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That reality does, in fact, rarely intrude into most executive suites is the fundamental economic problem. Oh, sure, we can complain about the failure of the demand unicorns, but the truth of the matter is that the economy sucks because those who control the levers of the system have lost all track of reality. We as a nation no longer engage in reality-based discussions on the topic; we use language to muddy the waters and fog the issues. One hesitates to point and laugh at the ludicrous statements made on the news by people one would hope know better because the consequences are so very expensive, socially as well as financially. But the humor is self-evident. And humor is a defense mechanism, of course. After all, if these people are not divorced from reality, if they aren't total idiots, then the alternative explanation is that they are knowingly, systematically destroying the economy of what we used to call “The Free World.” The eternal question is, “Incompetent or criminal?” The nature of reality From dictionary.com, I get the following definition of reality: 1. The world or the state of things as they actually exist, as opposed to an idealistic or notional idea of them: "he refuses to face reality". 2. A thing that is actually experienced or seen, esp. when this is grim or problematic: "the harsh realities of life". From the recent Bush administration I got this, instead (courtesy of a 2004 Ron Suskind article), “We're an empire now, and when we act, we create our own reality.” Suskind, of course, is a part of what got branded “the reality-based community.” I'm a proud member of that community, myself. As an engineer, what I do is interact with reality every single day. There is no pejorative aspect to reality, in my experience. Think of it like this, when you get on that jet aircraft, who do you want to have designed it, built it, maintained it, and flown it? People who understand reality? Or people who create their own? In all seriousness, people who believe they create their own realities tend to be problems for their families and their communities, to say nothing of their businesses. Some people mistake being able to act as somehow creating a new reality. That is incorrect. An action may change something in reality, if it is done properly. Some actions, of course, do nothing to substantially change reality. Sadly, there are a number of people who believe that if they clap harder and believe more deeply, that reality will change; this is magical thinking, common among pre-schoolers. I see it a lot in our national discourse on the economy, these days. It doesn't work. Ever. What is the economy? From dictionary.com: Economy noun: The wealth and resources of a country or region, esp. in terms of the production and consumption of goods and services. We have household economies, local economies, state economies, national economies, regional economies, and a global economy. We can think of other ways of slicing the data to understand some other geographic area or industry. An economy is simply a web of transactions between economic entities, be they people, governments, or firms. Since both governments and firms are all just groups of people, all economic actors are people. Every single one of them, including those software trading programs, which are simply the result of a person's economic decision. Economics is a messy business due to its complexity, but the facts that the word encompasses are real. People are real and their decisions have real consequences. Making up one's own reality isn't helpful. It is, in fact, damaging. Resources that could have been directed into a known constructive use are now being frittered away by those with power but no apparent accountability and no ties to reality. That failure to constructively engage with reality results in further harm to our economy. Some will argue that this is tin-foil hat territory, but I will remind everyone that the banksters who broke the world financial system continue to hold up various governments around the world to make themselves whole financially (Bloomberg reports $1.2 TRILLION has been given to the banksters by the US government alone), and not a single one has been indicted or even investigated, much less convicted and imprisoned. Some guy holding up a liquor store can get thirty years in prison, but destroying trillions in value through negligence, greed, and incompetence carries no penalty, no stigma. Imagine if a manufacturer had built an airplane that somehow killed off trillions of dollars worth of value and repossessed airplanes they didn't build. Would they still be in business? Would they still have a job? Would they be collecting their multi-million dollar bonuses the year of the crisis? I would hope not. So, we have the choice of responding like someone committed a crime, i.e. face reality, or we can continue moving along, clapping harder and pretending that Nothing Is Wrong Here. Guess which one will produce actual results. The non-reality Let us take a look at some of the non-reality that is being Very Seriously Considered in our national economic discourse. First up, governmental austerity in a time of economic crisis. I.e., “Let's all revisit the failed policies of Herbert Hoover!” Yes, I know, there are quite a few people who think we should run the government the same way they think they should run their family finances. None of those people understand macro-economics. However, I fully expect my policy makers to understand macro-economics; it is their job. I don't allow people who don't understand math to do the stress analysis on my airplane structure and people who don't understand macro-economics shouldn't be allowed to make decisions about the economy. That would be a real example of tough love, not slashing the social security benefits for the elderly. The social safety net is another popular economic boogeyman. This is especially anti-reality because if you look at the actual system with the actual revenues and the actual projections it is clear that Social Security in the US is solvent for more than three decades without changing a thing, and if we were at all concerned about the solvency, we would remove the cap on Social Security taxes instead of continuing to give the rich yet another tax break. But, the poor, the sick, the elderly, these make wonderful targets because they can't fight back. Granted, it's inhuman, it's anti-reality, and it will undoubtedly bite regular people later on in their own lives, but it's something that our Very Serious People on the TV like to talk about. It is not, however, grounded in reality. Another anti-reality punching bag is the unions. I hear all manner of insane things about unions, including that they are responsible for the collapse of the US automotive industry. This ignores the reality of who was actually responsible for decisions around product development, marketing strategies, and production systems—management, not unions. Remember, Deming and Juran were both Americans who had to go work in Japan because those managing the US automakers didn't have time for them. Moreover, if we look at other countries, they are able to have strong unions and still have strong economies. Look at Germany and Sweden, for fine examples. My Acura, by the way, was built by the highest paid union labor in the world, back in the 1990s, and it sold here in the US for less than the competing US models. Of course, they don't pay their CEOs tens of millions of dollars a year, either. We might want to think that every $10 million given to a CEO is more than 130 regular people jobs earning a median $50,000 year. How about those deficits that Dick Cheney so famously said didn't matter? Of course, deficits are rarely, if ever, a hot topic during a Republican administration. It's almost as if the current drive towards reducing the deficit and fiscal austerity were simply a partisan attack, especially since it does not appear to be grounded in reality. Return to the Gilded Age I've read that some want a return to the Gilded Age, that period of time right around the turn of the 20th Century. Of course, those who say that are apparently unaware of the details of life for people then, with no EPA, no FDA, corporations allowed to do pretty much anything they wanted. The book to read is Upton Sinclair's “The Jungle” which details not just corporate abuses, but life in the US working class with no social programs. That is what they say they want. During the Gilded Age there wasn't much of a middle class; essentially, there were the rich and everyone else. The middle class as we know it today in the US is a product of unions, the Veterans Administration, and social programs. Eliminating those will destroy the middle class as we understand it, creating just two classes in the US, the rich and the rest of us. This is the reality that no one wants to talk about Very Seriously on the TV. Other economic boogeymen If you follow the economic discourse on TV here in the US, you will undoubtedly know some of the other boogeymen that get brought up. There is the misplaced fear of the bond market, which is at historical lows. Stagflation is a boogeyman from the 1970s. It does not apply today. We are at greater risk of deflation than we are of runaway inflation. Yes, those who understand macro-economics know this. This is reality. This is in the data. The only valid inflationary threat is if through gross mismanagement the economy craters even faster than the money supply shrinks. If you personally don't understand that, fine. But, the people who determine my economic policy had better be able to. The cost of money is low for the government, right now. The thirty year Treasury bond is about 4%. The ten year note is under 3%. The one year, under half a percent. The government should borrow a lot of money now and use it as stimulus to create the aggregate demand that business and consumers can't. The original stimulus package passed in '09 was about half the size it needed to be, thus it was pretty well guaranteed to fail. Another nifty one I've heard recently is that it is entirely too hard to spend stimulus money! I weep for these people. Drop a few million dollars on my county government and watch all the work that can begin almost immediately (after they rehire the people who were laid off earlier in the Great Recession). The idea that it is hard to spend stimulus money is based on more wishful thinking, creating their own “truthy” reality. We can pay people to pick up trash, clean the streets, or plant trees and we can start tomorrow. So, again, this is not reality. This is pretend. This is destructive. Keynes One of my favorite economic boogeymen is John Maynard Keynes. Keynes was an economist from the UK who moved macro-economic thought forward, displacing neo-classical economics. Of course, what we hear on the TV greatly resembles the old, discredited neo-classical stuff, the parts that resemble anything at all. I expect responsible policy makers to understand the difference. If they don't, then, they shouldn't be in the position. I don't let non-pilots drive my airplane, either. Keynes discovered the great truth that when aggregate demand in the economy falls, the economy can stablize at very high levels of unemployment. I.e., the economy may not recover without direct intervention by the government. The broadest measure of unemployment, the “U6,” currently shows the US with about a 17% unemployment rate (the U3 is the number usually quoted on the TV). However, there was some fiddling done with the methods a while back, and you have to go to ShadowStats.com to see what the numbers would be under the methodology we used to use. Under that system, the U6 shows in excess of 22%. Keynes also pointed out that a government can operate at a deficit during times of economic contraction, generating the aggregate demand that business and consumers cannot, and pay down the resulting debt during good times when the treasury runs at a surplus. Of course, here in the US, there is a large and influential segment who demand tax cuts during those good times, leaving the US operating to Keynesian rules only during the down part of the cycle. Today, it's different in that the policy makers want to revert to the failed policies of Hoover during the down part of the cycle, abandoning the proven policies of Keynes. This has not and will not work well as anyone can see if they bother to look at the reality. Take Texas governor Rick Perry as an example. He is a Republican candidate for president in the 2012 election cycle (yes, we here in the US are insanely dysfunctional about our election campaigns). His management of the Texas economy is Keynesian all the way down the line. One rarely has a chance to praise the policies of Southern governors, so let me take this opportunity. Texas lost 178,000 jobs during the downturn, which isn't much compared to its population of 25 million people. Texas was spared largely because of the oil and gas industry there (record profits—yes, again). Perry intelligently replaced those lost jobs with government jobs, hiring some 125,000 people on the public payroll, which is an excellent alternative to paying unemployment, welfare, or just leaving people to be homeless with all the social problems that entails. Of course, the game is about up for Perry as the Texas legislature now has to cope with partisan nonsense spewed about “deficits” and “austerity.” The Texas economy will be devastated, and that will adversely impact the citizens of Texas. That is the reality. What we should be talking about The real economic issues that should be discussed on the TV by knowledgeable policy makers are things like increasing aggregate demand, fixing the housing problem where so many people are upside down on their mortgages (HAMP is a bad joke in poor taste), clearing out the financial deadwood that simply hasn't made it, and getting stimulus money down to the county and local level. Fixing housing is pretty important since that is the usual engine by which the economy is pulled out of a recession. However, the US housing industry is a cratered catastrophe and everyone knows it, with low housing starts, out of work contractors, and criminal banksters forging documents to steal houses (without a single indictment). Unless and until these issues are addressed by policy makers, the US economy will remain flat. And that is best case. Why is this important for business aviation? Competent and reality-based management of our major economic institutions is essential to the health and well-being of the entire economy in general and business aviation in particular. People have to have jobs in order to utilize our products and services; people need disposable income—poor people don't buy many business jets. The key to improving the demand for our products and services lies in improving the overall economy. Aviation is not a counter-cyclical industry. That's reality. For us to move forward as an industry, we need a solid, growing economy. We don't have one. And the reason we don't have one is because those who are our policy makers either don't have a personal relationship with reality, or they are working to destroy us. Take your pick. With the data I have available, either solution fits. Terry Drinkard is currently consulting on an aviation start-up. His interests and desire are being involved in cool developments around airplanes and in the aviation industry. Usually working as a contract heavy structures engineer, he has held positions with Boeing and Gulfstream Aerospace and has years of experience in the MRO world. Terry’s areas of specialty are aircraft design, development, manufacturing, maintenance, and modification; lean manufacturing; Six-sigma; worker-directed teams; project management; organization development and start-ups. Terry welcomes your comments, questions or feedback. You may contact him via terry.drinkard@blueskynews.aero Other recent articles by Terry Drinkard:
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