street Journal a week ago—an article that pushed him beyond the limit of his patience. He wrote a letter to the editor, waited a week, and was not surprised that it apparently ended up in their email bitbucket, never to be seen again—that is, until I offered to post it for him on the world wide web.

Here it is: One homeowner's Christmas wish...

=================

Each morning for several months I've patiently read the latest ideas reported in the WSJ regarding how to solve our financial crisis. A growing plurality of experts seems to agree that the government should buy up home mortgages, directly or indirectly, and give the homeowner a break on the principal amount owed.

The latest expert-of-the-day was Columbia economist Charles Calomiris (11/26/08, page C3), who said the solution for mortgages "isn't complicated": by golly, just write them down to 40 cents on the dollar, share the loss, and presto, it's all fixed in a jiffy.

Who will "share" the loss? The government, of course; "we the people." Well, I'm not only one of those, I'm also a member of a teeny-tiny minority that has until now been completely ignored. My patience having run out, I'd like to submit a little reminder for all of the financial experts in government and academia, as well as one small request.

Some of us—a tiny fraction of us—followed our parents' advice. We dutifully paid our taxes, we bought savings bonds, we chose houses and cars we could afford, we spent within our means, and we managed our finances so that we were debt free in time for retirement. We now own our houses free and clear.

But now we find out that our decades-long financial discipline was necessary not only to secure ownership of our own homes: it will now be tapped by "the government" to secure home ownership for other mortgage holders, too. My teeny-tiny minority thought we were all finished paying mortgages; turns out we were dead wrong. Because we have no mortgages, we will NOT be among those who will get 60% write-downs; on the contrary, we will be the ones FUNDING those write-downs.

Don't get me wrong; I do understand the gravity of the crisis. The financial system must not be allowed to collapse. Unprecedented action is required, and I will dutifully do my part by continuing to pay my taxes and by purchasing a few extra government bonds. I strongly prefer to use my money that way (to help prevent a collapse), than trying to use it later to buy ammunition and survival gear AFTER a collapse. If those are my two choices, it's no contest.

But, on behalf of the tiny minority of us who (a) had no part in causing the problem, but (b) will dutifully fund its solution, here's my small request of the financial whizzes in government and academia, and the homeowners who will be getting big, after-the-fact discounts on their mortgages:

A simple "Thank You" would be nice.

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Housing prices are NOT falling, they're still INFLATING...

...according to the October Consumer Price Index, published by the Bureau of Labor Statistics. The seasonally-adjusted annual rate of inflation for our primary, owner-occupied residences is (supposedly) 1.9%, believe it or not. I clipped the image below from page 10 of the latest CPI report, published a few days ago.

Click to enlarge:

[Red lines added by me. Web page here, pdf here.]

Either I'm missing something, or the inflation calculation is. We all know that housing prices are deflating, not inflating. The bursting of the house-price bubble is the underlying cause of the once-per-century financial crash we are now seeing all around us, according to 105% of the people who have had anything to say about it. And it's not as if nobody had been waving a red flag; the Case-Shiller housing index has been looking ugly for quite a while.

On Friday, I spoke with Harvey Rosenblum, EVP of the Dallas Fed, about the inflation calculations that serve as the foundation for many of the Fed's monetary policy decisions. Consumption goods (food, fuel, etc.) get the bulk of the attention in those algorithms, and I wondered aloud if asset prices (e.g., housing) deserved a little more emphasis. He told me the BLS (Bureau of Labor Statistics) was the keeper of the keys regarding the way they had to factor housing into the inflation number. [Their calculation translates the value of owner occupied housing into its estimated "rental equivalence" for inclusion in the CPI.] 

Undeniably, many smart economists over a long period of time have put significant effort into the way housing prices should be factored into the CPI. [Here's a link to the BLS explanation of today's rental equivalence component of CPI, here's more, and here's a link to the 1982 paper explaining the current method in detail.] But when I see one of our key inflation indicators, the CPI, apparently not yet reflecting the housing price deflation we all know is happening, it makes me wonder if the BLS algorithm is inaccurate, or not timely enough, or both. If it's inaccurate, might it have been understating housing inflation for the last several years, thereby throwing off a false signal to the Fed that it was okay to leave interest rates so low for so long, or not to require larger down payments for mortgage loans? If so, it might be time to consider modernizing the calculation to incorporate the comparatively new Case-Shiller index in some way.

Inflation/deflation is arguably the most important economic indicator we have (...unemployment is a close second, if not tied for first place). If our measures for housing inflation are inaccurate or untimely, that's a big problem that should be getting some prompt attention, one would think. On the other hand, if they are sufficiently accurate and timely, I'm curious why the October CPI report says we're still experiencing inflation in the housing category.

Either I'm missing something, or it just doesn't add up.

Free gift with purchase of toaster...

I told a buddy of mine that I'm thinking about buying a new toaster, and he promptly sent me a set of coupons he wasn't able to use. Here's the toaster promotion (...click to enlarge). Which free gift would you pick?

Corporate Welfare for Jurassic Park, Michigan

Corporate welfare for General Motors—or more generally, for the Detroit Dinosaurs—will cost us taxpayers and bond buyers tens (or hundreds) of billions, no matter what. Whether it's the corporate welfare money preferred by Michigan Senator Carl Levin, or the money it will take to keep the federal Pension Benefit Guaranty Corporation afloat in the wake of a GM bankruptcy, the price tag will be tens or hundreds of billions. GM's troubles started decades before this year's financial meltdown, but now it's too late to limit the cost of GM's life support (or mercy killing) to just the private sector.

Therefore, as a taxpayer and bond buyer, I have a few demands to submit, for consideration by the lawmakers who will be dispensing the forthcoming corporate welfare:

• Workers who choose to stay with corporate welfare companies will be required to wear to work, each day, the uniforms of national park rangers—and that includes all employees, from the janitor to the CEO.

• On each uniform will be sewn a patch above the left breast pocket, reading:
"Jurassic Park, MI: Proudly protected from competition since 1980; hungrily consuming at the public trough since 2009."

• All such employees, janitor to CEO, will be compensated according to the pay and benefit schedules of Government Service employees.

• A hypocrisy clause: any federal lawmaker who voted for federally-funded GM life support will face immediate expulsion from office for any future use of the pejorative term "corporate welfare."

Sen. Carl Levin justified his pro-corporate-welfare stance by pointing out (yesterday on NBC's Meet the Press) that "we've done it before," citing the Chrysler bailout in 1980 and the airline bailout in 2001-2. Good point, Sen. Levin; we should have implemented the park ranger uniform idea back then, but I suspect it would be illegal (ex post facto) to try to impose it on them now. On the bright side, however, there's probably still time to include employees of AIG, Bear Stearns, Fannie Mae, Freddie Mac, and several other financial companies in the ranger uniform program. Companies receiving agriculture subsidies should be on the list, too. (Feel free to remind me of any I may have forgotten.)

What we could do for the workers
The vested-interest folks like Levin keep mentioning the "one million jobs" connected to the auto industry—as if I'm supposed to think that the USA will lose that many jobs if we don't turn Detroit into a federally-funded Jurassic Park. Sorry, Sen. Levin, that scare tactic doesn't work as intended on me. Many of those valuable workers would not be willing to work for the government if we could help them through the transition to a new place of work, where their skills will not only be needed, but also utilized effectively.

Quick analysis: How many new cars will US consumers purchase in 2009, 2010, 2011, and on and on? Let's say it's "x million" cars. In other words, consumer demand will require the automaking industry to employ enough workers to make x million cars—even if Studebaker, Packard, DeLorean, and General Motors are not among the industry's employers.

Because much of our domestic automaking capacity is very competitive in the world market, especially when selling into the US auto market, most of those jobs could stay right here. One short term problem: many of the skilled, productive auto workers live in the Detroit, Michigan area, but most of the manufacturing facilities run by healthy, competitive companies are located south and west of Detroit. So, to ease the pain of transition, why not use federal funds to subsidize the cost of matching up workers with viable companies, and the cost of moving workers to their new job locations? It's true that Michigan, already losing population, would shrink even more (see below), but it would put government bailout money to better long-run use: helping productive workers get employed by viable, competitive, domestic companies—some of which would no doubt have to expand their production facilities in addition to hiring extra workers.

(Link)

Which domestic companies am I talking about? Oh yes, I almost forgot to mention them: Toyota, Honda, Nissan, BMW, and others, mostly located in the sunbelt, south and west of Detroit. When consumer demand awards them with what is now GM's market share, they and their suppliers will need more employees to handle the extra volume. What our government should do with at least some of our tax dollars and bond proceeds is make it easier for motivated, skilled auto workers—those who'd rather not wear park-ranger uniforms—to move away from Jurassic Park, Michigan. To a "sunnier climate," if you know what I mean.

I'd rather subsidize thousands of moving vans one time than thousands of hungry dinosaurs forever.

The "Socialism" debate

Our government's unprecedented interventions in the economy are evoking charges of "socialism" from people who should be just a little more careful with that word. 

Within a few days, I'll have a lot more to say about the GM bailout now being contemplated by our current and future leaders in Washington DC. For now, I just want to draw a line that apparently isn't clear to at least a few who have been carelessly tossing the word "socialism" around. Specifically, whenever one side of the GM-bailout debate says it would be "socialism" not to let GM fail, the other side says "Well, it was 'socialism' to bail out financial folks, so stop complaining." 

Good point — sort of — but let's not ignore one extremely important difference between keeping a financial firm afloat versus keeping a car company afloat. The ultimate responsibility for the integrity of the money side of our economy rests with the government; but the ultimate responsibility for the real goods-and-services side in a capitalistic free-market system is almost always the market. 

Below is a graphic illustrating the point.

Money is the lube for the real economy, and it moves in the opposite direction. (When we buy laundry detergent, the money and the Tide pass each other as they move in opposite directions.) Money soundness is the (ultimate) responsibility of the sovereign government (...because the sovereign is the only entity with the authority to define what "money" is, control its sources, and define how it's to be used). In our recent crisis, it would have been highly desirable to allow the market to punish the financial idiots and gluttons who failed to do the jobs they were hired to do — if those failures had been compartmentalized sufficiently. But they weren't, and as a result, the entire money side of the economy was threatened with collapse. 

Guess what a collapse of the money side of the economy would have done to the real goods and services side of the economy. (No hints are necessary, I hope.)

So, if "socialism" means government intervention where government really does not belong in a properly-functioning free-market system, the case for using that word is far weaker when the subject is the money side of the economy. That's a fundamental difference that should be getting more attention in the GM-bailout debate.

GOP eats wrong end of shotgun

The GOP committed suicide -- not last week, but sixteen months ago -- by employing dogmatic hysteria to oversimplify the immigration problem. Tom Tancredo and friends, afflicted with a myopia that makes Mr. Magoo look like an eagle-eyed sharpshooter, convinced enough Republicans to eat the wrong end of a political shotgun for lunch. That was in June 2007; the election last week was merely the cremation, not the suicide. 

First, an excerpt from my article of sixteen months ago:

If the Republicans kill the [immigration] bill, driven by their own irreconcilable base, they will leave it to the next president — very probably a Democrat — and two Democratic houses of Congress to pass the liberating legislation. The GOP will have delivered the largest minority group in America right into the hands of its adversaries.
-Dick Morris

Now the numbers are in. Turns out, Morris was right:

Nationwide, Hispanics voted 67 percent for Mr. Obama and 31 percent for Senator John McCain, according to Edison/Mitofsky exit polls. In 2004, Senator John Kerry won 53 percent, while 44 percent of Hispanics voted for President Bush...

Hispanics are the fastest-growing block of voters, and the GOP immigration geniuses ceded most of them to the Democrats. Bush and McCain were on the right side of the immigration issue back then, but they got shouted down by their own party.

This is good. Even though there are still those who think the only "solution" to illegal immigration is mass roundup and deportation, they won't get to hog the stage any more. Now there's a lot more room for those of us who think much of the problem is the far-too-sluggish rate at which our government allows productive people to fulfill their dream of legally becoming US citizens. Why is it that those who think "illegal" is the key word just can't seem to conceive that maybe, just maybe, it's the law itself that's flawed, instead of the all the people who broke it, or all those who couldn't enforce it?

Baby boomers should remember this: Social security checks depend on the growing output of a productive economy -- and the economy's total output equals output per worker times the number of workers. Guess what an effective, accelerated immigration law does: it increases the number of productive workers. Guess what xenophobia does: it decreases the number.

Do the math. What we should be doing is welcoming new, productive people into our economy, and at a much faster rate -- not keeping them out, or deporting those who chose not to wait in our decade-long line of applicants.  There are other, much better ways of handling those problems. And if we don't do that, we should prepare ourselves for smaller, shrinking numbers on our future social security checks.

Did Tom Tancredo and his friends think that through before pulling the trigger on the shotgun? Obviously not. In any case, it's over. Now the Democrats are in a position to craft an immigration law that -- surprise, surprise -- strongly favors those who would be likely Democratic voters; in other words, we shouldn't expect the quota on H1B visas to change much. (Might some of us independents be able to influence the outcome? Maybe, but it doesn't look good.)

RIP, GOP -- and that includes soon-to-be-ex-Representative Tom Tancredo. The voters predictably decided that, instead of rounding up twelve million "illegal" immigrants and sending them back to their own countries, it's better to send a few busloads of different legislators to Washington, DC.

Obamanomics: Which will it be?

Barack Obama will be a president with a talent for communicating and uniting that could rival or even surpass Ronald Reagan's talents in that regard. That will be an immediate gain for the USA, in a big way. I look forward to that change; it will be like night and day compared to the last eight years.

Going forward, we obviously have some big problems to solve, and many of them are economic problems. "Obamanomics" seems to be the label his economic program is guaranteed to earn — regardless of how his administration's program actually ends up taking shape. 

It seems to me there are two different umbrellas under which it could evolve: one I will support wholeheartedly, and do whatever I can to help; the other I will resist vigorously. I'll decide which approach to take as soon as I see which of two possible definitions "Obamanomics" seems to be settling on.

We can all agree that we have problems, and victims of those problems.  But we can't unite to attack the problems or help the victims until we've come to general agreement on who the problems and the victims are, can we?

Here are the two possible umbrellas under which Obamanomics could take shape, to attack our "problems" and help the "victims":

"Obamanomics" — choice 1:

The problem: Rich people.
The victims: Non-rich people.

"Obamanomics" — choice 2:

The problem: Dishonest, greedy, incompetent people.
The victims: Honest, moral, productive people.

I will vigorously support "Obamanomics" if the second version wins out over the first version; if it doesn't, I will resist. Right now, in the wake of the Obama campaign, my thoughts boil down to good news/bad news, as follows.

 • The bad news: Obama's campaign rhetoric, expertly-crafted to win votes, seemed to favor the first version of "Obamanomics";

• The good news: It was campaign rhetoric, expertly-crafted to win votes — but still "morphable" into the second version of "Obamanomics." 

Which will it be? We'll see.