The Economic Hangover
-President Bush, in a speech at the University of Alabama at Birmingham, July 15, 2002.
President Bush's peculiar metaphor on our economic state went largely unnoted. An early draft of the Birmingham speech, however, stretched the metaphor quite a bit further. I have obtained a copy of the original, written before Karl Rove's edits. A full transcript is posted below.
In order for us to have the security we all want, America must get rid of the hangover that we now have as a result of the binge, the economic binge, we just went through. As a recovering CEO, I have, shall we say, a lot of experience in this area.
Sometimes America may wake up with a throbbing head, a pasty mouth, and a foreign currency slumbering next to it. America must first ask itself two critical questions. One is: How did America get into this situation? Two is: How does America get herself out of this situation?
First things first. America must try to recall the previous night's events. America may have begun the festivities innocently enough, sipping a small glass of debt while listening to Steely Dan and getting ready to go out with friends. No real danger there. And then America pours herself a quick second glass before heading out the door. Feeling good, America "accidentally" arrives early at the bar where she's supposed be meeting a few friends. So she imbibes more debt. Then the friends arrive just in time to save her from a chatty, angry bartender named Yugoslavia.
Let's take a close look at those friends. This will help us determine whether America is hanging out with the right or wrong crowd.
Mexico: Really trying to get his stuff together. And America wants to support him, but doesn't want to give up her own good time, either. Good intentions, bad influence.
Canada: About as stable a friend as you could find. One of those guys that, when he gets drunk or high, looks and acts perfectly sober. He's the one that goes jogging at seven in the morning even when he's been up drinking until three. The type you turn to when you are on a really bad business cycle.
Russia: Moody as hell. Bitter about not being as pretty as she used to be. Becomes more incoherent as the night goes on.
South Korea: Nice, but a bit too eager to please. When everyone is doing shots, is always the first one on the floor.
Argentina: Dangerous. Your friends have wanted to set you up with this guy for a long time. A party animal. Has a loose fiscal policy. The kind of guy you would definitely not bring home to the Fed.
Back at the bar, pitchers of debt give way to shots of deficit spending, which evolve into a game of G8, where everyone at the table links arms and knocks back whatever their neighbor has ordered.
Against what's left of America's better judgment, she agrees to go to another bar. There, Russia runs into an ex-boyfriend. (You don't remember his name. Sounded something like Kroohkistan.) The ex invites everyone back to his place. He's got a surprise.
The surprise is a bag of primo Colombian inflation. The mere sight of the luscious powder opens America's tear ducts and dries her mouth. Whatever good sense she may have had has long since been drowned by the pints and pints of debt.
Doing the first line is like getting back together with her favorite boyfriend. Why did you ever part? At the first hint of deflation, America does another fat line. And another. And another.
The rest of the night is just a collection of random, blurry images. Bank reserves spilled on the floor. Regulations in the kitchen. Monetarists coming and going. Supply-side weirdness in the bedroom. Socialism in the damp, dark basement. Massive deficit spending. Being face down in the bathroom in a pool of your own Gross National Product.
And then America wakes up. Argentina-at least she thinks it's Argentina-is half-naked and drooling beside her. America is filled with guilt and regret. She swears that this is it. This is the last time this will happen.
And the economic cycle begins anew.
Thank you and God Bless America.
Many people are worried about their investment portfolio right now. It's very easy to get caught up in what the market did today, this past week, or this past year. The media and news headlines can make things seem even worse with their attention grabbing headlines.
[For example, the headline, above the fold, on the front page of Saturday's Herald-Leader read, "Dow Plummets nearly 400 points: 2002 shaping up to be worst year for stock market since 1970s."]
Smart investors have more of a long-term view of the market. They understand this isn't the first bear market we've experienced, and it won't be the last. A good rule of thumb is to be diversified across different market sectors, and to make sure that your allocation to stocks, bonds, and cash is appropriate for your own unique situation.
Typically, the closer you are to retirement, the less money you should have allocated to stocks because you can't afford large fluctuations in your portfolio. On the other hand, if you are just starting out in your career, you might want to have quite a bit more of your portfolio in the stock market, to enjoy the potentially larger returns that the market has historically provided over other investments.
The stock market at times can be driven by two emotions. Fear and greed. Neither one is a sound investment strategy.
Try not to let these emotions drive your investment decisions. Instead, have a financial plan in place that details what steps you need to take to reach your financial goals, whether it is a comfortable retirement, or helping to put a child or grandchild through college.
James Wombles currently works as an investment advisor here in Lexington at a prominent firm, and is a certified financial manager. He's been in the financial services industry for five years. Many readers know him as the Community Involvement Committee Chair of the Lexington Young Professionals Association. (LYPA).
Capitalism Without Conscience
Hello, my name is George W. and..
By Arianna Huffington
Conservative Columnist asks: Does Bush have the willpower to cure our hangover? Have the addicts in Washington learned their lesson? Are they finally ready to sober up and do the right thing?
"It is just the tip of the iceberg."
Such is the well-worn cliché that has become the mantra of the moment, as soothsayers from think tanks, the media, politics, academi,a and even the business world, assess the current wave of corporate scandals and economic plunges.
I think what we're seeing is actually just the tip of the tip of the iceberg. Because beyond the financial frauds that have endangered jobs, retirement funds and the stock market, the "profit uber alles" mindset is endangering the health and safety of the American people.
"In the long run," said President Bush in his finger-wagging speech to Wall Street earlier this month, "there's no capitalism without conscience"-an assertion that makes you wonder if his severance package from Harken Energy included a pair of rose colored glasses.
Of course there's capitalism without conscience, President dear. And plenty of it.
Market forces have no intrinsically moral direction, which is why, before he wrote The Wealth of Nations, Adam Smith wrote The Theory of Moral Sentiments. Ethics should precede economics. But it doesn't have to. And it's not inevitable that it will.
We know this because we've seen the results of capitalism without conscience: the pollution of the air we breathe, the water we drink, and the food we eat; the endangerment of workers; and the sales of dangerous products-from cars to toys to drugs. All in pursuit of greater and greater profits.
For example, did you realize that 20,000 people-many of them children-are killed every year by defective products? Or that such products cause close to 30 million injuries a year?
We are up in arms-and rightly so-about corporate greed that leads to massive shareholder rip-offs, but shouldn't we be even more irate about corporate greed that leads to loss of life?
The giant drug companies have been among the worst culprits, harming their customers with a wanton disregard for human life only matched by the tobacco companies and firearms manufacturers.
You don't still think there's capitalism without a conscience, Mr. President? Take Schering-Plough. In May, the company agreed to pay a record $500 million fine for repeatedly violating FDA regulations regarding quality assurance, manufacturing, equipment, laboratories, packaging, and labeling. Other than that, they apparently ran a very tight, conscience-laden ship. After all, they haven't been accused of any accounting scandals. Not yet, anyway.
Even more damning, the drug giant is also currently under criminal investigation, reportedly for the literally breath-taking allegation that it caused the deaths of 17 people-including a 10-year old boy-who died while using asthma inhalers the company manufactured and distributed, even though it knew the inhalers might not actually contain any asthma-fighting medication.
According to FDA reports, the 10-year-old victim had an asthma attack, "reached for his inhaler and obtained no relief," then died shortly thereafter. I'd like to see Schering-Plough try and work that suffocating little tableau into one of their gauzy, omnipresent TV ads.
There has got to be a very special place in hell for corporations willing to sacrifice the health of their customers on the altar of increased profits. If so, a toasty spot should be reserved for the folks at Wyeth who have been desperately trying to develop a drug that causes mass amnesia ever since a new study revealed that women using its wildly profitable hormone replacement drug, Prempro, showed heightened risk of breast cancer, heart attacks, strokes, and blood clots.
The corporate crime is not that Prempro-which, along with its sister pill Premarin, pumps more than $2 billion a year into Wyeth's coffers-has proven more harmful than beneficial. It's that the company has aggressively marketed them despite growing concerns about the drugs' safety.
Indeed, the company secretly funded the writing and promotion of Feminine Forever, the 1966 book that helped turn hormone replacement into a national craze and Wyeth's estrogen pill, Premarin, into a cash cow. Touting estrogen as a "wonder drug,"the book's author, Dr. Robert Wilson, wrote that women taking estrogen "will be much more pleasant to live with and will not become dull and unattractive." What's a little breast cancer if it means you can avoid becoming dull and unattractive?
And witness the "conscience"-more like "depravity"-with which the company promoted Duract, a painkiller it manufactured and marketed in 1997-even though research proved the drug could cause serious liver damage. Duract was an instant hit, with over 2.5 million prescriptions written in the 10 months before the drug started racking up liver-related deaths and was yanked off pharmacy shelves.
If signing off on a false balance sheet will soon be enough to supposedly land a CEO in the slammer for 20 years, what should the sentence be for allowing liver-damage and deaths in the name of milking ten months' worth of profits out of a defective, deadly product? Or how much time should an executive do who signs off on working conditions that lead to 56,000 deaths a year from on-the-job accidents or work-related illnesses such as black lung and asbestos poisoning?
Earlier this month, Treasury Secretary and former Alcoa CEO Paul O'Neill couldn't have been clearer about the need to establish very different corporate priorities: "If you go and look at Alcoa today you will find it's the safest company in the world. Because I said to the people 'I don't care about how much it costs. If there's a safety hazard or risk that we know about it should not be budgeted. It should be taken care of tomorrow morning'."
What if O'Neill's leadership mandate became the norm in American business? That, Mr. President, would truly be something approaching capitalism with conscience, where the profit motive doesn't come at the expense of the public interest.
Few now dispute that it's time for American business to clean up its act. The debate that rages is over the extent of the reforms that are needed. Will we settle for a few simple gestures on accounting and SEC enforcement or will we seize the moment to bring corporations to account for their anti-social behavior?
We have the chance to clean things up before an even grosser and deadlier corporate crime wave starts grabbing the headlines-and public confidence in our business leaders sinks even lower than the free-falling Dow.
With the "New Economy" now in shambles, it's easy for media outlets to disparage the illusions of the late 1990s-years crammed with high-tech mania, fat stock options, and euphoria on Wall Street. But we hear very little about the fact that much of the bubble was filled with hot air from hyperventilating journalists. Traveling back on a time machine, we would see mainstream reporters and pundits routinely extolling the digitally enhanced nirvana of huge profits and much more to come. The "New Economy" media juggernaut was not to be denied.
Sure, journalists occasionally offered the common-sense observation that the boom would go bust someday. But it was a minor note in the media's orchestral tributes to the New Economy. And the bullish pronouncements included an awful lot of hyped bull. Five years ago, Business Week's July 28 edition was scorning "economic dogma" for its failure to embrace the glorious future at hand. "The fact is that major changes in the dynamics of growth are detonating many conventional wisdoms," the magazine declared in an editorial that concluded: "It is the Dow, the S&P 500, and NASDAQ that are telling us old assumptions should be challenged in the New Economy."
A column published on July 24, 1997, in the very conservative Washington Times, by economist Lawrence Kudlow, rang the same bell: "Actually, information age high-tech breakthroughs have undreamed of spillovers that impact every nook and cranny of the new economy." Kudlow was upbeat about "even higher stock prices and even more economic growth as far as the eye can see."
In 1998, the July 20 issue of Time was one of many touting the economic miracles of the Internet. "The real economy exists in the thousands-even tens of thousands-of sites that together with Yahoo are remaking the face of global commerce," Time reported. The magazine could not contain its enthusiasm: "The real promise of all this change is that it will enrich all of us, not just a bunch of kids in Silicon Valley."
When the last July of the 20th century got underway, Newsweek was featuring several pages about the national quest for riches: "The bull market, powered by the cyberboom, is a pre-millennium party that's blowing the roof off the American Dream. It's just that some of us can't seem to find our invitations. And all this new wealth is creating a sense of unease and bewilderment among those of us who don't know how to get in touch with our inner moguls."
Meanwhile, insightful analysis of the "New Economy" received scant mass-media exposure, but it certainly existed. While Newsweek was fretting about "inner moguls," for instance, the progressive magazine Dollars & Sense published an article by economist Dean Baker warning that the country was in the midst of "a classic speculative bubble." A crash was on the way, Baker pointed out, and it would financially clobber many working people.
Writing three years ago, with the stock market near its peak, Baker anticipated grim financial realities: "Many moderate-income workers do have a direct stake in the market now that the vast majority of their pensions take the form of tax-sheltered retirement accounts such as a 401(k). These plans provide no guaranteed benefit to workers. At her retirement, a worker gets exactly what she has managed to accumulate in these accounts. Right now, a large percentage of the assets in these retirement accounts is in stock funds."
Overall, Baker contended, "the post-crash world is not likely to be a pretty one. The people who take the biggest losses will undoubtedly be wealthy speculators who should have understood the risks. The yuppie apostles of the 'new economy' will also be humbled by a plunging stock market. But these people can afford large losses on their stock holdings and still maintain a comfortable living standard."
Baker concluded his in-depth article by predicting a foreseeable tragedy that major media outlets rarely dwelled on ahead of time: "The real losers from a stock market crash will be the workers who lose most of their pensions, and the workers who must struggle to find jobs in the ensuing recession. Once again, those at the bottom will pay for the foolishness of those at the top."
Now that the bubble has burst, most of the hot air about the "New Economy" has dissipated. This summer, the media atmosphere is cool to scenarios for getting rich with shrewd investments. Too late.
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