On Monday, I was in Newport Beach to speak at the annual client conference of PIMCO, the world's largest bond investment company -- whose CEO Mohamed El-Erian is a frequent and very popular HuffPost blogger. More than 300 of PIMCO's clients gathered for a three-day retreat around the timely theme of "Delivering in a Delevering World."
"Delevering," as it's traditionally used, means decreasing a company or country's leverage, usually by paying down existing debt. It is a term more likely to be heard at finance conferences than around dinner tables, but it's an idea that gets to the heart of our current economic crisis. Because the ways we pay down our debts, in life and in business, have a real influence on our ability to arrive at what El-Erian recently labeled "win, win, win" outcomes: "a win for the individual; a win for the unit, be it the family or a company; and a win for society." We desperately need some win, win, wins.
Unfortunately, on both the political and economic level, we're being told that delevering means that we must cut, cut, cut. And we're about to go into another budget battle in which the word "deficit" is likely to be heard a lot more than the word "growth."
But smart delevering isn't just about cutting. Delevering is a means -- but to many in Washington (and on the campaign trail) these days, it's become an end unto itself. And the relentless emphasis on cutting has obscured the more important question of what is being cut. In far too many cases, our approach to delevering is keeping us from growing, and keeping us from developing our human capital and tapping into all our resources.
And it's no comfort to know that the U.S. isn't alone in its misguided approach to delevering. In Europe, imprudent delevering has a host of countries facing, as PIMCO managing director Saumil H. Parikh puts it, the "twin underlying problems of too little growth and too much debt." Europe's response to recession was austerity, and, as they're finding out, you can't cut your way to growth. As Businessweek's Peter Coy writes, "Europe is choking off its own recovery by insisting on premature austerity," as opposed to the idea of "Gas now, brakes later."
Now they're teetering on the brink of another recession and have taken one of the main recovery weapons out of their arsenal. But according to Herman Van Rompuy, European Union President, the EU must rigidly keep to its self-destructive austerity limits for the sake of "the credibility of the whole operation." So I guess sending a dozen or so countries into another recession, and causing misery for tens of millions of people, doesn't hurt "credibility" as much as simply admitting your mistake and course-correcting. In Europe, excessive delevering is in danger of delivering them from their future.
So it's clear that in America, as around the world, what we need is delevering that delivers a more prosperous economy, a more compassionate society, and a fuller use of our human resources. One of the tragic stories of our time has been the inability of our leaders and institutions to deliver these things, a failure that, as El-Erian wrote on HuffPost in February, has undermined America's ability to "regain economic dynamism, create ample jobs, and deal with growing inequalities."
But we also need delivering from the obsolete dogmas of the past, from the dysfunctional political and economic systems of the present, and from all the distractions that take us further from our own creativity, ingenuity and wisdom.
In his office, PIMCO founder Bill Gross has a quotation from the financier J.P. Morgan: "Lending is not based primarily upon money or property. No sir. The first thing is character." But our capitalist system has strayed dangerously far from the path charted by Alfred Marshall, who in 1890 explained that the "desire of men for approval of their own conscience and for the esteem of others is an economic force of the first order of importance." There's a reason Adam Smith's free-market gospel, The Wealth of Nations, was preceded by his Theory of Moral Sentiments. He understood that economic prosperity has to be built on a firm moral foundation.
But the evidence of capitalism without conscience is all around us. I suspect that if JP Morgan were to claim today that "character" was at the heart of our country's finance system, he would be laughed out of the room.
Earlier this month, Parikh wrote, "Is the global economy in the eye of the hurricane or has the hurricane passed over completely?" For millions of people around the world the forecast is still dark and stormy. Here in America, more than 4 million homes have been foreclosed on since 2006, five million people have been out of work 6 months or longer, and the average student loan debt is $25,250.
But instead of proposing solutions that would deliver us from these multiple crises, our leaders are throwing up their hands and asking us to accept this as the new normal -- or what Bill Gross has termed "the paranormal." Such a response would have been completely unacceptable during an actual hurricane like Irene, which prompted such admirable responses from ordinary citizens, the media, and government. So why are we accepting it when, as El-Erian put it, there is still the "clear and present danger of America losing the war against the curse of joblessness"? And when Joseph Stiglitz's footnote to the drop in unemployment to 8.3 percent is that, at this rate, it will take 13 years to regain full employment?
We clearly need to be delivered from a shrunken presidential campaign that is missing the opportunity to bring the country together around real solutions. As David McCullough once told me, "Every presidential election is a renewal. Like spring, it brings up all the juices. The people are so tired of contrivance and fabrication and hokum. They really want to be stirred in their spirit." Anybody's spirit felt stirred over the last 6 months of this presidential race?
Delevering and delivering. Delevering can be used to help us establish the right priorities. In my own life, my mother was certainly an expert at wise delevering -- and leveraging. She skimped and saved to put my sister and me through college. She wore the same coat for 10 years. She never took vacations. We lived in a one-bedroom apartment. And when that wasn't enough, she borrowed money, too -- to pay for our education. And it was a wise investment -- because it helped deliver her children's dreams. She never let our lack of resources crush our aspirations and our hopes for the future.
Whether it's at the individual, the community, or the national level, delevering can lead to contraction or it can lead to a focus on what really matters. It all depends on what we intend to deliver.
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