. . . and the Mouse’s Necessary Pre-Emptive Response

Pride goes before destruction, and an haughty spirit before a fall.

– Proverbs 16:18

It is not only impending social and civic tumult which threatens to undermine and diminish the United States. In Existentialist and Exceptionalist arrogance, that nation has long sought to defy natural economic law with impunity, having taken comfort and advantage of its (fleeting) reserve currency status. In one of the rare truthful statements that President Trump has ever uttered or typed, theirs (and perhaps all those who, in varying degrees, are likewise connected to them) is a “false economy” with an “artificial stock market.” It has long been bolstered and held together by the duct tape of indebtedness since about the time that Federal Reserve Chairman Greenspan coined the phrase “irrational exuberance.”

In both fiscal and monetary policy, its leaders are the epitome of irresponsibility and folly, either having directly accrued public indebtedness (or transferring it from the private to the public); or worse, induced private indebtedness by Fed actions deliberately intended to do that very thing through absurd monetarist instruments, even to the point of negative real interest rates. It may be reasonably argued that a large part of economic growth in the last 20 years is directly and indirectly due to that indebtedness.

However, indebtedness has its tipping point, a level of precariousness that makes its beholder vulnerable to every breeze of exogenous shock. And if recent economic growth has been largely the consequence of leveraging, then the de-leveraging, as classically described by Irving Fisher in “The Debt-Deflation Theory of Great Depressions” (1933) can, at best, result in a long Japanese-style eon of economic sclerosis. But with ‘the mother of all asset booms’ (“we have a bubble in everything”), and few remaining economic panaceas, not already used, to cushion the blow, a worse thing is likely to happen to them (and to all those who, in varying degrees, are connected to them).

Typical of nations whose arrogance of preceding success leads to the overextension of empire, (even if America’s empire has been more of an Athenian kind), there is currently underway a rationalized retraction of that empire, with adversaries everywhere moving into the resulting void, paralleling the dynamics of the Late Roman Empire and the British empire from the late 19th century. If American foreign policy has turned “selfish, isolated, brutish, domineering, and driven by immediate appetites rather than ideals or even longer-term interests,” this was likewise notable when the costs of overextended European empires resulted in duplicitous, self-serving, and myopic foreign policy which stripped the veneer from “White Man’s burden” and facilitated the rise of American global power and influence.

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Living next to you is in some ways like sleeping with an elephant. No matter how friendly or even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt.[1]

If America experiences a social, economic, and/or civic earthquake, Canada, being in such close vicinity and having chosen to moor its tugboat a little too closely to that harbour (re: Continentalism), will inevitably encounter the full force of the ensuing tsunami. While our politicos and talking heads are just waking up to the tumult, which has been ongoing there, albeit often subterraneously, since the 1960s; and having but a superficial understanding of the deep and intractable causes and the great consequences; a disaster avoidance and recovery plan has become immediately necessary.

Certainly, a figurative wall has become necessary, not merely to regulate an influx of alien immigrants promised to flow from the American border because of current policy threats from the present administration; (and this not because of an antagonism to immigration but to forestall any anti-immigrant counterreaction because of illegals, as has happened elsewhere and is natural human response). No. If there is, by chance, a social/civic tumult in America, there will inevitably be an influx of American political partisans who will seek refugee status. This poses several perils to the peace and stability of our nation. Like the Iranians in 1978, the winning political faction may demand the heads of those refugees who reside here. Furthermore, will it be wise to allow in those whose factionalist rancour and hostilities may poison our own body politic. This nation prides itself on its moderateness and civility. But, we too are of the human species, and not Exceptionalistically immune to that which occurs in others of our species.

Roughly seventy-five percent of our exports go to the United States, constituting almost thirty percent of our economy. If there be economic disruption, whether because of social/civic or economic causes, those exports, just like happened in the aftermath of the 2008/9 Great Recession (re: a 25% decline), will be inordinately affected. Should not the diversification of our trade become first and overriding priority, especially with an American administration devoted to a Realpolitik bullying of other nations into a regime of permanent economic advantage for the United States? (Even apart from the present politicos, the existential economic sclerosis in the United States will incline them to increasing self-serving and myopic trade policy).

Pipelines, both east and west, must be approved; not because there are not environmental dangers and detriments to carbon-based energy; but because the welfare of the nation is dependent upon more than just one aspect of life. Oil and natural gas should be used as a trade lever (through long-term guaranteed supply) to open up foreign markets which are effectively closed through tariff and non-tariff barriers. An activist inculcation of extensive balanced trade deals with other nations of similar economic status should be pursued.

The goal should be the reduction of our exports to the United States to considerably less than 50% of total exports, not only for economic reasons of safety, but to reduce any threat to political autonomy by a more bullying American foreign and trade posture. There will be disruption. There will likely be economic loss, at least in the interim. However, such is the need for inoculation to make us less vulnerable to the most likely outbreak of American disease.

While we are thinking of the unthinkable; because America is showing itself to be a less reliable defense partner, and because conflict in the United States may induce military incursions into our country, we may need to acquire our own weapons of mass deterrence.

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Is this alarmist conspiracy theory? Such askance looks and ridicule have I encountered in the last several decades when I posited the thesis of an inevitable civil war in America.

[1] Pierre Trudeau, Washington Press Club Speech, Washington, March 25, 1969, http://www.cbc.ca/player/play/1797537698.

Lies, Damned Lies, and Statistics (Re: Why This Recovery Is So Lousy – WSJ)

“Truth,” it has been said, “is the first casualty of war.” – Philip Snowden[i]

A theme, long sustained within conservative economic circles, is that FDR’s New Deal crippled the recovery and prolonged the Great Depression. Screeds, like the following by Phil Gramm, a not insignificant player in legislative assemblies past, is stereotypical of this meme.

In all recoveries following all 30 economic contractions since 1870, only two have failed to have strong rebounds after deep recessions. Only two are now labeled “Great” because of the long periods of suffering they caused. And in only two recoveries did government impose economic policies radically different from the policies pursued in all the other recoveries—different than traditional policy but similar to each other— FDR’s Great Depression and Mr. Obama’s Great Recession.

From 1932-36, federal spending skyrocketed 77%, the national debt rose by over 73%, and top tax rates more than tripled, from 25% to 79%. But the tectonic shift brought about by the New Deal was the federal government’s involvement in the economy, as a tidal wave of new laws were enacted and more executive orders were issued than by all subsequent presidents combined through President Clinton . . .

. . . As government assumed greater control, private investment collapsed, averaging only 40% of the 1929 level for nine consecutive years. League of Nations data show that by 1938, in five of the six most-developed countries in the world industrial production was on average 23% above 1929 levels, but in the U.S. it was still down by 10%. Employment in five of the six major developed countries averaged 12% above the pre-Depression levels while U.S. employment was still down by 20%. Before the Great Depression, real per capita GDP in the U.S. was about 25% larger than it was in Britain. By 1938, real per capita GDP in Britain was slightly higher than in the U.S.

Considering that in the four years following FDR’s ascension, the American economy grew at 10.88, 8.88, 13.05, and 5.12 percent respectively, according to the Bureau of Economic Analysis (BEA); or 10.74, 8.92, 12.91, and 5.23 percent respectively, according to the U.S. Department of Commerce; I am not quite sure what would constitute a strong bounce back for these partisans. There certainly has not existed any comparable rebound since.

This revisionist representation of the Great Depression abounds in sophistries and what we, in biblical circles, would call statistical proof-texting. Why, for instance, include years 1929 to 1932/3, a period when private investment totally collapsed, in determining the impact of New Deal policies from 1933 onward? (With inordinate price and asset deflation between late 1930 and mid-1933, investing one’s money in one’s mattress or backyard garden guaranteed that “investor” a 5–10% real return tax free.)

Nor is it fruitful to compare with other industrial nations without also mentioning that except for Germany and Canada, the economic downturn in America from 1929 to 1932/3 was considerably greater. Great Britain is, in particular, an egregious ploy, considering that the Great Depression was for Britain, a Great Recession within a Long Depression which began after WW1.

The national debt may have increased 73% in nominal terms from 1932–6. But as a percentage of GDP, it only increased from 32.5% to 40% during very trying times.[ii] Even so, comparing federal revenues and expenditures from (June) 1932 instead of (June) 1933, when Republican President Herbert Hoover governed for 8 of those 12 interim months, is but more statistical gamesmanship. In the final two years of the prior Republican administration, federal spending as a percentage of GDP was 10 (1932) and 13.5 (1933) percent respectively. Prior to WW2, FDR’s administration, except for 1934 (17%), never topped the last year of Hoover’s administration.

Indeed, FDR seemed not to have been particularly sold on Keynesian economics, which dominates the current economic thinking in Obama’s White House. Indeed, while John Maynard Keynes had hitherto expressed some rudimentary musings on his thesis, his The General Theory of Employment, Interest and Money was only published in 1936. Deficit spending during WW2 was mandated far more from existential survival than economic theory.

Did Gramm also fail to mention that Hoover’s administration deemed it necessary to raise top income tax rates to 63% in 1932?

Considering how easily accessible the extant documentation is to refute Gramm’s assertions, articles like these constitute an incompetent form of mendacity. Does The Wall Street Journal seek to vie with Vox for the gold medal in Mendacity in American Journalism.

[i] Philip Snowden, Introduction to Truth and the War, by E. D. Morel, (London: National Labor Press Ltd., 1916), p. vii.

[ii] GDP in 1932 was $60 billion, national debt $19.5. In 1936, the figures are $85B and $33.8B respectively.