Thursday, October 08, 2009

Check out Fast.Forward. on YouTube

Sunday, August 02, 2009

The U.S. Economy -- 18 months into recession

In my last posting, I made the statement that "fundamental" factors were weak or absent in supporting the theory of an economic recovery ("green shoots). What exactly are the fundatmental factors for us to monitor and consider?

- Unemployment
- Consumer Spending
- Consumer Debt

The US economy appears to be stabilizing, and perhaps it has reached the "half-way point" or the "bottom" of the present recession. What is driving this confidence? Government spending and cheap money are the dominant reasons. Many people commented upon my last post with warnings of "excessive government employment and spending." They may well be right. Our government increased expenditures and direct payments to our citizens by 6 percent last quarter according to the Financial Times of London. Also, the federal reserve is "printing" money by keeping interest rates near ZERO, making the residential and commercial real estate crisis seem less intense. These same dollars are chasing the stock and bond market and driving them upwards.

So back to fundamentals: if consumers spend less and save more in order to lower their household debt (mortgage, second mortgage, credit cards), then the economy will not recover to 2007 levels. Consumer spending accounts for 60%+ of our GDP. The fear of job loss or lower future incomes, or the reality of high and increasing unemployment, will also depress consumer spending. Obviously those out of work will spend less. And while it is a bitter pill for us all in the short-term, households, much like our government, need to lower our debt burden.

This is all to say that I believe we will be better and stronger after this recession, but the reasons will be 1) lower household debt with some lasting lessons for savings versus credit 2) fundamental shifts in our employment patterns from less productive and competitive industries to more competitive and productive ones and 3) new processes and approaches to business. On this last point I am speaking primarily through software technology, but also through the elimination of "good old boy" networks and approaches which were more about "who you knew" and not "what makes most sense?" The recession will help to shatter inefficient business practices, and we should all be thankful for that.

Turning to the notion of investing today based upon the above POV, I think people should be buying equities with a 5+ year perspective. In th short term, I believe that there we may see a correction as the S&P 500 approaches 1,000, and therefore use of some inverse funds (I have previously recommended BGZ) may make sense to profit from any pull back. Another defensive strategy is gold (GLD) and food commodities (MOO).

Tuesday, July 28, 2009

Am I still optimistic on the economy?

I would say that my outlook is mixed. I believe that the panic has passed for investors. I believe that there is technical momentum in the market. But I am also concerned about the fundamentals of the economy -- commercial and credit card debt default, unemployment and finally, de-leveraging by households and its negative impact upon consumer spending. The financial marketplace has gone way up, but why? Earnings have exceeded expectations. But I worry about the quality of the earnings, and especially the impact of lower demand will have on declining revenues.

With that said, here are some thoughts on why we might want to be more positive:

1. The 2nd quarter of this year was better than the every measure save unemployment.
2. All the data is historical, so the real question is whether we have hit bottom. I think the answer is either yes, or we are very close.
3. The stock market is a barometer for economic activity. The cost-cutting has been aggressive and this has led to profit. Inventories are low. This is why the market has increased 40% since March 2nd.
4. Interest rates are near 0%, and this is good news for consumers -- mortagages, credit cards; and for businesses -- small and large.
5. The big downers are unemployment and job insecurity. But even these figures have been less extreme than expected.
6. We are not Japan -- we have immigration, innovation and vast resources which will keep us from stagnation and deflation.
7. There has been more flexibility in the labor force. Rather than strikes, employees have accepted furlongs and shorter work weeks and unpaid vacations. This has meant that we are sharing the pain more evenly than in the past.
8. Real incomes continue to rise as pay packages are going up for key groups -- education, energy and yes, financials.
9. China is going to do whatever it takes to both succeed itself, and keep its key trading partner (us) moving forward.
10. Brazil and India are doing better than ever before -- they appear to NOT be dependent upon the USA for recovery.
11. The housing market will recover. Our population growth will outstrip even today's excess inventory by 2011. High demand over supply means prices will increase.
12. Foreign investors love us. The dollar is the safe haven. Period. All negative commentaries about the dollar are silly.
13. The black economy is flourishing. Business goes underground in recessions.
14. The non-financial benefits of recession are grand -- waiters are friendly and plumbers are available.
15. Finally, Capitalism works. It is already self correcting and we will be better off for this painful recession.

Wednesday, May 06, 2009

A Recovery or a Reflexive Rebound?

April was good for stocks and generally for investors. The markets continue to move higher in early May as we get more information about housing, unemployment and the financial sector.

Are we seeing light at the end of the tunnel? Is it a train? Yes, there are those who argue that this is "going to be ugly for some time." There are arguments to be made supporting their position.

1. Banks may need to write off $4 trillion globally -- bad loans and worse investments. They could earn $400 billion in profit annually and we would still see a 10 year recovery period (source: Financial Times of London).

2. Consumers have radically increased savings by reducing spending and credit usage. When you strip away Medicaid/Medicare and other funny elements of Consumer Spending, you find that true discretionary spending is down 20%. If this lasts then yes, we are in for a prolonged recession or stagnation (no growth) for 3-5 years. At that time, net worth/income to debt ratios will be at historical levels (source: Wall Street Journal)

3. Related to numbers 1 and 2, "If you think residential housing was a problem, wait until the commercial real estate bubble bursts, followed by credit card defaults!" There are more than enough rumblings that banks are most exposed to commercial real estate and that prices are going to implode. Vacancies are up. Construction is down. Also, if unemployment stays at 400,000 or more each month, then credit cards defaults are bound to increase (source: USA Today, WSJ)

So am I a bull or a bear? More bullish, really.

I understand all three issues and recognize their gravity. But I stick to what I wrote last about the economy:

1. There is very little inventory overhang, so companies will recover quickly when demand increases.
2. Companies have down-sized quickly and perhaps excessively, to lower cost and improve profit.
3. Money is cheap and available to consumers and companies.

The wild card is emotion. If optimism begins then lots of virtuous cycles emerge.

1. Companies re-hire
2. Output rises, and with it profits
3. Consumer demand grows with employment, rising equity (and yes housing) markets
4. Growth begins again

We should all benefit from greater transparency and consistent regulation of financial markets.
We should all benefit from living within our means (save more, borrow less).
We hopefully can use this recession to fix some systemic problems in business and government.

Look for my new posts next week on the marketing and advertising industries specifically.

Monday, March 16, 2009

Free markets: if this is not the bottom, can we still be positive?

As bad as the news is, should we be optimistic about the future? Yes. When we read about massive job losses, and individual companies deciding to lay off thousands, should we be confident in the future? Yes. Why would I say such a thing? Four reasons:

1. Cut fast and cut deep. The worse thing any company can do in an economic downturn is ignore and put off what must be done. We should hope that the cuts announced are overly aggressive, and that they will not all be needed. We should want the biggest possible cuts to insure that they are not only realistic, but overly pessimistic. Trust me; the investment markets want realism and clarity. Honesty that sales will decline will be better received than false optimism in forecasts. By over-doing it, favorable comparisons of sales, and operations and profits will come sooner, thereafter leading to more employment, investment and growth.

2. Inventories are not a problem. This thing started in 2007. Even the automotive manufacturers were cutting production back then. The same is true of appliance manufacturers like Whirlpool. The truth is that inventories are not a problem, unlike past recessions. Yes, if demand falls to zero, then theoretically we have too much supply, but that is absurd. All industries are poised to ramp up production to meet increasing demand, and when they do, the profits will be real and significant. Employment, in turn will increase rapidly.

3. The cost of money is historically low. Companies will be able to invest and expand with an increasing margin. I would not be surprised if the US benefits disproportionately on both the domestic and the trade fronts. I believe that “outsourced” jobs in all sectors will come home in the next three years, and that simultaneously, our exports of all goods and services will rise. Yes, this poses significant problems for the rest of the world, but that is a subject for another entry.

4. Demand for goods & services are global and real. As odd as it sounds today, we will need to build more homes by 2012 to keep up with family formation in the United States. It seems unbelievable, but demand for all products in India and China exists; it has just been put off until we find a new equilibrium. Replacement alone for everything we have in our lives accounts for approximately 60% of our consumption today.
So be realistic, but do not panic. Be optimistic, because it will speed our recovery. Work hard and save, because this is the real lesson from the recession of 2007-2010…entitlement is dead.

Thursday, March 12, 2009

Free markets? Part 2

My friends, we are indeed in a severe recession. But should we call into question all of our beliefs in capitalism? No. The issue we face is one of financial market collapse. The collapse was not caused by the complex but rather by the simple. Many pundits will talk about the “CDO with ABS,” and yes, there was excessive financial engineering. But the real root cause of our troubles rests with institutions which lent money poorly. In my last blog post, I discussed my own observations as a young MBA graduating with a degree in finance from Wharton. We believed we should use advanced mathematics and some of the new learning’s from physics to “measure and eliminate risk.”” As the Financial Times recently noted, we thought we could “complete the markets.”

What would be an example of the “slicing and dicing” of traditional investment vehicles? I have discussed the dismemberment of bonds. The other interesting case study is mortgages. Perhaps it is now self-evident, but for my parents, born in 1938, the only mortgage they knew included 20% cash down payment and a 30 years fixed rate. Of course today, we have zero down payment, and no payments until 2010! Radio advertisements that sound like furniture store sales tout 1% interest rates for three years with as little as 5% down payment. The absurdity is that it continues and yet this is what caused much of the problem!

But why would banks lend to people who don’t have a job, a down payment nor a respectable credit history? Well that’s where the slicing and dicing comes home to roost. Banks used to generate a mortgage loan (literally, you would go to the bank and apply for a mortgage and speak to a bank employee). Then the bank would keep that mortgage as an asset (they own the right to receive both interest and principal from you). They made these loans based upon the checking and savings deposits, and the Certificate of Deposit held. But today there has been a radical separation of the process AND of the mortgage instruments themselves. Banks and “mortgage banks” generate loans – they accept your application and sell you a product (see above). But they DO NOT hold them. Indeed, because they do not hold them, they are more risk oriented in their lending practices. But who would be foolish enough to buy mortgages with a high probability of default? The answer is institutional investors and sovereign nations. Why? Because they were bundled together in large denominations, say $100 million dollars, backed by “quasi-government” agencies and given an AAA rating by Moody’s. With 1,000 to 5,000 individual mortgages with a “Collateralized Debt Obligation” the risk had to be reduced…right? Well, not everyone was so sure. That’s where Fannie Mae and Freddie Mac come in. They GURANTEED these debt instruments. But why did they do it when the risk of default was higher than in the past? Because of the Community Reinvestment Act, signed into law by Bill Clinton and extended under George W. Bush. This allowed FNMA and FDMA to accept mortgages into their bundling programs when the borrower had less than 20% down and when the rates were not fixed, and indeed highly speculative. This was done in the name of “allowing every American the chance to own a home.” So much for progressive intervention into the market.

But I would be remiss if I blamed the government. My main point here is that the “Masters of the Universe” thought they could use math to eliminate risk and make the markets “completely free.” And they were wrong. They gave the financial markets a false confidence. Those who did not understand the models were too embarrassed to say anything, and when people finally did question them, they were marginalized because the money was flowing and who needs a curmudgeon around anyway.

Let me go into some more detail. Banks originate loans. Fannie Mae buys them and bundles them into large assets then sold in the capital markets, primarily by long-term investors like insurance companies, pensions and sovereign funds. At this point, banks are free to lend more money. They do not have the loans on their books. The turnover of mortgages accelerated.
More loans were being made against the same capital base as before. Hence the risk had to be increasing. Now what about the “collateralized debt obligations” purchased in the capital markets? Didn’t someone wonder about the risk of these large hybrids of fixed and variable rate mortgages, and other corporate debt? Yes. That’s where derivatives come in, and insurance products against default risk. Companies started to sell insurance policies to protect buyers of these “Collateralized Debt Obligations of Asset Backed Securities.” But contrary to the idea that financial engineering was “completing the perfect market,” these securities and insurance policies were not traded. Moreover, because there was no market, there was no regulation. Ironically, a large majority of these securities ended up back with the BANKS! But they were not on their balance sheets. Instead, they were placed in off-balance sheet entities called “Structured Investment Vehicles” or SIVs. Since these instruments were not traded, they were not evaluated or “marked to market.” They were not regulated. They were evaluated by complex mathematical models which held the fundamental assumption that “spreading the risk wide enough makes it go away.” In reality, two things happened: First, people who could not afford a home stopped paying; and second, the banks (both commercial and investment) found that they indeed held securities in which interest payments declined and loans suddenly became real estate from foreclosures. As the reality set in, the “house of cards” collapsed, and is still collapsing.

Is this Armageddon? No. If you want to know the truth, we could just start over. Don’t believe me? Please pick up a copy of Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay which details the ponzi schemes of 1637 (tulip mania), the South Sea Company of 1711–1720, and the Mississippi Company of 1719–1720. Speculation led to a separation of financial markets from real economic activity. Sound familiar? We will survive, but trust me, it is likely we will do this again somewhere in the next 100 or so years…

Free markets? Part 1

I want to connect two seemingly unrelated intellectual points: evolutionism and Nobel Prizes in financial economics. What do they have in common? They both are founded on a belief in reason; a belief that math and science can explain everything.

Let’s start with evolutionism.

In Darwin’s Dangerous Idea, Daniel Dennett takes a philosophical and mathematical journey. This book is not for the faint of heart, but contains a couple of really challenging ideas as they pertain to faith and evolution. To begin, Dennett’s epistemology is Charles Darwin. This is the rail that his train runs upon. Darwin’s theory of natural selection posits that organic life is continually interacting with its environment and adapting to survive. To prove that humans evolved through this process, Dennett makes the following argument:
  1. Life is a near infinite mathematical game of chance. Just as it is possible to produce a winner of a contest to correctly “call heads or tails” 1,000 times, the Homo sapiens is indeed the outcome of a truly monumental decision tree.
  2. Dennett points out that over the course of millions of years, millions of “human-like” species were constantly trying to survive. 99 .999999999999999999999999999% failed.
  3. We are the outcome of this effort. We have existed for 10,000 of the earth’s hundreds of millions years.

Now this argument is nearly flawless in its simplicity. While it may be true that it does not deal with “why” life continued to press towards intelligence, consciousness and speech, I believe Dennett would argue that it was indeed random and not purposeful.

Dennett uses a fascinating theoretical example to prove his point. He says that chimpanzees have been taught to type on a typewriter (press keys). If an infinite number of chimpanzees were put in front of an infinite number of typewriters and proceeded to randomly press keys on the QWERTY keypad, Dennett argues that they would randomly generate The Canterbury Tales, the Old Testament, War & Peace, etc. They would also generate versions with minor errors. They would also produce meaningless babble. This is his proof that we evolved from a random experiment of trial, survival or death.

Let us now turn to economics and financial markets.
So what about the application of calculus and physics to modeling the behavior of financial markets? Well here I will give you a personal reflection. As a student seeking my MBA from Wharton in 1988, we were all introduced to the Black-Scholes mathematical model of the market for a stock equity, in which the equity's price is a stochastic process. It was used extensively in valuing put and call options. We were introduced to Markowitz, whose work on Efficient Market Theory won one of the first Nobel in economics for this approach. We were told, and for the most part, we believed that we could break down the “crude market” and its financial instruments, into discreet parts and by doing so, predict cause and effect through probabilistic outcomes.

  • As an example, bonds were originally pretty straight forward. A debt issuer (public or private) would receive a lump sum of money (the coupon) from a debt buyer in exchange for a promise to pay interest upon that amount, and then one day repays it. “Back in the old days,” a debt buyer would receive a certificate which had coupons around the border which were detached and sent into the debt issuer for payment. Upon maturity, the coupon would be returned for redemption. But when I was in school, new markets had started in the 1980s which separated the interest payments from the repayment of the “lump-sum.” The “coupons for interest” were “stripped” off the certificate and sold to a buyer who wanted just the stream of payments. There were called “strips.” The certificate leftover was called a “zero coupon bond,” and would be sold to someone who needed a “lump-sum” payment in the future.
  • This is just one example, but suffice it to say that “straddles” “swaps,” “puts,” “calls,” and all the other “financially engineered” products took off in the 1990s.
  • For home mortgages, FNMA, GNMA and FDMA were all established to lower the risk for banks lending to consumers. They allowed banks to sell off to these institutions those mortgages which conformed to certain standards – namely as 20% cash down payment and a fixed rate 30 year term. The bank would originate the mortgage locally. The government would bundle thousands together into the equivalent of a huge bond, and then markets would again split up the interest rates and the principle repayment. Imagine further how complex this became when the markets introduced variable rates!

I recall that most of my corporate finance and capital market professors worked as consultants on Wall Street and were trying to find ways to reduce risk, increase return, and basically try to tailor products to the exact needs of different types of clients. Well-intended, but as we now know, unsuccessful. The belief and early performance of these products led to an overconfidence. With the fall in REAL assets, like home values, and with REAL default due to poor lending practices, the confidence collapsed. All the rocket sciences could no longer understand the complexity of the system that they created…not in a systematic way. Rather, much like Mr. Dennett’s argument, the global financial marketplace evolved randomly. Each action was purposeful, but in aggregate they came together in ways that were not coordinated nor understood.

For me personally, I spoke frequently in the fall of 2008 about how the world economy and the financial marketplace would “learn and adapt.” I cited the savings & loan crisis of 1983-85, the Eastern European currency crisis of 1998, the “Asian Contagion” of 2003 caused by the collapse of Long Term Credit. For the US and world economy withstood the challenges and evolved. I’m not certain today. I am not as optimistic.

So how do parts one and two relate? Perhaps it is self-evident, and if it is not, my apologies.

Dennett argues that nature randomly generates something as unique as life. The corollary to economics is that a “completely free market” will generate perfect outcomes for all participants. Both are wrong.

The belief that everything is either determined by human reason – through math and science – to create and control “completely free markets” is also flawed.

So do we quit? No. We eat some humble pie, and we find the balance of freedom and regulation.

Tuesday, March 03, 2009

Where do blogs fit in the history of social media?

In my opinion, blogging is the first and one of the earliest forms of social media. Blogging is the first phase of “the wisdom of the crowd.”

As I have written before, the first websites were brochure-ware, controlled by Webmasters. After the “Dot Com” bubble burst, the web came back much improved. Some people call it Web 2.0, and some dispute whether it improved that much, but it certainly enabled anyone to participate, and to publish. Participation came with bulletin boards and forums, and participation came with blogs. Blogs let anyone sign up and start publishing. Of course for most blogs, no one knew they existed and did not read them (like mine). But even at their best, blogs are a form of “one to many” publication. Some blogs have "comments" but they are hard to use, hard to follow. They read like the dead sea scrolls...literally.

With Facebook or MySpace, you see the next evolution. Anyone can publish themselves, and others can comment or post or share photos and links. This is better but not the same as social publishing.

But there is a change on the horizon. Whether Wikia, or Ning or Wetpaint, a new evolution is arriving. They each present the first generation of social publishing platforms – the "many to many" model. A platform is created on any topic wherein everyone who cares to contribute can contribute.
My point is actually very simple...blogging is just a rudimentary form of "the wisdom of the crowd." The technology which allows anyone to comment on anything, known as blogging, is empowering. It makes no distinction between those qualified and competent, and those who are not. Blogging is not journalism. Journalists can blog, that is true. But journalism has legal and professional and commercial standards. Blogging does least not in the same way. Blogging is a form of mobocracy. That is what Aristotle called the extreme form of democracy.

Now in social publishing, a funny thing happens to the wisdom of the gets wiser.

You see, when a community publishes, it also edits. So you can get the facts straight. And you get two sides of an argument. Blogs and forums tend to ramble on, and be very one-sided. Blogs almost never reflect and organize and gain some consensus. But that will improve as social media and publishing improves with wikis. The tools exist. One person makes a case or prepares a review. Then others add, in an organized way
or correct mistakes, etc. And the "wisdom of the crowd" is actually a unique entry versus the "expert" reviewer or journalist. Wikipedia does a good job with facts. But bloggers must evolve to be the "passion" but in a more coherent and valuable way. They will do this when they stop being individuals and start forming communities.

Sunday, February 22, 2009

The Academy Awards: Who will win an Oscar?

I love movies. Grew up on them. Cannot imagine how many I have seen in my life. For the past few years, we have tried to see all the major nominees for the Oscars prior to the awards show. Last year I predicted No Country for Old Men, Daniel Day-Lewis, Tilda Swinton and Javier Bardem. I completely disagreed with Marion Cotillard.

This year I have seen all 5 films nominated for "best." I believe Slumdog Millionaire is the best of the lot. Frost/Nixon is a close second, and should win Best Director for Ron Howard. Milk was too one-sided in its portrayal of history. The Reader was a very good, but not great film. And Benjamin Button now looks like a novelty compared to the rest. The snub was Gran Torino.

For best actor, I have seen all the nominees performances and think that Mickey Rourke is the best. Some wonderful performances, but Mr. Rourke brings you in, holds you close and plays the most honest and real of all the actors.

For best actress, I go with Anne Hathaway. I will not disparage the other performances nor suggest this is a weak field, but suffice it to say that this was a big change for Ms. Hathaway, who showed promise in "The Devil Wears Prada."

For best supporting actor, Heath Ledger rivets and awes upon each viewing. A master of his craft, and taken from us too soon.

For best supporting actress, I go with Viola Davis. Perhaps the most powerful 5 minutes among all films in 2008. Her performance is notable and stands out in a film built for actors.

Thursday, January 22, 2009

Barack Obama’s inauguration speech in full.

My fellow citizens:

I stand here today humbled by the task before us, grateful for the trust you have bestowed, mindful of the sacrifices borne by our ancestors. I thank President Bush for his service to our nation, as well as the generosity and co-operation he has shown throughout this transition.

Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because we, the people, have remained faithful to the ideals of our forbears, and true to our founding documents.
So it has been. So it must be with this generation of Americans.

Serious challenges
That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our healthcare is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet. These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land - a nagging fear that America's decline is inevitable, that the next generation must lower its sights. Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met. On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord.
On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics.

Nation of 'risk-takers'
We remain a young nation, but in the words of scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness. In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of short-cuts or settling for less. It has not been the path for the faint-hearted - for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things - some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom.
For us, they packed up their few worldly possessions and travelled across oceans in search of a new life. For us, they toiled in sweatshops and settled the West; endured the lash of the whip and ploughed the hard earth. For us, they fought and died, in places like Concord and Gettysburg; Normandy and Khe Sahn.

'Remaking America'
Time and again these men and women struggled and sacrificed and worked till their hands were raw so that we might live a better life. They saw America as bigger than the sum of our individual ambitions; greater than all the differences of birth or wealth or faction. This is the journey we continue today. We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions - that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America. For everywhere we look, there is work to be done. The state of our economy calls for action, bold and swift, and we will act - not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology's wonders to raise healthcare's quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. All this we will do.

Restoring trust
Now, there are some who question the scale of our ambitions - who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage. What the cynics fail to understand is that the ground has shifted beneath them - that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works - whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who manage the public's dollars will be held to account - to spend wisely, reform bad habits, and do our business in the light of day - because only then can we restore the vital trust between a people and their government. Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control - that a nation cannot prosper long when it favors only the prosperous. The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on the ability to extend opportunity to every willing heart - not out of charity, but because it is the surest route to our common good.

'Ready to lead'
As for our common defense, we reject as false the choice between our safety and our ideals. Our founding fathers, faced with perils that we can scarcely imagine, drafted a charter to assure the rule of law and the rights of man, a charter expanded by the blood of generations. Those ideals still light the world, and we will not give them up for expedience's sake. And so to all the other peoples and governments who are watching today, from the grandest capitals to the small village where my father was born: know that America is a friend of each nation and every man, woman, and child who seeks a future of peace and dignity, and we are ready to lead once more. Recall that earlier generations faced down fascism and communism not just with missiles and tanks, but with the sturdy alliances and enduring convictions. They understood that our power alone cannot protect us, nor does it entitle us to do as we please. Instead, they knew that our power grows through its prudent use; our security emanates from the justness of our cause, the force of our example, the tempering qualities of humility and restraint. We are the keepers of this legacy. Guided by these principles once more, we can meet those new threats that demand even greater effort - even greater co-operation and understanding between nations. We will begin to responsibly leave Iraq to its people, and forge a hard-earned peace in Afghanistan. With old friends and former foes, we will work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet. We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you.

'Era of peace'
For we know that our patchwork heritage is a strength, not a weakness. We are a nation of Christians and Muslims, Jews and Hindus - and non-believers. We are shaped by every language and culture, drawn from every end of this earth; and because we have tasted the bitter swill of civil war and segregation, and emerged from that dark chapter stronger and more united, we cannot help but believe that the old hatreds shall someday pass; that the lines of tribe shall soon dissolve; that as the world grows smaller, our common humanity shall reveal itself; and that America must play its role in ushering in a new era of peace. To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West - know that your people will judge you on what you can build, not what you destroy. To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist. To the people of poor nations, we pledge to work alongside you to make your farms flourish and let clean waters flow; to nourish starved bodies and feed hungry minds. And to those nations like ours that enjoy relative plenty, we say we can no longer afford indifference to the suffering outside our borders; nor can we consume the world's resources without regard to effect. For the world has changed, and we must change with it.

As we consider the road that unfolds before us, we remember with humble gratitude those brave Americans who, at this very hour, patrol far-off deserts and distant mountains. They have something to tell us, just as the fallen heroes who lie in Arlington whisper through the ages. We honor them not only because they are the guardians of our liberty, but because they embody the spirit of service; a willingness to find meaning in something greater than themselves. And yet, at this moment - a moment that will define a generation - it is precisely this spirit that must inhabit us all. For as much as government can do and must do, it is ultimately the faith and determination of the American people upon which this nation relies. It is the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job which sees us through our darkest hours. It is the firefighter's courage to storm a stairway filled with smoke, but also a parent's willingness to nurture a child, that finally decides our fate. Our challenges may be new. The instruments with which we meet them may be new. But those values upon which our success depends - honesty and hard work, courage and fair play, tolerance and curiosity, loyalty and patriotism - these things are old. These things are true. They have been the quiet force of progress throughout our history. What is demanded then is a return to these truths. What is required of us now is a new era of responsibility - a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task.

'Gift of freedom'
This is the price and the promise of citizenship. This is the source of our confidence - the knowledge that God calls on us to shape an uncertain destiny. This is the meaning of our liberty and our creed - why men and women and children of every race and every faith can join in celebration across this magnificent mall, and why a man whose father less than 60 years ago might not have been served at a local restaurant can now stand before you to take a most sacred oath. So let us mark this day with remembrance, of who we are and how far we have travelled. In the year of America's birth, in the coldest of months, a small band of patriots huddled by dying campfires on the shores of an icy river. The capital was abandoned. The enemy was advancing. The snow was stained with blood. At a moment when the outcome of our revolution was most in doubt, the father of our nation ordered these words be read to the people: "Let it be told to the future world... that in the depth of winter, when nothing but hope and virtue could survive... that the city and the country, alarmed at one common danger, came forth to meet [it]." America. In the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come. Let it be said by our children's children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God's grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations.

Thank you. God bless you. And God bless the United States of America.

Monday, January 19, 2009

The search for happiness Part 2

In our first discussion of happiness, I rooted my argument squarely in Christianity, with the teachings of Jesus Christ and Mother Teresa (See below Part 1). Suffice it to say that the point was that humans are never happy being selfish, and only happy when they give to others.

Now I would like to turn some attention to what some might view as the other extreme -- the legacy of Sigmund Freud and the writings Ernest Becker. As we know, Freud became an atheist during his lifetime. Becker was not an atheist, but attempts reconciliation of some of Freud's concepts on happiness in life.

My good friend, Gerry Zyfers reminded me that in Becker's work we find a similar concept to one of "giving to others leads to happiness." Gerry wrote me, "I think Becker's basic point was that human beings have a mythology about their own independence, but we are radically dependent on others to give us a sense of meaning and even sense of self. To have meaning you need a meaningful role in a meaningful society. Hence meaning is derived from society. When you recognize other people, you reach out to other people. You engage and give to other people. It helps give them meaning and life, and in turn, you get it back. It’s a virtuous cycle." Indeed, Gerry is correct that in Becker's 1974 Pulitzer Awarding winning Denial of Death he writes, "Man is overwhelmed by his loneliness and separation and negated by the very burden of his own life. If Rank, Camus and Buber are right, man cannot stand alone but has to reach out for support." (Chapter, the Nexus of Unfreedom).

But is this the same concept of seeking and finding happiness? Jesus taught that happiness comes from pouring oneself into the service of others. Interestingly, the etymology of the word God comes from the word "to pour." There is some debate whether God pours into you or you pour into God or both. I argue that while Becker fully embraces the German concept of a dialectic of the individual and their environment (including other people), that there is a fundamental difference in motivation. But let me spend a moment recapping some of Becker's philosophy.

Becker argued that humankind has a innate drive for procreation. Our brain stem is coded for survival. Instinctively we respond to a threat with "fight or flight." What makes us human, and distinct from animals, however, is our consciousness. With consciousness comes the realization of mortality. The transition from child to adult is accompanied by the realization that death is inevitable. We fear death. We fear the pain of death, the loss of control, and leaving others behind. But as humans, we have the ability to think in symbols. We can understand cause and effect. We can exert some control over our reality. We can dream of the future and reflect upon the past.

This is where Ernest Becker redefined the problem. Culture is a shared set of beliefs about the nature of reality developed to help us deal with our death anxiety. Culture is a collective fabrication used to maintain security in an unsure world. The idea of an eternal soul soothes the fear of mortality. Symbols of immortality are in all religions and cultures. Becoming part of a collective leads to an emotional escape from mortality. Individual achievement is driven by a desire for immortality. Achievement, collective and individual, is driven by a need for permanence. We all want to make some "Hall of Fame" because we feel like we will be remembered after we are dead and gone. Becker felt that creativity was also driven by the need to be immortal. The creation of art was not merely an expression of one's perception of society, but also the desire to leave something which lasts beyond a human lifespan. Moreover, achieving wealth provides for power and control of others. In the face of mortality, wealth allays fear by presenting the myth that a person can "buy their way clear." Interestingly, a lack of success, as defined by each culture, is equivalent to social death. Each culture defines sanity for its collective citizens. Hence, war is caused when people fight to exert their belief system over an opposing or threatening one. Basically, people will fight to remain sane.

Returning the Becker quote above, we find that he affirms that individuals cannot be alone. It is too terrifying. We all die alone. We can only find sanity in the norms and values and customs of the unique circumstances in which we find ourselves. We can only define ourselves in the context of our environment. Even the pursuit of virtue is done as a response to our fear of death.

Hence, Becker defines a human motivation which is very different than that taught by Jesus Christ. They are profoundly different. For Christ, the motivation was for a unification with God via eternal life through the giving of oneself to others. It is an act of hope, not of fear.