Tag Archives: Trump

The Trade-Offs of Bailout

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There is an extensive belief that: if the government can hand out money in a crisis, why it can’t do more of that during normal times? It’s quite a common belief because nobody learns that economics is the study of trade-offs. A former student delighted the nerd in me and emailed me to help understand the consequences of such a policy of direct cash “stimulus” to alleviate the crisis. Here was my response:

The idea should raise red flags, but how harmful the results are can depend on a variety of other factors.

The basic economic logic is that because money is not wealth, simply injecting money into the economy (if there are no other mitigating factors) will increase price inflation.

However, the Keynesian explanation (the economic theory behind this sort of stimulus/bail out) does seem plausible on first glance. Advocates of this would say something like:

“Because business are not able to keep staff productive and working (both because they stay home for safety, and because their clients are staying home and not buying stuff), a direct cash payment to people will both help them survive financially, but will also encourage people to spend that money, which means that the coffee shop actually has more money coming in again, which means that they are then able to hire more workers, and so forth.”

Again, that seems to be plausible. It seems both benevolent to individuals and is alleged to spur economic growth more generally. I’ll tackle both of those two things in turn.

First…

The problem is that in economics there are always trade-offs. First of all, where is the money coming from? Well, it’s coming from either…

1) current taxpayers (“here’s your money back”)

2) from future taxpayers (debt)

3) from printing money out of “thin air” (which is a tax on people’s money because it causes the value of money to decrease…inflation).

I could argue about the problems with the first source, but I don’t think I need to. The problem is, of course, that the bailout money will have to come from the latter two because the U.S. government already spends (annually) all its tax revenue and then another half-trillion on top of that. So it will borrow (which transfers a debt burden to future generations) or print (which causes price inflation).

Actually, the latter two will be essentially the exact same thing. When the government borrows money, it gets it out of thin air from the Federal Reserve, which then “buys” the debt by “making” the money (adding zeros to the Treasury’s balance). The Fed may or may not then sell those bonds to a bank, which would pull already existing money out of circulation and mitigate price inflation, but it doesn’t have to. It almost certainly won’t in this case, since their goal is more money in the economy.

So the inflationary effects are caused by either option 2 or 3 above.

Of course, many people will likely be legitimately helped in the short run. Again, there are benefits, and there are costs.

As for the inflation issue, there is legitimate concern.

In the 2008 crisis, there were bailouts, but most of the newly created money went straight to banks, which then held on to it because they were worried about more instability, which I think really restricted the price inflation we saw then (money doesn’t cause price inflation if it doesn’t circulate into the economy). This time, if they give so much directly to Americans, I’d be concerned of at least a short run of rapid inflation (probably not hyper inflation). I can’t predict the future, because there may be forces at work I don’t see. For example, if Americans hold on to a lot of that cash for a while and don’t spend it, you may not see the price inflation right away, it may just cause a slightly higher inflation rate in the mid- to longer- term. But historically, times when governments have started injecting money into the economy directly has always caused a period of rapid, or even hyper inflation, especially when the economy is contracting the production of goods and services (producing less), as it is right now with so many people staying home. The more they give, the worse the potential consequences. Worse case in history: the Weimar government paying German workers in the Ruhr not to go to work in 1923–that caused hyperinflation worse than anything the world has ever seen. Do I think it’d be that bad here? I highly doubt it, but obviously any price inflation affects the very people intended to be helped.

And that gives us the framework for understanding the second part:

Second…

On the broader goal that this is supposed to stimulate economic growth (the Keynesian idea of “priming the pump”—technically called creating “liquidity”), or, at least, slow the economic recession, that goal is offset by inflationary effects. People aren’t made better off when prices increase, for obvious reasons.

But what about keeping businesses open and so forth? Well, yes, some business may stay open that might have closed. Some workers might remain hired that would have been fired. I grant that. Again, economics is about trade-offs.

Fundamentally, however, you have to look at other costs–what is given up. We’ve looked at inflation. Let’s look at another one, and this gets at the very core of the matter:

People buying things isn’t what causes economic growth or a rising standard of living. You could give everyone 100 oz of gold in the Middle Ages, and sure, they could all go buy more shoes, clothes, horses, etc, right away before prices caught up and the gold became less valuable. The blacksmiths and cobblers and seamstresses would have been delighted…for just a little while. But what actually causes the standard of living to rise? It was the saving and investing that allowed for innovative technological advances. When saving is channeled into research and development to create new capital (machinery, computers, etc), that’s what creates more economic efficiency and raises real (inflation-adjusted) wages.

If everyone is out spending a lot of money, they are saving less money, which means there is less available for those investments that take a while to develop or invent. Imagine if Thomas Edison had just spent all the money on fancy clothes and shoes and nice homes that sustained him and financed his research while he worked on the light bulb! No light bulb, at least from him.

Back to our previous medieval example… let’s say one person chooses to take 100 oz of gold and use it to pay for his basic necessities for a year while he works on a new fertilizer that will ultimately quadruple agricultural output, making food cheaper and less labor-intensive for everyone. That one person has done more for everyone else because he invested his money rather than spent it. That’s how the economy grows.

A couple final points:
– Inflation encourages spending rather than saving. If you know your money is going to buy less in the future, are you more likely to buy stuff now or wait to buy stuff later?
– Spending reduces the amount of money that goes into investment.

Long story short: cash like that might really help some individuals and small businesses in the short run (and who’s complaining about getting an unexpected check?). In the short run, it might also cause some serious price inflation, but even if it doesn’t (and I certainly hope not), you will certainly see higher price inflation in the mid to longer run. And ultimately a bunch of spending makes it look like there’s a flurry of economic activity, but under the surface, it’s like a college student getting a bunch of extra money and going out and spending it all. Things seem really good for a time–nice car, nice TV, etc–but really, he is no better off economically in the long term.

(And none of this looks at the consequences of adding that amount onto the federal debt. But this is way too long already.)

Reflections on Possible War in Syria

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As many Americans, led in part by advisers closest to the president (and celebrated by the media), begin to itch for another war to overthrow Assad in Syria, there will be many among my peers and friends who disagree with me. So let me clear a few items.

First, I may be adamantly opposed to your position on the matter, but I will still treat you respectfully and respect our friendship.

Second, there is a moral contradiction in any war that attempts to “export American freedom and democracy.” Nations like Syria have virtually no tradition of democracy. And even the great visionaries of the world must deal with the cultural realities of the places in which they seek to intervene.

Third, U.S. interventionist policy in the Middle East, from replacing the semi-democratically elected prime minister of Iran in 1953 and bolstering the power of the king, to supporting the Taliban and Al Qaeda in the 1980s, to supporting Saddam Hussein that same decade in war against Iran, to then throwing him out and placing Iran’s allies in power in Iraq, to throwing out Ghadaffi in Libya… have all resulted in serious unintended (to give the benefit of the doubt) consequences. Fighting against Assad is, in effect, fighting with Salafist (Islamic extremists) groups such as ISIS.

Fourth, the number of people killed in nations where the U.S. has intervened is far higher since these interventions (see video in the comments). Especially for Christians, moral consistency means that while we are pro-life of the unborn here, we are also pro-life globally. American bombs and drones have also killed thousands of men, women and children. That doesn’t mean we must be pacifists, but the Christian view of war ought to be considerably more aligned with what Augustine and later thinkers developed into the Just War Theory (which I discuss here), or the theories of modern conservatives of the 1940s, such as Russell Kirk.

Fifth, strikes against Russian-backed Assad lure the U.S. closer to direct conflict with Russia, which has also been strengthening ties with China and Iran. Given points three through five, even if we abandon principle and do a simple and pragmatic “cost-benefit” analysis, intervention still has a far less-than-stellar record. Is it worth the risk?

Sixth, if you have not, PLEASE read up on the history of the Middle East and the history of American interventionism. Here is my series on the modern Middle East, well worth the time to read if you want to understand what is going on much better:

Modern Middle East Series

Part 1: Under the Ottomans

Part 2: Protectorates to Military Rule

Part 3: Roots of Radical Islamic Movements

Part 4: The Current Mess in Syria

 

Also, Watch the Following:

Sanctions and the People of North Korea

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Sanctions are one of the most commonly used passive aggressive weapons by the United States government against regimes acting against its interests. These come in many kinds, from basic trade embargos to restrictions on access to international banking, et cetera.

And President Trump has recently announced a new wave of sweeping sanctions that are, as claimed, tougher than any previous against what he calls the “rogue regime”—North Korea.

While he is right with the adjective of choice regarding Kim Jong Un’s government, he—and his predecessors—overlook a key reality about the people of North Korea that render these sanctions virtually powerless.

To explain this, we need to understand the lives of the people of North Korea (and by extension, the people living under other repressive regimes, such as in Cuba or Venezuela). This may be an especially challenging task, given our lack of similar circumstances, but let us start with this basic assumption. That is, that the people of North Korea are attempting to live as normal lives as is possible given the circumstances. In the video interview at the bottom of this post, Michael Malice shares his unique insight on just this reality. Normal life in North Korea is a far cry from that of a middle-class American, of course. But North Koreans—those not attached directly to the regime—are largely doing their best to live as normal lives as they are able.

Even more significant in our understanding is this. They have also been—for three, almost four generations now—“educated” by a regime that preaches the glory of their great leaders. Their reality—what they truly believe—is that the United States, collaborating with their allies in the south, invaded Korea as an expansionist and imperial empire, seeking to replace the brutal previous Japanese occupation with their own. The gallant North Korean army firmly resisted and—in heroism paralleled by the Greek victories over the Persians—ultimately prevented the great and tyrannical United States from conquering their homeland. And from that day onward, their great leaders have valiantly defied the world and maintained the independence of North Korea. How much worse, they are told, would things be, without the unbending courage of their leaders?

And when three generations have been taught this, with so little real information trickling in from the outside, what else do we expect them to believe?

With that as the context, then, let’s examine the effect of sanctions.

First, what is the intent of these sanctions? In this case, the consequences caused by the various restrictions are meant to pressure Kim Jong Un’s regime to halt their program of expanding the distance capacity of their long-range missiles and reducing the weight and size of their nuclear warheads. The idea: keep them from developing a nuclear missile that can reach American shores.

But will they work?

Given the context we have already described, it is easy to draw a few simple conclusions. The regime itself may be hardly affected by these sanctions; of everyone in North Korea, the politically connected will not lack for food or comfort. To the extent that sanctions harm anyone, it is the average, every-day, not politically connected North Korean. The ones struggling to live normal lives in one of the most terrible places to live on earth.

So why should we expect different when the narrative structure is already in place for their government’s message to be readily believed? That message? That the great evil of the world—the United States—is seeking once again to crush their nation for its own expansionist agenda.

It does not matter that the regime itself is to blame for the misery of the people within its security fences and guard towers. What matters is what the people believe. To the extent that sanctions cause greater suffering by restricting some goods entering the nation that might otherwise make their way in, it is cause for the people to see their stalwart government as ever more valiant in their defense. And it does not matter if these sanctions add more suffering to the people; the very presence of sanctions gives their own government a handy scapegoat.

Don’t get me wrong; I intend no insult to the North Korean people. It is pity and compassion, rather, that would look at this indoctrination and understand it for what it is. And it is the same pity and compassion that understand the detriment of sanctions that feed into this very indoctrination.

On top of this, Kim Jong Un understands something crucial. Without nuclear weapons that can reach American shores, he is at risk of going the way of Sadam Hussein, Mohamar Ghadaffi and others. To be a nuclear power and a threat to Israel (in the case of Iran) or the United States is to have a seat at the international table of diplomacy. In effect, to be taken seriously. It is not without reason the U.S. has avoided full-scale military deployment in Pakistan–a nuclear power–to round up the Taliban. Does this make Kim Jong Un’s goal noble? Of course not! But it does help us understand how determined he is; sanctions that harm his people more than they harm him will hardly serve as deterrent.

There is hope. As Michael Malice makes clear, the black market for food may be too pricy for many, but there is no such premium on the black market of information. Information is getting in. Perhaps the people of North Korea may be ever more privy to the reality that it is their own government most to blame.

But it is not sanctions that will get the work done.

Perhaps—and I may bring the scorn of all who share the moral vision that justifies sanctions—but just perhaps, it may be better to open all possible trade with North Korea. To extend the arm of diplomacy. To offer dialogue, not wield the economic sword. To do the opposite of feeding the narrative of lies that most North Koreans have only ever heard.

There are two roads that will bring down the North Korean regime (and with it, their aim of nuclear weapons), if anything can. The first is a direct American attack on the small country, resulting in the death, no doubt, of many Americans and many more North Koreans, South Koreans and perhaps even Japanese.

The second is sufficient dissent within the country, as happened in Poland in 1980. Or in Berlin in 1989. Of course, these could be brutally put down; there is no illusion about that.

But what is certain is that there is already a belief system within North Korea that the United States government has to accept. And sanctions—or even direct military action—already have a place in that narrative. The lies are too far engrained.

Thumbnail (and internal) photo credit: nedhardy.com

Photo at top of article credit: The Washington Post

Trump’s “Historic” Budget Proposal…?

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For those who missed it, I decided to turn my recent email about Trump’s Budget Proposal into a blog post.

…

“Trump seeks historic cuts to government,” the headline reads.

And then proceeds to say, “The Trump Administration on Tuesday will propose the deepest cuts to government programs in a generation.”

So which is it? Historic cuts? Or the deepest cuts in a generation? Or have we gotten so accustomed to massive budgets (which the Congressional Budget Office predicts will run at an annual average of a half-trillion dollar deficit fiscal years 2017-2021) that the largest cuts in a generation are considered “historic”?

The article I am referring is a headline on TheHill.com, which you can read here.

As you read on, it is based on three points: “cuts to anti-poverty programs, optimistic economic forecasting and deep cuts to nondefense discretionary funding.” At he same time, the coming budget is intended to leave Medicare and Social Security alone, and increase the Defense budget.

Let’s examine this a bit closer:

First of all, major anti-poverty programs began with Lyndon Johnson. Interesting statistic: By modern standards, the U.S. poverty rate fell from 95% in 1900 to around 14% by the mid/late 1960s (when the “War on Poverty” and its spending programs began), where it has consistently hovered. In inflation adjusted dollars, spending on anti-poverty went increased by 8.1 times from 1964 to 1996 alone (in-depth analysis at “The Legacy of Johnson’s War on Poverty”). Surely, even if you favor the social safety net, the cost/benefit analysis ought to at least be re-considered.

Second, regarding optimistic economic forecasting, the most recent recession was the 2008 Great Recession. For a century, recessions have happened on average no less than every 7 years. Now, I believe there are rather clear reasons for economic recessions other than “it’s just a downside of capitalism” (which I’ll get to eventually), but whether you rely on historical pattern or economic theory, there are plenty of reasons to think that recession may be around the corner. I wish I had time to get into all of them here.

Third, non-military discretionary spending is a fraction of the budget, ranging from around 9-13% of the total budget, years 2011-2017.

Fourth, Social Security and Medicare are the two largest current and coming budget black holes. As of today, the total unfunded liabilities (unfunded planned payments due to be paid out at existing rates and with projected population trends) for these programs is estimated to be $106 trillion, and some studies have put it as high as $200 trillion. That’s a tax liability of $884,037 per taxpayer (source: usdebtclock.org).

Let’s just say that whatever this “historic” budget proposal is, you will have it decried as some evil hatred of the poor and progress, or praised as some remarkable achievement for which to shower praise. Either way, it’s a bare drop in the fiscal bucket of liabilities.

What do you think? Is this a step in the right direction? Harmful? Join the new Facebook discussion group at the LCKeagy Forum and let’s discuss it, or anything else of interest.

What is Fascism?

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Many people claim—most often with despair—that we’ve elected a fascist president to the American White House. And a worse offense could not be fathomed by many who thought the time had finally come for a woman president.

Now, I’m not a Trump supporter or a Trump opponent. Though it may seem like a paradox, I take a broader and a more specific view. If you want more thoughts on that, sign up for my email! So, having said that, I don’t have any agenda in this post with encouraging readers to any extent of support or disdain. As with many of my posts, my purpose here is to bring clarity, not to utilize hyperbole to influence opinion. I believe that good opinion must be well-informed.

So, the accusations have been sounded: Trump is a fascist! And yet, I would guess that many who throw this term around do so with a tragic level of ignorance about the genuine meaning of the ideas involved with and behind fascism.

And to be clear (does that sound a bit too Obama-ish?), fascism isn’t a clear-cut set of ideas. Although Germany and Italy both followed fascist ideologies, there were certainly differences. Still, a generally good idea of the commonalities of various fascist regimes can be accurately identified.

So what is fascism? A bit of history helps, as usual.

Benito Mussolini

Fascism as a formal ideology with a political platform was founded by Benito Mussolini in Italy. During World War I, Italy had joined the fight on the side of the Allies in time to benefit, they hoped, from the peace terms. Yet, many in Italy were unsatisfied with the terms that finally emerged from Paris in 1919. Additionally, war debt and economic stagnation plagued the country, like most countries in Europe, and the popularity of socialism and its extreme version of Marxist-communism saw a huge leap in popularity.

Keep in mind that many socialists were actually opposed to communism, a point I’ll clear up in coming posts. But for now, it is suffice to say that a general desire for social and economic control by the government had become increasingly popular since the early 1800s, and the desire to implement this control by revolutionary means and authoritarian regimes saw a surge in the wake of World War I.

A quick point of distinction. Marxist ideas (ie, communism) place the worker as the center and central unit of society. Ultimately, Marxism advocates for the dissolution of political boundaries in favor of a united working class and the elimination of private property in favor of commonly-shared means of production and eventual social, economic and political equality. That this can never actually be realized notwithstanding, it was reaction to this idea that spurred the creation of the Fascist Party.

In Italy, the Fascist Party was started as a distinctly anti-Bolshevik (many communist parties took the name of their Russian counterpart) party. At its heart wasn’t the plight of the working class, but rather the pursuit of national glory. In direct rejection of the dissolution of political boundaries, its adherents sought to glorify the nation-state, epitomized by the government of that nation-state. And more specifically, the glorification of the nation-state being the foundation for political morality and the highest of ends, violence in pursuit of power and glory was not only condoned; it was celebrated. You might call fascism fiercely aggressive nationalism. Fascists and Bolsheviks broke out in fire fights across Italy prior to Mussolini’s rise to power in 1921, and when he was in power, Mussolini had no qualms about banning all other political parties and ensuring the “disappearance” of any potential political rivals. We see similar trends in Germany with the rise of the Nazi Party and their first attempt at sparking revolution in Germany in 1923 (which failed). Clearly, later actions by the Nazis in Germany followed the fascist praise of violence with precision.

On the economic front, fascism is profoundly socialist and admittedly anti-capitalist. (I discuss related terms and ideas here.) Mussolini and fascists in other countries, like the Nazis in Germany, ultimately sought to control and oversee the economy with strict regulation and direct take-over of major industries, setting up government-protected and directed monopolies. Bear in mind that this was the common trend of western society (and had been for a decades) and it was Mussolini’s economic policies that Franklin Roosevelt in the United States admired and sought to emulate (without the direct violence).

Romanesque Fasces

One more point of interest. In pursuit of the glorification of the Italian nation-state (created as a merging of multiple distinct regions in the 1860s), Mussolini adopted the Roman symbol: fasces. Obviously, this is where the name comes from. It is a symbol of national unity, strength, glory and power. The ax included epitomizes its praise of aggression. The fasces, in line with other Romanesque cultural elements adopted by the U.S. government, can be found in our capital, but often without the ax.

Knowing what fascism is and where it comes from helps to debunk the idea that fascism is merely passionate nationalism*. It is its celebration of violence to achieve its ends that distinguishes fascism. And despite and cultural conservatism it brings with it (such as celebrating the cultural traditions of the nation), it is also distinctly anti-capitalist and authoritarian.

If you’re up for a more extensive reading on Fascism, here is a link to a very thorough article over at Mises.org. At that post, author John T. Flynn presents comprehensive research and come to the following list of the components of fascism as implemented through policy. As the author says, fascism “is a form of social organization…

  1. In which the government acknowledges no restraint upon its powers — totalitarianism
  2. In which this unrestrained government is managed by a dictator — the leadership principle
  3. In which the government is organized to operate the capitalist system and enable it to function — under an immense bureaucracy
  4. In which the economic society is organized on the syndicalist model, that is by producing groups formed into craft and professional categories under supervision of the state
  5. In which the government and the syndicalist organizations operate the capitalist society on the planned, autarchical principle
  6. In which the government holds itself responsible to provide the nation with adequate purchasing power by public spending and borrowing
  7. In which militarism is used as a conscious mechanism of government spending, and
  8. In which imperialism is included as a policy inevitably flowing from militarism as well as other elements of fascism.”

(Source: https://mises.org/library/what-fascism)

(A note on coming posts: Back in my post, “The Issue of Standards”, I discussed the ambiguity of the typical left-right paradigm. The terms conservative and liberal carry a complex, confusing and dynamic—changing—history. As I am able, this will be the focus of coming posts. Sign up for my email to know when each one is posted!)

*I’ll have a post in the future expanding on what nationalism is; history always presents a much more complex and interesting picture than the media narrative.