A key to economic recovery you won't hear much about but should watch for...

Accountability. That’s it.

It is a key driver to our economy. So where are we now? For the last few years we have been in a world of little to no accountability. Until we hear language that is restoring accountability expect little to no real recovery.

So what will signal accountability? (note: For the overly partisan who may read this note that many of these ailments have been pushed by both parties. )

- As long as the government is trying to either stop foreclosures or puts a moratorium on them the housing market is shot. Prices must go down and inventory must switch hands. Until we stop the notion of keeping people in houses they cannot afford we are in trouble. So this is a key piece of language.
- Until the government fesses up to its to its role in the financial crisis we have no chance of undoing the problem. That means we got problems until you hear everyone
o Recognizing the poison that the Community Reinvestment Act plays a huge roll in setting up our current situation. Not the concept behind the act but how it has been given teeth and been abused
o Stating that our implied guarantees through Fannie and Freddie caused a huge part of the moral hazard. And our collective unwillingness to remove to guarantee OR discuss the risks was a failure of government
o Pushing for homeownership as a right is destructive (see above)
o Changing the banking capital reserve standards to a formula (BASEL II) instead of a ratio was a mistake
o Acknowledging The Graham Leach Biley act in 1999 set up huge parts of the problem
- As long as we here of the concept of “too big to fail” or how we govern that we are done as a growing, innovative economy. Pushing these ideas destroys the powerful and necessary force of creative destruction
- As long we try to prevent people from owning their own health care responsibility we will be destroying a huge segment of our economy. Not recognizing that Medicaid needs to cut service levels, Medicare and Social Security needs to move the age of eligibility to be continually indexed with life expectancy are examples of not being accountable to our decisions. If we hear the opposite language that is a positive, directional indicator.
- Until the government starts talking about budget surplus we are not owning up to the national risk of our debt and deficit spending. This is a toxic time bomb in our economy we have to deal with.
- We cannot protect people from themselves. If the consumer protection agency that is being is being proposed goes through you will see a destruction of economic engines in our economy. You cannot protect people against bad decisions – just fraud. Those laws are on the books already. We are now trying to regulate for lacks of judgment. Game Over. It is wrong when we do it in the social world and it is wrong in the economic world. You cannot have it both ways.

Until we see a language of accountability in our economy we will not grow. And yes this means failure, but failure does not mean loss. As long as we hold our economy and individuals from the responsibility of our choices we cannot recover long term. And unfortunately I see another 2-3 years at least of this language. So expect a second recessionary dip and little job recovery of a permanent nature until we all start hearing the language and actions of accountability.

Why everything DC tries does not work...

How much does your hand raise the level of a full bath tub? This question is used to show the minimal impact many of our actions can have on a system. What if instead of a human hand in the bathtub it is an 9,000 ton gorilla jumping in the bathtub?

And this is basically where DC goes wrong. In trying to address appropriate issues of the day the government mindset does not recognize that its focus needs to be a small first steps towards an issue not comprehensive overhauls.

Much like the act of measuring an experiment can change the results for that experiment (quantum physics people swear by it)government cannot fully engage with a problem without fundamentally changing the problem in unpredictable ways. Which leaves us with two outcomes possible; either a solution that no longer addresses the problem as it lives or trying to fix the problem to a stationary point which then institutionalized the problems and prevents innovation towards solutions.

Instead of jumping in the bath tub the government should be extra careful to always try to put in a baby toe and disturb the system as little as possible.

Lets look at how even small decisions can have huge impact.

1) a weak dollar policy - started by Bush and being continued. Has caused a huge spike in commodities pricing. Including oil which has fueled the nation states of Venezuela and Iran etc...

2) changing the leverage and capital reserve ratios from a fixed number to one based on a complex financial model (Basel II) - this allowed financial institutions to massively increase their leverage which made their implosions that much more damaging

3) Changing the rules on cloture voting in the senate. In 1975 the senate changed the rules for cloture from 67% to a flat number of 60 votes effectively changing it to 60% to shut down debate, discussion or filibuster. This allowed the party in power to have significant more control and is one of the key accelerators in both the partisan nature of the debate and the extreme legislative agendas that have been continually pushed upon the american people.

None of these were done with massive debate or large votes being tracked by news alerts and C-SPAN and yet these have had huge impact on our economy and world. And note that this is an ailment that both parties tend to suffer from.


Instead of debating massive overhauls of policy, regulation or the economy our leaders need to deal with the reality of the damage they can cause with their decisions. The bigger the decisions the bigger the waves. Our policy focus should be on simple first steps.

For example, health care should not be looking at massive reform but instead should focus on a few small first steps. Steps like selling across state lines, focusing on fraud enforcement, individual benefits having the same tax treatment as company benefits and pooling of associations and individuals are all low cost and small first steps that we should look at before we even consider the larger options that are already being designed.

The more big program we look at the more perilous our economy will become. As you look at the structures put in place and policies being proposed you should ask yourself does this policy show the smart approach of small steps before big ones? Or is it making the same mistake DC always make?

Thinking about the future

There is a power of looking toward the future.

1) it can sometimes let us think past our current limitations and expand possibilities on the horizon

2) in looking at our thoughts as to where we will go we have to understand the consequences of our current actions

3) we can look at our current situations and pressure and figure out where that may lead us - in doing that we one, can get better at noticing these things and two, we can begin to look at how to respond to these pressures and factors we see coming in the future

And that is what I hope this blog gives me the opportunity to do when it comes to current events and policy.

So each post will try to do one of those three things (or all three in many cases)

- look at what we should be thinking about for our future
- look at the potential consequences of our current directions (positive and negative)
- make some forward looking predictions and see how they bear out against reality


Lets see