tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.

Tuesday, November 23, 2004

Economy growing but falling dollar shows concern over debt

Despite the declining value of the dollar on world currency markets, at least one economist is optimistic about the short-term prospects for the U. S. economy. Last week, when the Federal Reserve raised interest rates, the dollar fell further against the euro and the Fed Chairman articulated concerns about growing deficits and trade imbalances, Dr. Sung Won Sohn said the economy is actually humming along and looks solid at least through 2005. Long term, however, he said the United States economy faces challenges that have serious consequences.

Speaking to a group of agri-business professionals in Minneapolis on Nov. 16, the eminent economist from Wells Fargo & Co., made two obvious observations. Dr. Sohn noted the price of oil is coming down and reminded the 600 of us in the audience that we got through the elections without a terrorist attack. “We are headed in the right direction,” he declared. Dr. Sohn said the economic growth rate for the country will come in at 4 percent for 2004 and will be about 3.5 percent for next year.

The economic fundamentals, he said, “are pretty sound.” Rising incomes are fueling increased levels of consumption. Income and spending, of course, are what make the economy go.

Dr. Sohn also said individual net worth is “very, very high.” It is averaging about five times annual income for most Americans. The question mark there is the degree to which that figure consists of real estate. On average, individual net worth is made up 34 percent with real estate. It is higher in places like New York and California. “So people worry about a real estate bust,” Dr. Sohn said. “That would be a national economic catastrophe.” He said, however, that he expects the real estate market to hold its value.

Interest rates have been inching up, Dr. Sohn acknowledged, but the effect of those increases is hardly negative. The Federal Funds rate, which is the rate the Fed changes directly, is now at 2 percent – still a historically low rate. This is the amount of interest the Fed charges banks when it lends them money overnight to balance their accounts. It ultimately affects all other interest rate pricing, like the prime, home mortgages and business loans. While the Fed Funds rate sat at 1 percent for most of the last year, the Federal Reserve was trying to stimulate the economy. It was being “accommodative,” as the economists like to say. But now the economy is improving and it no longer needs the Fed’s aggressive help; Dr. Sohn said the Fed is moving the interest rate toward “neutrality.” That is the rate at which it neither helps nor hurts the economy. Dr. Sohn said such a rate is between 3.5 percent and 4 percent; that is where he expects the Fed Funds rate to be by the end of 2005.

Dr. Sohn pointed out that at 78 years of age, Alan Greenspan is in the twilight of his tenure as Chairman of the Federal Reserve. His term is scheduled to end Jan. 31, 2006. Dr. Sohn said Greenspan is likely thinking about his legacy and does not want to close out a 19-year run with inflation out of check and rising interest rates retarding the economy. “Do you want to go out as the chairman who caused one more recession by raising interest rates too high when he went out?” Dr. Sohn asked. “No. That is one reason I think Greenspan is going to be very cautious raising interest rates.”

The Federal Reserve, however, is not the only influence on interest rates. Foreign banks, such as the Peoples Bank of China and the Bank of Japan, purchase huge amounts of Treasury bonds and U.S. securities. In fact, the U.S. needs to sell about $2 billion in such debt every day of the year to finance the budget deficit. Foreigners hold about half the country’s debt. That’s why the value of the dollar is so important. A dollar that is losing value means that investors around the world are willing to pay less for American currency. In order to attract those investors back to dollar-denominated securities, the Fed raises interest rates. When securities pay more, investors regain a desire to buy. But rising interest rates fuel inflation and make everything for Americans more expensive.

Although the dollars is falling against the euro and yen, countries like China and Japan remain willing to lend to the United States because Americans are the biggest purchasers of products made in their countries. If Japan and China were to back off from buying U.S. Treasuries, American interest rates would rise and Americans would buy fewer goods manufactured overseas (including China) and fewer Japanese cars. So the United States needs to keep borrowing to finance its deficit, and foreign countries need to keep lending to keep their economies going. It’s a dance that Dr. Sohn said may end in heartbreak.

“In the short run, it’s a win-win situation,” he said. “In the long run, clearly we have a problem. No nation can go on borrowing at a rate of $2 billion per day, 365 days per year. The Wall Street Journal calls this a moral issue. Is it right to pass this debt burden to our children and grand children? They will have to work more, perhaps 10 hours a day – four to pay debt and six for themselves. What do we do? I don’t know.”

If Greenspan indeed is winding down his career, he has a certain freedom to make bold proclamations during the remainder of his tenure. That may explain his comments in Frankfurt November 19 where he wondered aloud how long foreign investors would continue financing United States debt. The growing U.S. deficit is tarnishing the sheen on American investments. Greenspan spoke about the benefits of cutting the U.S. budget deficit, which at the end of fiscal year 2004 was $412 billion.

That deficit was one reason so many people were watching Congress over the weekend, when it approved a $388 billion spending bill. It was supposed to represent a reduction in spending, but the Associated Press reported the bill still found money for 11,772 home-district projects (sometimes referred to as “pork”) worth $15.8 billion.

The trick for American political and economic leaders will be to find ways to reduce the country’s debt while times remain good. The United States needs to send some signal that it is serious about reining in its debt. Inaction or clumsy bumbling could lead to serious economic trouble for the entire developed world.

Friday, November 19, 2004

Thankful reflections on faith and family

Thanksgiving is next week; this is a time of year when people reflect on the things for which they are grateful. For me, I am most thankful for my family. I am particularly thankful because during those first few years Susan and I were married, we didn’t even know if we’d ever have a family.

Before Susan and I started adopting children nearly a decade ago, we had to come to terms with our infertility. Looking back, that picture has come into a little clearer focus thanks to some serious Bible study Susan and I are pursuing through a local parish. Jeff Cavins, nationally known for his work on the EWTN television program “Life on the Rock,” is leading the instruction.

Our study has taken us through Genesis, and one story has proven particularly meaningful to me. In the middle of Genesis, God promises Abraham and Sarah a child. Both laugh because at their advanced age they cannot believe they will have a child. Wanting to see God’s plan fulfilled, however, Sarah encourages Abraham to have a child with her slave, Hagar. Abraham follows up and Ishmael is born. Fourteen years later, Sarah becomes pregnant and has Isaac. Hagar and Ishmael are sent away and to this day the descendants of Ishmael and Isaac co-exist in a strained relationship.

This is the first recorded story of a couple wrestling with infertility. Their story, however, is as relevant today at is was in biblical times. Like most couples, Abraham and Sarah believed that God’s will included a family for them. When they ran into the roadblock of infertility, they took matters into their own hands rather than put their trust in God. How many couples struggling with infertility today seek family through means that use sperm or ova from a third party? Many couples today do what Abraham and Sarah did, albeit in a petri dish and medical lab as opposed to a tent in the desert.

Man’s ways do produce children – beautiful children, in fact. However, just as it was impossible for Abraham and Sarah to know of the Muslim/Judeo-Christian strife that would result for their descendants, it is impossible for any parents today to know what pain may lay ahead for their descendants. We all know that peace will only come to our hearts if we live according to God’s will rather than according to our own will.

For Susan and me, the Catholic Church’s counsel away from artificial means of conception proved invaluable. We accepted that teaching. We were a little unsure at first but looking back, adoption proved absolutely the right path.

Thursday, Susan and I will sit down to a Thanksgiving Day dinner with our four children and other relatives. We have so much for which to be thankful -- faith and family above all else.

Sunday, November 14, 2004

Minnesota moves toward ideological balance with latest election

Minnesotans are a fickle lot. Two years ago, voters in this state took a hard turn to the right, electing 11 additional Republicans to seats in the Minnesota House of Representatives. Two weeks ago, Minnesota voters took a hard turn to the left, awarding 13 additional seats to Democrats.

With the rest of the country moving farther to the right in the 2004 election, Minnesota’s results are all the more curious. Is it the start of a trend in Minnesota, as the state’s Democratic Party leaders are saying, or is it something less significant -- an aberration or merely business as usual?

To be sure, Republicans still hold the majority in the House, albeit by only two seats (68-66). And the Republicans continue to hold the governorship. My sense is that it is too early to declare any kind of sea change in the philosophy of typical Minnesotans. I’ll be watching to see what the legislature does over the next two years and whether it is any more productive than it was in 2004. Plus, I am eager to see how voters respond during the midterm elections in 2006. But for now, my sense is the 2004 results were just another chapter in the state’s metronome-like election cycle.

While it is dramatic for either party to pick up 13 seats out of 134 in the House, it is not all that unusual. In 1986, the Democrats gained more than 20 seats. In 1992, Democrats picked up 10 seats. In 1994, the Republicans picked up 13 seats and eight years later they picked up 11 seats. Most of those Republican wins in 2002 were very close and this time around, with a higher turnout, Democrats took some of those seats back.

Historically, Democrats in Minnesota have done well in presidential election years. Democrats typically have done a better job than Republicans getting the vote out for their presidential candidate and that has a beneficial spillover effect for Democrat legislative candidates. That was certainly the case in St. Louis Park where Democrat Steve Simon beat Republican Jim Rhodes by 12 percent of the vote. More than 20,000 people voted in that election, which is 3,000 to 5,000 more people than typically go to the polls there. The Democrats got their people out to vote for John Kerry, and those people cast ballots for whoever the Democrat on the ballot was for that District 44A legislative seat.

Republicans were saying as early as last July that this would be a tough election for them. Only one Democrat incumbent did not seek re-election this year, while eight Republican incumbents decided not to run again. And one Republican incumbent who ran again lost his party endorsement. All of these factors pointed to a tough night on Nov. 2.

Conventional wisdom holds that voters were upset by the 2004 legislative session when little was accomplished. Voters reacted against the incumbents and that explains all the turnover. Since only House seats were up for election, the tide went against Republicans. They had held an 81-53 advantage in the House and voters nearly wiped that out completely. Had the Democrat-controlled Senate been up for election, I think you would have seen a reaction against the majority there as well. With only a one-seat majority, had voters been allowed to vent their frustrations at Senators as well as Representatives, my bet is we would have seen a change in control of the Senate.

Senate Majority Leader Dean Johnson, for example, very well may have lost had he faced election this year. President Bush easily won Johnson’s District 13. It is not difficult to imagine that the Democrat who was at the center of a legislative logjam in spring of 2004 would lose to a good Republican challenger, had there been one.

Minnesota is fairly evenly divided with about half its population in the Twin Cities metro area, and the other half in what the state’s Department of Tourism people call “Greater Minnesota.” Typically, urban people vote Democrat and rural people vote Republican. So it is perhaps predictable that the state should be so evenly balanced between Republicans and Democrats. Consider for years Minnesota elected probably the most liberal person in the U.S. Senate, Paul Wellstone, at the same time it elected one of the Senate’s most conservative people, Rod Grams.

Rather than the most recent election results signaling any philosophical trend, they more likely reflect the state’s long-established desire for balance. For the most part, Minnesotans seem to be moderates, uncomfortable too far to either end of the ideological spectrum.

Wednesday, November 10, 2004

Post election analysis

Our country is better off for the fact that President Bush won last week's election by a decisive margin. The last thing we needed was another result like we had four years ago, when the counting and legal wrangling delayed the final outcome until well into December. Although most people expected a close election this time around, the three-million-vote margin was enough to denude any legal challenges; even voting delays in Ohio only extended the drama to the next morning. John Kerry conceded graciously and promptly. There would be no talk this time of anyone stealing the election, or of the difference between the popular vote and the electoral vote.

The 2004 general election produced what citizens expect of an election: an unambiguous decision about who will be our president.

Going into the election, I thought Kerry was going to win. Signs of his success seemed to be all around me, but then, I live in Minnesota, one of the states Kerry won. Furthermore, I live in Minneapolis, where Kerry won 78 percent of all votes cast. In the end, however, an old political adage proved sound: it takes a distinctive candidate to beat an incumbent. Not only does a candidate need obvious differentiation from an incumbent but he needs a clear message about where he will lead. For the most part, John Kerry failed in this regard.

Here are a few thoughts about why the election resulted in a Bush victory. My bias as a Republican probably comes through in my analysis but I am not offering this to widen any partisan divide; my assumption is that sincere observation from one citizen's perspective can be useful to those who are interested in politics on almost any level.

Perhaps the most important issue in the election was the war and John Kerry's position wasn't sufficiently different from President Bush's. Kerry had a lot of criticism about the past, and said he never would have gotten us into this situation in the first place. At this point, however, more people are interested in the future than the past and, looking forward, Kerry's message was the same as Bush's message. Kerry wasn't going to withdraw troops immediately. He was going to stay until the job was done, train Iraqi citizens, and withdraw our troops only after a certain level of security is achieved. This is what Bush had been saying all along. The difference between the candidates on the future of the war was indistinguishable.

Indeed, Kerry spent a lot of time looking at history. He told us he was a veteran, but that fact confused more than it convinced. We could never really figure out what to make of his military service. Was he proud or ashamed of his service in Vietnam? He was on both sides of that question. Then, he pointed to mistakes he said Bush made in the past four years. Kerry never said anything that convinced me he would not have made the same mistakes, or that he would not have made other equally grave mistakes. Most of us are Monday morning quarterbacks to some degree, so we know how much stock to put into second-guessing -- not much, and that's apparently what most Americans did.

Kerry tried to make a big issue of the economy, but it turned out to be less of an issue than he hoped. While in a nation of 280 million people it seems there always will be pockets of trouble, for the most part the economy hasn't been all that bad. Kerry tried to make an issue out of job loss, but the unemployment rates were in a range most people deem acceptable. Plus, I think there is a difference between what is reported in the newspapers and what Americans are actually experiencing. The U.S. Labor Department uses an unemployment figure derived from something called the “establishment” survey. This means that several of the country's largest firms report their payroll levels and the Labor Department issues an unemployment rate based on that survey -- most recently coming out at 5.5 percent. But in today's economy, where so many entrepreneurs work out of their homes or in very small businesses, this method of assessing employment levels is inaccurate. Especially where I live, there are many people making a good freelance living. Those people count as unemployed in the establishment survey. Even me -- I am self-employed and I don't show up in the establishment survey. Us folks making a living on our own show up in another survey, called the “household” survey, but the results of that survey don't get nearly the press play that the establishment survey gets. Kerry was always using the grimmest available statistics on the labor front, which made for great rhetoric, but failed to match with most people's experience. And, immediately after the election, the Labor Department, using its antiquated measures, announced 337,000 new jobs had been created in October.

There was a big difference between the candidates on health care, but I think most people are skeptical that anyone can do very much to improve the system. Sure, the government might be able to nibble around the edges of this problem and slow the increase of health care costs by a percent or two, but the government cannot change a fundamental law of economics. People are living longer and the demand for health care simply outweighs the supply of doctors and other health care professionals. No matter what you do with insurance, co-pays, and federal programs, you are going to have rising costs as long as the demand exceeds the supply. No one seems to know how to fix this problem and most people understand this, so that is why Kerry was unable to turn this into a compelling issue for his campaign.

Another issue where Kerry failed to gain traction was the deficit. This could have been a huge issue in the campaign, but in the end Kerry lacked the credibility to argue convincingly that he could lead a deficit reduction effort. Kerry rightly criticized the president for turning a budget surplus into a sizeable deficit but he lacked the credentials to convince anyone that he could do anything about it. It was easy to point to the late 1990s, when the budget was balanced, and take credit for it since the Democrats held the presidency at the time. But I don't think most people were buying it; I know I wasn't. The reason the budget reached balance in the late 1990s was because of the work of the Republicans in Congress, largely elected in 1994. Also, the Internet boom fueled the economy like nothing else in the last 50 years. The boom created many new, high-paying jobs (albeit relatively short-lived). A lot of new tax revenue was generated. Those two developments combined to result in a balanced budget. It had very little to do with President Clinton and the Democrats. If you go back through history, you see it is generally the Democrats who have run up spending, not the Republicans. Rightly or wrongly, just as the Republicans have a reputation for catering to the rich, the Democrats have a reputation for fiscal laziness. It was a very hard sell from the outset that Kerry could be trusted more than a Republican to balance the budget.

Social Security proved to be an even bigger problem for Kerry, the candidate who said that he wouldn't change the system at all. When asked about Social Security in one of the debates, he said Congress fixed the problem in the late 1990s. That was news to everyone! Social Security is fundamentally a problem of an increasing percentage of people qualifying for benefits while a decreasing percentage of people are paying into it. The system is destined for bankruptcy unless something changes. But Kerry really had his head in the sand on this issue. Not that any of the solutions are easy; and Bush's solution of privatizing a portion of peoples' Social Security accounts is fraught with issues but at least he acknowledged that something needs to be done. People, apparently, wanted at least that much.

Finally, Kerry suffered at the hands of those who oppose abortion. Although Democrats don't like to acknowledge it, there are a lot of Americans who are ashamed and distressed that 1.4 million abortions take place in this country every year. Many voters want a candidate who will at least admit this is a problem. And these voters are particularly turned off by a candidate who says he is personally opposed to abortion but will not do anything about it. I know I am confused by a candidate who says he personally feels one way but will legislate another way. How does the candidate feel about poverty, homelessness, and public education? Apparently we are not to consider how the candidate feels personally on these issues because he tells us he doesn't legislate accordingly. But that is poppycock. Voters want transparency in a candidate, consistency, and straightforward leadership. The way a politician feels and talks needs to be reflected in their actions, or voters won't know what to make of that candidate. And, in the end, enough people didn't know what to make of Kerry. Lots of people don't like Bush but no one is confused about where he stands on issues. No one is sorting out his personal beliefs from his public policies.

Last July, I had the opportunity to listen to Charlie Cook when I was working in Iowa. Cook is an eminent non-partisan political commentator. At the time, he said Kerry and Bush were even, each with about 45 percent of the vote locked up. That left 10 percent of the vote undecided. He noted that undecided voters typically do not vote for the incumbent. He, therefore, predicted Kerry would get most of those undecided votes and win the election. Well, as it turned out, the election was not about undecided voters. In fact, I really wonder whether there ever were very many undecided voters. Judging by all the yard signs, I doubt there were any in my neighborhood. In the end, it was all about who could get more of their supporters to the polls -- who could energize their base, as the politico like to say. Across the country, Bush supporters were excited about their candidate and got out and voted in droves. People who didn't like Bush got out and voted for Kerry, but apparently there weren't enough people who passionately supported Kerry. Bush had more people than Kerry who believed in him; ultimately, that made the difference.

Friday, November 05, 2004

A president’s son shares stories about dad

I was 12 years old when the United States witnessed one of the strangest sequences of events in the history of the American presidency.

In the fall of 1973, Spiro Agnew was vice president; a man named Gerald Rudolph Ford was the House minority leader, a Republican congressman from Michigan. Agnew was forced to step down as vice president in October because he was caught in a bribery scandal. President Richard Nixon was looking for a new vice president. Ford was on a list of 10 candidates Nixon considered.

Gerald Ford and his wife Betty were living in Alexandria, Va., with their daughter and three sons at the time. The house had two phone lines coming into it: a private line in the bedroom and a phone with four lines in the living room. The phone in the bedroom rang. It was Alexander Haig, President Nixon’s chief of staff. Haig told Ford that the president had something to tell him that both he and his wife should hear. President Nixon got on the phone and Ford immediately asked him to call back on the other line so Betty could pick up and listen. And he hung up!

“We waited five minutes,” recalled Steve Ford, one of the three sons. “It seemed like forever. Five minutes later, the President called back on the other line. And together my parents experienced that moment of being asked to be vice president of the United States.”

Steve Ford was in the Twin Cities last month to address a business group. He had numerous interesting stories to share about his father, who became the 38th president of the United States.

Ten months after that phone call, Nixon resigned under pressure from the Watergate scandal and Gerald Ford was sworn in president.

“We were not able to move into the White House the same day as the swearing-in ceremony,” Steve Ford recalled. He explained that although the nation will never forget that image of Pat and Richard Nixon boarding the Marine One helicopter on the lawn of the White House, closing out a beleaguered presidency, relatives stayed behind for a week to pack all their belongings.

“We went home that night to Alexandria for family dinner,” Ford said. “Dad was president of the United States, living in suburbia. My mother was standing over the stove, cooking. She said: ‘something is wrong here. You are president of the United States and I am cooking!’ The next seven days we lived in that home. For that week, the neighbors waved to Dad as he left every morning to go to work in the Oval Office.”

Ford explained that his dad pardoned Nixon in order to quickly close a dark chapter in American history. President Ford was concerned that the legal proceedings surrounding Nixon’s resignation would consume the country for years, at a time when it had other issues – like recession, the cold war and Vietnam – to deal with.

“When he took over, he gathered leaders of Congress and they told him they were spending 25 percent of every day dealing with Nixon,” Steve Ford said. “Dad was spending 25 percent of his time on Nixon.” Ford said his father knew that Nixon would never admit guilt related to Watergate. By pardoning him, President Ford could not only put an end to the costly waste of time, but he could also get a backdoor admission of guilt from Nixon. A 1933 Supreme Court case ruled that if someone accepted a presidential pardon, they were admitting guilt, although they remained free from the possibility of prosecution.

Steve Ford has obvious respect and admiration for Gerald Ford. Steve noted that his father came from very humble beginnings. He was born July 14, 1913, Leslie King, Jr., son of a man who physically abused his mother. In the middle of the night, Dorothy Gardner King snuck away from their Omaha home with their only son to escape back to her parents in Illinois. A divorce was filed and the shame of the situation was so strong that she had to move out of the area and begin her life anew. She moved to Grand Rapids, Mich., where she met a man named Gerald Ford. He married her and adopted the son, renaming him after himself.

“That man invested in my father’s life,” Steve Ford said of his father’s adoptive father. “This man was not a blood relative, but he is the man who chose to invest in my father’s life, giving him the character and integrity so that he would be able to handle the presidency in a very unique time in American history. He never lived long enough to see Dad become president. It is love, not blood that makes a difference in a kid’s life. That’s why family meant so much to my dad.”

Steve Ford recounted that his father “was sure any man who could lead a family could also lead a business but he wasn’t sure that a man leading a business could necessarily lead a family.”

Gerald Ford was an All-American football player for the University of Michigan in 1934. The university has retired the number he wore back then – No. 48. Steve Ford explained that the team went undefeated during the 1932 and 1933 seasons. In 1934, Michigan was scheduled to play Georgia Tech University, which was an all-white school at the time. Georgia Tech told the University of Michigan that it would refuse to play against the Wolverines because the team had one black player. The player was Willis Ward, who happened to be Gerald Ford’s roommate. Ford, a senior that year, was so upset by the racism of the Georgia Tech team that Ford said he would not play the 1934 season if Ward sat out the Georgia Tech game. Ward, however, agreed on his own to sit out the Georgia Tech game and urged Ford to stay on the team. Ford returned to the team, although the Wolverines lost every game that season except the one against Georgia Tech.

Steve Ford concluded his presentation by holding up a small collection of papers that looked as if they had hand-written notes scrawled on them. Steve said that many years ago, his father took out a legal pad and wrote 20 one-page essays on subjects such as character, learning how to win, the art of compromise, making friends, and the definition of a good marriage. Ford said it took his father about six months to write it all, but when he was done he gave each of his children a copy. Gerald Ford is 91 today, but Steve still carries around those papers.

“I will never be able to thank him enough for writing this,” Steve Ford said. “This is one of the things that saved my life when I was in the dumps 10 years ago struggling with alcoholism. He gave this to me when I was a teenage kid. I didn’t get it at the time he gave it to me, but he knew I would some day. And when I needed it, I did get it.”