UNDERSTANDING OUR NATIONAL DEBT by Richard A Karlin

RUNNING IN LOW GEAR CAUSES ENORMOUS DEBT

Let us start by considering a gasoline, spark fired, car engine.  As you will see, there is a lot of similarity between such an engine and our economy.  The engine runs off gasoline, the economy runs off money.  The engine has a gear box (automatic hydraulic of course).  If you clamp the car into its lowest gear, and rev the engine way up, the engine will run like mad, it will use gasoline like crazy, but the car won’t go very fast.  Running a gasoline engine in lowest gear uses lots of gasoline, produces very little motion, creates a lot of debt.  Bad idea!!

Running an economy in low gear uses enormous amounts of money.  There are things you must do 365/24/7, even on Thanksgiving, Christmas, and the 4th of July.  You have to supply water, electric, sewage treatment, emergency services, teachers and schools, medical and hospital services, on-and-on-and-on.  You have to pay military people, rangers, coast guard, border guards, court personnel, and on-and-on-and-on.  For example, the Supremes and all Members of Congress get full pay and expenses even if the economy doesn’t produce so much as a Tootsie Roll.  Yes, you can lay some folks off.  But remember, there are still 310 million people out there, and the ones without jobs are more trouble, not less.  The economy must provide all critical services and needs for 310 Million people, 365/24/7.  Running an economic machine in low gear produces enormous debt.  It is a really, really bad idea!!

CHOP CHOP CHOP DOES NOT WORK

Of course, you can chop chop chop away at the economic machine.  For example, you could close all of the Smithsonian and lay  all of its employees off.  You could stop paying unemployment benefits.  You can lay off police, firemen, and school bus drivers.   What this gets you is a Great Depression.  We shall see exactly why this is and we shall completely understand it.   For now, let us understand that an economic machine sucks much money even when it is way under producing.   I think a panel of 12-year-olds could understand this.   Unfortunately, some of our members of congress and some of our candidates, clearly do not understand it.

THE GREAT DEPRESSION

I was born in 1933 in the heart of the Great Depression.  I was too young to remember most of it, but I do remember 4-scoop ice cream cones for 5 cents.   Trouble was, none of us had the 5 cents.  (Hang onto that, it will help you get the picture here.)  You could go to an air conditioned theater for 4 hours on a Saturday afternoon (we would go to the Austin on Madison street in Chicago) for 12 cents apiece.  If my brother and I made enough noise, our parents would come up with a quarter and tell me to take him to the movies.  I don’t remember the Great Depression as anything you might want to rerun.  Browse through some stuff on it.  It will help you envision an economic machine totally turned turtle—all four legs in the air.  We will now proceed to understand how this happened and why, and how it might happen again.

POSITIVE FEEDBACK

This is a little bit tougher as ideas go, but we are going to get it.  Imagine that we have something that accepts input.  Start with the example of a wall-mounted toggle-style light switch.  Input is your finger flicking it up or down.  Output is lights on, lights off.  Part of your finger’s input energy is stored in a coil spring by squeezing the spring closed.  Once you pass the center position, the spring energy is used to snap the toggle full up or full down (whichever way you were going).  Why these extra parts to create this positive feedback??  Manually it is easy for you to open or close the switch very slowly, or even to leave it not quite open or closed.  An electrical arc can form and eat away the contacts; maybe start a fire.  The bang-bang over-center mechanism stops all this.   We want the switch fully open or fully closed, so the bang-gang positive feedback is a plus.  (Some modern toggles do bang-bang by letting an internal tube of mercury move.  If you have such a switch, you will not feel the bang-bang, but it is there.)

Another positive feedback example is a typical assembly room audio system.  A few microphones, some speakers, one or more amplifier.  If some speaker output feeds back into a microphone, we get uncontrolled howling.  This feedback will be positive for at least some frequencies, and those will be the howlers.  Positive feedback in audio systems is very bad, and we try to prevent it.

If you push or pull on something tall and thin, and it tips past its support base, it will fall over.  Positive feedback run a muck.  Positive feedback can be useful, but it can also be very dangerous.

ECONOMIC SYSTEM POSITIVE FEEDBACK

Let us go to positive feedback in economic systems.   A free-market economic system is loaded with positive feedback.  Positive feedback takes us in whatever direction we were going, but further and faster than we ever wanted.  Part of this is physical and a large part is psychological.

Let us start with the physical. Things have been turning a little slow and the county is facing a shortfall, so the County Board President  recommends laying off 10% of all County employees, without benefits.  After some moaning and pissing, and speeches about the virtues of County employees,  the County Board agrees and the layoff is made.   Chop, chop, chop.  Well, hopefully these people have some savings or can do some borrowing until they find new jobs, but they will be buying NO new homes, NO new cars, No PC’s, NO iPhones, and as little else as they can.  You have just taken an additional bite out of the economy.  Moreover, there is a ripple effect.  These people you just laid off spend less, so marginal businesses where they used to shop close, and other such businesses lay off workers.  Chop, chop, chop.  Ripple, ripple, ripple.  Each chop ripples into another bite out of production and leads to the next chop!!

That is the physical.  The psychological is worse. Fear is our strongest emotion.  It is genetically hard wired into us.  Probably kept us from being eaten or trampled by large animals and other humans.  All of us look at these contractions and react scared.  Our buying dries up.  Investment dries up.  More economic contraction.  More closures.  More layoffs.  Chop, chop, chop.  Ripple, ripple, ripple.  And each chop and ripple  reinforces the fear and adds to the contraction.

Reduced inventory is another positive feedback element.  A weakening economy changes inventory thinking (the fear aspect).  The manufacturer used to keep two weeks of everything on his shelves.  Now, faced with a weaker market, he cuts back to one week (a deeper cutback than the sales reduction, this is the positive feedback, psychologically induced!!), and the distributor sees this and halves his own stock, and the supermarket manager sees this and lowers his stock   So we have all along the distribution chain, stock reductions.  Chop, chop, chop.  Ripple, ripple, ripple.  Another set of hits to the economy.

Each of these contractions sets the stage for another even greater one.  And that is how the planet’s greatest economic engine shuts down and turns turtle. It’s just a long slide. Please note that there is nothing really complex about this.  Simple behaviors follow simple steps.  I really think a panel of high school students would understand this.  How low can our economy go??  The Great Depression was turned around by President Franklin Roosevelt, doing essentially what President Barak Obama is now doing.  It took longer than it should have, because congress balked midway.  They were worried about debt. The economy could collapse back to hunter-gatherer stage.  Most of us would starve.  I kind of think we would have a revolution long before that point, but there is no guaranteed bottom!!!!  “Only thing we have to fear is fear itself,” said President Roosevelt.

HOW DID WE GET HERE??

How did we get here?? Well, it spread over the last 4 terms, at least, and both parties.   Modified, easy to get mortgages sounded like a great idea, and allowed lots of folks to buy houses, and lots of developers to sell houses, and lots of banks to sell mortgages.  When many of these people defaulted,  the housing market fell apart, and the banks were badly burned.  The housing market is large and its growth had been strong.

The banks cut back on loans, tightening requirements.   This heavily impacted the automotive industry, because most people buy autos on credit. Also, the USA Auto industry committed suicide through stupidity.  Probably too many promotions from within.  Detroit is totally inbred.  Too much poor quality.  You would never know W. Edwards Deming was one of us.  Japan read him and they live him.  Deming is their bible.  The closest Detroit comes is to Prado-ize.  I won’t go into that, it will just make you nauseous.  Too much gasoline required to run their cars.  Too much of things like GM competing with itself.  The auto industry was revived by the Obama administration and is still on life support.

Lack of business supervision created additional problems.  Companies, corporations, banks, etc., are managed to make money for their shareholders, not to protect country or economy.  So suddenly no one was protecting the country or the economy.  Banks should never have been allowed to buy and sell all manner of derivatives. Wikipedia has a good discussion of derivatives.   A derivative can have value and make sense in banking terms.  It can also be an outright gamble, more properly belonging in Las Vegas.

STABILITY THEORY

Another way to understand the thing is that during any given week,  if the economic machine is in equilibrium, everything sold equals equals everything built equals everything bought, and inventory remains fixed.  If some event causes a big hiccup in sales, more is built than is sold and inventory increases.  If this continues another week or two, shelves are filled to bursting and all the money used to manufacture is getting tied up in inventory.  Cutbacks occur all down the line.  They effect suppliers.  If we are not canning much #2 can size product, we don’t need more #2 cans, so a #2 can building line shuts down.  An order for metal to make #2 cans is canceled.  Ripple!! Ripple!! Ripple!!

Ah, you say, but the system should re-balance.  If the problem is a limited one, it will.  Some other area or product may pick up the slack.  Or the companies involved may have sufficient flexibility to fix it with a modest work hours reduction, or perhaps a price drop, or a special discount.  When whole industries like housing,  automotive, and banking get hard hit, there is no modest adjustment.

A STABILITY MODEL

If the floor is perfectly stable, vibration absent, the air still, etc., you can balance a sphere on the tip of a cone, but the slightest disturbance will bring it down—completely down.  Now grind a hollow into the tip of the cone.  Give the hollow the same curvature as the sphere.  Now you can balance the sphere on the tip of the cone.  If you disturb the sphere a modest amount, it will settle back into the hollow.  If you give it a whack or two, it is gone—down the side.  This is an excellent model of a free-market economic system. Small changes get corrected (built-in negative feedback).  Large changes crash the system (Positive feedback run a muck).

MORE BUILT-IN STABILITY

Some things build-in more stability.  For example, Social Security builds-in stability.  Good economy or bad economy, social security checks go out.  Medicare builds stability into the system.  Annuities from any source build stability into the system.

NOT MORE COMPLEX

Some economics PhD’s may tell you that the situation is much more complex.  Kick their asses back out into the street.  The situation is not much more complex.  I can write you some partial differential equations, and some of the economics gurus will understand them, and some of my readers will understand them, but they will add nothing.  The situation is as stated above.  The cure is to get the economy moving in the up direction.  Psychologically supporting our 310 million citizens is important.  The breast-beating naysayers are a part of the problem.  We need to drown them (virtually of course.)  We need the government to purchase infrastructure improvements and additions to kick-start an upward climb.

THE GOVERNMENT ‘R’ US—WE ‘R’ THE GOVERNMENT

The real blame is ours.  Speaking about the government is nonsense.  This is a democracy.  We are the government and the government is us.  If you did not take a role, then you are part of the problem. The first and most important job for a candidate for office is to get elected.  His next most important job is to get reelected.  Getting elected to the USA congress takes many, many dollars.  Getting elected requires votes.  If you want something to happen, you need to communicate with your representative.  You need to pick a representative you trust and back that person.  You can send your representative an email.  No postage required.  No envelope.  Do not have to leave the computer.  You can make a contribution.  Even $5 or $10 will have an impact.  It says, ” I am serious.”   The candidate can pitch donors with deeper pockets saying, ‘hundreds of my people have contributed to my campaign’.  (Yes, they will keep bugging you for more contributions.  SO WHAT!!  You expect your representative to keep supporting your needs and position!!  LET THEM BUG YOU!!  You can say NO!!)

HOW DO WE GET OUT OF HERE, RIGHT SIDE UP, INTO THE SUNSHINE??

WE CRANK THE MACHINE BACK UP. One way around debt is to use the machine to create, repair, improve our infrastructure.  President Dwight Eisenhower created the Interstate road system because he saw what the German Autobahn road system did for them in moving troops and goods.  He wanted such a thing for his country, the USA.  The Interstate Highway System was great for us, but it is now falling apart.  Much of our infrastructure is falling apart.  The use of our economic machine to fix this is investment in our country, not debt!!  Another area that needs great investment is power.  Oil will be gone in 37 years.  (Yes, yes.  This is a guesstimate.  It could be 20 years.  It could be 55 years.  But it is coming.)  And getting rid of it sooner is a double plus:  a plus for going green, a plus for economics.  Solar, wind, water, and earth thermal are all good and are green, but they are all together a drop in a gigantic bucket.  We should pursue them vigorously, but realistically, all together, they cannot power the earth!! Natural gas will soon run out.  Organic stuff only works if everyone on the planet stops eating.  Coal is dirty and will give us planetary warming beyond our limit to quick adjust.  This leaves nuclear.  Yes nuclear is dangerous and creates hot waste, but it is preferable to freezing to death and we can use reactions which create less long life waste and reactors which are safer.  We can even manage a design where an incident does not cause 100 indicators to go ON!!  (HINT TO FUTURE DESIGNERS:  There is no living operator who can respond to 100 problem indicators at once.)

FINDING YOUR CONGRESS PERSONS

Google is one of the greatest things on the planet.  This endless sea of stuff on the internet would be useless without a great search engine.  Type US which it will understand as meaning USA or Federal, or type STATE which it will understand as meaning a State Government.  Type US Senator +  (5 digit zip) or US Senator + (Two letter code for state, such as PA for Pennsylvania).  I would type US Senator PA.  Google understands 5 digit numbers as a ZIP.  It understands the two letter state codes. If you don’t have a google toolbar on your browser, type google toolbar and search google.  Download and install the google toolbar.  Your US Senator search will pop your US Senators.  (And no, I don’t own any google stock and they do not pay me.)

So it is time to google your Senators and email them.  Here is my own google result and letters.  My google was US Senators PA

Senator Robert P.Casey is serving now and will continue to serve as PA US Senator.  I went to his web site: casey.senate.gov/contact

The/contact takes me to his contact page

There I filled out a contact form (this will be an email contact)

These were my comments:

I firmly believe that running the planet’s greatest economic machine in low gear creates more debt and waste than any alternative action.  Put our economy back in high gear. I suggest one way to do this is to repair our infrastructure: interstate road system, rail system, water and sewage systems etc.
Also design new Nuclear Reactors and test them at Idaho Falls, designing for breeding, low long life daughter nucleotides, and  safe operation.  We will need these for the post oil era coming shortly.  These are investments in our country not debts.
Our economic machine is the planet’s greatest ever.  Make it roar.

I received the following acknowledgment:

Thank you for contacting me. Your message has been received by my office and will be carefully reviewed by a member of my staff.

I sent the identical comments to Senator Arlen Spector, website spector.senate.gov/public/index.cfm?FuseAction=Contact.contactform

I received an acknowledgment.

Search US SENATE CANDIDATES PA  and you will be rewarded with sites for candidates for the coming election.  Joe Sestak is running for Arlen Spector’s seat.  Joe Sestak already believes all of the things above.  I have already given him my support.

A search for US REPRESENTATIVE 15217 (use your ZIP) will bring up your representative.  Also I am already in touch with my representative, Mike Doyle.

SO NOW READER, IT IS YOUR TURN. How about you contact your senators and your representative and comment to us.  Remember, there is no “Government”.  You R the Government.  You can steal my comments and use them as is.  You can edit, shape or massage them as you will.  You can start from scratch.  But do something—your country needs you.



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