Feel Good Politics

“The government faces some very tough decisions in the months ahead. The very real concerns over the growth of our own debt must be balanced against the need to nurse the recovery along. Washington deserves to hear our voices as we express our own opinions on the amount of debt we’re willing to carry versus the benefit we’ll receive from its creation. The most important thing is that we force them to recognize the very real issues at hand and not allow them to sit by idly as our economy pushes towards our own unsustainable European outcome.”

That was my closing paragraph in December of 2011. Apparently, the politicians were too busy with re-election plans throughout 2012 to do any damn thing about any damn thing other than ensure their own welfare, care packages and raises in 2012. Fiscal Cliff? Debt Ceiling? Payroll Tax Extension? Tax Reform? It’s starting to look like half of our governing officers jackhammer potholes just so the other half will have something to fill. Meaningful legislation and the idea of elected public servants has simply become a yearning for the, “good old days.” The reality is that this is exactly the same type of yearning that guarantees the perpetuation of this futile cycle.

The grandiose version of this cycle is that we should all have everything we want, when we want it. It’s been pounded into our brains through mass marketing that tells us we NEED their new product. It’s been made available to us through buy now pay later, lay away, credit cards, refinancing and high interest paycheck loans. Finally, our government who encourages us to spend, spend and spend endorses it. Everyone deserves to own a home and the only reason 98% of us don’t have more is because 2% of us have too much. Frankly, we’ve become an insatiable society that feeds off the entitlements garnered by our individual representatives.

The psychology behind the society we’re quickly becoming is best viewed through Dr. Loretta Breuning’s satisfaction experiments with monkeys. The applicability of this train of thought requires the general public to assume the role of monkey and we’ll place the government in the role of experiment coordinator, Dr. Loretta Breuning. She showed that monkeys fed the same diet are perfectly happy and well adjusted. She then adjusted the flavor of the leaves in their diet to be super tasty. The monkey’s appreciate the new flavor and quickly favor it above all other foods. The final step is the monkeys’ observed behavior when the leaves are returned to their normal flavor. The monkeys react with rage, even though they were perfectly happy with the same leaves prior to the experiment.

The exaggerated negative response to the leaves returning to their original flavor clarifies the human principle that losing something that was given elicits a much stronger response than unexpectedly gaining something new and pleasurable. Our minds focus on what we’ve lost, rather than what could be. Similarly, benefit programs and economic stimulus generate a much stronger negative response upon their repeal than the positive response generated upon their implementation.

This axiom holds true at the individual level as well as for the economy as a whole. This experiment, in greater detail, also showed that the positive effects of the new flavor were short lived. Therefore, positive reactions diminish much more quickly than the negative ones. This aspect of her work compares favorably to the diminishing returns of economic stimulus programs. For example, there have been three rounds of quantitative easing. Each round has provided a smaller bang for the buck than the previous round. Comparison in an apples to apples format would show that when we as individuals and when the economy as a whole expects another handout, the less we appreciate what we’ve already been given. However, the removal of those handouts will create an alarm that rings far more loudly than the chorus of, “thank you,” could ever be.

The politicians from small towns to Washington D.C. are all aware that their livelihood rests upon election. Therefore, in their own self-preservation they must introduce more special interest bills to replace the specially flavored leaves of the previous administration and heaven forbid they should try and take away what has already been given. This is what the, “fiscal cliff” has brought us. “Grand Compromise?” Hardly.

The agreement to raise taxes on the top tier and extend the unemployment benefits has done nothing to solve the cultural dependency of handouts for votes that has gotten us into this mess to begin with and will increase the Federal debt by $4 TRILLION over the next decade, according to the Congressional Budget Office. The votes bought by the politicians and paid for by us continue to push us deeper and deeper into the same economic ditch as the European socialist governments.

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.


 
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