Bleak Thoughts

I went on a bicycle ride with a close friend this morning. Our route took us along beautiful – and quiet – country roads. The sky was blue, the air was warm, the leaves were just starting to turn and the conversation was, well, really depressing. Most CH posts reflect my generally up-beat disposition; this one will not.

I kicked off the big picture part of our conversation with the observation that while my most recent post had ended on an optimistic note – that ‘one of democracy’s greatest strengths … is that it fosters orderly course corrections as voters come to new understandings about what does and doesn’t work’, and a quote from Winston Churchill about America always eventually finding its way, subsequent reflections have dampened my optimism.

I was thinking about the recent bankruptcies of Detroit and Puerto Rico, both of which stuck to their profligate ways long after it had become clear that they would be unable to repay their debts, just as Chicago is doing today almost certainly with the same result. We talked about how the most recent governor of Illinois, Bruce Rauner, whom I have known for many years, tried in every way he could to get that state off the fast track to its own bankruptcy, and had absolutely no success in convincing the entrenched politicians in the state legislature to go along, and how the state of Connecticut, where my friend and I were riding, is similarly heading toward fiscal disaster at breakneck speed with no prospect of a change in course.

State and local politicians, it seems, often become so wedded to serving the short-term interests of the constituencies that elected them – in the states and cities that are going broke, generally various dependent constituencies, particularly government employee unions – that they are willing to drive right off a cliff, hoping always that somebody else will be at the wheel when the ground underneath the vehicle falls away. Nothing changes until some court – or the federal government (acting as guarantor) in the case of New York City in the 1970s – abrogates old contracts and enforces a new fiscal discipline.

Eventually our talk turned to the enormous deficits that our federal government is running and the fact that our national debt, which when measured against GDP is fast approaching the level reached only during WWII (https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287), will surely continue to rise quickly in the years to come given how our changing demographics will trigger more entitlement spending. When will the bond markets balk at financing our ever-growing deficits? Nobody knows.

Modern Monetary Theory claims that we shouldn’t worry about such deficits – a theory so attractive to the put-the-pedal-to-the-floor government spenders that enormous new entitlements (Free college! Medicare for All!) are the rallying cry of the left. Some of the left’s dimmer bulbs – AOC, for example – are even arguing that we shouldn’t worry about funding for these proposed entitlements. AOC posits with regard to her proposed Green New Deal that to the extent that it doesn’t pay for itself, we’ll get the money from the rich, and to the extent (which would be considerable, even if all the wealth of the rich were confiscated) that more money is needed, we’ll just print it (https://theweek.com/speedreads/822456/alexandria-ocasiocortez-wants-pay-green-new-deal-by-essentially-printing-more-money).

Perhaps somebody should pull her aside and explain that debasing the currency has often been the final desperation move of dying empires (e.g., Rome and multiple dynasties in China) and the death knell of democracies (e.g., Weimar Germany). There is, in fact, nothing particularly new about ‘Modern’ Monetary Theory.

And further bad news: printing money to avert near-term disaster is effectively what we’re doing now, except that we call it Quantitative Easing. (The Fed’s) Chairman Powell – a great guy in an impossible job – was trying to reverse course on the post Great-Recession QE by letting the Fed’s portfolio run off, but has been forced to reverse course due to evaporating liquidity and fears of a near-term recession; further, the Fed has recently begun injecting about $100 billion into the Repo market to replace bank liquidity that is otherwise drying up. How will those pressures not increase as the federal government’s deficits continue to absorb more-than-all of the US savings?

These problems will not get fixed until the American public understands the hole we’re digging for ourselves – something our politicians and cultural ‘thought leaders’ are in no hurry to acknowledge.  

Democrats generally – particularly the most radical ones, like Bernie and Fauxcahontas –  draw most of their strength and virtually all of their money from the well-off white progressives who make up most of the world in which I live. The same people who would never let their co-op or neighborhood association behave in a foolishly profligate fashion avert their eyes from the complexities of federal accounting (which mislead us on the cost of our entitlements), ignore our deficits and and seem to believe, along with AOC, that the tooth fairy will pay for whatever the government does. Or they figure that taxes on others should be raised, while they hope their own accountants will stave off any personal cost. And they show their supposed moral virtue by supporting Socialism – an idea that has impoverished people everywhere it has been tried.   

Presently, some 43% of the American public (including most Democrats and a friend or two who read/s this blog, at least occasionally) think Socialism would be good for the country (https://www.newsweek.com/socialism-america-gallup-poll-1431266). The level of ignorance (sorry, friends) that percentage bespeaks belies belief. Next time you chat with one who is so inclined, perhaps you could point the deluded one in the direction of a comparison of the relative economic performances of Chile and Venezuela over the last 40 years (https://humanprogress.org/article.php?p=1923&fbclid=IwAR1buvxjEBQr9LDLverG1gYw9ZP-GJniWYFcr_feZiSjG4XFq5pUCigCL80). In that timeframe, Chile adopted free market policies while Venezuela (which has the world’s largest proven reserves of oil) opted for Socialism. In 1975 Chile’s GDP per person was 37% of that of Venezuela; today it is 287%. Chile thrives, Venezuela is in agony.

And guess which way we’re heading?

I’m not taking back what I wrote about the possibility of self-corrections inherent in our democratic governance – but in order for those mechanisms to work, the public needs to know the facts, and to understand its role in making sound choices. I fear that today too many of us view politics as a kind of meta sport, with our team and the other team, and don’t think that we have any real role in exercising restraint on what actually happens.

If the American public doesn’t awaken to the difficult choices we face, we’ll have proven ourselves no better than the small-time, idiot pols who march their governments straight to bankruptcy – but in the case of the federal government, there will be no organization big enough to stave off the calamity that will follow. The effects of that calamity will surely fall on the shoulders of those least able to bear it, as such disasters almost always do.

A beautiful bicycle ride, a wonderful friendship and bleak thoughts.

M.H. Johnston

2 comments to Bleak Thoughts

  • John Primm, MPM  says:

    I trust you Mark, to make good sense and caution all of us. Keep up the good fight!

  • Ron Cypers  says:

    Mark – This is an extremely well crafted argument for caution and discipline in our government fiscal planning. You should try to have this published and distributed for a wider audience to learn from.

Leave a reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>