All We Capitalists Have Now Are Herbert Hoovers
This week marks the anniversary of one of the darkest moments in human history. For a non-trivial portion of the American population, they take it to mean it’s been one year since Donald Trump was elected President over Hillary Clinton. The nation as a whole remains deeply, increasingly bitterly divided. But that’s in part a result from the real tragedy put forth further back in the past.
To my eye, Trump’s Presidency so far has been thoroughly disappointing, though not necessarily surprising in that respect. He was elected largely because of the economic problem, meaning he was the one person in the campaign who actually talked and acted like there was one. The entire race in his presence became, forgive the expression, a giant middle finger to the establishment of both parties, thus the unified American “elite”, who still claim the country has moved past recovery.
It was a moment of electoral emotion in the form of thorough disgust, not exactly conducive to producing the hard answers to complex problems. But so is the world, where it requires these kinds of outbursts just to get the status quo to pay attention to the rest of the world outside the bubble. As I wrote in August 2015, the Presidential campaign then still in its infancy:
“Trump's gains may not be so monolithic, but if there is a core to them it is just this dissatisfaction. Immigration is just the proxy, the one that has lit the light of popular impatience. The people have long known what Janet Yellen is just finding out, and which Ben Bernanke is arguing still largely against himself. This is not just a problem on the "right", not at all, as Bernie Sanders' similar position is the same expression worn upward on the "other" side of the assumed aisle.”
The people last November voted, at the margins, for something to change. And not just small things like who is in charge of which piece of the federal leviathan. They wanted big things to shift, or at least to see plotted a plausible path toward that future.
To that respect, again, Trump has so far failed to deliver. On the things he has more direct control of he has wasted even the opportunity for symbolism (Jerome bloody Powell! Really?) As the global economy fades further in 2017 without ever having really rebounded that much to begin with (the comparison to 2014 is not a favorable one, on all counts), supporters are still waiting for his first step.
Jude Wanniski’s political distillation still holds forty years later. He wrote that the majority of people in whatever democratic setting will vote for economic opportunity in whatever form they think will best deliver it. In the absence of opportunity, people tend to change their vote in favor of redistribution as a derivative of (false) economic safety.
It’s not exactly startling insight, in that it is nothing more than the basic rules of finance ported to politics, risk vs. reward. When times are good and perceived to be that way into the future, people will accept risk as a matter of keeping it good. When things are bad and no one has any answers, reducing risk in favor of safety becomes a palpable priority.
That was, at its core, the New Deal. It didn’t matter that ultimately it failed to deliver on its goals. FDR didn’t create a durable electoral coalition for the Democrats based on efficacy in broad economic terms, he did it by speaking directly to the disaffected working class and offering them the security Wanniski later wrote about. He legitimized in the establishment the legitimate grief so many Americans felt at that time, concerns that the Hoover administration so often appeared dangerously aloof toward (even though there was in practice not as much difference between Hoover’s response to the Great Depression and FDR’s as is popularly imagined).
In a radio address given on October 18, 1931, President Hoover announced a national effort to combat unemployment through coordinated aid with state and local relief efforts, and a national public works program aimed at “providing a livelihood for nearly 700,000 families.” It was groundbreaking.
Yet, despite what he intended to achieve, he offered nothing by way of answers, which for most people at any point in history is worth so much more than what often amounts to condescending pandering.
“The depression has been deepened by events from abroad which are beyond the control either of our citizens or our Government. Although it is but a passing incident in our national life, we must meet the consequences in unemployment which arise from it with that completeness of effort and that courage and spirit for which citizenship in this Nation always has and always must stand…While many are affected by the depression, the number who are threatened with privation is a minor percentage of our whole people.”
It was a bizarre combination of downplaying the depression while at the same time recognizing the massive scope of an economic system still after several years undergoing collapse. The election was barely a year later, Roosevelt sweeping 472 electoral votes to Hoover’s 59.
And it was intentionally framed capitalism vs. socialism. The consensus pretty much in all corners of American life (and around the rest of the world) was that the collapse starting in 1929 was a failure of capitalism. Many further believed that it was the very thing Karl Marx had warned about in the 19th century at the onset of industrialized free markets and the sudden appearance of the business cycle.
According to Marx, and others who followed him, capitalism is inherently diseased for a great many reasons, but starting with basic economics. John Hobson, a follower of Communist principles who would influence 20th century economists like John Maynard Keynes, wrote in 1889:
“We are thus brought to the conclusion that the basis on which all economic teaching since Adam Smith has stood, viz., that the quantity annually produced is determined by the aggregates of Natural Agents, Capital, and Labour available, is erroneous, and that on the contrary, the quantity produced, while it can never exceed the limits imposed by these aggregates, may be, and actually is, reduced far below this maximum by the check that undue saving as the consequent accumulation of over-supply exerts on production; i.e., that in the normal state of modern industrial Communities, consumption limits production not production consumption.”
Modern neo-Keynesian Economics is at its heart a misanthropic enterprise. Hobson inverts Say’s Law to come up with what would later be called “underconsumption.” There are several manifestations of it, but primarily it is for these socialists “undue savings.” Undue?
We are not allowed to hoard money any longer because FDR outlawed money (with Congressional approval, it needs to be pointed out), yet so-called demand shortfalls continue to exist, the last ten years one great big one in these terms. Free markets for money were thoroughly excoriated as a proximate cause of the Great Depression, to which capitalism’s champions answered like Hoover speaking about “events from abroad which are beyond the control either of our citizens or our Government.” Roosevelt may have offered mostly the wrong answers, but at least he had some and more than that acted in a manner consistent with them.
It is no surprise that Communism enjoyed its peak popularity in the United States in the 1930’s. If “undue savings” is the majority deficiency, then the solution is vast, thorough redistribution. Absence of an effective counterargument allows the leftist imagination wild sweeping context. It’s not so difficult to accept that the rich are unduly hoarding money causing you to be unemployed, cold, and hungry in the winter of 1931 when the “rich”, or those exemplars of a system that has made humanity from top to bottom rich, don’t offer much of any competing explanation at all.
On November 14, 1939, Israel Amter, a Communist Party official, told his massive audience that Josef Stalin was “the greatest leader and statesman of our time” and the “wisest man on the face of the earth.” It was standard propaganda for someone like Amter, but the enthusiastic embrace of his message happened before 22,000 Americans packed into Madison Square Garden in New York City.
Ten years in, people were voting for security because no one would, or even could, substantively champion free market opportunity.
The occasion for the Garden gathering was in honor of the Soviet Revolution’s 22nd anniversary. And it is that same anniversary that passed this week, now one hundred years of big “C” Communism in practice. It was by all legitimate descriptions the bloodiest, most oppressive century humanity has ever conceived, a truly dark moment that I or anyone similarly marking the occasion from its outside can’t ever do justice to (take the time to read anything written by dissidents, exiles, or just regular folks who tried to live in Russia, China, Eastern Europe, Venezuela, Cuba, etc.).
Marxism is on the rise again across the world and here in the US because of a combination of Wanniski and Hoover; meaning in the latter form that capitalism is being blamed right now for the last ten years and there isn’t a soul in the mainstream who can credibly defend it; and in the former that according to Wanniski’s theory, without a credible defense of capitalism there is less perceived hope for opportunity, therefore far too many Americans, especially the young, who are open again to the wrong ideas.
Say what you want about Socialists, they at least confidently proclaim their stuff. What have the capitalists put forth over the last decade? Ben Bernanke, Janet Yellen, Mario Draghi, and a whole host of officials who aren’t capitalists or actual free marketers in any realistic sense. Central banks are underconsumption socialists in practice of their own form of redistribution. The irony of Occupy Wall Street as an instrument of collectivist outrage is lost in the circularity.
When it comes to such matters, the Chinese central bankers display more knowledge about global risks and monetary conditions than the clueless Western Economists who do nothing right and then talk instead about how the world was broken before they got there. Ben Bernanke is Herbert Hoover.
PBOC Governor Zhou Xiaochuan is not. It makes me cringe every single time I write that Communist monetary officials know so much more about the dollar than any American official anywhere in the vast “capitalism” federal system – including the agencies, the Treasury and Federal Reserve, nominally responsible for our collective(ized) dollar.
We can spend a lot of time on China’s precarious predicament, but Zhou late last week warned about them (again) in unusually stark terms. FromBloomberg’s description of it:
“Latent risks are accumulating, including some that are ‘hidden, complex, sudden, contagious and hazardous,’ even as the overall health of the financial system remains good, Zhou wrote in a lengthy article published on the People’s Bank of China’s website late Saturday.”
He also stated that China’s financial sector remains in a “high risk-prone period…Under the pressure of multiple factors at home and abroad.” The latter reference disputes everything that Western central bankers, politicians, Economists, and the media that listens only to those on that list have been saying. It’s not the first time the PBOC chief has made such a warning against the mainstream, orthodox tide. The last one was relayed in April 2014, where Zhou made a similar attempt to prod useful appreciation.
“Our choice has its own rational reasons behind it. But this choice also has its costs. For example, whether we can efficiently cope with asset bubbles and inflation is questionable.”
While Janet Yellen spent the balance of 2014 talking about the financial system’s “resilience”, the global monetary complex predicated nominally on the dollar went totally awry. In 2015, Zhou’s warning from the year before was proven perceptive. Three years later, the global economy still hasn’t recovered much from the “rising dollar”, a microcosm of the last ten years where we still haven’t recovered at all from the first outbreak of dollar decay.
It would take almost three decades after the Great Collapse of the early thirties before capitalism and free markets would make their revival in political and mainstream terms – after a whole lot of sustained misery in between. Milton Friedman finally offered a monetary answer to that which Herbert Hoover couldn’t really define. In many ways, this was not surprising given that economists don’t understand money much at all, and when they try to they fall in line with Keynes, Hobson, and, though they won’t admit it, Marx.
The timing of Friedman’s monetary revival proved providential, coming in the sixties just as a new wave of Keynesians had taken up positions of influence all across the world. In the US, economists like Paul Samuelson and Robert Solow were putting into practice their demand side “exploitable Phillips Curve” ideas, to combat underconsumption, that Friedman rightly destroyed as just plain bananas. The Great Inflation would demonstrate Friedman was right, and for a time money was back at the center of free market economics.
It did not last, however. Speaking to Forbes magazine in 1999, Friedman lamented:
“We’re in a period like the 1960s, when no one paid any attention to the money supply. Then we got inflation. By the 1980s everyone was obsessed with the money supply. Now they’re forgetting again.”
Apologies to Dr. Friedman, but central bankers had completely forgotten about money long before the end of the nineties (Greenspan’s numerous quotes admitting to this apply again here). The demand-side policy focus, the very thing that was so discredited by the seventies, roared back in the eighties so that money was again a total afterthought. These neo-Keynesians took over the central banks such that monetary policy was no different than the “exploitable Phillips Curve” that led to the Great Inflation.
Only now monetary policy is described as consistent with capitalism rather than Hobson-underconsumption. Even quantitative easing has little to do with money supply and everything to do with “aggregate demand”, the modern version of Hobson’s thesis. And there is no one to challenge this assumption because practically everyone in position of authority believes it as true while simultaneously knowing nothing at all about modern money (they could and perhaps should learn from the Communist Chinese on that account).
The election of Donald Trump wasn’t likely to change that, but we held out hope that maybe it would at least nudge institutions like the Fed toward inquiry and out of its damaging inertia. Something so radical should have produced an internal backlash, the kind of honest assessment that has been sorely lacking for decades, really. Then again, being superb at whistling past the graveyard has apparently become a litmus test of sorts for Treasury and monetary policymakers.
There is no one offering any credible answers that could plausibly lead toward opportunity, and no one really offering much for economic security alternatives, either. Instead, the only choices seem to be between who is doing things the same way that haven’t worked, while downplaying any notion that they haven’t worked.
It’s no wonder there is bitter division everywhere. We can’t identify the problem let alone any credible solution. All anyone really knows is that whoever is in power will claim that the world is getting better when it is clear to far too many that just isn’t the case. Dangerous disaffection is practically guaranteed, a well-established historical precedence.
Trump was elected one year ago and now the Republican message is that the economy is booming, though nothing they have done (which is nothing) that would be responsible for it. Again, on a similar upswing, 2017 is appreciably less (not just GDP, but really national income and labor market growth which is what affects workers/voters) than the small one in 2014 when Democrats used the same mistaken interpretation to their own continued electoral peril.
The Bolshevik Revolution of November 1917 didn’t lead to the election of Donald Trump or alternately Bernie Sanders’ near triumph in the Democratic Party. It didn’t cause the Great “Recession”, either, nor did it make Ben Bernanke/Janet Yellen or Jean-Claude Trichet/Mario Draghi so thoroughly inept regimes. What it did do was create an alternate universe where in times of great and prolonged stress people might look to it for security in its (idealized) forms. Ben Franklin’s stark warning fades to nothing in the winter snows of economic discontent, whether 1931 or 2017, when answers just aren’t forthcoming.
The biggest risks in the world today aren’t necessarily economic or financial in nature. We already suffered that damage, unresolved after so much time with the costs still being tallied and getting larger by the day. The biggest problems are the next level of devolution beyond, the political and social upheaval not enough unlike that which gave rise to Lenin’s march a hundred years ago.
I am gravely concerned about the rise of socialism and even hardcore Marxism throughout the Western world, though I completely understand it. It’s not just that the fall of the Soviet Union was so far in the past that a living example of its uniformly negative effects are unavailable especially to American youth; the ideology comes with its own set of answers to problems that given conditions today sound like a plausible worldview especially to the naive. To balance that out and provide a workable alternative there has been only Bernankes, Yellens, and the like, all who have been reluctant to talk anything about 2008 while being quick to repeatedly use the word recovery.
At the centennial of Soviet Communism to defeat its attempted resurrection all we capitalists have now are Hoovers. After the election of Trump, was it really too much to ask for at least one who isn’t? It wouldn’t have solved all our problems, or any of them, but it would have been the bare minimum, symbolic start of moving in the right direction.
