The superficial prosperity of the Trump economy

It was a general consensus before the Covid-19 pandemic that the US economy was doing very well. Some have claimed it was the best economy in US history. I had some questions at the time. One question was, if the economy is so great, then why are we still borrowing heavily? Why are we borrowing at all? 

By “we” I mean the federal government, but it’s not just the federal government that is accumulating enormous debt. Business debt is historically high (according to Forbes Magazine) and personal debt is not far from record levels. A lot of it has to do with low interest rates, but let’s put first things first.

It’s true that the economic numbers were exceptional before the pandemic, and those behind the policy are perceived to be economic geniuses. It is also true that if I could also borrow unlimited amounts money without obligation to repay, I would also be considered a genius.

And there is good reason to take the halo effect of the rich and powerful seriously. American culture has an infatuation with celebrity, an almost a worshipful reverence that runs deep in our culture and history:

“Unquestionably the person that can get lowest down in cringing before royalty and nobility, and can get the most satisfaction out of crawling on his belly before them, is an American. Not all Americans, but when the American does it he makes competition impossible.”

—Mark Twain’s Notebook, 1897

Our fascination with prominent personalities generate tabloid magazines at every checkout and reality TV shows featuring our favorite stars. But the appearances of those larger-than-life celebrities can be deceiving.

Knowledge is power but I think we’re getting it backwards. It’s easy to mistake power for knowledge. That is, powerful people as inherently knowledgeable people, or wise, or even principled. An apparently successful businessman may very well have the skill set of a confidence man.

A criminal is a person with predatory instincts who has not sufficient capital to form a corporation.
—Adam Smith

Bernie Madoff was the darling of Wall Street before his pyramid scheme collapsed. He had a long and storied career. Investors thought it improper to ask a genius the secret of his success. The halo effect of celebrity was a protection that was effective far too long for those that lost everything.

In the eyes of the beholder, the more you borrow, the more prosperous you are, as long as you can delay the consequences indefinitely. But “Indefinitely” is longer lasting the shorter your remaining lifespan is. With death, you’ve won the game, as with the bumper sticker that says, “He who dies with the most toys, Wins!” This calls into question the wisdom of the old adage, “you can’t take it with you.” We can take it with us, as well as a great deal of the value of the earth itself.

So the embezzlement of the future is a permanent fix for the older generation, but temporary for the young. For the young, the future holds a long term debt burden that must be carried, if they are able. Currently the debt is at a mere $153,000 per taxpayer, which would take me a little over a decade to repay if I used every cent of my income.

Luckily, the US only needs to pay the minimum payment to service the debt, close to a $1 billion per day, but but interest rates will not be low forever. The younger generation may stumble and fall under the weight, leaving only the options of picking up any of the pieces that are left over.

For my older generation, there are few consequences, and no sacrifices for this source of new-found wealth paid for by our grandchildren. We have “kicked the can” so far down the road that picking it up has become someone else’s problem.

As my generation fades away, we will move beyond the reach of inter-generational justice. Justice delayed is justice denied, and the only protection against the swindle depends upon our fading tradition of leaving a better world for our children, along with the smallest degree of basic human decency, of which we have unfortunately run short.

Our passing takes with it the ability of the younger to hold to account those responsible. My generation can see the finish line and we are a little anxious, but not too worried. My generation consistently votes, while the the younger barely can see the  point. With the younger generations’ apathy, all we have to do is to deny, discount, delay, and above all, distract.

We have not chosen to eat our seed corn to fend off starvation, but to avoid unpopular economic imperatives that jeopardize our expectations of our American way of life—low taxes, cheap gas, government largess, and feelin’ good about the way of life we have made for ourselves.

Politics is no longer the art of the possible. It is now more of the art of attempting to avoid the inevitable.

–John McHale

The Ethics of Debt

It may be an old fashioned notion, but it seems like we the people of the United States should be able to make our own way in the world—especially during what was touted as the best of times. What has customarily happened is that we would borrow when necessary in a crisis, and then during good times, we paid down the debt. But it’s not required by law, only by a moral obligation. 

We don’t have to go back very far to the subprime mortgages crises, and the debt incurred through the bailout. The banks were portrayed as too big to fail, but it would be more accurate to say that assets were held hostage by the risks that retirement assets and municipal funds were exposed to because of systematic malfeasance. The bail out was necessitated under threat of that risk, but the causes and culprits were never corrected.

The housing crisis has since subsided. Emergency relief is normally withdrawn as economic conditions stabilize so that the market can function without “socialist” government intervention propping it up. But the Trump administration intensified the government support with a shot in the arm, a tax cut that created even more debt, and the “robust updating” by the Federal Reserve to maintain interest rates at record lows.

This provided the expected results of making the economy appear very rosy. It answers the question of why the stock market is breaking records when the economy is reaching crisis points we haven’t seen since the 1930s. Low interest rates prop up the stock market by making borrowing cheaper, but there is risk.

President Trump wanted the Feds to reduce interest rates to zero even though there was no crisis. But for many that depend on savings to live, low interest rates are like a huge tax because savings interest cannot keep up with inflation.

Just as with debt, monetary policy will make things worse down the road. What are the sources of capital investment? What will be behind the long-term productivity for small businesses? There’s nothing in the Trump policy that will benefit anyone other than the Americans that live off investments rather than productive work in the way “essential workers” do.

The investor class does need a place to park their immense wealth. The hedge funds and private equity funds have bought many companies as investments, such as the company I work for. They ended my company’s wasteful policy of my retirement pension.

They have also bought my local electric company. These traditional companies—utilities, newspapers, and many other entities—are no any longer run by the businesses or municipalities themselves, but instead are run by investors that are looking to extract what economists call “economic rents”.

Economic rent is the unearned value within a profit that comes from something other than productive activity— the private capture of unearned value. The category of “economic rents” includes the practice of bribery. Corporations generally avoid the risk of criminal behavior, but still prefer to avoid the uncertainty and effort of a capitalist free market. 

As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.
—Adam Smith

We just talked about the debt, and least discussed our responsibility toward future generations. Now, lip service has become passé. There isn’t even the pretense of guilt or shame for leaving behind a basket case in terms of an economy and environment, because it no longer rises to the level of being aware of it.

Making America Great through borrowing was happening before covid-19. At that time, we were on course to add another trillion dollars to the federal deficit by the end of Trump’s first term—that is, assuming the economy continued to be “great”. Imaging what a trillion dollars means takes quite an imagination or quite a bit of work to comprehend. Perhaps later, we can go through some exercises to get our heads around what that mind-boggling sum of money means.

For now, consider:

• According to the nonpartisan Congressional Budget Office, the public debt will reach 100 percent of Gross Domestic Product in 2028. That’s the total goods and services of the country as a whole.
• The cost of servicing our national debt will exceed the cost of our military spending by 2025. That’s just the minimum payment to avoid default. It’s an eternal credit card payment that represents treading water for life, or drowning.
• The Federal Reserve’s quantitative easing program has bought enormous sums of federal debt, cheapening the cost and decreasing the interest rates of money, which is an entire topic for later.
• All of these debt projections use cash accounting rather than accrual accounting, which excludes unfunded such as Medicare and Social Security.

And don’t forget to look into the “black budget” of secret spending, especially after 9-11.

My generation can live out our days in the nostalgic lifestyle of the past by borrowing from the future. For my children, there is a significant chance that the music could stop during their game of inter-generational musical chairs, but for the grandchildren, the odds are hopeless.

Secrets hidden in plain sight

There is an historical truthiness—an assumed fact—that has existed for decades, and that’s the question of which party has heaped on the most debt since WWII. Is it Republicans or Democrats? The “tax & spend” Democrats is of course the conformist answer.

Except that answer is incorrect. I didn’t believe it either, but it’s a matter of public record. Look it up! Anyone that has basic research skills and bothers to look into it can readily verify the fact. Instead, like everyone else, I believed the rhetoric that the Democrats would borrow and spend us into oblivion.

It seemed unquestionable that we should put our trust into the Republicans’ “proven” fiscal responsibility. But it becomes obvious to anyone with the curiosity to look it up that politicians’ rhetoric often doesn’t reflect reality. Repetition of an assertion is the most effective strategies of propaganda, and I was deceived. We are all susceptible to deception.

The more often a stupidity is repeated, the more it gets the appearance of wisdom. 

    —Voltaire

Say something enough times and it gains the appearance of truth. It’s called the illusory truth effect—repetition makes something sound more plausible, and there are many more cases of this now in play. It works especially well in this case because Americans are generally repelled by math. Many of us are functionally innumerate. People don’t like to deal with things they don’t understand or are not good at.

The trend that Republicans have consistency run larger deficits since WWII is not subtle—it is apparent. When you do your own investigation into this, be sure to look at source material—the official public record—not the rosy spin interpretation a party functionary.

If you are curious as to why this is, I would suggest an exploration of two fallacies; “Starve the beast” and Laffer Curve. “Starve the beast” means cutting taxes in hopes that the revenue shortfall will force budget restraint—but it doesn’t work. One big reason is that taxation and spending are separate, unconnected processes.

Starve the beast is an example magical thinking. But it does create a political path toward pleasing the voters and maintaining power; it is always easier to borrow than to appeal to a sense of responsibility and duty from the citizens.

The other ideological excuse for rising debt is “The Laffer Curve” which is an economic theory that predicts you will get a better rate of revenue collection with lower taxes. Many deceptions rely upon a kernel of truth, and revenue does increase with respect to the tax rate, but cuts will never come close to “paying for itself,” which is the heart of the deception. If you look at the occasions where it was applied, the Laffer Curve has never delivered in practice as was propagandized, but it does give another good pretense for borrowing our way to temporary superficial prosperity.

Segregation of the Inter-generational Commons

Thomas Jefferson viewed the earth as an inter-generational commons and his is not an original idea. He derived this notion from previous generations in the likes of Plato, Aquinas, Locke, and the prophets of the Old Testament. The inter-generational commons is the timeless wisdom that we inherit the world from those that came before, and we pass that gift to those that come after.

The world we pass on includes everything in it, including the damages, degradation, and the monetary claim by the previous generation to be repaid by those of a later generation—a taxation without representation.

“The earth belongs in usufruct to the living.” –Thomas Jefferson

Jefferson insisted that “no generation can contract debts greater than may be paid during the course of its own existence,” and viewed long-term debt as a violation of usufructary limits. In Madison’s second Inaugural Address, he advocated a luxury tax to “meet within the year all the expenses of the year, without encroaching on the rights of future generations, by burdening them with the debts of the past.” President Washington’s farewell address, advised against throwing an accumulation of debt “ungenerously upon posterity the burthen which we ourselves ought to bear.”

But my generation will instead bind together in chains the future living to the dead, and deny any relief in the spirit of the biblical year of jubilee.

“People will not look forward to posterity, who never look backward to their ancestors.”
—Edmund Burke

Debt represents things we have bought, but haven’t yet paid for. There is a political judgement on borrowing, and then there is an ethical judgement. The political judgement will always win out in the partisan context because there is no ethical underpinning in party politics, and the uninformed can always be bought off by plundering the treasury.

Everybody loves a tax cut—we get free money that could have gone towards our debts. Holding our current debt means we aren’t paying for things we have already bought, and now lower taxes mean we can use that unspent money to buy more stuff and don’t have to pay for that either.

Running up to election 2020, political ads derided those “tax and spend liberals that want to raise your taxes.” Raising taxes sounds absurd these days—it’s suckers and losers that pay for what they bought when they don’t have to. This may the answer to why the Democrats have never picked up the mantle of fiscal responsibility. It’s not much of a goal to be the second worst in such a morbid contest.

But the primary reason for Democratic silence is the same as Republican—if any candidate from either party truly intended to balance the budget, and provided the necessary plan, they simply would not be elected, no matter the formula. And this we owe to the fact that our government, contrary to popular opinion, is working as it was designed, faithfully representing our collective wishes. But we should be careful what we wish for, it may be coming true.

The function of government is not to inform us, to tell us what to do, to pass judgement on our wisdom, knowledge, ethics, or lack thereof—it’s just the opposite. We enjoy a representative government and they take their cues from “we the people.” It’s not the role of government to compensate for our rational ignorance, for the collective choice that “we the people” cannot be bothered with the effort of finding out such things.

You can understand why the ancient Greeks were not very impressed with democracy. Plato would argue that if you were heading out to sea on a trip, you want to have an experienced crew and captain, not an uncoordinated, untrained crew of whoever happened to come aboard that day.

This is an example of democracy by birthright. There is no test or requirement of knowledge. Plato would say that voting is a skill that needs to be taught systematically—not guided by uninformed opinions subject to misinformation, propaganda, or ideology.

What I see is a sinking ship where there is the absolute freedom of “every man for himself.” Everyone can avail their own resources, pull themselves up by their own golden bootstraps, if they got them. Being in the loop, the crew and cohorts can make the necessary arrangements.

But the captain has failed to notify the passengers—those of us that are here for the ride and just looking at the scenery. A captain to a ship is like a king to his subjects, and we don’t have a king— “we the people” are at the helm. So sounding the alarm, let alone, taking action on something so distant and abstract, really isn’t within the obligation of government under self-rule, is it?

The problem with government—why so many hate it—is that it holds a mirror to ourselves, and we reject what we see. And most can’t figure out why. We want discredit and blame government, but as I often quote Cicero as saying, as the Roman Republic came under the reign of its first emperor, “Don’t blame Caesar, blame the people of Rome.”

What makes people great is how they rise to challenges and demonstrate virtue. It is my own opinion that: :

The last time when politicians asked the people to accept  sacrifice for the greater good of the country, and the people rose to the challenge, was the last time that America was great.

There are much more serious matters than Republican vs. Democrat vis-à-vis the deficit. Everybody’s attention is captured by the children’s squabble in the sandbox, not the silent and unseen drowning of a child in the lake.

The confusion about the ethical and practical implications of debt is epitomized by the following quote, and probably in a different way than you may assume:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”

—Misattributed to various authors, it wasn’t Alexander Fraser Tytler, maybe it was Henning W. Prentis and definitely not Alexis de Tocqueville

 

Traced back, the elements of this quote’s origins go back only to the mid-20th century, while it pretends to be much older to add to its sense of legitimacy. I looked for this quote because it was relevant, but its attributions are largely bogus. What I did find is that hypocrites promote it as a way to generate good feelings while they themselves are ignorant of their own participation in what it warns against. They wave it as flag of righteous indignation against those they accuse, as their pretense imparts accommodation of public debt for their own personal welfare.

The beauty as an instrument of misinformation is that is appears on many conservative websites, which mean republican, whom are more apt to believe that they represent sound fiscal virtues. While scanning the internet concerning this quote, comments on a typical page regarding this quote deride democrats and make personal attacks on well-known villains such as Pelosi and Pamela Harris. It’s impossible to solve the problem when the problem is always with someone else. Change always begins with ourselves, not by blaming others.

In other words, we’re doomed.