Is Trump the End of Democracy and Good Will?

GEORGE TEMPLETON: COMMENTARY

By George Templeton
Rim Country Gazette Blog Columnist

An Artistic Deal                     

“Everything you can imagine is real.”  Pablo Picasso

Is our stable genius’s propaganda real?  Picasso was a genius, but how do we measure him?  Is he a genius because his paintings are worth a lot of money?   We are the only standard for our measurement.  This is the reason for our blind spot, our self-referential circle of ambiguity.

Republicans argue for Trump’s “like never before” economy as if their measurements are unambiguous, discreet, and separable.  This is not reality.

Miscalculating

A man said, “All I care about is the money in my pocket and my job”, but he does not realize how both can be at stake.  He lives in a world where issues and policies don’t matter.  It’s just “Are you with Trump?”  How can this be?  People can be bought!

Consumption fuels 70% of America’s economy.  We worry about the extinction of species, but how about the extinction of industries?  Do you want your children to grow up in a closed border country that does deals, or one that makes things for the entire world?  If the American economy is really all that big and powerful, shouldn’t our goods be cheaper than those from other nations? 

There was a time when 90% of high school boys wanted to become engineers.  Our high school taught classes filled to the brim in advanced math, accelerated biology, chemistry, physics, electronics, and English.  Government programs subsidized these classes.   America was not near the bottom.  The students with applied science majors were not 80% foreign.  The world knew that “Made in America” was the best.

Transistors replaced vacuum tubes and we went to the moon.  Electronics and the huge baby boom generation fueled the economy.   It was during these days that I kept my appointment with the filling station attendant.  He said, “My son, your problem is a lack of ethyl gas in your tank.  Take two gallons and see me again next week.”   It was then that that the baby boomers quit consuming.  Manufacturers had been hoarding transistors.  When their customers quit buying, they had much more inventory than “Just in Time” required.  My management screamed “more”!   I had been hiring technicians for all three shifts, but suddenly the third shift had nothing to do other than watch the grass grow.  Then the same thing happened to the second shift.  Finally I was the only one remaining on the first shift.  My projects were abruptly terminated.  The engineers were gone and there was an aircraft hanger full of unused oscilloscopes.  It would happen again and again in the coming decades.  The economy was not stable.

Unstable Nations

The United Nations disagree on sovereignty and self-defense.  S-hole nations need energy, health care, and sustainability.  Instead we sell them weapons.  Our lack of self-confidence leads us to build a bigger military, but that will lead to an expensive arms race.  Our administration would have been on the side of Pharaoh had they been in power at the time of the Biblical Exodus.

When it comes to money and trade it is different.  We cannot ignore each other.  Globalism is not an ideology.  It is reality.  Foreigners are not ripping us off.  Trump has it backwards.

We think that trade promotes understanding, but peace requires a cautious approach.  History reveals that commerce, for example, submarine warfare at the start of WW I, has been a cause of war.  Patriotism is not flying the flag, standing during the national anthem, feigned love, or fake friendship.  It requires sacrifice, and perhaps even higher prices at your local store.

Bankers know that regulations are necessary.  The Basel Committee on Banking and the Financial Stability Board (FSB) work to promote stability.  They are concerned about hidden “shadow banking”, shaky loans, and toxic portfolios.  The World Trade Organization (WTO) has about 650 full time employees.  It deals with tariffs.  The G8 targets localized problems.  They rule by “consensus” and influence, not because they have to, but because they recognize that they need to.  Donald Trump wants out.  America’s leaving will contribute to chaos, inefficiency and a loss of world influence.

Economies have a lot of inertia.  They do not suddenly rocket to new heights.   It will take decades of bipartisan cooperation and stable policy to make America a super-industrialized nation.

Sometimes jobs move overseas because manufacturing must reduce the cost of production to remain competitive.   A company might build a plant in Mexico to compete with the Chinese.  A company might build a plant in China to gain access to its the large market.  Sometimes countries have different preferences and requirements for similar items.  The product must suit their local market.  Sometimes companies build plants in many locations because they don’t want all their eggs in one basket.  They would like “their countries” to compete with one another.  Sometimes companies have bigger fish to fry.  Sunset products are not the future.  New novel products are the ones with high profit margins.

Two of us were working in Taiwan when, surprisingly, a stranger invited us into his home.  He offered to help us in any way he could.  He loved Americans and had seen firsthand the benefits that they had brought to his country.  He was not laughing at us.  America did not force his respect.  It earned it.  There have not been any terrorists from Taiwan.  There have been terrorists from Saudi Arabia, but it is not on Trump’s S- hole country list.

Winners and Losers

Adam Smith’s unseen hand works better than any centralized economy, but governments meddle with the web that we are entangled in, and that has unintended consequences.

America designed, manufactured, and exported the material used in modern solar cells.  China built the cells and exported them to America.  Americans manufactured and installed the panels.  The Chinese recognized that much of the world had no electricity or power lines and they built factories with that in mind, but demand was less than their optimistic marketers forecast, so the Chinese dropped prices to keep their factories running.   Then Trump added tariffs.  Who won?

Global warming intensifies hurricanes, forest fires, flooding, and mass migrations.  Government spending on disasters reduces unemployment.

Taxpayers subsidize agriculture.  It isn’t free enterprise.

The Republicans repealed the ACA health insurance mandate.  The insurance companies raised prices.  Retires had to choose between eating and keeping their health insurance.  Who won?

Entitlements (Medicare, Medicaid, and Social Security) are crowding out gross domestic savings and will attenuate future economic growth if not reduced.      

It was fifty years ago when we sat around the lunch table talking about the Korean War.  “Why, if I was king of the world, I would have hit them with the A-bomb and then gone all the way through China and Russia to Europe.  Our troubles would be over.”

It was twenty years ago when I visited a telecom company in China.  Their engineers had studied in the USA.  They admired America because of its rule of law, independent judiciary, freedom of the press, and representative government accountable to the people.  Today we have Trump.  He is the rule of law, the Judiciary is Republican, the press is the enemy of the American people, and government is composed of right-wing radicals.  My, how our values have changed!

Values   

What anything is worth is what people are willing to pay for it.  It reveals the strength of their preferences and needs. When there is lots of anything that people don’t want, it will be cheap.  People pay to get rid of garbage.  Low supply and high demand increase price.  Supply and demand go in opposite directions, moving toward equilibrium.

High taxes (for everyone) raise prices, add to the cost of living, and discourage production.  Low taxes reduce prices and give us peace of mind, but what is it that we are not investing in?  Climbing out on the limb and spending on popular things that do not provide a return on assets is a common cause of economic difficulty.  Investment is more than roads and bridges.  It is also in human resources.  That was the Peace Corps.  If you improve health, education, and the standard of living you enhance stability and everyone wins.

There are only three ways a government can get money:  Tax, borrow, or print.  Need some money?  Print it!  Trump wanted to do that.  It’s inflationary, but it stimulates the economy, buys groceries, and makes roads.

Should we favor more government spending or austerity?  Stability results when the money supply is keyed to the economy.  It isn’t the 3.1 trillion dollar tax cut bill recently passed by the Republican House of Representatives.  It would become effective in 2025.

Debts

Cutting taxes is a way to combat economic downturns, but America has become a borrower nation and debts (total owed) must be repaid, making foreigners who invest in America richer.  Without foreign investment, it’s “Less America” and the debt divides amongst us.

Deficits

The interaction between supply and demand sets prices in a capitalist free market economy.   Government monetary policy (interest rates) influence supply and fiscal (spending) policy influences demand.  The Federal Reserve boosts interest rates to stop inflation.  The Fed is independent of politics, but Trump says he wants it to reduce interest rates.

Deficit (income less spending) reduction is about raising taxes and cutting spending, but maybe the budget should not be balanced.  A balanced budget is appropriate when there is full employment.   Economic stability requires deficits when demand is too weak and surpluses when demand is too strong.  Spending more and cutting taxes can burst a rising economic bubble.  Taxing and reducing spending prolongs and deepens recessions.  The 1930 Smoot-Hawley Tariff wanted to eliminate foreign competition and restore confidence during the great depression.  It made things worse.

When tariffs protect weakness, the consumer loses.  They are appropriate as a temporary measure to get an industry on its feet.  Tariffs require a strategy beyond coercion.

Immortal America

You are going to die but America is immortal.  The USA is a better credit risk than you. 

Government is its own collateral.  What really is its value?  Our self-aggrandizing president admires dictators and seems to have little need for or interest in the government he rules over.  He tries to play nations and people against one another, to accomplish his own ends.  Is he the end of democracy and good will?  The devil is in the details, but should we look inside ourselves or smite the evil ones outside?

Trade Imbalance

Trade imbalances are related to the rate of economic growth, as well as the strength of currencies, savings, and investment rates.  When the money supply drops, quantity ought to fall.  When inflation occurs, your wage should increase, but over the years Unions have declined.

Foreign countries sell their currency to get dollars when they earn a higher interest rate.  This pushes up the dollar, stimulates consumption, and hurts the balance of trade.  Devaluing the dollar gives workers a pay cut and makes savers instantly poorer.  As the dollar increases, imports grow and exports decline. 

Should currency exchange rates be managed or allowed to float?  Governments can intervene.  In so doing, they change the values of other currencies they do business with.  The problem is that there must be a balance of payments, money crossing borders in eventual equilibrium with goods.

Virtue

Is selfishness virtuous?  Is altruism incompatible with our nature?  Are all deals inherently ethical?  Deals should be win-win propositions.  That doesn’t sound like Larry Kudlow’s comment that we are “crushing” the Chinese economy.

Trump lectured the UN on sovereignty, but now his administration wants to stop the EU, UK, and Japan from striking separate trade deals with China.  They are threatening other countries with “consequences”.

In the long run, win-lose deals create enemies.