American Twits

When I first started offering up blog comments on Filipino Voices a couple of years ago, a number of people would get upset that an outsider would have the temerity (audacity, "balls", hubris, arrogance) to "instruct" Filipinos on how to live their lives. In my mind, their minds had a short circuit, viewing criticism as somehow being AGAINST the Philippines, rather than indicating an interest in seeing the country develop as a more productive place.

But over the years, the objections to my being an outsider have diminished. Possibly in part because I have tried (on occasion) to temper the bluntness of my observations. Possibly in part because others understand that I live here, too, and have a right to offer my perspectives. Possibly in part because people have bigger fish to fry than JoeAm's hangups. Or maybe they have become accustomed to my odd style or concluded that I am largely irrelevant.

But just to set the record straight, to let readers know that I am an equal-opportunity criticizer, I will today lay some unkind observations on the US.

I have commented numerous times that the United States is descending into a pit of shallow-minded deceits, where sound-bites and intentional distortions have become the foundation of dialogue, and it makes for a very angry, unproductive, bickering government and society. The TV generation is in power, turbo-charged to light speed by the internet.  By TV generation I mean those who, as kids, sat in front of the TV and had their brains zapped to mush by the passive nature of the electronic playground. They later learned new realities, those brought on by Jerry Springer, tabloid journalism and Fox News where salacious and biased content was touted as profound truth.

So that is one criticism that I've been consistent on.

Herein I propose a second. And, because this is a Philippine blog, I will make a connection.

There is a certain similarity between the Philippines and US in terms of "missing the boat" regarding how to advance the economic agenda.

In the Philippines, corruption is fought from the top down, with corruption police attempting to nail the chief offenders and scare the bejesus out of everyone else in hopes they will stop receiving payments for favors. There is no effort to rework the foundation that underpins corruption, such as the rampant use of favoritism as the basis for hiring and promoting people, or the failed judiciary that blocks people from having damages rectified.

Worker skill and productivity are largely irrelevant in the Philippines, as evidenced by the surly treatment you get from government and retail clerks and the shoddy nature of construction and manufactured goods. Because people have little career opportunity - cousins of the boss get the plum jobs - they grab the quick cash available under the table.  They don't actively set out on a clean career because aspiration is not in the Philippine lexicon, in any dialect. Ambition is a swear word. Quality is an accident.

To get rid of corruption, you have to give people other ways to move forward and even get rich. A career is one of them. And you need free, open and fair courts to allow people to right their own wrongs and start a groundswell of lawsuits against unfair business practices and localized cheating. Today, the people can see the corruption but are not allowed to do anything about it.

In the US, there is a rabid cry for JOBS, JOBS, JOBS that is completely detached from the realities of what happened during the Bush economic meltdown. President Obama blithely made the mistake of accepting responsibility for US economic performance without understanding that trillions and trillions of dollars of wealth had been ripped out of homeowner assets and he could not put it back on a wish and a prayer. I put his hubris in accepting ownership of the economy side by side with the Bush "mission accomplished" bluster. Whilst his chest was out, he got kicked in the balls.

The US is driven by consumer spending. Manufacturing is a shrinking part of the economic base. Cars, drugs and computer chips are mainly what is left. Textiles, furniture, toys, electronics, home wares, auto parts, computers . . . are made overseas. It is a service-based economy. Finance, auto maintenance, insurance, home repairs, electronic communications and utilities. Nothing is created except service, and much of the purchase of such services is a discretionary choice.

Americans, faced with underwater mortgages or diminished home equity, are being highly discrete. They are not spending. They are paying off credit cards and holding onto what cash they can eke out.

The US government's idea is to spend tax money to create jobs. But that ramps up the borrowing hole and it risks becoming so deep that it becomes a gigantic  financial black hole sucking everything nearby into its tight non-existence.

If the government really wants to create jobs, it does not need to pay for bridge-building. It needs to insert a bit of bubble back into American home values. It needs to help consumers feel more at ease with their own financial situation, even if one of the kids or the neighbor is still unemployed.

"This will be the mother of all jobless recoveries!" touted one economist midyear in 2009. Sign that dude up as seer of the decade.

Except we have yet to get very far into the recovery part. We are still in hunker down mode.

As the US found it necessary to buy a stake in GM and Bank of America, it needs to assert ownership of the national mortgage warehouses to stabilize the place where banks sell long term mortgages. Banks need the facilities to get long-term obligations off their balance sheets. The Mac brothers, Fannie and Freddie, are so battered that they are beyond saving. They need to be nationalized and reconfigured. 

A 30 year-mortgage is a big chunk of inertia in a bank's lending power. It constrains what a bank can do on the liability side (deposits) because banks work hard to match the maturities on assets (loans) and liabilities (deposits) to insulate themselves from rate shifts.

(See "Bank Asset and Liability Management", Google search.)

The trading of synthetic instruments pinned on mortgages is what collapsed during the Bush mismanagement era. That is what in turn froze the banks; they stopped lending because a big part of their liability book was turning bright red. They are still frozen and do not easily lend to homeowners. Or businesses, for that matter.

So to get jobs, the US needs to: (1) unfreeze banks so they can again start pumping out leveraged wealth in the form of loans, and (2) transfer some paper wealth to homeowners so they feel a little more willing to spend their real cash wealth.

This is so much more effective than trying to create jobs one at a time. It unleashes the whole of US consumer wealth.

That makes a recovery, a real one.

Now the specifics of HOW (1) and (2) can be accomplished is the subject of later blogs.

My point here is that the US, like the Philippines, is spending too much time on the Band-Aid and not enough time on the illness.

In the US, work on the foundation. Leverage wealth up. Don't build a deficit hiring people who don't create much wealth.

In the Philippines, work on the foundation. Give people values other than quick cash under the table. Give them career opportunities. Don’t continue supporting a culture of favors that ignores productivity.