Thursday, March 16, 2006

Painless gains for sale!

Step right up and listen here ladies and gentlemen. What is have here in my hand is a bottle of the finest elixir known to man-the elixir of painless gains. Just drink it and within days you will soon feel and see the benefits of exercise without any of the work, you will become smarter and better informed without the need for study and contemplation, and your relationship with your spouse will improve without any work towards better communication whatsoever.

If you heard a man at a carnival shouting these words into some cheap bullhorn you would most likely shake your head at the foolish people lured into such an obvious deception. The notion of a snake oil salesman might come to mind-at least that was the idea I was hoping to evoke with the opening paragraph.

But not every snake oil salesman is so obvious. Some, like Henry Blodgett and his ilk, poked fun at the rubes who took their advice while lusting after the latest Porsche, partially aware of the deception, but I think, unaware of just how fast such things unraveled, and who would be exposed in the process.

Enron provides look at a plethora of snake oil salesmen. From Ken Lay's exhortations to the staff to invest in the company months before it collapsed, to Fastow's book cooking and LJMs, to Arthur Anderson's accountants who sanctified the books and the banks who went along with the financing.

These are guys whom most would think of as upstanding characters. They went to good schools, wear nice clothes, and they speak well....very well.

They have gotten ahead in life, in part, by virtue of that ability to speak, to tell a listener what he or she wants to hear before that person knows it themselves. Many are quite likely somewhat unaware of this "skill", they might notice and appreciate the effects, but not spend much time contemplating exactly how their success has been achieved.

The quote that inspired this rant came from Brad Setser's blog and his adulation of Robert Rubin.

But for now, I'll end in the same way as today's Bloomberg story on the current account deficit, with quote from Robert Rubin:

The U.S. government's budget deficit together with the current account gap represent ``unsound underpinnings'' in an otherwise ``good'' economic landscape, Robert Rubin, chairman of Citigroup Inc.'s executive committee and former Treasury Secretary in President Bill Clinton's administration, said in a Feb. 22 interview. ``At some point, these kinds of deficits are not viable,'' Rubin said. ``The probabilities are extremely high that if we don't address these imbalances, then at some point, and it could be years down the road, we'll pay a very big price.''

Include the greatest Treasury secretary since Alexander Hamilton in the gloom and doom caucus, budget and trade deficit division.

While I'm happy to read of a growing sense of urgency over the current account deficit, and usually agree with most of Mr. Setser;s views, the idea that one can address the imbalances and avoid the pain is part of the reason the imbalances have gotten so big. Stephen Roach also takes the view that the Central Bankers of the world have some magic wand that will make the problems all go away.

Nonsense.....dangerous nonsense.

The reason I don't find painless gain snake oil credible is because I have never seen any gain that was painless. Any change in habit requires work. Even when the end effect is substantially better, say when ending a cigarette habit, one still has to work through the cravings.

To the extent the problem is too much debt, the solution will mean less and that means more working first and buying later and less buying first and paying later. People will have to deal with craving the new house or new car without scratching that itch with new debt.

To use exercise as an example, for exercise to have an effect, the miles must be run, the laps must be swum, or the weights must be lifted. You can choose the form of the exercise, but the work required is the same. Those who are waiting for the no sweat, 3 minute workout at your desk at work 3 days a week before they get serious about losing weight are that must closer to diabetes, heart disease or whatever other ailment is being fed by their lack of activity.

Such, in my view, is the US economy. It calls to mind a 52 year old man who has been 40-50 pounds overweight for years while talking often about getting fit. Yet because he believes in the painless workout, and thinks the eventual consequences are far off, he just can't get on a durable exercise regimen.

As they say in some hospitals and doctor's offices, the only thing that is going to wake that guy up is a heart attack.

May it be a mild one.