(What’s Left of) Our Economy: Is the Fed Taking Us to Economics Infinity – & Beyond?

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big govenment, CCP Virus, coronavirus, COVID 19, credit, economics, Fed, Federal Reserve, finance, fiscal conservatism, Franklin D. Roosevelt, Great Depression, Great Recession, Jerome Powell, moral hazard, New Deal, stimulus package, Wuhan virus, {What's Left of) Our Economy

Since I’ve never liked recycling my own material, I’ve rarely written here on specific arguments I make on Twitter. (And I make a lot of them!) But since these times are so exceptional, and have just generated such an exceptional response from the Federal Reserve, an exception here seems more than justified. So here are three longer-than-a-tweet expressions of concern about the broadest impacts of the massive support for the everyday economy (as opposed to the financial system) just announced by the central bank in response to the CCP Virus.

The first has to do with the perils of super-easy money. Fed Chair Jerome Powell has just again made clear in remarks this morning that there’s “no limit” to the amount of credit the central bank can pump into the economy to create a “bridge” over which imperiled businesses large and small, and now state and local governments, can cross in order to return intact to “the other side” of the pandemic.

Yes there are conditions – mainly, the borrowers need to be creditworthy (though the definition of “creditworthy” has been expanded). So at least in principle, previous individual or business “bad behavior” won’t be rewarded and thereby enabled going forward – a practice economists call incurring “moral hazard.” That’s (again, in principle) different from the previous financial crisis-related bailouts, when lots of bad or incompetent behavior, especially by Wall Street and the automobile industry, was generously rewarded.

(More encouragingly, other, impressive conditions have been placed on beneficiaries of previously announced fiscal economic aid – the type provided with taxpayer money by the Executive Branch and Congress – including temporary bans on stock buybacks.)

But moral hazard doesn’t necessarily result from the behavior of apples that are already bad. The concept is so powerful (and has long been so convincing) in part because it holds that showering borrowers with easy (and now free money) tends to turn good apples bad. That’s because a credit glut greatly reduces the penalties created for poor decisions by the normal relative scarcity of capital and the price (interest rates) that lenders normally demand in order to impose some degree of discipline.

The lack of adequate discipline on borrowers is surely one big reason why the post-financial crisis economic recovery had been so historically sluggish: Capital wasn’t being used very efficiently, and therefore wasn’t creating as much output and employment as usual. Maybe, therefore, all these new stimulus programs, whether desperately needed now or not, are also setting the stage for a dreary repeat performance?

Which brings up the second issue raised by the latest Fed and other federal rescue operations: Their sheer scale, and the Powell’s “no limits” declaration strongly undercuts the most basic assumption behind the very discipline of economics: that resources will be relatively scarce. That is, there will never be enough wealth in particular to satisfy everyone’s needs, much less wants.

Think about it. If all the wealth needed or wanted could somehow be automatically summoned into existence, why would anyone have to think seriously about economic subjects at all? What would be the point of trying to figure out how to use resources most productively, or even how to distribute them most equitably?

I remain deeply skeptical about the idea that money literally “grows on trees” (as most of our ancestors would have put it). But Powell’s statement sure seems to lend it credence. Moreover, I’m among the many who have been astonished that the United States hasn’t so far had to pay the proverbial piper for all the debt that’s been created especially since financial crisis hit. So it’s entirely possible that I – and others who have fretted about the spending and lending spree the economy had already been on before the pandemic struck – have had it completely wrong.

It would still, however, seem important for economists and national leaders to make this point at least more explicitly going forward. For if it’s true, why even lend out money? Why have banks and financial markets themselves? Why shouldn’t the government just print money and distribute it – including to government agencies? Why for that matter tax anyone, rich or poor?

Just as important, if “on trees” thinking remains wrong – and possibly dangerous – folks who know what they’re talking about had better make the possible costs clear, too. Because if enough Americans become persuaded that there is indeed this kind of massive free lunch, what would stop them from demanding it? Why wouldn’t it be crazy not to? And how could elected leaders resist?

In fact, I’m also concerned about the emergence of a shorter term, more humdrum version of this situation. (This is my third worry for today.) Specifically, Powell clearly views the new Fed programs as emergency measures, which will be dialed back once the emergency is over. Similarly, at least some of the nation’s supposed fiscal conservatives are claiming that they’ve supported the sweeping anti-CCP Virus because it amounts “restitution” for all those individuals and businesses whose “property and economic rights” have been taken from them by the government decision to shut down the economy.

Nonetheless, let’s keep in mind that as former President Franklin D. Roosevelt was rolling out his New Deal programs to fight the Great Depression of the 1930s, he continually justified them as emergency measures. The President himself tried returning to his previous backing for budget balancing once some signs of recovery appeared.

His optimism, as it turned out, was premature, and helped bring on a second slump. Nonetheless, even had this about-face not failed, is it remotely likely that many other New Deal programs, ranging from Social Security to the Tennessee Valley Authority to the Federal Deposit Insurance Corporation to federal mortgage support agencies wouldn’t be alive and kicking, to put it mildly. Obviously that’s because however much most Americans may talk a small government game, they understandably like big government when it delivers tangible benefits.

As a result, when Powell, and others, promise that “When the economy is well on its way back to recovery…we will put these emergency tools away,” you’re free to smirk. The first clause in this sentence alone is grounds for caution, stating that the aid won’t be withdrawn once the worst is over, or when a rebound starts, but when normality is a certainty. If the national experience following the last financial crisis is any guide, when the Fed, for example, even pre-CCP Virus kept interest rates super low for many years after some growth had returned, “the other side” is going to be a place whose location will keep receding for the foreseeable future.

So the specter of the economy remaining hooked on massive government stimulus both for economic and these political reasons could be another reason for bearishness about a robust near-term rebound. (And no, I’m not trying to give out any investment advice here.)  

I’m not necessarily being critical here of the stimulus packages. Just trying to spotlight the safest bets to make, and the need to examine the future with eyes wide open. Is there any viable alternative?

Our So-Called Foreign Policy: The Globalists’ Dangerous Tantrums over Syria and Ukraine

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America First, Cold War, Eastern Europe, FDR, Franklin D. Roosevelt, globalism, globalists, Harry S Truman, ISIS, jihadis, Middle East, Our So-Called Foreign Policy, Russia, Soviet Union, spheres of influence, Syria, terrorism, Trump, Turkey, Ukraine, Vietnam, World War II, Yalta

If you know more than a little something about contemporary American history, you’ve no doubt been struck (or you should be struck if you haven’t been already) by the close resemblance in one key respect between the firestorms around the two big foreign policy-related uproars of the day these days, and the big foreign policy uproar of the late 1940s and early 1950s: The cries of “Betrayal” and “Backstabbing!” generated by President Trump’s withdrawal of the small American troop deployment in Syria, and his lack of interest in keeping Ukraine fully independent of Russian designs, fully recall similar charges that followed Washington’s early Cold War acquiescence in the Soviet Union’s establishment of control over Eastern Europe.

And there’s a very good reason for the similarities among these over-the-top reactions in all three cases – today’s version of which is all too capable of pushing the nation into repeating catastrophic foreign policy mistakes. In all of them, a combination of immutable geography and irrefutable common sense has established ironclad limits on American power. In all of them, America’s existential security and prosperity rendered these limits entirely acceptable. And in all, crusading globalists have reacted not with gratitude for the nation’s favored circumstances, but with tantrums that have slandered any support for the prudence logically suggested by these circumstances as evidence of treason and/or degeneracy. It’s the policy equivalent of refusing to take “Yes” for an answer.  (See this 2018 article of mine for the fullest statement of these views.) 

The Cold War event mainly responsible for the McCarthyite claims of spies and traitors shot through the U.S. government was Yalta conference of 1945 held by U.S. President Franklin D. Roosevelt and his British and Soviet counterparts Winston S. Churchill and Josef V. Stalin,  At that late-World War II meeting in Crimea, FDR agreed to accept Moscow’s clam to the countries located between German and Soviet territory as a sphere of influence.

Roosevelt’s decision reflected his awareness that the enormous Red Army had planted stakes in Eastern Europe after having fought it way through the region on its way to Berlin, that it had no intention of leaving, and that dislodging these forces militarily at remotely acceptable cost was impossible. Interestingly, his successor Harry S Truman fully agreed, even though by the time he became President, the United States enjoyed a monopoly on nuclear weapons.

“Yalta,” however, became a synonym for treason for many Americans, and the next few years (including under the Democrats) became an time of loyalty oaths, persecution, and show trials, Although many of the charges that the U.S. government had become a nest of spies turned out to be true, “McCarthyism” nonetheless ruined numerous innocent lives as well, and for more than a decade stifled badly needed dissent within the national security bureaucracy.

But guess what? Despite Soviet domination of Eastern Europe, and the mass, multi-generation human tragedy that unfolded behind the Iron Curtain, the United States not only survived but generally prospered. Further, the serious problems it did experience had absolutely nothing to do with the fates of Poland, Czechoslovakia, Hungary, or even the former East Germany etc.

Self-interest and restraint in foreign policy go hand-in-hand just as neatly these days when it comes to Ukraine and Syria. As I’ve written, even more than Eastern Europe, Ukraine’s independence has never been considered a vital American interest because it’s never been a significant determinant of the nation’s safety or well-being; because it’s located even closer to the center of Russian military might than Eastern Europe; because as a result the United States is militarily incapable of mounting a sane challenge with conventional forces; and because on top of these assets, Moscow has long possessed nuclear forces that can obliterate the United States many times over.

As for Syria, Mr. Trump’s critics are caught in one or both intellectual time warps. The first has hurled them back to the era when the United States was thoroughly addicted to Middle East oil. However long it lasted, though, it’s now unmistakably over, thanks to the fossil fuels production revolution of the last decade or so.

It’s true that this oil still matters a great deal to Europe and East Asia, huge chunks of a global economy whose health still matters in turn to the United States (though less lately, since both regions seem chronically incapable of or unwilling to generate acceptable growth other than by amassing enormous – and unsustainable trade surpluses with America). But both regions are eminently capable of fielding the military forces needed to preserve the oil flow. P.S. So do the Middle East’s two biggest powers, Saudi Arabia and Iran. Their deadly struggle for geopolitical supremacy notwithstanding, both would collapse economically without the revenue brought in by their oil exports. Just ask Iran, which is being bankrupted by President Trump’s – unilateral – sanctions.

The second time warp has the foreign policy Never Trump-ers trapped in the early post-September 11 period, when the nation discovered its shocking vulnerability to Middle East-borne terrorism. Yet as I’ve repeatedly written, and experience can not have made clearer, the best way by far to protect the American homeland from this deadly threat is not continuing to chase jihadist groups around an uncontrollable region whose terminal dysfunction will keep them appearing and reconstituting, but securing America’s far more controllable borders.

Additionally, though less important, terrorist organizations like ISIS and Al Qaeda have been blessed with the unique gift of antagonizing every other significant actor in the Middle East, for either ethnic (Arab versus Persian versus Turk) or religious (Sunni versus Shia Muslims) reasons. And the Russians, who are now supposedly the new kingpins in the Middle East, have no interest in seeing a serious jihadist revival on their borders. So an American exit from the region will leave it full of countries with every reason to sit on Islamic lunatics, not to mention rife with their own mutual antagonisms and historic rivalries. A chaotic balance of power to be sure, but an entirely durable one. (These arguments have just been made powerfully here.)

During the Cold War, it took debacle in Vietnam, with all the devastation it brought to America’s economy, society, and domestic and national security institutions (some of which still haven’t fully recovered), to teach globalists and the public they led, that geography and common sense mustn’t be completely ignored. Let’s all hope that their America First-oriented opponents, including a critical mass of the body politic, can keep them away from the levers of power before they produce a similar disaster.

Im-Politic: The Washington Post’s Nazi-Baiting on Trump & Immigration

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Adolf Hitler, asylum seekers, border security, Central America, Franklin D. Roosevelt, Im-Politic, Immigration, Isaac Stanley-Becker, Mainstream Media, migrants, Nazism, Open Borders, refugees, Trump, Trump Derangement Syndrome, Washington Post

Just when I think that I couldn’t become angrier at the bile spewed by some of President Trump’s critics and too often reported as fact or respectable, newsworthy opinion by the Mainstream Media, Trump Derangement Syndrome sufferers keep topping themselves. And this morning I saw a series of such statements so inexcusable that I’ve decided to post about them even though I’ve already expressed my views in a tweet.

The accusations came in a Washington Post article today titled “’Our country is FULL!’: Trump’s declaration carries far-right echoes that go back to the Nazi era.”

Reporter Isaac Stanley-Becker was referring to the remarks made by Mr. Trump last Friday during his visit to the U.S.-Mexico border, where even champions of what I’ve come to call the Functional Equivalent of Open Borders are now finally admitting that flows of migrants mainly from Central America are overwhelming federal government facilities set up to deal with foreigners seeking to cross into the United States.

Stanley-Becker, who is based in London, wasn’t simply content to observe that the President’s language “fits a pattern of far-right rhetoric reemerging globally. Fear of an immigrant takeover motivates fascist activity in Europe, where, historically, the specter of overcrowding has been used to justify ethnic cleansing.”

With the evident endorsement of his editors, he went on to write that “Adolf Hitler promised ‘living space’ for Germans as the basis of an expansionist project….”

In this vein, he sought to legitimize this analysis by quoting an historian (from the University of California at Berkeley) who contended “The echoes do indeed remind one of the Nazi period, unfortunately. The exact phrasing may be different, but the spirit is very similar. The concern about an ethnic, national people not having proper space — this is something you could definitely describe as parallel to the 1930s.”

In addition, Stanley-Becker reported that “The president’s words became even more freighted when he repeated them on Saturday before the Republican Jewish Coalition in Las Vegas, saying, ‘Our country is full, can’t come. I’m sorry.’” (Which sounds like an opinion, not the kind of fact that news reporters are supposed to present in their own voice.) And he supposedly documented the follow-on statement that Mr. Trump’s remarks “drew outrage” by citing precisely one tweeter and Democratic presidential candidate Beto O’Rourke.

The author was clever enough to slip into his story the kind of qualifier meant to convey objectivity but skated over far too quickly to alert most readers to their potential to invalidate the entire exercise. For example, Stanley-Becker briefly noted that “Hitler promised ‘living space’ for Germans as the basis of an expansionist project, which historians said distinguishes the Third Reich from today’s xenophobic governments.”

But in case you’re tempted to conclude “That distinction seems pretty darned important,” the author hastily added, in a classic example of insinuation, “Still, experts found parallels” (by which he meant the aforementioned Berkeley professor).

Moreover, let’s not forget the towering double standard Stanley-Becker and similar Trump haters have created. For if the President’s words and (prospective) actions “echo” and “remind” of Nazism, what should be made of former President Franklin D. Roosevelt – under whose administration refugees from the Third Reich itself were turned away from American shores? Does this record reveal racist, anti-semitic, xenophobic Nazi sympathies? Or “echo” them etc.? In fact, Roosevelt’s name isn’t even mentioned in the article, even though he received cables from the ship on which they traveled begging for admission.

Does Roosevelt deserve such descriptions – and condemnation?  If not, why not?And to return to current circumstances, President Trump has clearly been reacting against the large numbers of U.S.-bound migrants falsely seeking asylum (which is awarded to those fleeing persecution) who are seeking better material lives. Roosevelt was denying entry to individuals and families clearly seeking to escape a regime that was obviously targeting them because of their identity.

Because this is a free country, Stanley-Becker, his editors, and his publisher have every right to accuse President Trump of using coded, pro-Nazi or Nazi-sympathizing dog-whistle attacks to advance his immigration policies. But their profession’s ethics prohibit them from portraying these views as unvarnished facts in news columns. And common decency demands they have the courage to make these charges openly, rather than using the weasel words and phrases and similar ploys so typical of character assassination.

(What’s Left of) Our Economy: Crisis and Illusion

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Franklin D. Roosevelt, Henry George, Henry George Birthplace, Henry George School of Social Science, redistribution

I’m hoping that the conference I participated in last Thursday at the Henry George Birthplace in Philadelphia is available in webcast form soon. The breadth and novelty of many of the ideas unveiled and batted about at the session would have, I think, pleased George himself – a late 19^th century analyst who is one of the great figures in American political economy, and who has much to teach us about our leading economic problems today.

Less edifying, however, was the discussion about where the economy actually does stand today. That’s worth exploring because, at least in my view, much of the handwringing that seemed to be the majority view in the room stems from serious misconceptions that paradoxically have been major obstacles to urgently needed reform, not spurs.

The issue was joined when talk turned to the question of why even the best ideas advanced in recent years for curing what ails the American economy have made so little headway. According to many of the participants and most of the small but articulate audience we attracted, the answer is obvious: powerful, moneyed interests control American politics and policy, and they’re determined to preserve a status quo working beautifully for them. Yours truly disagreed.

Not because I believe the economy is healthy and improving. Far from it. And not because I doubt the political power wielded by the wealthy. What I did object to was the claim that the nation’s oligarchs are blocking demands for change that are being voiced loudly by that huge majority of the public that’s been driven to the edge of desperation. In fact, I stated, the overwhelming share of the public is reasonably happy with their current circumstances, and displays no interest whatever in overturning the established order, or even in major overhaul, because this level of content is entirely understandable.

After all, the vast majority of Americans who are in the market for work are gainfully employed, their inflation-adjusted wages and broader earnings keep staying ahead of many living costs, and an even greater majority of the populace is consuming goods and services at historically respectable levels. They’re obviously not ecstatic about the state of the nation, but every major survey we have shows that their levels of confidence in the economy and in their own prospects are reasonably strong. And I’ve seen no evidence of historically strong support for the kinds of redistributionist policies clearly favored by our most of the Philadelphia attendees. Indeed, evidence has emerged that exactly the opposite is true – especially among black Americans. 

Whatever anger the public in general is showing – as evidenced by support for “outsider” presidential candidates like Donald Trump and even for Vermont Democratic Senator Bernie Sanders – seems motivated largely by disgust with endless and ineffectual bickering, posturing, and double-talking in Washington and other levels of government that’s preventing institutions and networks they depend on in their daily lives (like schools and transportation infrastructure) from working acceptably – even as taxes seem to keep rising.

Unquestionably, many specific villains are targets of varying and fluctuating degrees of public ire – Wall Street, Big Business in general, and the broader “one percent,” government unions and bureaucrats, illegal immigrants. But none of this anger ever seems to coalesce into powerful and persistent calls to punish comprehensively or tightly shackle (or deport en masse) any of the culprits. If there’s anything close to a consensus response, it’s for better value for taxes paid, for less flagrant gaming of the political system by selfish interests, for more equitable enforcement of existing laws and regulations, for stronger incentives for economically productive and socially constructive behavior, and for less encouragement, deliberate or not, of their pathological evil twins.

None of these public attitudes, though, refutes the notion that the American economy is in deep trouble. But they are sending a powerful message that all reformers urgently need to hear and internalize thoroughly: These woes are anything but obvious in the sense of that “one-third of a nation ill-housed, ill-clad, ill-nourished” scale so movingly described by former President Franklin D. Roosevelt in his second inaugural address, during the worst economic catastrophe ever experienced by Americans. Instead, they’re insidious, churning deep beneath a surface kept tranquil by massive entitlement and other welfare state spending, as well as by the greatest flood of cheap credit unleashed in human history.

As a result, the main political barriers to reform are much more powerful than the policies and practices aimed expressly at protecting plutocrat privileges. They’re the measures that seek to calm those economic waters that can be seen, and to project an image of muddling through even as the currents of genuine wealth-creation continue weakening.

Reform forces can’t be legitimately blamed for feeling intense frustration at how well these can-kicking approaches have worked, and at how fiendishly they complicate the task of justifying wholly new economic strategies. But they also can’t keep crying wolf despite all the contrary evidence instead of pressing the more sophisticated case for an economic course correction that circumstances do justify. That’s a formula for squandering precious credibility – and for getting mired in illusions of their own.