It is well known to those in possession of a passing familiarity with psychology that arbitrary and inconsistent reward and punishment induce conditions similar to insanity. As insanity ever more perfectly approaches the best terse summary of world affairs, can we apply the above wisdom to our times?

Let’s start with two really easy examples. One has to do with the US economy and the other with our foreign policy. It is not terribly far adrift to see these areas as important, home to many of dubious sanity and particularly strange of late.

Over the past decade and particularly since 2001, mortgage borrowing and home prices are soaring- median home price was up over 11% in 2004. Americans owe over $7.5 Trillion on mortgages. Yes, I know interest rates have been very low and real estate only appreciates so, why not? Across 2004 median family income fell. Oops, that is how people pay back debt, isn’t it? In addition, home equity as a percentage has been falling. That is a fancy way of saying that the percentage of the home the average American “homeowner” owns is falling toward 50%. This is interesting because it makes clear that while housing prices have inflated rapidly, people have been pulling paper wealth gains out even faster euphoria can inflate them. Hundreds of thousands are buying to rent, as the number of renters declines. That sounds a little crazy. Want to know why? It is!

How did we all get so crazy? A mismanaged monetary economic climate sure helped a lot. Jobs- for those who can find and keep them- just don’t pay what we spend. Real wage growth has consistently and badly lagged the returns to owning stocks (1982-2000), bonds (2001-2004) and homes (2001-2005). Strapped families have attempted to follow explicit advice from leading experts and implicit advice from monetary policy authorities. They have stopped saving altogether, the savings rate is at 1.5%. So, we borrow like there is no tomorrow. Hey, credit is cheap and there is no other way to get those things and returns that life is all about. America looks to stocks, bonds and homes to increase in price.

The Federal Reserve cut rates to 50 year lows and left them there until recently. In response, millions borrow and chase fantasies of magical wealth. You know the kind of wealth that financial and popular media constantly report. Only these people are the last in, the last out and playing with their own future income- debt. Those who undertake dubiously rational action are rewarded. Everyone else is punished. Rewards to speculation have been high and saving yields next to nothing. However, asset markets and monetary policy decisions are not made to serve regular folks who chronically under perform on the upswing and over-suffer on the way down. They rarely benefit by our great new ownership society. Millions face rising health care costs, outsourcing, declining job security, stagnant wages and over $10 trillion in debt. Today’s crazy and fragile situation is the direct result of years of capricious reward and punishment.

On the foreign policy front things are no less bizarre. It would seem that we are all about punishing WMD proliferation, encouraging liberty and protecting the homeland. Thus, we managed to invade the only nation on earth without WMD and are deep into a protracted, bloody war to force liberty. To teach others to reject the sword we threaten them constantly, undermine the UN, appoint rapid and outspoken hawks and do nearly half of the world’s military spending. Spending on homeland security is sacrificed because the rich must get tax breaks that poor people vote for in droves while paupers like Soros and Buffet criticize. Meanwhile, we spent our money and subverted our national police service to ferret Saudi nationals- including Bin Laden relatives- out of the US while stranding hundreds of thousands of everyday American in the midst of a national disaster. Meanwhile, a standout democracy that helped create the Taliban, had a recent military coup, develops nukes, sells them all over the world like a nuclear Wal-Mart and teeters on the brink of war with the world’s most populous democracy is punished with military aid, kind words and F-16 fighter jets. Pakistan’s population suffers under persistently poor economic opportunity, a lack of democracy and inadequate infrastructural and social service spending Thus we conclude, Iran and Syria are the real threats!

Last but not least, all of this is done to protect our way of life from people who hate it, evildoers. Lost is that our way of life is being destroyed by our crazy reward and punish decisions much more rapidly and effectively than any imaginable terrorist attack likely could. The vast middle class is being crushed by stagnant wages, debt service, declining job security, skyrocketing health care, educational and housing costs. Our liberties are threatened by Patriot Acts, committees to examine the propriety of academic speech, loyalty oaths at politician’s few scripted public appearances, conglomerate media reporting, under-funded and easily tampered voting and registration systems. Silence on all the above issues is rewarded and speech punished. Sound a little crazy? It is!

Max Fraad Wolff (mfwolff@aol.com) is a doctoral candidate in economics at The University of Massachusetts, Amherst. He is a widely published free lance writer on finance and foreign affairs. He will be appearing at the 2005 Left Forum in NYC on April 16, 2005. www.2005leftforum.org