The debt ceiling debate is front and center in the media right now. I wanted the take of an expert, so I turned to Dr. Mark Jamison from the University of Florida. Dr. Jamison and his associate, Araceli Castaneda recently wrote an op-ed on the topic and gave me permission to reprint it here.

This moment in history is a good opportunity to learn about leadership. We see the U.S. debt ceiling deadline looming large and our federal government losing its AAA credit rating, even if a debt deal is reached. We also see the people who are in a position to do something faltering: Three perspectives seem to prevail.

First, there are the political actors who see today’s predicament as a phase in a long-running competition for public approval and political power. They play to the media and the voting public, demonize rivals, and exalt themselves, seeking advantage for the next election.

Second, there are those who view this moment as resulting from recent elections that authorized them to reign in government spending; they feel a need to meet their supporters’ expectations and stand firm against the bad guys.

Finally, there are those who perceive the situation as a train wreck; they attempt to distance themselves from the fray, from the adolescents, and frame the state of affairs as someone else’s fault.

These three views shape much of the activity in Washington, D.C., at least as it is portrayed in the media. This media view is to be expected. After all, powerful drama with good guys, bad guys, and looming disasters stimulates newspapers sales, newscast viewership, and Internet page views.

However, these perspectives seem to miss the uncomfortable feeling that is settling in for this country: Most of us in the U.S. have never lived in a country that was not the world’s leading economy, not the world’s leading financial center, and not a world leader in good government.

Now we do.

Public debt as a percent of our income (GNP) now stands at 73%. That is double what it was at the start of the current recession. Thumbing its nose at historical patterns, our sputtering economy is now into its fourth year of the doldrums, despite multiple attempts at fiscal and monetary stimulus.

Wall Street is now a four-letter word in much of the public discourse, not the respected center of international finance that it became after the Great Depression.

U.S. government officials are being lectured about financial responsibility by officials from countries that we considered developing economies just a few years ago. Now the media mentions the U.S. in the same breath as it does Europe’s most anemic economies.

Our natural response to this predicament is to view it as someone else’s fault: We blame Democrats, Republicans, greedy businesses, bureaucrats, Bush, etc. We don’t see ourselves in the problem.

But we are there.

We are there in part because we are looking for solutions in the wrong places: We are looking for a traditional type of leader, one who would provide direction, solve problems, and fix the bad guys. But this approach does not work because this is new territory, and there are no easy answers.

Making matters worse, we are divided in what we want. Some voters want to live in the world’s strongest economy, financial center, etc. again. Others are more comfortable with a United States that does not stand out on the world stage.

Some voters don’t bother themselves with such concerns, preferring to focus on culture wars, nanny state, wealth envy, or social and environmental justice. As a result, many of us become upset if someone tries to lead us on a particular course, as President Obama has discovered.

Maybe the leadership deficit is in us.

We are also in the midst of this dilemma because we do not like what someone practicing leadership has to offer. Leadership in moments like this should stir, steer, inspire, and disappoint. Stirring keeps our problems, conflicts, and contradictions before us so that we see them clearly and debate them with our friends and colleagues.

Steering moves us away from past loyalties and supposed truths that in fact hold us back, and moves us onto new paths of our own making. Inspiration is needed to keep us in the game: It gives us hope that we can overcome the current situation. It also carries us through the disappointment of coming to the realization that some of our “truths” may be false, and some of our aspirations may be fantasies.

Mark Jamison and Araceli Castaneda are director and assistant director of the Public Utility Research Center at the University of Florida. They teach leadership courses in the U.S. and internationally. The Center has trained more than 2500 government and industry officials from 148 nations on issues of energy, telecommunications, and water, including how to make difficult changes in a highly politicized environment.

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update 6/05/2009: You can watch Dave Ramsey’s Town Hall for Hope free on Hulu.

I attended Dave Ramsey’s Live “Town Hall For Hope” Simulcast Thursday night and wanted to share some thoughts from the program. Is this related to the CPA Exam? No – but it’s related to the economy and the job market – two things that strongly affect the accounting profession and your pursuit of the CPA designation.

Let me say two things:

1. This is Dave Ramsey’s opinion (which I usually happen to agree with) and commentary and not intended as professional advice of any kind.

2. There will be people who take issue with various things that he said because everyone has an opinion and many people with opinions think that they’re experts. As it turns out, they’re just experts on their own opinion, and even that is subject to change. If you think Washington walks on water, the following will probably fall on deaf ears.

Oh, and one more thing – I was scribbling furiously during the event and took notes as fast as I could and still read my own handwriting. I tried to quote him word for word, but had to fill in the gaps afterward using the live blog from the telecast, and it *still* may not be perfect, but the spirit of the message is intact.

***

Fear

The program started with fear. Americans are scared right now. It starts in Washington, the media follows, and it causes Americans to freak out.

“Fear is the antithesis of hope.”

Keynesian Economics

A man named John Maynard Keynes received a B.A. in mathematics from Cambridge in 1905. He came to the US in 1934 and had a meeting with FDR to tell him how to get the US out of the Great Depression. FDR finally listened – four years later. Keynes held that full employment can be maintained with government spending, government investment, and government hiring. Keynes also said that the government must deficit-spend in a slow economy.

In 1944, everything rebounded with the GDP skyrocketing and unemployment dropping to 1%.

The New Deal and Keynesian Economics worked a miracle, right? Wrong.

In 1941 something called World War II was going on and the men of the US were off fighting and the women were working stateside.  Everyone was working and we were making stuff – a lot of stuff, for the war.

“Keynes got credit for what World War II did.”

Capitalism

Then, Milton Friedman – the father of capitalism came along and said “you’re wrong”.

“…democracy is like a three-legged stool. One leg, political freedom; the second, economic freedom; the third, moral responsibility. Weaken any leg—the stool topples.” – Michael Novak

“We need a capitalism that has a value system that cares about its employees and cares about its customers.”

“Capitalism is the source of hope for America.”

Good Morning America

Dave was on Good Morning America around the time of the first bailout (Fall 2008) with two fellow “financial goobs” that he highly respects and believes that they are sincere. They made comments like “well Dave, they have to do something…most economists agree that something has to be done.”

“I’m reading a different (economics) book than they are reading.”

“I believe you can be sincere and still be wrong.”

Bailouts

“Bush bailed out stupidity. The new administration came in and they stimulated stupidity.”

“The truth is you’re grownups, you don’t need a keeper or a caretaker, and this is how life works. It’s not fair…We’ve got to go back to some basics. We need to love people enough to allow them to fail. Failure brings clarity. Failure will run you towards excellence. If there’s no chance you can fail, you will never be at your best…Failure needs to be an option.”

Personal Responsibility

“We need to re-introduce a word into the culture. This word is now politically incorrect – the word is ‘no’.  It will set you free … No, you can’t buy a house. You’re freaking broke.”

“My father used to say ‘you shot it, Tarzan, you eat it.’ “

“Take responsibility when you cause the mess. Learn your lessons and keep going.”

Question for Dave: “Is this our generation’s “Great Depression”?

“I hope this is this generation’s Great Depression. People from the Great Depression were changed after going through it. That generation learned and gleaned something from the pain.”

In the Depression, the stock market lost 90%; we’ve only lost 57%.  This isn’t even the greatest recession in our generation.

When Nixon resigned, the stock market dropped 50% and took 60 months to recover.  We had 11% inflation and gasoline lines that went around the block.

In 1982, after four years under Carter, US inflation was 10-13% and 30 year fixed interest rates were 17%.

Yet – 47% of Americans polled say that they fear losing their job.

Why? Fear -  not reality.

False

Evidence

Appearing

Real

Question for Dave:  What other alternatives are there to the stock market since things are so bad?

Fact: In 100% of the 15 year periods in the stock market’s history, the stock market has made money.

The stock market is artificially low right now.  Why? Fear. It’s hysteria driven by the media.

“If you don’t believe that Wal-Mart and Home Depot will come back – you’ve given up. Do you really believe that these companies are worth half of this time last year?”

“If you have money to invest in the stock market, it’s like you are at K-Mart and it’s the blue light special.”

Economic Forecasters

“I’ve decided that economic forecasters exist only to give meteorologists credibility.”

Three things to do if you’re struggling with hope.

1. Get up. Take action. Get moving. Even if it doesn’t make sense, at least you are doing something.

2. Don’t participate in loser talk. If you hang out with losers, you know what you are going to be? A loser. Stay away from the “Eyeores” who whine about everything in life. Studies show that your income is within 10%  of the average income of your 10 closest friends. Choose your friends and influences wisely.

“Five years from today you will be the same person you are today except for the books you read and the people you meet.”

3. Learn to give again. If you don’t have money, go serve the homeless. All of a sudden, you’ll get your eyes off your hopelessness.

Closing
Tonight was a breath of fresh air. It’s nice to hear someone say publicly that we’re going to “be ok” and have some optimism for a change. Optimism seems to be in short supply these days.

The quote of the night:

“It’s not a perfect formula, but you know that your best chance at success is YOU…and it’s really your only chance. If you wait on some congressman to fix your life – darling, you’re going to have a long wait. Have you noticed how effective they are at anything? If you stand there at the mailbox, you’re going to be standing there until you’re old. The President is not going to fix your life whether he’s Republican or Democrat…and it’s not their job even if they think it’s their job.

It’s YOUR job to fix your life.”

Amen, Brother Ramsey.

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I keep this blog focused on the CPA Exam and purposely don’t delve into topical tangents like politics or other non-Exam related subjects. The CPA Exam however, tests on economics and business in general, as well as the obvious accounting topics that you would expect.

I also can’t think of a more pressing and relevant topic for accountants to be informed on than the proposed “bailout” as it’s called. As accountants and CPA Exam candidates we need to be informed and equipped to discuss the current financial mess with our peers and with those who expect us to have an opinion on the subject – i.e. your relatives and people who catch you in the hall at church.

“Hey, you’re almost a CPA right? How are we going to fix this mess?”

If you listen to the media, there is only one solution – and it should have been put in place yesterday, and that is to go a trillion dollars into debt and force the taxpayers to clean up the mess of greedy people.

Here is another plan – and it involves (gulp) letting greedy people – not taxpayers suffer the consequences of their own actions.

“What? They’ll be no credit! We’ll all lose our jobs! The stock market will be worth zero!”

Not true.

Harvard Economist Jeffrey Miron writes:

“In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.”

There are pros and cons to every alternative. We need to be prepared to discuss them. CPA candidates must be somewhat competent on the subject.

Get the article here

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Dave is a smart guy and someone who I greatly admire and it’s no surprise that he is voicing a debt-free plan to get us out of this mess. It’s relevant to this blog because well, we all live in this economy and also because it involves mark to market accounting and the unintended consequences of Sarbanes-Oxley.

Dave wrote an article this week called “How We Can Clean Up A Lot of the Economic Problems“.

The funny thing about going into debt is, well…someday you will have to pay it back. Our great-grandchildren are going to wake up to an America one day that is completely owned by China and the Middle East.

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