Perspectives in Public Health: Lower the nose, boys!

The US economy is showing signs of instability.

This is not surprising, given what a bad mental model we have of how things work, and given the wretched way the MBA genius crowd is trying to increase wealth production -- or at least their own wealth.

To figure out what to do about that, it would help to know what the "that" is we're looking at. Let me simply ignore economics ("the dismal science") and pick a new model.

Consider a small airplane. I happen to be a pilot, so I'm familiar with airplanes, and they are great visual examples of the conceptual problems student pilots face -- which I think may be the same conceptual problems "we" have with the economy.

First, as I believe Dave Barry pointed out, there are in fact no "red and blue arrows" holding the plane up. Why planes fly at all is indeed somewhat mysterious, even to a physics major like yours truly. The books all show diagrams where the air flows faster over the top of the wing than the bottom, which causes suction to pull the wing upwards --- it says. The only problem is illustrated by the Citabria acrobatic airplane - a nimble little plane that has a completely symmetric wing. The air flows above and below are identical. And, the plane flies as well upside-down as right-side-up. So much for theory.

What is very solid, however, is costs. You can't get around the cost of energy. If you want to go uphill, it's going to cost you energy, period. That's pretty solid. We can rely on that rule.

So, if you want a plane to climb, you have to supply energy. Period. There are no exceptions, at the scale of people.

More altitude will cost you more energy. Period. No exceptions.

So, if you are flying along happily at cruise speed, and you decide now you'd like to climb, you have two immediate choices that appear to work. Which one is best?

a) Pull back on the control wheel, or
b) Hit the gas and spend energy.

Clever test takers already will know that the correct answer is (b) -- hit the gas and spend more energy. And, in fact that's correct. The control to change in order to gain altitude in an airplane is the power setting. You hit the gas pedal, or in a plane, the throttle, in order to climb.

Whoa, this doesn't seem right to new pilots. Why not just pull back on the "stick" or the plane's steering wheel, pull the nose of the plane up, and climb that way?

The answer is that, in physics, there is no free lunch. Yes, if you pull the stick back, and pull the nose up, the plane will climb -- for a while. Where's the energy coming from to do that? It's coming out of your savings account - your speed. Yes, you can convert the kinetic energy of speed into the potential energy of height -- for a short time. The more you climb, the more it costs you, and the more your speed falls.

That, however, cannot go on forever, or even very long. As your speed falls, so does your "lift", that is, the mysterious thing that holds the plane in the sky in the first place.

If you persist in this foolish, newbie way of trying to climb for free, and think you have found a loophole in the laws of physics, you will be in for a rude awakening. At some point, as the speed falls, your plane will start to experience squishy controls, and seem to become unresponsive, then it will start shaking and a very loud buzzer alarm will go off telling you what is about to happen. And, if you persist past those warning signs, your "lift" will abruptly and catastrophically fail. The air flow over the wing will transition from smooth to turbulent and, you will transition from being a plane to being a rock with a pasenger. This is known in aviation as "stalling" the aircraft. (It has nothing to do with the gasoline-powered engine, but everything to do with the energy account "engine").

In other words, the plane will, basically, simply fall out of the sky. If you are very fast, you can shove the nose DOWN, point it at the ground, and reverse the process, pulling energy out of the altitude checking account and putting it back into your speed savings account -- and then, when the air flow is good again, you can pull the nose up back to level flight and recover and let your adrenaline settle down. Of course, you will have lost several thousand feet of altitude, or,
if you started too low, you are now dead. This is known as "stall recovery."

So, what are the lessons here? If you're going fast, you can cash in some of that speed and use it to pay for some altitude, but this is a very short-term solution. It's great for small corrections, or avoiding obstacles like trees. It's a loan, not a free ride.

The only way to climb and not fall out of the sky is to increase power, and pay the bills. Planes do not understand "deficit financing." You can't climb now and pay later, maybe.

Anyway, with that model in mind, look at the economy and the recent behavior of the stock market. One senses that the whiz-kid geniuses have discovered that, if you pull back the stick, you can get the market to climb! Wow! And they did that in a huge way, sucking the real energy out of the economy in an ecstatic ride upwards - possibly wondering on the way why no one else had ever thought of this clever solution before.

In point of fact, they had "discovered" that, with a credit card, they could buy all sorts of things, apparently unlimited, and not have to pay for them! Suddenly the country goes a few trillion dollars in debt, while the stock market soars, and they are just so happy that they have "created wealth."

Ahem.

Then comes the bill. Not only has all the loose capital been taken out of the market, but it's been sucked out of all the companies that need cash to operate, and sucked out of all the families that used to own houses that they now live in but, in fact, have already spent and are just waiting for the knock on the door telling them "You are now homeless. Get out."

Oopsie.

The question now, in that model, is whether the whiz kids will, as newbies always do, "pull the nose up even more", or push the nose down rapidly and pick up some speed again, at a major cost in altitude. The "climbing" it turns out wasn't really earned, it was just borrowed, from a lending agency that doesn't take "No" for an answer when the bill is due.

So, in looking at the stock market, the question is whether this model is applicable. Since 1995, have we created a huge amount of new wealth -- and PAID FOR IT by spending more energy, or have we created the appearance of wealth, the illusion of wealth, by cashing in the actual economy's health and momentum and converting it to "height" of the Dow Jones over the ground.

The one process - climbing by paying for it, can run until you "run out of gas".
The other process, climbing by cashing in health and momentum, runs out of steam and then is no more. All gone.

The recent efforts by airlines to push planes to 100% capacity, or 105% capacity, seems eerily like new student pilots desperately pulling back on the stick even more, as they notice that their speed is dropping, and even though the engine is running and the nose is pointed up, in fact the altitude is dropping.

I'm not sure about industrial health. My sense from the number of layoffs and watching the Big-3, now Big-2 auto companies fall to Toyota, is that things are not well there. I am sure about individual-level health of the US population, and that is plummeting, even before their mortgage payment jumped 40% in one month. Obesity, stress, diabetes, fatigue are all soaring.

It does have some signs that the economic whiz kids are trying to kick up the market and create wealth, and "climb", by sucking all the energy and momentum and health out of our normal operating "flying speed." It does appear that the process has reached an unstable point where there are lurches downward, like yesterday's 280 point drop in the Dow Jones average.

This is not good.

The hard part is recognizing the problem, and giving up a lot of that altitude to get back flying speed. The alternative, in that model, is crashing and giving up all the altitude and the flight.

The question is, how much of the stock market and economy's rise since 1995 is due to actual value added and new plant, equipment, training and other hard "capital", and how much is fluff due to exactly the opposite -- selling off everything of value, firing the older experienced workers, and pretending that cash flow was "income."

The GDP, Gross Domestic Product computation doesn't make the distinction between real income and pretend income. The fact that the GDP is growing tells us nothing about how sustainable that growth is, and whether a deal with the devil was made to obtain it.

Regardless, laws of physics win. If it's earned wealth, we can keep it. If it's borrowed wealth, like the nice 4000 square foot house in a nice suburb, we are going to have to let go of it, or it will let go of us.

If that model's right, that is. Like all models, the analogy gives us something to look for and think about, and doesn't "prove" anything. It's the looking and pondering that has the value.

Maybe we conclude "that model doesn't apply." Fine. Maybe we conclude "Hey, that model does apply." Either way we've learned something and have a better idea what we need to do next.

references:
Standard & Poor Price/Earning Ratio Historical Trend - 1943 to present.
http://www.lowrisk.com/sp500pe.htm