Causes of The Deficit: Republicans Acting Responsibly

I am fortunate enough to have Ron Johnson, R-WI, as my US Senator. He is one of the freshman class aligned with the Tea Party movement. I have been tweeting Senator Johnson suggesting that he seriously consider raising the US Debt Ceiling. My basic argument is that the current deficit was causally related to actions taken during the Bush II administration. Being a Republican, Senator Johnson should be willing to take responsibility for these actions.

In the event that Senator Johnson would be interested in a more detailed explication of my causal argument, I've provided the following path diagram (click to enlarge) developed from Chapter 10 of the book This Time is Different: Eight Centuries of Financial Folly by Carmen Reinhart and Kenneth Rogoff.

Reinhart and Rogoff's own explanation is pretty straight forward (p. 172-173):

When a country experiences an adverse shock--due, say, to a sudden drop in productivity, war, or political or social upheaval--naturally banks suffer. The rate of loan default goes up dramatically. Banks become vulnerable to large losses of confidence and withdrawals, and the rates of bank failure rise. Bank failures, in turn, lead to a decrease in credit creation. Healthy banks cannot easily cover the loan portfolios of failed banks, because lending, especially, to small and medium-sized businesses, often involves specialized knowledge and relationships. Bank failures and loan pullbacks, in turn, deepen the recession, causing more loan defaults and bank failures, and so on.

Earlier in Chapter 10, Reinhart and Rogoff explain that recessions, bailouts and foreign wars (Iran, Afghanistan and the War on Terror) all lead to increases in the deficit. All these causes of increasing US debt are the direct result of actions taken during the Bush II administration, to include the lax attitude toward regulation of the financial sector that led to the Subprime mortgage crisis itself (the shock in the path diagram).

Notably missing from this causal explanation are entitlement programs, Obama care, public sector unions, high taxes (taxes were cut during the Bush II administration) and other right wing fixations. Senator Johnson will certainly see the sense of my air-tight causal argument. The rational policy response, which he will also certainly appreciate, would be to end foreign wars and the war on terror in addition to increased regulation of the financial sector. And, since the wealthy do not seem to know how to spend tax reductions on anything other than speculation, a tax increase on ill-gotten gains would also help reduce the deficit.

Technical Note: The upper part of the path diagram above is a positive feedback loop (negative signs multiplied together become positive as in basic algebra). The positive feedback effect explains why financial crises last so long and are so resistant to policy interventions.

Stack and Tilt: The Driver

From comments I've read on the Internet, golfers who have tried Stack and Tilt (S&T) seem to have trouble with the driver. That's not surprising. S&T emphasizes hitting down on the ball (hitting the ball first and then taking a divot). It's hard to see how that "fundamental" translates to the driver where the ball is hit off a tee.

This problem is really nothing special to S&T (no credible golf instruction recommends hitting the ground then hitting the ball). Regardless of instruction method, some adjustments have to be made when hitting the driver. The video above does a good job of explaining the adjustments to the S&T swing (you can also see tour player Charlie Wi hit a driver here).

The graphic below is taken from the S&T Book (page 40):

I had some difficulty with the driver when making the transition from the Width Swing (Laws of Golf) to S&T. During the transition, I was always pushing my drives. This was the result of a few problems: not enough weight on my left foot, not pushing my left knee out enough on the backswing and too flat a shoulder turn (not standing up enough on the backswing and not getting my left shoulder down enough on the backswing).

You can hit a perfectly adequate drive with the Width swing and a flat shoulder turn. Since the ball is up on a tee, a flat shoulder turn and a bit of a sway back on your right foot (like a baseball player getting ready to hit a home run) can be very effective. For the Width swing, the "adjustments" have to be made with the irons to hit down on the ball with a flat shoulder turn. After the transition to S&T, however, I'm a more accurate and consistent driver and have not really lost any distance. And, my iron play (where S&T seems to make a lot of sense for everyone) is a lot sharper. So, if you are making the transition to S&T, it's worth studying the video above, understanding that adjustments have to be made, and spending a little time at the driving range.

2011 WSGA State Amateur Championship

The 2011 Wisconsin State Golf Association (WSGA) Amateur Championship was held last week and the winner was Mike McDonald (interviewed above) with a one-over par 285 for the four rounds. It was a test of power vs. strategy (which you can read about here and here). In the end, strategy won.

I followed the leaders in the fourth round. The first hole at Maple Bluff Country Club, a 290 yard par 4, pretty much set the stage for the entire day. Mike McDonald teed off with a 7 iron. The two leaders from the third round, Chris Meyer and Jack Schultz, both drove the green, Meyer with a driver and Schultz with a three wood (Meyer was actually slightly over the green with his drive).

While Meyer and Schultz attempted to over power the course (Maple Bluff is an old, tree-lined, beautifully maintained 6400 yd layout supposedly too short for championship golf), McDonald played the course the way it was intended to be played. Both Meyer and Schultz had double bogeys in their final rounds; McDonald had none. Par golf turned out to be good enough.

Here is a video of Chris Meyer on the 186 yd. 4th hole:

And, a video of Jack Schultz on the same hole:

They both have great, powerful golf swings (each is hitting an eight iron). Their games were just not suited to this particular golf course.

Mark Bemowski at the 2011 WSGA

The 2011 Wisconsin State Amateur Championship was played last week at the Maple Bluff Country Club in Madison, WI. It was won by Mike McDonald with a one over par round of 285 and it was a very interesting final day you can read about here and here. As interesting as was the final round (maybe I'll comment on it in a future post), the triumph of strategy over power was not the real story for me.

Earlier in the morning of the final day I followed the 8:50 tee time for 18 holes with Randy Zikeli and Mark Bemowski. They were well out of the competition and I was the only one following them.

My reason for following this pairing was that I had played high school golf against Mark Bemowski. In high school, it was a little frustrating to be so seriously outclassed by a player my age. Today, I look back at it as a great privilege.

Here's Mark's major accomplishments as listed in his recent Senior National Amateur Hall of Fame induction announcement (here):

• Wisconsin State Open Champion in 1974.
• Wisconsin State Amateur Champion in 1976, 1981, 1984, 1997, 1999 and 2005
• United State Senior Amateur Champion in 2004
• United States Senior Amateur Runner-Up in 2002 and 2005
• United States Senior Amateur Semi-Finalist in 2009
• Wisconsin State Senior Amateur Champion in 2005 and 2010.
• Wisconsin State Senior Open Champion in 2010.

He was inducted into the WSGA Hall of Fame in 1999 (here).

Mark finished the WSGA in a tie for 27th at +13 with 78/71/77/71. Had his first and third rounds been the same as is second and fourth, he would have won the tournament.

Attending a State Amateur Championship is the best free golf you will ever see, and you can banter with the contestants (Mark's first question for me was "You must have nothing better to do today if you're out here following us!"). I followed a few other players and they all seemed happy to have an appreciative gallery!

Rewriting History

Over the last decade, there has been a concerted effort to rewrite the history of the Great Depression (here, here, and here). Historian Robert McElvaine (here) and economist Paul Krugman (here) have both attempted to challenge the revisionists.

Basically, the revisionists have argued that the policies of the New Deal were either ineffective or actually caused the Great Depression. Revisionists point to the 1937 Recession as proof of their assertions.

The challengers argue that the 1937 Recession was caused precisely by contractionary spending policies the Roosevelt administration mistakenly pursued after Roosevelt's 1936 re-election. They argue that, like the Obama administration during the late-2000s Great Recession, the Roosevelt administration failed to stimulate the economy enough until the spending spigot was opened during World War II.

After reading both side of the debate, it still seems an open question whether anything short of putting the entire economy on a war footing (that is, conventional deficit spending, tax cuts, monetary manipulations, etc.) would be an effective policy response. Part of the problem is defining what a "return to normalcy" would actually mean when the period before the collapse was being driven by an economic bubble.

One definition would be a return to full employment but "normal" employment was itself distorted by the bubble: people who would normally not be in the labor market were drawn in during the bubble and people were pushed out who should not have been as a result of the crash.

I don't think we really appreciate the distortionary effects of bubbles and the importance of preventing bubbles from expanding in the first place.

Paul Ryan Gangs Up on the Gang of Six

GANG OF SIX "Bipartisan Plan to Reduce Our Nation's Deficits" (5-page PDF, via Kaiser Health News) http://bit.ly/qTPrxS ... Paul Ryan: "Problems, Questions and the Potential for Promising Reforms" http://1.usa.gov/quVArL