An older man named Yossarian stopped by the office the other day. No first name, just Yossarian. I mentioned that Yossarian was the main character in Joseph Heller’s Catch-22, the satirical 1961 novel about ironic incompetence in America’s wartime bureaucracy. The man smiled.
In our business, people sometimes bring a sealed manila envelope and ask us to look at their stuff and let them know what we think. That’s what he did.
I began to explain that I would need to learn more to properly evaluate the situation, but he just smiled, stood, and left. Puzzled, I slit open the envelope and peered inside. No statements, no investment policies, just a few words scribbled in long-hand. And though he wanted my feedback, he left no forwarding address, phone number, or other contact. So I republish his words here as one way to strive to contact him and say I think he’s on to something.
He wrote:
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In my day, Catch-22 impacted those serving in US Army Air Corps flight crews by proclaiming: You are insane if you willingly fly dangerous combat missions, but if you make a formal request to be removed from duty, you have proven yourself sane and therefore cannot be removed from duty. Brutal.
As we have redefined power away from boots on the ground towards economic strength, our ironic humor has followed suit. After all, I’m a 95 year old retiree with my life savings safely earning 0% for three years despite skyrocketing cost of health care, food, and energy. Apparently, the low return is supposed to encourage me to take bold risks and thus do my part to reduce the jobless rate and trade deficit. We can’t have a bunch of slacker 90 year olds earning interest on their savings. What kind of message would that send??
Now if you look at it right, that’s funny. However, if you are not sophisticated, you might consider such a policy intolerable, but then you’d only be proving that you are unsophisticated. Welcome to Catch-2012! But wait, there’s more…
The Stimulus Catch
Consider the stimulus. Since December 2008, the US Federal Reserve has kept its Target Rate as close to 0% as possible. Ostensibly, the low rate is supposed to loosen credit markets and stimulate economic activity. However, the Fed has justified the low rate—and manipulated the bond market to keep it low—by claiming in a somber monotone that the economy is in such dire straits that extreme measures are required. So in addition to potentially stimulating economic activity, Fed policy has stimulated fear and uncertainty, both of which happen to be poorly correlated with economic activity. And to reinforce the conundrum, the Fed intends to keep the Target Rate at close to 0% until at least 2014 because that’s how bad things are. So, go shopping, grow your company, and take your banker to lunch because the economy is even worse than you thought. Stimulating indeed!
The Electoral Catch
Consider those talented candidates of both parties running for President over the past year who have made a lousy economy part of their campaign. How stressful must it be for them to see the unemployment rate declining, to hear that manufacturing numbers are picking up, that even consumer confidence is improving. NOOOOO!!! Of course, the incumbent faces a challenge as well, having proposed policy changes that play to financial insecurity and antipathy toward capital and capitalists. So prepare for Super PACs on both sides to spend a fortune messaging that our economic model is fundamentally flawed and so their candidate should be in charge of it. It’s sure to be a Catch-2012 election!
The Analytic Catch
The real trick to analyzing economic growth, unemployment, tax revenues, consumer spending, and other data points is to make it appear that it would have been far better if only you had been in charge, or if you have been in charge, then it would have been far worse if you had not been. Brilliant really, because there is no control economy to which one can compare and so no meaningful way to evaluate the assertions. By reducing economic analysis to ideological argument, we have marginalized economic data from our assessment of the economy. (Unless there is a parallel universe with an alternate reality United States where we can manipulate Fed, tax, and regulatory policies to compare them to our actual policies. Since we keep cutting the NASA budget, we’ll probably never find out about parallel universes anyway, so we’ll have to ask China to keep us posted. Another catch.)
The Too Big to Fail Catch
The Original Assumption: Big banks are vital to America’s economic health because their massive balance sheets ensure safety and better protect our economy. The Recent Reality: Federal authorities representing both Parties bail out, prop up, or otherwise provide life support to those same big banks because their massive balance sheets endanger our economy and way of life. The Lesson: Encourage greater bank consolidation because Original Assumption must have been true before it was proven false. The Impact: Confusion mixed with mild bouts of nausea.
The Fiduciary Catch
The early version of what became the Dodd-Frank Act would have established a fiduciary standard across the investment industry, requiring most financial professionals to act in the best interest of their clients. Those crazy Congressmen! Such a change would have required a retooling of how the industry works, especially how investment firms are compensated. The American consumer, however, was saved by lobbyists from the broker-dealers, banks, and insurance companies who pointed out that being held to a fiduciary duty would inhibit the industry’s ability to meet their clients’ needs. After all, how can you serve your client if you owe the client loyalty and care? Talk about Catch-2012! Senator Dodd and Congressman Frank were persuaded (legally of course) and quickly struck the fiduciary standard language from the Act. Neither Party complained, nor did consumers; thus, the industry got back to business.
The Final Catch
Enough ravings from an old man. The real catch about Catch-22 and Catch-2012 and the other ironic policies we inflict upon ourselves is that we inflict them upon ourselves. No one wakes up in the morning and says, “How can I make things really difficult for my fellow Americans by creating insensible policies and regulations?” We simply lack the humor or intelligence to plan ahead that well.
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The ultimate Catch is that we are stuck with ourselves. It’s the price we pay for representative democracy. And as we watch our fellow human beings in Syria, Russia, and Myanmar struggle for the same right to be stuck with each other, we can’t help but wish them every success. May they catch the opportunity they seek.
