Box Score: Money 2, Value 1

Coming of age in the Reagan era, I failed to understand what I was witnessing. America abandoned manufacturing for services and ended up in a time warp.

As a corporate-level software consultant, my father Karl saw elements of this up close. Invited as a fellow traveler by the president of Wiley & Sons (the journal publisher), Karl sat in on the annual shareholder meeting. A careful investment plan charted growth in assets and employment. During the discussion, the CFO queried, “And what is the annualized rate of return on your plan?” With the follow-on to the response, “I can take that same money and make three times as much in the stock market.”

In that era, the stock market still reflected an investment in other people’s ingenuity. This year, as we approached the election, one Trumpie threatened, “Well, if Biden wins, you can be sure the stock market is going to tank!” The inescapable corollary is that the stock market is no longer an economic bell-weather but an instrument of political influence.

That influence is maintained through the ties between the Federal Reserve and the large banks. We are in the mind-numbing reality that the people that take care of our money no longer profit from making it grow, they profit by making it move. That may seem impossible, but the volume of real estate, trade, and government debt is so enormous that simply the placement fees run into the tens of billions of dollars annually.

The bind for the public is that the money center banks hold no interest in seeing the debt reduced. In fact, the Dow weathered recent financial crises because the Federal Reserve issued borrowing authority that the banks loaned to corporations to buy back stock. The value of stock is now linked to corporate debt.

And in the chaos only the financial system has a guaranteed benefit.

Was this intentional? Hardly, but it was inevitable. This is trumpeted by the liberal economists, but they misdiagnose the problem. I hope with this post to steer them in the right direction.

The liberal economists blame “capitalism.” Capitalism, coined by Adam Smith, is a recent innovation, seeing an effective implementation only in the industrialization of the Western world in the late 1800’s. Capitalism was actually a liberalizing social contract. It held that money and labor could collaborate to improve productivity. Higher productivity meant more money for investors and lower costs for labor. It was a win-win scenario.

Capitalism disproved the precepts of Malthus, who held that population growth would always overwhelm the benefits of productivity gains. In part, however, Malthus was proven right because political power was held by the moneyed noble class. Market control was awarded by royal writ, and once secured ensured resistance to innovation that might lead to diversification of supply. Stability of prices was also important to the nobility and their retinues, often sustained by stipends.

The crack in this hermetic system was warfare, and it was to finance their conflicts that the nobility turned to the banking system, leading to the coupling of political and financial interests that suppressed the development of liberal societies.

So the “Box Score” reads as it is because capitalism is now revealed as a brief interlude in the narrow marriage of politics and finance. It was an interlude during which finance married itself to the production of value and the growth of liberal societies.

Regardless of the outcome, the 2020 election proves at least one thing: that Donald Trump is a symptom, rather than a cause. The disease that created him is a return to the festering myopia of political and financial calculations freed from a concern for value or sustainability. Trump is used as a tool by that system to distract attention from the wizards behind the curtain. He is a live facsimile of the special effects in the Wizard of Oz.

How does this manifest in practical terms? Consider real estate. I was told recently that I had to get in the market, because prices would only go up. Looking over the finance package, I noted with surprise that is allocated 50% of my income to real estate costs, rather than the 30% typical of my youth. So the reason that real estate prices are going up is because the Federal Reserve, through Fannie Mae and Freddie Mac, is issuing loans that allocate more of our income to the payment of interest. The increase in home prices has nothing to do with value – it follows from a systematic manipulation of political and financial levers to ensure that we are indebted.

But the fault is not with capitalism. Capitalism was a God-send. The fault is with something I would call “monetarism” – the pursuit of wealth in the absence of any concern for value.

The economic historian should recognize this plague. What should give pause to the rest of us is the proof, in the results of the 2020 election, that the disease is worse that an out-of-control pandemic that has the potential to kill millions of Americans.

I hope that our democracy survives while our liberalizing politicians adapt to that lesson.

Indentured to Incompetence

When the Clinton Administration briefed the incoming Bush team, they emphasized the importance of sending a clear response to the bombing of the USS Cole. The Bush foreign policy team sneered, proclaiming the Cole a “Clinton failure,” and went merrily about strong-arming Russia and China to modify nuclear weapons treaties to allow the design, test, and deployment of a nuclear missile shield. Remembering the inanity of the designs promoted during the Reagan and Bush era, I shook my head. Some in positions of influence tried to trumpet warnings: Tom Daschle, Democratic head of the Senate majority, stood on the Capital steps late in the summer of 2001 to voice his concern that the Bush team was baiting the wrong bear.

Daschle’s priority was international Islamic terrorism. It took only a month for his fears to be realized, horrifically, with the event known now simply as “9/11.”

The cost multiplier for inaction was astonishing, and certainly enormously satisfying to bin Ladin and those inspired by his an example. A meaningful response to the Cole would have cost perhaps $10 million. The response to the coordinated attacks on the World Trade Center, Pentagon, and Congress – involving two wars, time-consuming and costly restrictions on travel, and interruption of international commerce – mounted into the trillions of dollars. For every dollar not spent on prudent prevention, we spent nearly a million dollars.

Swallowing their criticism, the rational party accepted the outcome of the Bush Administrations incompetence as “the new normal.”

Today, with the nation’s economy smothered by pandemic, the apologists for the Trump Administration insist that this is “the new normal.” But step back into the last Democratic executive, a man excoriated by Trump’s “Birther” movement, and we see that this is nothing normal at all. The Zika and H1N1 threats were effectively neutered by the Obama Administration. The total number of lives lost was in the low thousands, with no significant impact on the economy.

The lessons learned from those efforts were institutionalized in protocols for international cooperation led by a team directly in the White House itself.

While I respect the Office of the Presidency, my scorn for Trump is complete due to his utter contempt for the office itself. The Presidency is not a man, it is an institutional process for coordinated decision-making and action. Information is fed into the White House and plans flow out. Trump has not only besmirched the office, he has decimated the processes built over two hundred years to empower presidents to accomplish the nation’s goals. The motivation for those willful acts is Trump’s record of corrupt business dealings, evidenced even during his campaign as he attempted to wield his political prominence to influence civil cases already in progress. Once in office, he systematically bent the powers of his office toward destruction of the institutions assigned to prosecute his corruption.

While the politicization of the security and foreign policy services may be the longest-lasting of those institutional rapes, in real time we are finding ourselves again indentured to incompetence in the Executive Branch. Elimination of Obama’s pandemic action team left the world without a leader in the reaction to COVID-19. The early response to the disease has already cost trillions of dollars, and we can expect the death toll to rise toward 100,000 American lives. Millions of jobs have been lost under the weight of business failures. The obligations of missed payments and unfulfilled contracts will take years to unravel in the court system.

And Trump’s supporters shrug their shoulders and mourn “This is the new normal.” No it’s not. It’s the old abnormal. Wake up, and if you’re unwilling to vote for a Democrat, at least stay home until your party can prop up a candidate with at least minimal competence. I, for one, am tired of being indentured to your blind loyalty.

WTFU

I’ll re-iterate yesterday’s point in secular terms. Prior administrations, recognizing the disastrous costs of a future pandemic, established an office directly within the White House to ensure international coordination when new diseases are detected. This reflected recognition that the primary spawning ground is currently Southeast Asia. It is in tracking Asian outbreaks of influenza that we build our current flu vaccines.

Prior administrations used the White House office to prevent the spread of MERS and SARS and Ebola. The Trump Administration, in some kind of “Make America Great Again” isolationist pique, dismantled that office. Thus when COVID-19 reared its ugly head, there was no one to lead the response. Worse, the President downplayed the seriousness of the outbreak, and deflected blame to others when it began to make inroads in American communities.

The end result of this strategy was visible in yesterday’s CDC press release. In the most ridiculous display of sycophancy imaginable, the CDC head spoke fawningly of Trump’s initiative in helping to “flatten the curve” of infection. What this means, people, is that they recognize that the disease is out of control. 60-70% of Americans will be infected, with fatalities up in the high hundreds of thousands or low millions. Their only goal is to slow the rate of infection to avoid saturating the American health care system. If that happens, fatalities could reach into tens of millions.

To characterize this as a laudable outcome is simply absurd. That it is being touted in press conferences is tantamount to admission that Trump behind the scenes is threatening to fire anyone who does not flatter his leadership. He is holding the American public hostage to his ego. Obviously the President does not recognize that he abdicates leadership with statements that he’s “not responsible for anything.” Followed by “someone in my Administration did it,” it’s clear that his paranoia has grown from the “Deep State” to blanket his own people.

Those in the Republican Party who projected this faker into the Oval Office have much to answer for. You should have helped the Democrats throw him out on his ear.