Iowa Poll Watcher

            This year, for the first time in my life, I volunteered to be a poll watcher for the local Democratic Party.  My local polling place is the high school in La Porte City, Iowa. This polling place serves not only the town itself but also the surrounding countryside, including the rural area where I live.  I took the first shift, from 6:30 AM to 10:30 AM.  The polls do not open till 7:00, but we were required to be there early.  I was relieved at 10:30 AM, but returned to take the 3rd shift from 2:30 PM till 6:30 PM.  The 4th shift poll watcher who relieved me would stay till the polls close and then take certain information to the county party's office.  Iowa law allows each party to have up to 3 poll watchers at any poll at any given moment.  When voters register,  the book they must sign has 3 carbon copies, and each party poll-watching  delegation is given one copy, which they return to the party to use for statistical purposes.   Along with this information, the poll watcher's report includes his personal notes concerning any irregularities, should there be any.  Of course, any serious irregularity would be reported by the poll watchers via cell phone, and a battalion of lawyers would be dispatched to the scene immediately.

            The election judges stay the whole day--6:30 AM to about 10:00 PM.  They are all elderly retirees, and I'm not sure how they manage.  My precinct was Spring Creek Township, whose polling place shared a large room with another township.   So we really had two elections going on at the same time in the same room.  I had my desk set up in a location that allowed me to keep an eye on both operations,  and I shared this desk with my Republican counterpart.

            Let me explain how voting takes place in Iowa:  As the voters standing in line come into the room, they approach the table for the township or precinct where they live. There are three judges at each  table. One judge allows the voter to sign the registration book and issues a blank form on which the voter certifies that he is indeed eligible to vote in that election at that place. The next judge checks the voter's photo Identification. If he does not have a photo ID, this will not prevent him from voting-- it will just make it a little more complicated.  If the person has recently changed address and is not listed in the voter rolls as living in that precinct, he must then show evidence of his address. A recent utility bill in his name, mailed to that address will suffice.  After establishing who he is and where he lives, a third judge issues a ballot and a privacy folder, and the voter takes this ballot to a small privacy booth and votes it. This booth is just a small card table with a low screen on three sides.  An Iowa ballot is a printed form with the candidates' names listed, along with party affiliation. In front of each name is a small circle.  To select a candidate or party slate, you simply blacken the circle with a special pen that is provided.  After voting his ballot, the voter walks back to the judges' table and a judge directs him to the ballot box, which is in plain sight in the middle of the room. The voter slides his ballot out of the privacy folder and into the box.

            The ballot box is a large locked bin with an electronic vote counting machine mounted on top. This machine looks like a computer printer, except that instead of spitting out paper, it takes it in. When you slide a ballot into the machine, the machine counts the votes for each candidate and records this information onto its memory card and then drops the paper ballot into the locked bin, where it is saved and can be re-counted by hand if necessary. On the front of the machine is an LED readout which displays the count of how many ballots have been received and counted.  This count is also recorded onto a paper tape inside the machine.  At the end of the day, this count must match the number of signatures of voters who have signed the register. When the polls close, the voting results are transmitted by wire to the county election office, and also to the Iowa Secretary of State. Then the actual ballots are taken in a locked box to the County Auditor's office and placed in a vault. 

            If doubt arises as to whether a particular voter is eligible to vote, she may cast a provisional ballot.  This is a regular paper ballot, but instead of depositing it into the ballot box, she seals it in a plain privacy envelope, and then in an envelope with her name and address. She returns this to the judge, who places it in a special envelope taken to the county election office. When the votes are tallied, if the voter in question is really eligible and has not voted in another location or by some other means, such as mail-in ballot, then the vote is counted.

            There are many kinds of complications that can arise.  If a voter claims that she had requested and received a mail-in ballot, but had lost it or ruined it--she is simply allowed to cast a provisional ballot.  The system is such that no matter what happens, every voter votes once--but no person votes twice.   And it all happens in an atmosphere that is cheerful, civil, and meticulously open.  No electioneering is allowed within 300 ft of a polling place on Election Day, and everyone knows this and respects it.  Besides, people are on their best behavior on Election Day.  La Porte is a friendly little town, but even people who would not be civil to each other at any other time of the year would take extreme care to do so at the polls.  In Iowa, Election Day is like a national holiday, and the holiday spirit requires you to treat all of your fellow voters with respect.   Voting is a sacred duty, and an Iowan would be no more likely to insult or intimidate  a fellow voter at the polls than to heckle a priest about to consecrate the host on Easter Sunday Mass.  Even if we didn't respect each other,  which we generally do, we would still respect the process.

            After my 6:30 to 10:30 shift was over, I drove to Waterloo, where my wife was part of the Obama Team Get-Out-The-Vote drive.   There, in a small house in a modest residential neighborhood,  rows of men and women with cell phones sat in the kitchen and living room, calling party members to remind them to vote if they have not already done so. Other volunteers were walking from house to house in every neighborhood, explaining why this election is important, and making a last appeal for the candidates.  After wishing these people well, I found a bite to eat, and then returned to my post.  One of the machines malfunctioned at 4:00 pm.  It began rejecting all ballots.  The judge called for a repairman, and then voting continued, but with the ballots placed in a special holding bin.  When the repairman arrived, he brought a new machine.   With the judge and both party poll watchers observing, the repairman broke the seal on the machine, took it apart, and removed the memory card and the paper tape. Before doing this, we wrote down the number displayed on the old machine's LED readout, and it showed that the last vote counted was # 510.  The repairman installed the memory card and the paper tape in the new machine, and the readout said #510.  All of this was done in view of the judge and two poll watchers, and the repairman stopped at every step to explain to us what he was doing. The judge could have taken the ballots in the holding bin out and run them through the counter at that time, but she felt that this would delay the voting.  So she decided that these ballots would be counted at the closing of the polls.  Both poll watchers wrote exact descriptions of this event, to be included in the report given to their respective parties.  The whole process took less than two minutes, and hardly delayed the voting at all.  So far, this post has been a rather boring, nuts-and-bolts description of how the Iowa polling system is set up. I did this deliberately, because one of my fellow Democrat poll watchers informed me that delegations from all over the country and all over the world often visit Iowa to observe our polling process.  They do this because the Iowa system is widely cited as the textbook case of a fair, efficient, and fraud-proof system.

            The poll watching experience was mostly boring, and to relieve the boredom I engaged my Republican counterparts in polite conversation.   I had not expected this to be a pleasant interaction, but it was.   To be designated by your party as a poll watcher, you have to be a party loyalist, and when one considers how acrimonious and vicious some of the campaign rhetoric coming from the candidates has been (particularly on the Republican side), I was afraid that the Republican I would be seated next to might have horns and smell of brimstone.  But the four people I met (a middle aged woman, and three elderly retired gentlemen)  were as friendly and personable as anyone you could hope to meet.  One guy in his 90s told about his experiences in the Navy in WWII.  He had asked to be allowed to be an aircraft mechanic because he had experience as a mechanic, and because he did not think he could bring himself to shoot anyone.  He talked about using  his GI Bill entitlement to get started farming and to buy his first tractor.  He said he got an Oliver tractor. He wanted a John Deere, but the waiting list was too long.  I asked, "Was this an Oliver 77?"  He said, "No, it was a model 70."  I asked, "Did you burn the valves on it?"  He got a big grin on his face, and replied, "Why, yes!"  He had not imagined that someone my age could have known about the Oliver 70 valve problem.  At last, he had found a kindred spirit.  We talked, quietly, so as not to distract the voters, for the whole 4 hours.  I found that his world view was not so different from my own. He was not a Tea Party lunatic trying to abolish government.  In fact, he freely admitted that without the GI Bill and the Farm Bill,  he might not have attained the success that he now enjoyed. His main worry was the outrageous cost of healthcare, especially long term care. His wife now has Alzheimer's and is in a care facility.  He had been charged $70,000 for one year's care.

            I wondered how on earth someone who had been burned that badly by the private sector insurance and health care providers could support a party that wants only private sector solutions.  My answer is this. Some of these people are like confused tourists in a country that they do not understand--and they have inadvertently gotten on the wrong bus. It is not that their eyesight is too poor to read the signs. Tricksters from rival bus companies have pasted phony signs over the original markings, so as to obscure the information about where some of these busses are heading.  This makes it pretty hard to make an informed choice.  Yet the activist volunteers working with my wife are trying to do the opposite. They try to peel off the false labels and explain to people who really owns each bus, and where it will actually take you.  

The Germs That Make Us Us.

            There is a fascinating article by Michael Specter entitled "Germs Are Us," in the Oct 22 issue of New Yorker Magazine.  Specter says that medical thinking is beginning to change about germs, and about the relationship between microbes and the humans who carry them. In 1982, Barry Marshall and J. Robin Warren discovered that Helicobacter Pylori, and not stress, was the principle cause of peptic ulcers. For this discovery, they later shared a Nobel Prize.  By the 1990s, doctors began to seriously consider an effort to eradicate this organism, which would be quite a project.  H. Pylori has been around over 200,000 years and inhabits half the stomachs on earth.  But, they reasoned, "This microbe is clearly bad for us. Besides causing ulcers, it raises the risk of stomach cancer. So why not get rid of it totally?"  In 1997, one prominent microbiologist wrote, "The only good H. Pylori is a dead H.Pylori!"

            But by 1998,  it became clear that H. Pylori is completely harmless to most people, and may play a positive role.  In fact, of the thousands of species of bacteria which humans carry, many if not most may have some positive role,  perhaps even a role necessary to the long term survival of the human species. When a baby leaves the womb, it is free of all bacteria.  But as it passes through the birth canal, it picks up some of its mother's microbes.  When exposed to air, it picks up more. And by the time it's old enough to crawl, it is carrying a hundred trillion foreign bacteria, viruses, yeast, and fungi. An adult human may carry 10,000 different bacterial species.  These foreign cells may weigh a total of over three pounds and outnumber our own cells by ten to one.    We call this our microbiome.  We have coevolved with these organisms, and we depend on them to help digest our food, make some of our vitamins, ward off gut infections, and help develop our immune systems.

            But the typical human biome is not as diverse as it once was. Since the introduction of antibiotics, most individuals have lost cultures of gut bacteria which never returned. And this gradual loss of various kinds of gut bacteria may be contributing to the rise of many diseases, including Crohn's disease, asthma, and obesity. Unfortunately, the decline of biome diversity will be cumulative from generation to generation, since we cannot pass on to our children those bacterial cultures which we have already lost.  In 2007, after the completion of the Human Genome Project, the NIH instituted a project to map the DNA of the human microbiome. Since then, one study of only 124 people found about 1,000 species of gut bacteria. But the average for each individual was only about 160 species.  David Relman, of Stanford Medical School, says that our biome is vast, complex, and poorly understood. He says we must stop seeing medicine as a war between our bodies and invading pathogens, and start seeing an individual human body and its biome as a whole system--a system that needs to be managed.  A lab in Germany has discovered that human biomes can be placed into three categories, which are unrelated to age, race, or gender. Just as there are four blood types, there are three gut types. 

            Antibiotics have been a profound benefit to mankind. They are one of the main reasons that a child born in America today can expect to live 20 years longer than one born in 1930.  But by age 18,  an American has received 10 to 20 courses of antibiotics, and every time they are used, there is collateral damage.  A hundred years ago, nearly all humans carried H. Pylori.  Today, only 5% of American children do.  While H. Pylori can be harmful to some adults, it is rarely harmful to children and may be necessary to normal development. The article says that studies now show that children without H. Pylori are much more likely to develop asthma. And they are also more likely to become obese. Besides antibiotics, there are many other causes for the decline in biome diversity.  Improved sanitation has helped. And the rise of c-sections means that fewer babies will receive microbes from their mothers while passing through the birth canal.             While there are many ways to lose microbes, there may also be many ways to gain them.  The article tells of a man who had a chronic ear infection in one ear.  Several kinds of anti-fungal drops were tried, and several antibiotics, but nothing worked. Then, he cured himself--by transferring a bit of ear wax from his good ear to the infected one.

            About 10% of the population carries Clostridium difficile in their gut, which normally causes no trouble because it is held in check by other bacteria. But when a course of antibiotics wipes out nearly all other enteric bacteria, a nasty C. diff infection can result. For some patients, their microbiome is never successfully restored, and C. diff becomes chronic and untreatable. One of the more radical treatments now being tried is the fecal transplant. A sample of fecal material is obtained from a healthy donor, usually a close relative. Then [after being lab screened for parasites and other harmful pathogens] it is placed into the bowel of the patient, to re-establish a normal colony of beneficial bacteria. So far, the limited trials seem encouraging. In one study, all 34 patients were completely cured, and all were patients for whom all other approaches had failed. Ten years ago, this procedure would have been considered outrageous by most physicians. But the fact that this procedure is being tried in mainstream clinics indicates just how radically our ideas about germs have changed.

            We are still in our infancy in our understanding of our microbiome and the complex interactions between the thousands of species of germs with each other and with us.  But the new paradigm will not be that of an invading army needing to be slaughtered by chemical warfare, but that of a garden in need of a careful gardener.  To me, the human body is like a coral reef--a collection of cells which constitute a separate organism, yet host an entire ecosystem.  And if the ecosystem is healthy, the coral is healthy. 
Note:  If you are not a New Yorker subscriber, you may hit a pay wall.

When Computers Were Reliable

           I have neglected this blog for a week because one of my computers died and I needed time to replace it.  I write this blog on a big Windows-based desk top.  But since this machine is not online,  I transfer the data , via thumb drive, to a Mac lap-top and squirt it out over the web on the Mac.  This may seem like a silly arrangement, but I enjoy composing with a big screen, a real mouse, and a full stroke keyboard. Yet I also need to own a portable that can be online wherever I take it.  But  to have both computers online would cost more.  At least, it would have cost more until U.S. Cellular recently  gave me a freebee Wi-Fi  hot spot unit to replace my original cell tower modem. (Cell towers are the only access to the net available in the rural area where I live.)

            This last computer  lasted only a couple years, and frequently crashed or froze up.  In fact, my last five computers were that way--short lived and unreliable.  But there was a time when computers did not crash or ever need to be replaced.    I bought my first computer in 1982, and have had at least one computer in the house ever since.   About a year ago I hauled 5 computers to the re-cycling center.  They were the first five computers I ever owned.  And all five were still in perfect working condition.  They were all replaced only because they had become obsolete, not because there was anything wrong with them.  The only reason I still had them around is that I can't bear to throw away anything that still works.   Not only did these machines still work, but in their entire life of service,  not one of them ever froze up or crashed.

            But somewhere in the late 1990s  I began to notice that reliability was becoming a problem.  I had one machine that froze up about every half hour even when it was new.  So why did we  get utterly reliable computers in the first generation of cheap, home computers, and have never gotten them since?  I think I have the answer.

            In the early 1960s, when I was in the Signal Corp, our satellite communications ground station was equipped with a computer.  It was the size of a large refrigerator laid on its side, it had 4,000 bits of ram, (ferrite rings) had a clock speed of 4 kc, and cost $40,000, which would be about $400,000 in today's dollars.  In the early 60s, there was no such thing as a "home computer."   What made the cheap personal computer possible was the development of the "chip."  Somewhere in the mid-60s, someone announced, with great fanfare,  that they had  succeeded in placing two transistor junctions on the same silicon wafer.  And within a year they had increased this number to 4, and then 8, and then 64, etc.   And they gleefully speculated that once this technology was perfected, there might be no practical limit to the number of junctions that could fit on one chip.   Well, actually there is a limit, and we'll get to that later, but it's a pretty big limit.  I just bought a thumb drive that has 8 Giga bits of memory on a single chip, and the salesman asked me if I didn't want a bigger one. 

            In 1982, when I bought my first computer, I believe it had 4 k of ram, supplied by 4 chips.  But about every 18 months, the number of junctions per chip has doubled, and the speed has also doubled, while the price, in real dollars, has continually dropped.   But there is a price to pay.  Every time you put more junctions on a chip, you reduce the surface area of each individual junction, and that of course reduces both the time required to switch that junction, the power required to do so.  So as computers became smaller and cheaper, they become faster and more energy efficient.  But eventually we will reach the point where the energy required to switch each junction is less that the spikes of energy from quantum effects within the silicon crystal itself.  At that point,  the signal to noise ratio is zero, and no operations are possible.  But even before you reach the quantum threshold, you get signal to noise ratio problems from the normal "thermal noise" of all current carrying parts.  Whenever  current flows through a resistor  (or anything that has resistance) a certain amount of radio noise is generated. I'm not sure whether this noise is actually "generated," or whether there is merely a random fluctuation of conductivity occurring at radio frequencies.  But in any case, this noise effect is proportional to the temperature of the conductor. Temperature is simply a measurement of the average kinetic energy of the moving molecules, and since this radio noise is occurs as a result of the friction of moving molecules within the material, the higher the temperature, the higher the noise.   When I worked at the satellite  ground station,  the front end of our RF receiver was a parametric amplifier that was cooled to about a hundred degrees or so above absolute zero  as a way of reducing this noise level.  But cooling our personal computers to near absolute zero will not be practical. 

            Mind you, the energies involved in this "noise temperature" are exceedingly minute.  But there are also power line spikes and stray ground currents, even if you own an elaborately filtered power supply.  And there are also minute electrical disturbances caused by cosmic radiation.  I repeat;  all of these disturbances are exceedingly minute.   But as we have made our computers circuits ridiculously  tiny, then ridiculously tiny disturbances anywhere in the circuit are all that's required  to disrupt them.   And that, my friends, is why your modern desktop will freeze up--and your old TRS-80 didn't.   

How We Choose Our Politics

           There have been a lot of theories published in recent years which attempt to explain why people make the political choices that they make. It is pretty clear that the choice goes beyond simply choosing the party which offers the best chance of an improved personal economic outcome. Some have even suggested that innate differences in brain chemistry or wiring, differences that proceed from either different fetal environment or from actual genetic differences, may predispose our political choices from the day we are born.  Some have argued that the differences are mostly cultural, but that individuals sometimes break out of their native culture and consciously choose an opposite set of values, or at least a different set.

            Someone once said, “There are two kinds of people in this world:  those who believe that all humanity can be divided into two groups—and those who don’t.”   I am one of those who believe that we can, in fact, divide all humanity into two different groups.   While leaving aside the question of where these differences come from, I believe that there really are two basic types of political instincts, and by early adolescence, people identify pretty firmly with one or the other.  Even though people do not pay any attention to politics till they are old enough to vote, the basis on which that vote will be cast has already been decided.  And I believe also that these two different sets of political instincts neatly align with the different strategies historically employed by our two major parties.

              “Red state” politics are different from “blue state” politics because red state people are different from blue state people.  It is not that we have in our gene pool the residue from having evolved “Republican brains” or Democratic brains.”   It’s that both parties, over time, have recognized that there are two types of people, and that any populist rhetoric that would appeal to one will alienate the other.  So each party had to choose its target constituency--and they did choose.  They each asked, “What kind of people could ever be persuaded to support the kind the kind of economic choices which the party establishment believes in?  And if the party believes in economic choices that few people would ever choose if the election were held strictly on that issue, then what other issue might be offered to gain their support?  The answer is that both parties are Machiavellian enough to pretend to either espouse or denounce almost any cultural issue, if it allowed them to hold power long enough to put forward their main agenda, which is mostly economic. (I say “mostly,” because I will concede that both parties have a long commitment to freedom, although they define it very differently.)

            So what are the attitudes that are associated with these two sets of instincts?  It is a long list of attitudes, and for a few people, the menu of choices is like a Chinese restaurant menu—you can choose one from column “A” and two from column “B”.   But for most people, if they choose anything from one set of political values, all or most of their other choices will be from that same set.             I have prepared a list of what I suggest as typical totemic values.  Let’s take a look at it:

A.

                  1. “Hierarchy is the natural order of things. We should all obey our God-given superiors.” (I call this “Acceptance of the Great Chain of Being.”)

                  2. “The natural order of things is equality. All authority comes only from consent of the governed. No one has the right to order you around unless you give them that right.”

B.

                  1. “Our country needs the strength of a tough, strong willed “Father Figure.”

                  2. “We need the fairness of a wise and compassionate leader.  Whether it’s a “Father figure” or a “Mother Figure” is unimportant.”

C.

                  1. “It’s the poor who are cheating us.  They are lazy, pathetic parasites.”

                  2. “It’s the rich who are cheaters. They are cunning tricksters; that’s how they got rich.”

D.

                  1. “We should respect the traditions of our grandfathers—that’s what made us great.”

                  2. “We are free to make our own traditions—it’s our grandfathers’ culture that’s holding us back.”

E.

                  1. “The people who work hardest are those at the top. That’s how they got there.”

                  2.  “The people who work hardest are those at the very bottom—and they receive almost nothing for it, which is why they are still at the bottom.”

F.

                  1. “If we put more taxes on the rich, then when it’s my turn to get rich, I’ll have to pay.”

                  2. “If we provide nothing for the unfortunate, then I’ll starve when it’s my turn to be unlucky.”

G.

                  1. “I’m shocked by the idleness of the poor!  Some of them have not worked in three generations, yet they expect us to feed them.”

                  2.  “I’m shocked by the idleness of the very rich!  Some of them have not worked in three generation, yet they fly around in private jets and expect us to obey them.”

H.               1.  "The cause of poverty is ineffective schools.  How good a job can you expect to get if  you have no basic skills, or if you can't even read?"
                   2. "Extreme poverty is the reason for poor educational outcomes. How much can you teach a small child who hasn't eaten for two days, or who has a toothache?"
I.                 1. "Broken homes are what cause poverty.  How long can a family stay out of poverty without a breadwinner's paycheck?"
                    2.  "Poverty is what causes family break up.  How long can a family stay together if the breadwinner can't find a job?"

A

           

           

            While none of these statements is likely to be true in all cases, and they all may have some truth , at least in some cases, which do you think comes closest to the truth in most cases—the first choice or the second.  If you selected choice #1 in any set, then it’s a good bet that you chose #1 in nearly all sets.  And whatever you chose, your predisposition to make that choice was firmly set before you ever entered high school, and you couldn’t change it even if you tried.

Why CEOs Are Bad Presidents

        Alan S. Blinder has written an insightful article, The Case Against a CEO in the Oval Office.  The most interesting part is where it was published—The Opinion Page of the Wall Street Journal.  I’m sure that the people who regularly read that page will find it a bit painful to discover why a businessman can’t run a country. Alan Blinder teaches economics and public affairs at Princeton, and is a former vice chairman of the Federal Reserve.

              Romney touts as his main qualification for the presidency the fact that he is a successful corporate CEO. But Blinder points out that the presidents which are remembered by members of their own party as effective presidents—he lists Washington, Jefferson, Lincoln, both Roosevelts, and Reagan—all had one thing in common.  They all had little or no experience in business.   And except for Washington, none had any experience whatsoever.   And he reminds us that Hoover, one of the most successful businessmen this country has ever produced, was our least successful president.  Hoover was intelligent, hard working, and honest.  But he kept trying to run the country like a business.  This didn’t work.

            Blinder says that the qualities which make a person a successful corporate CEO are not the qualities of an effective president; in fact, they are the very qualities which doom a presidency.   Corporations are run like dictatorships, because dictatorships are efficient, and a corporation has no goal except to be efficient, especially at making money.  A successful CEO is usually a hard driving egoist who develops his own plan and then bulls it through over all opposition, quickly and without compromise.    But democratic republics are not dictatorships. Our system of checks and balances was specifically designed prevent a complete takeover by any one individual.  Every president must secure the cooperation of the majority of both houses of Congress, and act only within the constitution.  Only through compromise and persuasion can any of the president’s plans become law.

            Another problem which Blinder cites is that a corporate CEO’s guiding principle is to follow whatever path works to improve the “bottom line.” For a corporation, this is sufficient, because a corporation has no real function except making money.  But in the running of a country, there is no bottom line.  Or, more accurately, there are several dozen bottom lines, each competing with and contradicting some of the others.  A democracy must simply provide a safe, free, and prosperous environment for its citizens, but there is no one number that can ever define this.   Blinder concludes: “The business of America’s government is not business.”

             

Romney Limerick

Airliner windows don't open.
But that's not what Romney is hope'n.
"Let's open them," calmly
Suggested Mitt Romney.
With a brain like that, how is he cope'n?

Seriously;  How has it come to the point where the party of Abe Lincoln and Teddy Roosevelt offers, as its standard bearer,  a man who cannot quite grasp why the windows on a pressurized airliner are not openable?

Perils of Quantitative Easing

            On Sept 13, 2012, the Federal Reserve announced it would begin a third round of “quantitative easing.”   This means they intend to expand the money supply again.   The Fed intends to begin purchasing $40 billion worth of mortgage backed securities per month, and continue to do so until unemployment comes down to an acceptable level.  And at some point, they may begin buying U.S. Treasury Bills again.   In the first round of bond buying, begun in March 2009, the Fed bought 1.25 trillion dollars worth of corporate assets.   And then in November of 2010, the Fed began buying U.S. Treasury Bills, pumping an additional 600 billion dollars into the economy. Where does the Fed get the money to make these purchases?  In effect, they just print it. 

            What are they doing and why are they doing it?  The Federal Reserve, like any central bank system, is simply trying to control the money supply, keeping the availability of dollars at a level which they hope will bring unemployment down to an acceptably low level, while still keeping inflation from rising to an unacceptably high level. These two things are what central banks try to do, and in the U.S., Congress has given the Fed a specific mandate to do both.

            Do I object to this action which the Fed is undertaking?  No—the unemployment rate is way too high, and something has to be done about it.  If it could be brought down to a normal level, then the increased tax collections and reduced welfare expense would, in and of itself, nearly balance the budget.  But I’m disappointed that we are using no tools other than monetary policy to do this, when a combination of fiscal policy and monetary policy would work infinitely better.  Fiscal policy could be used with surgical precision if we had a Congress with the will to do it.  But we don’t, so the whole task of bringing down unemployment is left to poor Mr. Bernanke, who has little more in his tool box besides the “sledge hammer” of monetary easing. 

            Before I explain what my real objection is, let’s take a moment to briefly consider just what monetary policy really is.   If a central bank wishes to add cash to the economy, they simply buy up “commercial paper,” that is, the kind of IOUs that banks and large corporations give to other banks.  By buying corporate bonds for cash, they take these bonds out of circulation and put more cash into circulation. That supposedly expands the money supply.  And if they wish to shrink the money supply, they sell some of the commercial paper from the vast hoard in their portfolio at any given time, and that takes money out of circulation.

               But there is just one problem.  Switching cash for corporate bonds may not change the money supply as much as you may think, because such bonds are in themselves a form of money.   Money is anything that can be used to pay a debt.  And if a bundle of bonds are written on blue chip companies, and are offered at an appropriate discount, most investment banks, in normal times, will accept them as cash.   In fact, an interest-bearing note from a credit worthy company is better than cash, because cash does not pay interest.  And in normal times, the overwhelming majority of the money in circulation is corporate paper—not U.S. currency. 

            Whenever there is a panic—a stock market crash, a war, or whatever--the market freezes up and banks temporarily stop accepting corporate paper for debt payment. They demand cash.  So then these assets cease to be liquid—they stop being money.    Of course, some of them, such as subprime real estate, should never have been money in the first place.  But when the crash of 2008 hit, banks not only stopped accepting questionable mortgages, they didn’t want good ones either.

             So this produced a liquidity crisis, as a lot of the money in circulation just stopped being money and stopped circulating. About 3 trillion dollars worth of liquidity instantly ceased to exist.  But the instruments, the bonds, mortgages, promissory notes, etc, still exist somewhere.  And if the economy ever fully recovers, banks will start trading them.  And all 3 trillion bucks worth will become part of the money supply.  And that’s why I get a little nervous about quantitative easing.  Just about the time that unemployment gets down to normal, all of the dollars that Mr. Bernanke has added to the economy will have some unexpected company, as this slug of commercial paper suddenly becomes liquid again.

            At that point, the Fed will try to shrink the money supply by selling off commercial paper in exchange for cash.  As they trade bonds for cash, this removes cash from circulation, but it might not really remove much money, because by then the bonds put back into circulation will have become money again.  And every month, even more of this money will be created as every corporation in the country begins issuing more corporate debt.   And it isn’t just corporations that do this. You and I can expand the money supply.  Some years back, my brother took out a home improvement loan, secured by a mortgage.  Over the time he paid it back, he ended up mailing interest and principle payments to a different bank every month.  He originally borrowed it form a local bank, but that note was traded to banks all over the country.  He had, in effect, increased the money supply.  

            I would suggest that we don’t even have a general agreement as to what “money” is.  If a credit card company informs you that you have an additional $10,000 line of credit, is that money?   Well, it would spend the same as money—wouldn’t it?  So how much control does the Fed have over the money supply when every man Jack can create the stuff?

            So far, monetary policy has not produced much result.  The stimulus did produce results. It is the reason that unemployment never got much above 10% rather than ballooning to 25%, as it did in the Hoover administration.  If we had a million businesses that had no access to credit but had customers banging on the door, then monetary policy might create a few jobs.  But right now, American corporations are sitting on 3 trillion bucks and they aren’t spending any of it. They do not need cash or credit—they need customers.  Business needs a whole generation of young people to begin entering the middle class, and not a generation of middle aged consumers falling out of it. Business needs the unemployed to have jobs—jobs secure enough that the workers are not afraid to spend what they earn—but even more important, business needs the underemployed to earn more discretionary income.

             The stimulus was large enough to keep unemployment from becoming disastrously worse, but not large enough to really cure it.  And none of the quantitative easing has cured it either. I suppose that if we were to dump enough dollars on the market, we would eventually bid down the value of the Dollar to where those who hold dollars would start panic buying, hoping to unload dollars while dollars can still buy something. But this is a pretty dangerous game. The main peril of relying on monetary policy alone, aside from the fact that it doesn’t work, is that it’s a lot easier to throw those dollars out there than to ever call them back.