these words just come out with no gripe to bear

People asked me last week why Tiger Woods had to apologize to the world for his infidelities (well, they weren’t asking me so much as they asked the question within earshot, which is all the license I need). They advanced theories about Tiger being a role model, but that didn’t quite ring true. Tiger has never advanced himself as a spokesman for clean living and family values, in the way that conservatives who keep getting implicated in homosexual love triangles consistently do. He wasn’t on the President’s Council for Not Balling Softcore Pornstars. And while cheating on your wife isn’t behavior we want to endorse – think of the children, after all – neither are brandishing guns to settle office disputes, urinating in trash cans or cheating on your wife (oops). Yet the uproar over Woods’ infidelity dwarfs the uproar over Arenas, Iverson and Canseco, as Jupiter dwarfs its moons.

Woods occupies a different sphere than those athletes because of the money he makes. You could also argue he’s better at golf than Iverson is at basketball, but that’s incidental: he wouldn’t make as much money in endorsements were he not as good. It’s impossible to conceive of how much money Tiger Woods’ ability to smile and wear tight shirts is worth. He’s lost more money from cancelled endorsements over the last three months than many of us will make in our entire lives. Numbers like “six hundred million” don’t mean anything to humans; you couldn’t distinguish between six hundred million of a thing and two hundred million of it just by looking. Woods is no different. He couldn’t conceive of the amount of money he had. He’s human like the rest of us, with the same ambitions and insecurities and needs. Only he has super powers because, for him, money is no object. Are there any fantasies you’d act out if you had super powers?

In the classical economic model, wealth comes from three sources: labor, capital or rent. Labor all of us understand: it’s what you should be doing now instead of reading some guy’s blog. Capital, some of us get: we may feel in our hearts that the hedge fund owner doesn’t deserve $8,500,000 EBITDA, but we still aspire to that level of wealth. But rent’s hard to understand. It’s hard to sympathize with rent: the money you make simply by owning something that other people want to borrow. Mutual funds have to be managed, and labor is the sweat of one’s brow, but rent just comes to you. Tiger Woods made one billion dollars in his professional career by renting out Tiger Woods. He got paid to be himself in front of cameras. His wealth comes from alien sources and he used it to act out fantasies that few of us admit to.


he drinks a whiskey drink, he drinks a vodka drink

Like most single Americans between the age of 21 and 36, I regularly go out and drink with large groups of people. Wait staff at bars accommodate large groups by ringing an entire table up as a single check. However, in an informal gathering, people come and go at different times. They order different amounts of alcohol and food – some folks get one drink, some get three, some get zero drinks but nibble on a communal order of nachos.

The problem: how do you ensure that everyone tips enough?

I don’t mean paying for the right number of drinks (though that happens, too – it happened to us on Wednesday, with a Bacardi, a Bailey’s and an Allagash walking off without cash, and only Mark M’s generosity kept us from getting barred). I mean that floating, hazy notion of “a proper tip.” Between the total cash value of all drinks and the highest potential gratuity, there’s a nebulous zone of loose change.

This problem persists, even among the closest of friends and the smallest of parties, for a few reasons:

  • Varying priors. Many people disagree on what a proper tip should be. Some are happy with 15%, some insist on 18-20%. So if everyone’s got a different notion of what to tip, the final total will be very hard to predict.

  • Poor incentive structure.. I wouldn’t feel terribly guilty about stiffing the final bill by 80 cents, and I imagine most people are similar. Plus, doing so might make my own finances easier (I don’t have to break a bill, for example). But if eight people feel the same way, the final total’s nearly six and a half bucks shy of what it should be. I have little incentive to be scrupulous. And groups comprised of people with no incentive to do good always produce bad results.

  • Lack of information. If the check is in cash, it’s easy to contribute in secret. Even if you’re not hiding the cash you put in, all those folded bills become anonymous once they enter the general pile. Also, it takes a rare type of paranoia to keep an account of what other people in a large party ordered. So anyone can claim to have put in enough money.

  • Aggregate preference. If you have Arrow’s Impossibility Theorem painted on the ceiling over your bed like I do, you’ll already suspect that there might not even be such a thing as “what the group wants.” Individuals have preferences, sure, but it might not be possible to aggregate those preferences into a single Leviathan. I bring this up here because there might not be one real number that everyone in a dining party wants to leave as a tip.

So even if everyone’s friends, had a great time and loved their waiter, they might not agree on what an ideal tip is. Even if everyone agrees on what an ideal tip is, there’s no way to compel an exact accounting from everyone. Even if everyone makes an exact account, there’s nothing compelling them to be honest. And even if everyone’s compelled to be honest, there’s nothing that says the final total reflects the group’s aggregate will (if such a thing even exists).

It’s a wonder waiters get paid at all.

Potential solutions? Let’s deal with the problems one at a time.

Varying priors :: Dictatorial control. One person at the table decides what the proper tip is. Everyone chips in until she says the pot is full. This may sound graceless – we have an ingrained hatred of the word “dictator” – but this is usually what happens anyway. The person counting the money decides when to stop counting.

Poor incentive structure :: Remove options. Incentives only matter if you have choices; in the absence of choice, no one needs incentives to do anything. Dividing the check evenly among all diners bulldozes over this problem. People may grumble at paying for things they didn’t eat, but that’s the price of an imperfect solution.

Lack of information :: Mandatory disclosure. I’ve never seen this method implemented before; as far as I know I invented it. When you put money in for the check, you have to wave the bills over your head and announce the total in a clear voice that carries. After everyone’s contributed, tally up the money. If you’re short on the bill, whoever put in the least amount has to make up the difference. This not only prevents secrecy, it adds an incentive not to be the cheapest person at the table.

Aggregate preference :: ??? No idea. If you solve this problem, you’ve fixed what’s wrong with democracy. I’ll buy you and all your friends a drink. You cover the tip.

to the logical limit

A little under a week ago, I took some flack from folks on LiveJournal for my assertion that sitcoms were an inferior form of art to more active, plot-driven stories. Well, that wasn’t really what I was asserting. What I asserted was that I didn’t like it when sitcoms did that, and that it was a frequent enough trope that I was comfortable generalizing. I thought that was clear enough from beginning the post with, “Here’s what I don’t like about sitcoms,” but.

However, after defending my assertion to several logical people whose opinions I trust, I realized that I should probably unpack my feelings on art a little more. So here they are:

1. I believe that there is such a thing as great art, and that it’s not subjective. You and I, reasonable humans and critical minds, will probably disagree on what that great art is (you: Herman Melville; me: Ernest Hemingway, and on into the clove-scented night). But we should agree that there is such a thing as great art – that not only is it Platonically possible, but that it has been done and will be done again. I do not agree that all aspects of art are relative.

(I spell that out because some people think that, no, all art’s in the eye of the beholder, it’s not possible to say that one piece of art is better or worse than another in an objective sense, etc, etc. And I don’t feel that’s true)

2. I believe that art is anything created primarily to evoke a response. “Primarily” being the operative word. Art is art because its aesthetic value outweighs its utilitarian value. I don’t think that a meticulously crafted Louis XIV ottoman is art, though it has a lot of aesthetic value (attention to form, fine craftsmanship, etc) – it’s meant to be used. Now I suppose if someone buys it and puts it in a sterile room no one’s allowed to enter and insists the children never touch it, it’d be more art than furniture. Similarly, a well prepared plate of food that crosses the line from nutritional diversity (protein, carbs, fiber, fruits) into a tour of the senses could be considered art.

(Most people want a clear definition of Art so they can act as gatekeeper. “Duchamp isn’t art; it’s his gag on the art world.” “Pollock isn’t art; it’s random squiggles on paper.” “Video games aren’t art; they’re toys.” That’s not what I intend. I’m not trying to exclude anything from the category of Art. I want a working definition of art because, per point #1 above, we can’t talk about greater or lesser works of art unless we know what they’re better or worse at. Art has to do something, and the term “Art” has to mean something, for there to be greater works of Art)

3. I believe that every form of art has limitations and benefits inherent to its media. Novels can do things that film can’t; film can do things that comic books can’t; comic books can do things that symphonies can’t; etc. I spell this out in more detail in an earlier post on aesthetics of different media.

4. I believe that a piece of art which evokes a response with little apparent effort is a great work of art. I’m least certain about this belief of anything I’ve asserted so far and would welcome the most hearty debate here. But I believe that, the closer to which art approaches nature while still evoking a vivid response – or proving more diverting – the better it is. Sunsets over the ocean are beautiful, but they’re not art. A symphony that evokes the same wordless feeling in you that a sunset over the beach does is a great work of art. A chorale composition, featuring a talented vocalist singing about how beautiful the sun is, standing in front of a dropcloth on which a sunset is projected, is not as good.

(Note that when I say “nature” I don’t mean “naturalism,” though I have a strong fondness for that myself. The Matrix is a greater work of art than Jet Li’s The One, because the dialogue, effects and pacing in the former far exceed the latter. It is believable, even if it is sci-fi, and The One is not, even if it is largely similar)

5. Since technical effort is the criteria I use, I believe that the strength of the response evoked by art has little to do with its greatness. Or, in English, there’s nothing wrong with being entertained by bad art. A great work of art is great because of its technical strength, not because it evokes more powerful responses or “nobler” responses.

I find Road House more fun than Memento. Moreover, I was more entertained by Road House than I was moved by Memento. But I would still say that Memento is the greater work of art, because Christopher Nolan is the greater craftsman. He tells a more complex story with less apparent effort. I say this and I stick by it, even though I’ve watched Road House at least three times in the last twelve months and haven’t touched Memento in years.

6. And finally, I believe that you will find more great works of art among dramas or romantic comedies than among sitcoms.

Sitcoms, to my jaded and condescending eye, wear their formulas too openly. There’s the introduction, the complication, the rise to climax and the comical denouement. There’s the familiar interchange between bumbling husband and tolerant wife, between lewd boy and coquettish girl, etc. Not that the material itself renders it poor art – when this stuff was new, back in the days of commedia dell’arte, it was groundbreaking. But very few new trails have been blazed in situation comedy in the last fifty years. The Honeymooners, I Love Lucy, M.A.S.H., Fresh Prince of Bel Air, The Office, Arrested Development … I’m struggling to name more.

Further, sitcoms exist primarily on television today, and television, like all art, is subject to the limits of its medium. The subject matter has to please advertisers. It has to fit into a 24-minute slot. It has to break up into three recognizable beats to fit between commercials. This is why (in my opinion) you find more groundbreaking material on cable: shows like Party Down or It’s Always Sunny in Philadelphia or Weeds.

So it’s not impossible for a sitcom to be great. It’s just not as likely. And this is why I believe it.

hit the shore ’cause I’m faded; honeys in the street saying money, yo we made it

Pascal’s Wager is an argument for belief in the Christian God – not proof of its existence, but merely a contention to believe in it – that runs as follows:

[E]ven though the existence of God cannot be determined through reason, a person should “wager” as though God exists, because so living has potentially everything to gain, and certainly nothing to lose.

Game theorists might explain the wager using a chart like this:

  God exists God does not exist
Wager for God Gain all Status quo
Wager against God Misery Status quo

Already we see one problem – if belief in the Christian God costs us nothing, it also means nothing. You can argue over what a belief in the Christian God requires: consumption of the Eucharist? regular attendance at Sunday Mass? faith alone? faith plus good works? In fact, millions have been arguing this for the last twenty centuries, and millions have died in the arguing. But it strikes me as common sense that belief must entail some behavior that non-believers aren’t doing. There has to be some obvious difference between belief and non-belief. Otherwise, the term “belief” is meaningless.

Okay, the apologist says: belief costs something. But that’s a relatively minor pittance compared to the infinite reward of Heaven. A small price is worth paying if there’s a chance of an infinite payoff.

This bugged me for a while until last night, as I got off the shuttle from work. As usual, I was thinking about gaming.

Consider: I have a die with six sides. You examine it to your satisfaction to prove that it’s not weighted or tricked. If you like, we can substitute a die of your own, provided I get to examine it as well.

I say, “Pay me $5 and I’ll let you roll this die. I’ll pay you whatever number comes up.”

You say, “That’s a sucker bet.”

I say, “But! If you roll a 6, I’ll let you re-roll and add the new number to the total. If you roll a 6 again, I’ll let you roll again. I’ll let you keep doing this as many times as a 6 comes up.”

You say, “Really? I dunno …”

I say, “Come on! A small price is worth paying if there’s a chance of an infinite payoff!”

So you fork over $5 and roll. Ten rolls later, I’m up at least $8, if not more.1

Pascal’s Wager has a lot of problems, but the biggest is: he never gives you the odds of each outcome. And you never trust a game where they don’t post the odds. Let’s say the Commonwealth of Massachusetts holds a special lottery where the prize is infinite money for life – the ultimate charge card. Should I pay $1 for a ticket? $10? $50,000? Depends on the odds of winning.

The “infinite payoff” of Heaven sounds nice and all, but I don’t know if the odds of the Christian God existing are one in a thousand, one in a trillion or one in ten. And that’s a lot of hours to give up on Sunday if I guessed wrong.

These are the things I think about on the bus.

1 The average roll on a fair die with six sides is 3.5. The average roll on an exploding die with six sides – meaning, one that lets you re-roll and add on every time you get a six – is 4.2.

you want stylin’, you know it’s time again

A coworker came by my desk waving a sheet of paper. “We’re doing betting squares for the game this weekend. You want in?”

“No thanks,” I said.

“Come on. Only five bucks!”

“Thanks anyway; I’ve got better things to spend my five bucks on.”

“Like what?”

“I don’t know … lunch? Movie tickets? Beer?”

“You won’t miss the five bucks,” he insisted. “And you get to play along with the other folks in the office.”

“Really, I’m just going to keep my money.”

“Don’t you like football?”

I stared at him funny. “I love football.”

“Then why don’t you want to gamble on it?”

“That question doesn’t make any sense. There’s more to football than gambling.”

“Like what?”

I couldn’t believe I was having this conversation, but he looked serious. “Like watching the game? Cheering on your team? Wearing the team colors? Following team news? You know, all that?”

“Sure, sure, that’s cool, and I’m sure it makes a difference. But gambling’s what makes it a sport, instead of just something silly.”

“You’re not going to put me on the defensive. I can be a perfectly good football fan without gambling, and that’s that. Give me one good reason why I should bet on a football game.”

“Because everyone else is doing it!”

Another coworker, older and somewhat smarter, wandered by during this conversation; I shot him a pleading look while I answered the first guy’s riposte. “That’s not a valid argument and I think you know it.”

“The reason why you should gamble on football games,” interjected the older coworker, “is because it sends a message.”

I’d never heard an answer so bizarre, so I was at a loss for words.

He took this as a sign to continue. “The players in the game on Sunday know what the Vegas line is. They know that they’re six-point underdogs. That’s bound to discourage them. However, if there’s a lot of betting, Vegas will raise the line to make it a closer bet. They’ll do this to encourage more people to gamble. This will, in turn, encourage the players, since the game no longer looks like such a long shot. That’ll make them play better, and make them more likely to win.”

“Exactly!”, said the first coworker. He had never devoted that much thought to the question of Whether Or Not To Bet On Football. He’d been taught in sixth grade that betting was just Something All Good Football Fans Did. You weren’t really a good football fan if you didn’t bet. The notion of a football fan who didn’t bet on football baffled him.

“So you’re saying,” I said, gesturing with my hands as I struggled to line up concepts, “that if I bet on this Sunday’s game …”


“… and if thousands of other people bet the same way I do …”


“… that’ll encourage the bookies in Vegas to change the line …”


“… which will encourage the players to play better …”

“You got it.”

“… which will hopefully make them win?”

“That’s it!” He beamed, proud of his tortured chain of reasoning.

“That’s the weirdest rationalization I’ve ever heard. Why wouldn’t I just go to the game and cheer for the players directly? That’s bound to have a greater effect on their playing than betting on them.”

“Well, sure, you can go to the game and cheer,” the older coworker said dismissively. “But there’s no reason you can’t do that and place a bet.”

“Unless I want to keep my five bucks!”

“Look,” the first coworker interrupted, “don’t you realize how lucky you are, living in a country where you can gamble on professional football? If you lived in the Soviet Union, or Saudi Arabia, or China, you wouldn’t have that privilege. It’s your right – hell, it’s your duty to put five bucks down on this Sunday’s game!”

“Now you’re being ridiculous,” I said.

“Don’t you want our team to win?”

“Of course I do.”

“Don’t you like living in a city that has a championship team?”

“I love it.”

“Then why won’t you fill out this betting square?”

I threw my hands up. “You’re not making ounce one of sense here.”

“I give up,” said the first coworker, snatching up the half-filled betting sheet and walking off. “I don’t know how you can say you want our team to win if you’re not willing to wager money on them.”

The older coworker smiled – one of those patronizing smiles that distances one from a louder party, while still trying to draw in the reluctant sale – and leaned in. “Look, it’s not that much money. Is there any reason why you won’t chip in five bucks? Play along with the rest of us?”

“I’m not going to bet on this Sunday’s game,” I answered, “because I don’t want to. It’s my five bucks, to spend however I like, and I choose not to spend it on this. I won’t want to spend it until I hear a sufficient argument for why I should. And so far, I have yet to hear anything that even sounds like an argument, much less a persuasive one.”

He shrugged sadly. “All right. I gave it my best. Sorry to bug you.”

“No problem; I have this conversation every four years or so.”

“See you at the tailgate this Sunday?”

“You know it. I’ll bring the ribs.”

when the law break in, how’re you gonna go?

September 25, 2008: Lawmakers reach nearly reach deal on $700,000,000,000 bailout*

Sadly, we lost Mr. Tambor in the L.A. Water Riots of 2012.

Sadly, we lost Mr. Tambor in the L.A. Water Riots of 2012.

By the time that bright, cold day in April rolled around, I’d been dealing for the monthly Mount Weather Blackjack Game for half a year. I’d been introduced to Mount Weather – the secret FEMA facility in which most of the Bush administration had been hiding – in September ’13. I saved Henry Paulson from a roving mob of battery scavengers while vagabonding through Cincinnati. This was unintentional; in the dark, I mistook him for Arrested Development‘s Jeffrey Tambor.

The guards waved me through the access gate – wearing remaindered TSA uniforms from the summer of ’11 with the silver skulls on the epaulets – and I swiped my access card outside the express elevator. A ninety second ride conveyed me to the sub-basement, and from there a quick walk to the Rumpus Room.

The gang was there already.

“Hey, gang,” I said. “Let’s get started.”

Two hours later, I was sorting my massive stack of chips while Bush tried to talk Bernanke out of buying in for the fifth time. I didn’t know why these guys insisted on playing blackjack, rather than stud poker or hold’em or any game that they had a chance of winning. Maybe the Clinton years had given them an inferiority complex – always on the outside, looking in – and they felt a constant need to stake their luck against The House. I always returned all their money at the night’s end, anyway. They were still using ’09 greenbacks, which wouldn’t buy me a stick of gum on the outside.

“Why do you guys always play blackjack?” I finally asked.

“Bobby gave us the idea,” Bush said, indicating former AIG chief executive Robert Willumstad with a jerk of his head. “We had that Kevin Spacey movie 21 on the DVD and we thought we’d try our luck at counting cards.”

“Really? You’ve been counting cards this whole time?”

Bernanke nodded. “It’s a four-deck shoe, so we worked it out that …”

I shook my head to cut him off. “I always deal out of a seven-deck shoe.”

The room fell silent.

Definitely counting cards

Definitely counting cards

“So you thought I had more high cards left in the deck,” I explained, pouring myself a drink, “than I actually did. So you started bidding more aggressively, because high cards are good for the player. But then you started losing hands – because you were wrong about the future composition of the deck. And then you did that stupid Martingale thing where you double your bet after each loss, which only got you farther into hock.

“And besides,” I continued, “successful card counting is usually done in teams. It doesn’t work if you’re all counting cards against each other. Because then one player’s success is another player’s failure.”

Henry Paulson scratched his head.

“This is the same way you got in trouble with mortgage securities,” I told Herb Allison, former CEO of Fannie Mae. “You thought that there were more high housing prices in the future. You were wrong about the future composition of the deck. And because you were already investing in mortgage securities on credit, you had to keep raising your bets in order to make up your losses.

“And the rest of you …” – here I turned to the former CEOs of Merrill, Goldman, Lehman, Bear Stearns and Washington Mutual – “… all had to keep him in the game. Because if he folded, then all of those bad cards – meaning, all of those toxic mortgage debts – would start coming to your hands. And the process would repeat.”

“Not for me,” Willumstad of AIG said.

“No,” I agreed. “But you wrote credit default swaps – insurance contracts on those bad bonds. These contracts only paid off in the event that the holder went bankrupt. And when lenders started going bankrupt left and right, you owed more money than you could pay.”

“It could have been a catastrophe!”, Paulson exclaimed. “Think about it – trillions of dollars of wealth, vanishing overnight. All because of some greedy bankers …”

“Don’t go blaming us for this!” said Richard Fuld, former CEO and chairman of Lehman. “We wouldn’t have bought so heavily into these mortgage securities if Moody’s hadn’t rated them AAA – as safe as government bonds!”

“Like this is our fault!” shrieked Ray McDaniel, former CEO of Moody’s. “Those brokers bundled junk mortgages together into a single package that looked like a safe investment. If they hadn’t been after those thousand-dollar commissions …”

Angelo Mozilo, former CEO of Countrywide Financial, made a jerk-off motion with his leathery hands. “Puh-lease. What, am I gonna be the guy who turns down some poor schmoe from getting a home? When he can just go to a competitor down the street and get the same no-income, no-assets, adjustable-rate loan? Let the FHA investigate me for discriminatin’ against blacks and Hispanics and what-not …”

The shouting rose to a general din.

“Guys, guys,” I yelled, “no single one of you takes the blame.”

“Exactly!” Paulson squealed. “Because I solved it.”

“None of you take the blame,” I continued, ignoring him, “because the problem isn’t personal. It’s institutional. Suffering never comes from a few people conspiring to do evil; it comes from a million people with no incentive to do good.

Everyones entitled to their piece

Everyone's entitled to their piece

“Consumers had no incentive to be honest about their loan applications – not with loans available that didn’t even require you to state income. Lenders had no incentive to be honest with the consumers – not with the new lowered standards for credit. Brokers had no incentive to investigate the loans that they bought from lenders and bundled into tradable securities – not with the heavy demand from investors. And investors had no incentive to question the riskiness of the securities they bought – not with the generous rate of return they were seeing.”

As I spoke, I dealt cards from the deck to everyone still sitting at the table, punctuating each sentence with a face-up card.

“No one had an incentive to look,” I concluded, still dealing. “Everyone was looking the other way. And that’s when the train hit.”

I dealt a final card to James Cayne, ex-CEO of Bear Stearns: the grinning Joker.

“Did I leave that in the deck again?” Bush asked, peering over Cayne’s shoulder. “Shoot. Always forget that one.”

“The Professor’s right,” Paulson said, sidling up behind me and clapping me on the shoulder. “It’s silly to talk about who’s to blame. That’s all in the past. Especially since I solved the credit crisis with that massive bailout.”

We solved it,” Bernanke insisted. “And a fat lot of thanks we got for it, too.”

“Have you seen what it’s like upstairs?” I asked. “People are burning dollar bills to heat their homes. Typhoid’s sweeping through the Midwest. I have yet to meet someone who’s traveled more than ten miles from their home in the last year. You didn’t solve shit.”

“Obviously, it’s a time of hardship for the nation,” Bush admitted. “After the 2008 election …”

“Don’t blame this on him,” I interrupted, referring to Bush’s successor. “This is only partly his fault. You’re the ones who gave the Secretary of the Treasury absolute power – power that couldn’t be questioned in court – to control the economy. Given the idiot he appointed, this is only common sense.

“You started this when you spent seven hundred billion dollars – more than the budgets of the Departments of Defense, Education and Health & Human Services combined – to buy up bad mortgages. You sank seven hundred billion dollars into investments that would never pay off. Where would you get that $700,000,000,000 from?”

“New Treasury bonds,” Bernanke offered.

“But who would buy them? Treasury bonds are supposed to be a riskless return, but you just sank seven hundred billion in the same shit that crippled Stearns, Lehman, Merrill, Goldman and Fannie Mae. So since those debts are never going to pay off, the only way to honor those bonds is by printing worthless paper.

2008 Greenbacks - Collect Them All!

2008 Greenbacks - Collect Them All!

“Why do you think mothers stuff their children’s jackets with dollar bills? Why do you think customers at bars buy their drinks six at a time, before the price goes up at the end of the evening? How is it I can make a living gathering five dollar bills off the street, stitching them into a wallet, and selling the wallet for more than the currency it’s made of?”

They didn’t get it, of course. They never got it.

“Inflation,” I said, trying not to scream. “Inflation on a level that’s making Mugabe laugh at us all the way from the Hague. Inflation that bankrupted everyone on a fixed income – including the huge generation of Baby Boomers. Inflation that penalized savers and rewarded borrowers, turning America into a nation where everyone was in debt to everyone else. Consumers borrowed from corporations, corporations borrowed from banks, banks borrowed from the Treasury, and the Treasury just kept printing money to oblige.

“You returned America to serfdom. Nice work, guys.”

My voice had grown hoarse from lecturing, so I took a sip of my drink. A muffled pounding slowly filtered into the room from seven stories above.

“What’s that?” Paulson asked.

“Oh,” I said. “I might have forgot to lock the door behind me. Sorry.”

“It’s all right,” Bernanke said. “The guards will protect us.”

“I don’t think so. I paid them off on the way down here. As stocked as you’ve kept your bunker, there’s one thing you can’t provide them.”

“Porn!” Bush said, striking his palm with his open fist. “Curse our fundamentalism!”

“But who is it?” Paulson asked. “Who could want to hurt us?”

“Well, that’s the thing of it,” I said, palming the smoke bomb I’d hidden behind my belt buckle. “Remember how I said Treasury bonds used to be a riskless investment? The kind of investment that was typically only bought by large institutions looking for absolutely safe places to store money? Like pension funds? Like the New Jersey local of the Brotherhood of Maintenance of Way Employees’ pension fund?”

“Oh, hell,” Bush swore, fumbling for his cyanide capsule. “It’s the Teamsters!”

“Wait!” Paulson yelled, sweating and grabbing at the deck of cards scattered across the table. “What do the rest of us do?”

“I don’t know,” I said, dropping the smoke bomb. “Bail out?”

* I’ve had this post on the spike since Tuesday; I’ll miss the news cycle if I wait any longer. We all know the bill’s going to pass.

professor? what’s another word for pirate treasure?

Before taking the current job, I had one interview and a follow-up with Extensive Enterprises (they took over the old Bear Stearns offices downtown). I had almost reached the elevator after the second interview when the COO caught up with me in a hurry.

“I actually wanted to talk with you a bit more before you left,” he said.

“Sure thing, Mr … Xamot?”

“No, I’m Tomax, actually. Xamot heads up Marketing and Relations.”

“Right, Tomax. Is that Greek?”

“Corsican.” He steered me toward a private elevator off a back hallway – a glass-walled cage that looked out over the entire city. We began our slow descent.

“So, what are you spending your stimulus check on?” he asked with a conversational chuckle.

“Hadn’t planned that far ahead yet, actually. I figured I might just invest it.”

“You don’t want to do your part to help stimulate the economy?” He put the weirdest emphases on certain words.

“I’d rather preserve the check’s value against inflation.”

“Inflation!” He hissed like he’d suffered a paper cut. “Why is inflation such a big deal?”

“Okay,” I began, “a lot of times, when people want to see how wealthy a country is, they look to see how many dollars it has. This can be dollars of goods produced per citizen, also known as GDP per capita, or the average value of the companies based in that country which sell public stock, also known as a stock index. Or any method of your choice.”

“I like exports over imports myself.”

“Yeah, you and Lou Dobbs. But dollars aren’t just a method of measuring wealth, like the pressure gauge on a barometer. Dollars are also an actual trade good. People exchange dollars for other goods all the time.

“You look at a supply and demand graph in any Intro. Econ textbook and you see price, in dollars, on one axis and quantity, in units, on another. But nobody ever thinks about the supply and demand for dollars.”

“Hmm,” Tomax said. “Could you elaborate?”

“You have a given amount of liquid money on hand,” I explained. “Cash in your wallet, plus whatever you can draw from an ATM or write a check against. Let’s say $100,000. You also have a house full of stuff: a flat screen TV, an Italian leather couch, some imported rugs, a boxster in the garage, etc. At any point, you can trade that stuff for dollars, or those dollars for stuff. The fact that you have $100,000 and a set amount of stuff currently – as opposed to, say, $80,000 and …”

“And a hovercraft with a giant snake’s head on it,” he suggested.

“… is a function of your current desires,” I concluded. “Think of it as the intersection of Money and Stuff on the supply and demand graph in your head.”

“I see. So how does this tie in to inflation?”

“It works the same way on a national level. The total amount of dollars available as liquid cash – hard currency, checking accounts, savings accounts, traveler’s checks – is about seven trillion, seven hundred billion dollars – what the Federal Reserve calls M2. The total amount of stuff available is … well, everything on the planet, really. At every second of the day, people exchange dollars for stuff or stuff for dollars.

“Dollars,” I continued, pulling one out of my wallet to illustrate, “are banknotes issued by the central bank of the United States: the Federal Reserve. The Fed has at its disposal a variety of tools to put more dollars into the market:

  1. They can buy or sell Treasury bonds – which would put dollars into or take dollars out of circulation, respectively.
  2. They can raise or lower the discount rate – the interest rate that U.S. banks can charge each other for interbank loans. Raising it tightens the dollar supply; lowering it expands the dollar supply.
  3. Or, they can change the reserve requirement – the percentage of dollars that a bank has to keep on hand to honor outstanding accounts.
The Fed typically only uses the first of these three.

“The problem: the Federal Reserve can, and does, increase the supply of dollars without actually creating any more stuff. So now you have more dollars chasing fewer real world goods. The purchasing power of the dollar declines overall.”

The elevator dinged as it hit the 30th floor. A man dressed identically to Tomax stepped on board. “Ah, Professor,” said Tomax, “you’ve met my brother Xamot, haven’t you?”

“Last time I was here,” I said, shaking his hand. “I was just telling Tomax about how inflation reduces the purchasing power of the dollar.”

“I’d heard that,” Xamot said. “But doesn’t it level out over time? The economy adjusts to the new equilibrium between dollars and goods, and we all trundle on.”

“It levels out,” I replied, “but not all at once.

“Let’s say the U.S. orders up one hundred billion dollars worth of bomber jets. The DoD cuts Boeing a check for $100,000,000,000.00, which Boeing can cash out and use to pay its employees, suppliers, distributors and the like. But the DoD doesn’t have one hundred billion dollars – they spent what they got in taxes long ago. The DoD has now added to the U.S. national debt by one hundred billion dollars. Fortunately, every bank in the world cashes their checks, so no one starves this month.

“Now, the supply of dollars has increased by one hundred billion dollars. But this rising tide doesn’t lift every boat. Even though the dollar has just lost a bit of purchasing power, not everyone knows it yet. The employees and customers of Boeing got their hands on that hundred billion first. They get to spend it on food, gas, clothes, cars, industrial materials, investments, whatever. The people they buy from then get to spend it on food, gas, clothes, etc. So that hundred billion trickles out to the economy slowly. Some people profit from it; some people get screwed by it.”

“What does the Federal Reserve …” Tomax began.

“… have to do with all this?” Xamot concluded.

“The U.S. government finances its debt through Treasury securities – which, as I said before, the Fed sells. You exchange cash for the T-bill, which is a promise to pay back that cash plus interest on a future date.”

“I’m still not sure what the big problem with inflation is,” Tomax said. “Sure, direct beneficiaries of government spending get the new cash before anyone else does. But so many people benefit from government spending that the effect has to be pretty broad.”

“It’s like a perpetual motion machine,” Xamot said. “So long as people keep exchanging cash for T-bills, the U.S. debt remains guaranteed, and money keeps pumping along.”

“You’re forgetting one thing,” I corrected. “Overseas investors.”

“Oh,” Tomax and Xamot groaned.

“Overseas investors buy a lot of Treasury securities. They also buy a lot of dollars. Sometimes they pay for these dollars with goods produced in their countries, like clothes from Singapore or cars from Japan. But people in other countries have a demand for dollars and a supply of stuff, same as Americans do. If foreign investors simply refuse to buy Treasury securities, this means they no longer have as high a demand for dollars. When the demand for dollars drops, compared to the demand for euros or yen or rupees, economists call this a weakening dollar.”

The elevator let us off on the ground floor. Tomax and Xamot exchanged a meaningful look. Then Xamot drew a gun, backed up ten feet and pointed it at me.

“Is that a laser pistol?” I asked.

“You’ve found out our plan,” Xamot snarled. “Our master plan to bankrupt the U.S. and destroy the world economy! Whether you’re a spy sent by G.I. Joe or you just figured it out on your own, we can’t let you spoil our scheme. Terribly sorry, Professor.”

Xamot had me dead in his sights. At ten feet away, I couldn’t hope to close the distance and knock the gun out of his hand in time.

So I kicked Tomax in the crotch.

“Guh!” Xamot and Tomax moaned simultaneously, doubling over in pain. I picked the laser pistol out of Xamot’s limp fingers.

“Seriously, guys,” I said, exiting the lobby. “You really ought to do something about that.”

# # #

The Federal Reserve creates easy credit, by targeting a lower Fed funds rate and expanding the money supply. A certain industry – whether it’s housing or domestic manufacturing or savings and loan houses or Internet companies or housing – borrows this easy credit and expands quickly. Once investors start losing confidence, though, this industry stops expanding. Then it contracts, and drags down every company tied into it.

How the Fed gets championed as the solution to this problem, instead of part of the problem, I’ll never understand.

The moral of this story: you can’t create wealth out of thin air. An expansion of credit is not the same thing as a growing industry. Government spending is not the same thing as investing. Money on paper is not the same thing as food in the fridge. At the closing bell, if it doesn’t point to liquid cash or something you can touch, think twice about it.

I’m not suggesting a return to a barter economy or a withdrawal from the modern economy. But remember the rosy figures Enron posted simply by switching some numbers around in their accounting. Or just consider how many years it would take to pay down the U.S. national debt if the federal government did nothing else. If it’s not real wealth – the clothes on your back, the house you sleep in, free time with the ones you love – it’s bookkeeping. And the world’s short on honest bookkeepers.