Okay, I’ll admit it. I’m still not getting it. Take this news item, for example:

City Schools CEO Jean-Claude Brizard vowed Tuesday to add 90 minutes a day and two weeks a year to the Chicago Public School calendar and offered an 11th-hour plan to get halfway to that goal this coming school year.

One day after the Chicago Teachers Union bailed out of talks over a rescinded 4 percent pay hike, Brizard said he would be willing to give elementary teachers a 2 percent raise worth $30 million if they agreed to work 90 extra minutes daily this coming school year. Classes start for most kids Sept. 6.

If this is described as “austerity” what is the operational definition of austerity? Giving a 2% raise rather than a 4% raise? Laying off non-tenured teachers so you can give the tenured teachers the raise their contract calls for? Austerity really doesn’t seem to cover this situation very well.

When my wife and I moved into our house 25 years ago with the exception of the kitchen (Bruce flooring), the master bedroom (harvest gold shag carpeting), and the upstairs bath (black wall-to-wall), the entire house upstairs and down had wall-to-wall deep pile burgundy carpeting.

We didn’t waste much time before dumping the harvest gold shag and the black carpet in the bathroom (!). Over the years bit by bit, room by room we (mostly my wife) have removed the burgundy carpeting, refinished the hardwood floors, and put in hand-knotted Tibetan area rugs (certified as having been made without child labor).

All that remains of the burgundy carpet is the stairs.

For years we have searched in vain for a stairrunner or broadloom that we liked for the stairs.

A couple of weeks ago we went to a large, established flooring and carpet company to look at what they had and, mirabile dictu, we found something that we actually liked. We took some samples home to see how they looked in vivo. Always make sure that the carpet you like looks as good in your home as it does in the showroom.

It did! We returned to the store a week later to arrange for a representative to come in and make an estimate. It always galls me to pay for an estimate but that appears to be how things are done these days.

It was when the representative arrived that I began to have second thoughts. He arrived on time and was pleasant enough but he had no idea of why he was there. He was the first workman of any variety who’s come into my house in more than a decade without a work order.

I explained to him what we planned to do. He measured the stairs, counted the stairs, exhibited extreme reluctance to answer any of the several questions I asked him, and bolted for the door.

Here’s the picture that has emerged for me of the company. Recalling that each time we went to their physical location we dealt with completely different people and no records appear to have been kept of our previous visits other than the payment records they’re required by law to keep, I think that practically everybody involved with the company is a subcontractor from sales reps to refinishers to installers, the management is slovenly, and, due to its location, the company inhabits an enviable spot, indifferent to price, performance, interest, or demeanor.

I’m inclined to distrust anybody who doesn’t much care whether he or she gets my business or not and my trust in this particular company is shaken. They’re not exclusive distributors of the carpet we saw that we liked, there are other, closer vendors, and where we had previously been ready to sign on the dotted line (and pay the 50% upfront down payment), now we’re inclined to shop.

Here’s our concern. It’s a small job, he’s a subcontractor, and he didn’t do a thorough review of the job. I don’t entirely blame him for that—I blame the company. It’s not his fault that he didn’t know what the heck he was doing here or that he wasn’t prepared to answer questions. We had paid the company for the estimate and what we got wasn’t worth what we paid for it.

If it runs severely over cost, say, for example, they need to replace boards or even rebuild the 70 year old stairs or if he finds a more substantial job, he’ll bail and we’ll be left with a half paid for, partially executed job that the original company won’t want to tackle and will just defer indefinitely. Better to find somebody who wants the business enough to figure out what the job or at least operate in a businesslike manner.

We may go back to them yet. Depends on what we find. I’d rather do business with somebody who wants the business. If we do go back to them, I’ll probably insist on a completeness clause in the sales contract, something to the effect that they’re willing to live with whatever their estimator came up with whatever the actual costs. Something that sounds pretty innocuous but means that they’re on the hook for the job, not just for the estimate.

I think there are several broader observations to be made. Not all businesses have suffered equally in the economic downturn. In fact, some have more business than they can handle. That’s probably true even in the areas of the country that have seen the most severe downturns.

Also, that a company prospers does not necessarily mean that it is well-run. Location, location, location.

Mackenzie Weinger at Politico has latched onto a point that I’ve been making for years, now—the educations and backgrounds of our elected officials are inadequate, severally or corporately, for doing their jobs:

Almost 80 percent of lawmakers might need to crack open an economics textbook before the congressional recess ends, a new study on Tuesday suggests.

The vast majority of members lack an academic background in business or economics, according to a study by the Employment Policies Institute, a nonprofit group that takes a conservative stand on fiscal issues. Only 13.7 percent majored in business or accounting, and 8.4 percent have an economics degree.

“How many members of Congress have an academic background that provided them with a basic understanding how the economy works? The answer, it turns out, is not many,” the report concluded.

I’m afraid that the reality is much, much worse than the study finds or is being recognized. I think there’s very little reason to believe that many of our elected officials have taken math beyond high school trig (and that was a generation or so ago). I don’t believe that most of them have any clear idea of the difference between a million and a trillion. I don’t believe that they know the difference between the median and the mean. Not only have they no feel for business or economics, they’re lacking a feel for numbers or the workings of the natural world.

Most of the lawyers we’ve elected to office haven’t even practiced law to any great extent. Check my analysis of the Illinois Congressional delegation for reference. By and large our Congressmen and Senators are career politicians and apparatchiks. We shouldn’t be surprised that they know little else and treat their jobs as lifetime appointments. It’s really all they know.

In answer to the question “How many legs does a horse have, if you call a tail a leg?” Abraham Lincoln is said to have replied “Four. Whatever you call it a tail is not a leg.” In a recent op-ed at at The New Republic Richard Posner calls what we’re going through a depression and almost gets the seriousness of our circumstances right:

Efforts to curb increased entitlement spending can be complemented by closing tax loopholes, some of which are as enormous as they are unjustified, notably the deduction for mortgage interest. Half the adult population, moreover, pays no income tax. Everyone with an income should pay income tax equal to a modest percentage of his income.

So the deficit, politics aside, should be manageable. But it’s worth pointing out that anything that takes money out of the economy, such as reducing federal spending or increasing federal taxes, will exacerbate the current depression. Consumers will have less money to spend, and this will discourage employers from hiring. So the reforms that I have been discussing should be phased in gradually over a period of years.

Read the whole thing. The one thing he doesn’t take into account is cash flow. Just in order to stabilize our current fiscal mess we need some combination of $600 billion per year in additional revenues or cuts in expenditures and the longer we wait the higher that number will grow. The absolute size of the debt matters because we’re paying interest on it and, while the rate we’re currently paying is at historic lows, it won’t be forever and, when it grows, interest on the debt can easily dwarf Social Security, Medicare, and the military as an expense item. Primary default is something we need to worry about.

There are no prospects for our growing faster than we incur debt without serious fiscal adjustments and there are no realistic prospects for serious fiscal adjustments. We’re thrashing around now like a tarpon on a gaff trying to avoid serious fiscal adjustments.

There are solutions. For example, rather than borrowing the money we use to pay the deficit we could simply conjure it out of thin air. That would have implications of its own.

Yesterday Bloomberg reported on the gargantuan loans that big banks received by the nation’s largest banks in the wake of the collapse of the housing bubble:

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”

Question: which would have been more effective in staunching the hemorrhaging, loans to the big banks or addressing the delinquent and foreclosed mortgages directly? Please do not complain about moral hazard unless you’re prepared to defend the proposition that loans beyond the dreams of avarice create no moral hazard for bankers.

This and other outrages, some of which I’ve posted on here lately, have produced a bit of a swell of complaint from the blogosphere and beyond. Yves Smith complains:

It is high time to describe the Obama Administration by its proper name: corrupt.

Admittedly, corruption among our elites generally and in Washington in particular has become so widespread and blatant as to fall into the “dog bites man” category. But the nauseating gap between the Administration’s propaganda and the many and varied ways it sells out average Americans on behalf of its favored backers, in this case the too big to fail banks, has become so noisome that it has become impossible to ignore the fetid smell.

The Administration has now taken to pressuring parties that are not part of the machinery reporting to the President to fall in and do his bidding. We’ve gotten so used to the US attorney general being conveniently missing in action that we have forgotten that regulators and the AG are supposed to be independent. As one correspondent noted by e-mail, “When officials allegiances are to El Supremo rather than the Constitution, you walk the path to fascism.”

Barry Ritholtz adds his voice:

Given the sadly misguided history of both the Obama administration and the NY Fed (led by the President Tim Geithneir, now Treasury Secretary) when it comes to Bailouts, this is not a huge surprise.

But what is surprising is the utterly inappropriate behavior of Kathryn S. Wylde. She is not only a member of the board of the Federal Reserve Bank of New York, but occupies the seat supposedly reserved for the representing the public.

If the Times report is accurate, and the quote below represents Ms. Wylde’s comments, than that position is a laughable mockery, and Ms. Wylde should resign effective immediately.

“Tyler Durden” of ZeroHedge joins in:

The best summary of this ongoing collusion between the Fed and Wall Street, in which it once again for the nth time becomes clear that all the Fed cars about is making sure its banking masters are never impaired, is from the article itself: “Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.” And there you have it: everything that come out of Wall Street is and has always been a lie: either courtesy of 30 years of great interest rate moderation, in which only cheap money adds to banks’ top and bottom lines, or due to the Fed making sure the same banks never suffer a dollar loss when central planning fails, such as it does increasingly often lately (and forget about 10(b)-5 violation charges coming from the corrupt regulators: after all they are all in bed together). That Morgan Stanley, Dexia and Citi are, and have been since 2008, dead men walking, is by now known to all financially literate readers: additional confirmation can be found in the Bloomberg article, which we won’t paraphrase because it has all been said over and over.

And it’s not just the peasants. The NYT editors have also jumped on the pile (you’ll pardon if I do not link to the paywall-protected NYT).

All sorts of people have jumped on the bandwagon of declaring our present downturn a “balance sheet recession”, following Richard Koo’s analysis of Japan’s now decades-long economics doldrums, although whereas in Japan’s case it was corporate balance sheets that were in trouble here in the States it’s household balance sheets.

That may well be true. Arguendo, let’s assume it is true. What is the proper policy for dealing with a household balance sheet recession?

Pointing to Japan’s model doesn’t help much. Japan has tried fiscal stimulus and quantitative easing to an alarming level and their economic doldrums continue.

Propping up insolvent banks and companies whose business models have passed their sell-by date may be a Good Thing and may even be necessary but that doesn’t necessarily do anything to rejuvenate household balance sheets.

Increasing employment is unquestionably a Good Thing but it, too, doesn’t necessarily do much to resolve ailing household balance sheets. Indeed, it seems to me that a focus on employment (not to mention insolvent banks and moribund companies) is dealing more with the effects than with the cause.

Follow-up question. One of my operational beliefs is that you can tell more about a person’s, a group’s, or an institution’s intentions by what they do than by what they tell you that their intentions are. Everybody wants to be thought well of. Judging solely by the actions of the Federal Reserve and the Obama Administration what are their intentions?

Felix Salmon adds his voice to the chorus on the issue I mentioned in the update to my earlier post:

Most fundamentally, what I’m seeing as I look around the world is a massive decrease of trust in the institutions of government. Where those institutions are oppressive and totalitarian, the ability of popular uprisings to bring them down is a joyous and welcome sight. But on the other side of the coin, when I look at rioters in England, I see a huge middle finger being waved at basic norms of lawfulness and civilized society, and an enthusiastic embrace of “going on the rob” as some kind of hugely enjoyable participation sport. The glue holding society together is dissolving, whether it’s made of fear or whether it’s made of enlightened self-interest.

In Europe, the speed with which the transmission has been thrown violently into reverse is nothing short of astonishing. The whole second half of the 20th Century was devoted to building strong European institutions which would maximize cooperation and minimize mistrust and finger-pointing between member states. Great statesmen put European unity on a par with narrow national self-interest, and the resulting institutions — the euro, of course, but also things like the Schengen Agreement and the European Convention on Human Rights — transformed the blood-soaked continent of the 1940s into a peaceful and prosperous model for how disparate countries could successfully work together to the benefit of them all.

And the US, of course, the global hegemon, a continent unto itself, stood as a beacon for the rest of the world: 300 million disparate people coming together to create something unprecedented — an economic, political, and military colossus built on solidly democratic principles. E pluribus unum.

But countries and institutions can ultimately survive only with the will and consent of those they govern — and that consent is evaporating around the world. Europeans have no love for Europe’s institutions, be they the euro or the ECB or the EFSF. Unemployment, in much of Europe, has reached the point of no return — the point at which it becomes endemic, stubbornly immune to attempts to tackle it. In turn, that results in broad-based cynicism and disillusionment when it comes to politics and politicians generally.

I don’t think that this is an isolated phenomenon or passing phase. I also don’t believe that it can be shrugged off as the maunderings of a handful of anti-government crazies. If that were the case why is there the same sort of loss of confidence in institutions in Tea Partyfrei Europe?

Where I differ from Mr. Salmon is that I think the crisis of confidence isn’t limited to government but extends to big business, universities, science, churches, the news media, and even not-for-profits.

Yesterday my wife and I had brunch with a dear, old friend, one of the very nicest guys we know, whom we hadn’t seen in many years. He’s a psych prof at an eastern university and doesn’t get into Chicago that much any more. We’ve known him for something like 30 years since he started college. I’d known his elder brother since college days, had some influence on his getting his first job, worked with him, was business partners with him, worked with him on many projects.

As we ate we caught up on our lives, exchanged news and gossip about mutual friends, talked about his research areas and the problems of higher education. A pleasant afternoon.

The place we selected for brunch was a restaurant new to us: Big Jones. Big Jones is in Andersonville (if you’re familiar with Andersonville it’s across the street from Swedish Bakery, next door to Calo). It specializes in what I think I’d call Creole food. Creole food is cajun food that’s served in the dining room rather than in the kitchen. They call it “coastal Southern food”.

My wife had a large bowl of their gumbo, our friend had a crayfish omelet that he pronounced the best omelet he’d ever had, and I had an intriguing hybrid they called “Eggs New Orleans”: poached eggs served on split popovers and fresh crab cakes, topped with bearnaise sauce.

Other alternatives included omelets, sandwiches (“charcuterie”), Sally Lunn french toast, rice waffles, buckwheat cakes, all with a Gulf Coast slant.

Large menu of excellent tea. Substantial menu of American whiskeys which, if it had been a bit later in the day, I’d have sampled.

The ambiance was pleasant but not pretentious, the staff young, attractive, chatty, and attentive. Prices were very reasonable: the rather elegant brunch for three came in around $50.

Recommended, particularly for brunch. We plan to go back for dinner.

And now the ultra-rich are duking it out via email and in the op-ed pages of the nation’s newspapers over how much they should be taxed and why. Warren Buffett fired the opening salvo, complaining that the federal government was “coddling the super rich”. I don’t think that “coddling” is quite the right word but this is a family-friendly blog so I won’t suggest a more accurate diction. The bête noire of progressives, Charles Koch, responded:

Much of what the government spends money on does more harm than good; this is particularly true over the past several years with the massive uncontrolled increase in government spending. I believe my business and non-profit investments are much more beneficial to societal well-being than sending more money to Washington.

The next salvo has now been fired, this time by Harvey Golub, former American CEO and chairman, in an op-ed at the Wall Street Journal:

Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers?

Why do we require that public projects pay above-market labor costs? Why do we spend billions on trains that no one will ride? Why do we keep post offices open in places no one lives? Why do we subsidize small airports in communities close to larger ones? Why do we pay government workers above-market rates and outlandish benefits? Do we really need an energy department or an education department at all?

Here’s my message: Before you “ask” for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you’ll need less of my money.

That response actually appeals to me more than Mr. Koch’s does. Caesar’s wife must be above reproach.

I’ve said for nearly a decade that I thought the “Bush tax cuts” were an error (they were mis-targeted, aiming at increasing consumer spending which wasn’t in jeopardy). If I were king I’d start by removing the subsidies, fashionably called today “tax expenditures” but which used to be called “loopholes”, the bulk of which go to the rich and ultra-rich. The political problem is that each one of those subsidies has a group to whom they’re a vital interest, a matter of survival. That’s why even capping the mortgage interest deduction at some seemingly high level, say $50,000 is fought tooth and nail by the realtors’ guild.

Update

The following is from a lengthy comment I made in this thread which I felt deserved to be given a post of its own or, at least rescued.

What I found most telling in Mr. Golub’s op-ed is something that I think needs to be heeded: confidence in government at all levels is going down. So is confidence in banks, universities, big business, news media, churches, and practically every other institution we have.

I don’t know whether this is due to more timely and complete information (no man is a hero to his valet), Third Generation Warfare, arrogance, poor governance, coming to the inevitable end of a process that reached its zenith with the Great Society programs of the 60s, imperial overreach, other factors or all of the above.

I don’t think that the president has done much to foster confidence in government. I can’t read men’s hearts but however benign the intentions of the many actions taken by his Administration once things filter down to us here in the provinces a lot of his programs look like the same old favoring of contributors and special interests, politics as usual.

I might add that I don’t think it is possible for anybody who lives in Chicago to believe that all of our problems would be solved if, somehow, Republicans were to vanish into oblivion and Democrats had complete control of the reins of government. IMO that’s simply making excuses, submitting a stump speech as an alternative for a policy position.

That’s the problem with the E. J. Dionne column I commented on earlier today, too. It pretends to be an analysis of policy but it really is political posturing. Go big! (because nothing you propose will actually happen and, consequently, you can’t be held accountable for its disastrous outcome, and you can use your inability to produce a positive program as a club to hit your political opponents with).