Post Hoc Ergo Propter Hoc Or: The Rooster

V.P. Ferguson was, to say the least, an unconventional student.

He arrived at the University of Mississippi from Columbus in the early 1950's and became a legend in his own time. He was especially renowned for a touch of irreverence. He was said to have hung a copy of Sallman's Head of Christ on the wall in his dormitory room, but replaced the eyes with a doll's glass eyes that were wired to follow a visitor as he moved about the room.

A talented musician, V.P. organized a dance band, whose jazz repertoire included a version of "The Little Brown Church" and other jazzed up hymns, arousing disapproval in some circles.

One year, V.P. was upset that the University increased dormitory rent. He refused to pay the rent, instead pitching a tent nearby. One morning, he arose just before official sunrise and put his trumpet to his lips. Just as the sun peeked above the horizon, he played a rousing fanfare, and announced to the gathered audience: "and now, courtesy of V.P. Ferguson, I present - the Sun!"

I just learned that V.P. Ferguson passed away last year in Paris, where he had lived on the Left Bank for many years as a science fiction writer.

Does Anyone Understand What's Going On?

I've been working on a hypothesis, but I'm having trouble making it testable.

You may recall that while no scientific hypothesis can be proven, it can be tested to see if it can be disproven. My hypothesis is that the world is run by fools. I'm having trouble formulating it in a way that can be disproven.

It would be simpler to form a hypothesis that most TV announcers, analysts and commentators don't know what they are talking about, especially (but not only) concerning economics.

This evening we were told by ABC that Standard and Poors' downgrade of the US Government's debt rating caused the stock market fall and that the remedy is to get Congress back and do more cutting of expenditures.

Wrong!

If S&P's action had any effect at all, it should have driven up interest rates on US Government T-Bills and Bonds, as lenders insisted on a higher rate as a cost of borrowing. In fact, the rates have gone down, indicating a flight of capital into the very instruments S&P downgraded. The world still sees US Treasuries as the safest harbor for capital.

So what did cause the fall in the stock market? Evidence suggests that after last week's debt limit deal, some investors recognized that the deal included no measures to increase aggregate demand or otherwise get a sluggish economy moving. Furthermore, it appeared politically impossible to take any positive action because of Republican intransigence.

It may be that program trading caused even more of a decline.

What I heard on ABC tonight was pretty consistent with Paul Krugman's description of the prevailing "stupid narrative." Here it is:

"August 8, 2011, 2:51 pm

The Downgrade Doom Loop

It’s not the whole story, but something like this threatens to develop:

1. US debt is downgraded, sparking demands for more ill-advised fiscal austerity

2. Fears that this austerity will depress the economy send stocks down

3. Politicians and pundits declare that worries about US solvency are the culprit, even though interest rates have actually plunged

4. This leads to calls for even more ill-advised austerity, which sends us back to #2

Behold the power of a stupid narrative, which seems impervious to evidence."

This isn't rocket science, but it IS very different from managing a household budget.

First: Spend money to put people back to work. That will actually reduce the budget deficit in the short to mid term.

Then: Fix the long term problem by paying for the programs the people want!

I say: let the Bush tax cuts expire - if need be, for everyone.

Town Dock II

Oriental's town manager submitted a grant proposal last Friday seeking Boating Infrastructure Grant funds to use in addition to town funds for a new town dock at the foot of South Avenue.

This proposal will make best use of the end of the town's right of way leading to the harbor. It represents the culmination of the effort to reestablish public access to public trust waters and protect public use of this area.

There is no guarantee that the grant will be awarded, but initial reaction seems positive.

An ancillary benefit of the town's request for a CAMA permit for the pier, is that the permit will also be issued to cover a bridge over the upper reaches of Whittaker Creek to be used for a bicycle/golf cart path connecting White Farm Road with the village of Oriental. Such a connection was included two years ago in the Comprehensive Transportation Plan for Pamlico County.

The Town of Oriental needs to have its own Comprehensive Transportation Plan in order to seek DOT funds for bicycle and pedestrian paths.

By the way, the town's new Gator will make it possible for public works personnel to access the proposed path for maintenance.

Keep up the good work!

Austerity Advice

Here's a graphic survival guide from the New York Times for our coming period of austerity.

Gator Aid

I've been reading up on the John Deere Gator line of utility vehicles.

Those who attended last week's meeting of Oriental's Town Board learned of the town's recent purchase of a John Deere Gator utility vehicle. As we learn more about the vehicle, I think we will conclude that it is the right size and mix of capabilities to expand the ability of our public works department. It is also likely to save money. Just using it as the vehicle for reading meters will result in a substantial fuel savings.

And it does so much more. It is a dump truck. It can tow a 1500 pound trailer. It goes off road and can access areas requiring maintenance that are inaccessible by our current pickup trucks.

I think it will be a force multiplier for Public Works.

Coburn: Destroy to Save

In a 1968 report by AP correspondent Peter Arnett concerning the fate of Ben Tre, a provincial capital of Viet Nam, an unnamed major observed that "to save the town it became necessary to destroy it."

This sort of logic happens in war. Senator Coburn of Oklahoma, in concert with Joe Lieberman of Connecticut, has brought the concept to Medicare.

Last month the two senators joined in an effort to reduce medicare benefits in an effort to "save" the program. Once they get through "saving" it, though, it will not be possible to see the existing program through the rubble.

I remember last summer during a series of town meetings, one Republican critic of health care reform shouted: "keep the government's hands off my Medicare." I join in that sentiment.

Standard and Poor Showing

So Standard and Poor's has downgraded US long term debt.

That plainly represents a political judgment rather than an economic one. S&P explains it this way:
“In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population’s demographics and other age-related spending drivers closer at hand.”

Pardon me if I don't genuflect toward the rating agency that gave a triple A rating to bundled sub prime mortgages. That mistake helped bring our entire economy to its knees. And, as Robert Reich points out here, if S&P had done its job and accurately assessed the risk, the bubble wouldn't have been so large and so destructive.

The downgrade could be very bad news for every American with any debt. It is a direct consequence of S&P's previous failure, coupled with irresponsible Republican intransigence.

We won't know until Monday how this news will affect the market for US Treasury bills, notes and bonds, all of which have been trading at very low interest rates. We also won't know until the Asian markets open Sunday evening (our time) how equity markets will react.

The Wrong Trousers

Last Tuesday, America put on The Wrong Trousers, programmed by a larcenous penguin (played by Eric Cantor) to steal prospects for middle class prosperity. The larceny is nearly completed when Wallace (in the role of America) is awakened by an alarm (stock market decline), starts removing the trousers and begins an effort to bring the larcenous penguin to justice, aided by Gromit (played by Paul Krugman, Brad DeLong, Mark Thoma and others).

Watch the movie. It's more entertaining than actual events. Let's hope America wakes up in time, finds the correct trousers and celebrates with a bit of cheese..