Ryan – Pusillanimity?

"Civilizations, as I have endeavored to show in this book, are highly complex systems, made up of a very large number of interacting components that are asymmetrically organized, so that their construction more closely resembles a Namibian termite mound than an Egyptian pyramid." (source: Civilization, by Niall Ferguson, page 299)

We have now completed another round of the contest for the political leadership of that Namibian termite mound we call America. We hope many of our fellow citizens have the opportunity to read Ferguson's book and contemplate the wise and prescient summary in his concluding chapter. We hope that the four candidates for president and vice president also read and consider it.

Paul Ryan helps the Republicans define their ticket. They want to talk about taxes, deficits, spending controls, transfer payments like Medicare, and other economic issues. If they can define the election in those terms, they have a very good chance of success.

Except in the context of class warfare, the Obama/Biden ticket does not want to talk about taxes, economics, the unemployment rate, or the financial circumstances in which the United States finds itself. They would rather position the election on foreign policy risk issues, diplomacy, social issues, and appointments to the Supreme Court. If they can characterize the electoral contest in that manner, they have a good chance of winning reelection.

With Ryan added to Romney, we may now draw clear distinctions between the two pairings of the candidates and the two parties.

This is our system, our very own "termite mound." According to Ferguson, our system operates "somewhere between order and disorder." He also uses the phrase "the edge of chaos" to describe our situation.

Ferguson notes, "Such systems can appear to operate quite stably for some time, apparently in equilibrium, in reality constantly adapting. But there comes a moment when they 'go critical'. A slight perturbation can set off a 'phase transition' from a benign equilibrium to a crisis – a single grain of sand causes an apparently stable sandcastle to fall in on itself."

Ferguson is describing natural complexity in the form of governmental systems. A government can appear stable, he says, until it suddenly is not. He talks about how crises evolve until they "go critical."

Our American termite mound built up imbalances and then went critical in 2007. The onset of the financial crisis was first discernible in May of that year, when we saw slight changes in the pricing mechanism of various credit instruments. By July 2007, we had the announcement that Bear Stearns would take a $2 billion charge related to some mortgage-backed securities that would affect some hedge fund operations. Bear Stearns said not to worry about it; it was a small thing. Eight months later, they were merged with JPMorgan, and the Federal Reserve needed a $30 billion bailout fund to complete the transaction. That is "going critical."

Since 2007, we have witnessed a succession of financial failures, forced mergers, and criminal revelations. Both political parties have had a role in the developments and subsequent catastrophes. Neither admits its role. Each blames the other.

Our political record of accomplishment is horrible. We have neither a sustainable federal budget nor a workable budget mechanism. Nor is there much room for agreement within our political system. We no longer seem capable of centrist compromise. Instead, we have animosity, adversity, and cacophony that will intensify over the next ten weeks and only slightly subside after the November election.

The choice of Paul Ryan was skillful, courageous, a gamble, or a mistake, depending on who is characterizing it. Democrats see it as opportunistic; Republicans see it as an advantage. Critics see it as a repeat of the Sarah Palin debacle. We do not agree with that criticism. There is a vast difference in skill and experience between Sarah Palin and Paul Ryan. Ryan enlivens the debate in a substantive way.

Will we discuss long-term commitments of transfer payments for health-care and retirement benefits? Will we involve ourselves in the fundamental question of how to pay for these things? Will we resolve the controversy between those who would tax at 15-16-17 percent of our GDP and those who would spend at 24-25-26 percent? Will we address the issue of that gap? Is there a path to a compromise at 18-19-20 percent of GDP?

Will we face the question of perpetual deficits and what they mean? This is the essence of the now-sharpened national debate.

This is a good thing. The country needs the debate. The country needs to set the direction of its future, if it can.

Niall Ferguson ends his book with the following quote: "Today, as then, the biggest threat to Western civilization is posed not by other civilizations, but by our own pusillanimity – and by the historical ignorance that feeds it."

Pusillanimity means a lack of courage, timidity, faintheartedness, and the inability to face, define, and attack an issue with clarity. Will the Romney/Ryan ticket be pusillanimous? Will the Obama/Biden ticket be pusillanimous?

The United States wants to lose the pusillanimous quality that now corrupts its termite mound. The electorate is tired of it. It has had enough. It wants forthrightness, courage, clarity, and transparency.

If we had those qualities all along, we would have resolved the issue of the mortgage-finance agencies, on which the pusillanimous Congress was silent when it passed the financial-reform bill. The biggest debt agencies in the world were not even discussed. Those agencies have cost the US taxpayer billions. Without pusillanimity, we would have had a legitimate discussion of the ethanol mandate. To discuss it and repeal it will require courage. Will we have a pusillanimous outcome to our discussion of critical agricultural issues, or will we witness courage and resolve on the part of our leaders?

The same question can be asked about issue after issue after issue. A pusillanimous approach will not benefit America.

A final thought. Will the political campaign discuss the looming "fiscal cliff"? Not just talk about it, but also propose solutions that can pass in Congress? Estimates of the fiscal cliff run from $200-$300 billion to $800 billion, putting a significant dent in GDP. By some scenarios, it would put the US economy back into recession.

There might, as some claim, be an "expectations process" that would diminish the impact of the fiscal cliff. No one knows for sure. What we do know is that we have had three years during which the United States has borrowed amounts measurable in the trillions, annually totaling roughly nine percent of its GDP. We know that is not a sustainable process. We also know that fiscal retrenchment is the means by which this deficit creation can be abated.

We are guided by the words of the great historical economist Thomas Babington Macaulay, who phrased the issue in the following way over a century ago:

"A democracy cannot survive as a permanent form of government. It can last only until its citizens discover that they can vote themselves largesse from the public treasury. From that moment on, the majority (who vote) will vote for the candidates promising the greatest benefits from the public purse, with the result that a democracy will always collapse from loose fiscal policies."

Let the debate begin.

David R. Kotok,