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Saturday, December 3, 2011

The Tenth Anniversary of ENRON

This is one of the things that really puzzle me about how decisions are made in Washington.  There is an absolute refusal to learn anything from real life.  If there was any lesson from Enron, it is that markets are NOT self regulating, and there is an important role for government to play in the conduct of financial affairs.

Yet Robert Rubin, Larry Summers, Ben Bernake and Timmy Geithner, to name a few, repeatedly take the position that markets are self regulating.  That strikes me as absolutely insane!!  Remember that what Enron people did was so egregious that people went to jail for long terms.  One of those crooks is still in jail.

If you think what Enron did was not important, search what happened to everyone who worked for Portland Electric.

Fast forward to today.  We are deeply in need of jobs.  As many as 30 million Americans are without jobs, or under employed.  Small businesses create 70%+ of all new jobs.  No one seems to argue with that fact.  Small businesses are not hiring people because their businesses are seriously down.  Their businesses are down because their customers don't have jobs, or have poorly paying jobs.

So the big idea in Washington is to get cash into the hands of people who are then supposed to spend it in small businesses, so small businesses will hire the unemployed people.

But that does not work.  It has been tried three times, starting with the $500 check George Bush sent you.  75% of the people who got that check used it to pay down debt, or put it into their savings account.

The exact same thing happened with the Payroll Tax Cut.  It is such a predictable activity that it has a name in economic theory, "The Savings Paradox".  Consumer saving is now at a recent high and consumer debt is currently being paid down rapidly.  People (that's you and me) are behaving exactly as theory and reality would predict.

But The Cowardly Lion and the Idiot Congress are arguing about doing the Payroll Tax Cut again.  That is stunning stupidity!!

I am still trying to understand why this behavior is so regularly repeated in Washington, and I will return to this subject when I have some better insight.

Any ideas that you have would be welcome.

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