A world of slow growth - the one "stimulation" that works

Standing next to the planetary orrery at The Long Now Foundation in San Francisco, the prototype for the 10,000 Year Clock currently under construction, deep inside a mountain in western Texas, designed (by Danny Hillis) to tick for ten thousand years. This is but one of  The Long Now's many endeavors designed to foster long-term thinking about our collective future, such as The Rosetta Project (the largest collection of linguistic data on the web), Long Bets (for tallying future predictions), Revive & Restore for endangered species, and the PanLex open source database attempting to accumulate "every word in every language" across the globe. 

What does this have to do with a posting about economics? We should be a people capable of trying different things! Looking ahead further. Perceiving what doesn't work.

As Winston Churchill said of America - we humans can be counted on to do the right thing... after trying everything else.

== Stimulating economic growth ==

My friend, the (sane) conservative economist John Mauldin, frets that the Federal Reserve might soon follow many other nations in offering Negative Interest Rate Policy (NIRP) in hope of stimulating inflation and growth: 

"Former Minneapolis Fed President Narayana Kocherlakota, who was for years the FOMC uber-dove, says going negative would be “daring but appropriate.” 

"He has a number of reasons for this stance. In a note last week, he said the federal government is missing a chance to borrow gobs of money at super-attractive interest rates. Kocherlakota would like to see the Treasury issue as much paper as it takes to drive real rates back above zero. He would use the borrowed money to repair our rickety infrastructure and to stimulate the economy. 

"It is an appealing idea – in theory. In reality, I have no faith that our political class would spend the cash wisely. More likely, Washington politicians would collude to distribute the money to their cronies, who would build useless highways and bridges to nowhere," writes Mauldin.

Alas, assuming the worst of the political caste is somewhat justified, but only because U.S. politics has been deliberately destroyed. Politics wasn't always completely untrustworthy. The "cronies" in earlier days built the Interstate Highway System and great Universities and steered our defense spending very skillfully and sent us to the moon.

Right now, the list of delayed and desperately-needed infrastructure repairs is so long that it would take ages to get to "bridges to nowhere."

You know something like Kocherlakota's proposal is essential.  Because right now the Fed has just two arrows in its quiver, interest rates and QE or Quantitative Easing. And both of them have a huge, inherent flaw in today's economy. 

Both of these "stimulations" -- and the earlier magical remedy of huge tax cuts for the rich -- all three produce low velocity money.  

Money velocity is the elephant in the room. It is the reason why "Abe-nomics" has not worked in Japan, and why central banks around the world have dived desperately into NIRP... and why NIRP simply does not work.  It is the reason why earlier Supply Side tax cuts for the rich failed to do anything but inflate asset bubbles, never benefiting Main Street. Equities get pumped up for a while, but the real economy gets next to nothing.

Is there an approach that can apply fresh-made HIGH velocity money to the economy?  Kocherlakota's notion offers a way to do that. By putting actual men and women to actual work, building and repairing actual things, with actual pay in their pockets that wage earners immediately spend, that is what makes money high velocity!

Indeed, there is every reason to believe that the endlessly promised Supply Side "magic" of increased tax revenues would come about, at last, by priming the other side... the demand side.

To be fair, John Mauldin knows this: “Quite frankly, if the Federal Reserve decides that it wants to do more quantitative easing, I would much prefer that Congress authorize the Fed to purchase a few trillion dollars of 1% self-liquidating infrastructure bonds – or, as a last resort, to do an actual helicopter drop. The infrastructure bonds would create jobs and give our children something for their future, a much healthier outcome than the ephemeral boosting of stock and bond prices yielded by the last rounds of quantitative easing. In those instances, the benefits of QE went primarily to the well-off.”

Does that sound way-too sane for the American right today? Do not make the same mistake  foisted by Fox News, ascribing the current GOP frothing-insanity to some inherent flaw in "conservatism." 

Fellows like Mauldin show that there is a wing over there that remains occupied by sane adults... who are now blinking in too-long-delayed bewilderment at the hijacking of their movement by monsters. 

The best move for pragmatic Americans is to promise such men and women a way out. A place at the negotiating table. A couple of cabinet positions. Assurance that the high-velocity path will be overseen by Keynsians who are as wary and careful and heedful of criticism... i.e. adult... as the Bushite mania was not, all these years.

But they must give something in return. Their willingness to drop old, symbolic loyalties and incantations and help us fight down the latest confederacy fever. And admitting the obvious. That FDR and Keynes were flawed... but more right than not. They saved western entrepreneurial capitalism, laying seeds for a 70 year miracle. And if we fail to achieve a moderate-pragmatic reset, like the one they accomplished, then everything could go south, really fast.

== Be wary of genuine enemies ==

Listen to this... the Saudi oil minister in Houston frankly telling U.S. shale producers his goal is to drive them out of business. 

Oh, I don’t mind a low price shakeout and some producers declaring bankruptcy.  But their wells and other assets must not fall under foreign control, especially through shell companies.  It is a matter of national self- interest for expensive wells to enter the US reserve, even if it means the federal government buying up some of them.  That’s smart anyway!  Buy low and sell high later.

Whatever.  Just make it a matter of national defense policy not to let the Saudis buy-out distressed U.S. shale producers.  Anyone who lets that happen is an outright traitor. 

== No more torture ==

Nineteen retired generals and admirals have signed a blistering condemnation of Republican presidential candidates who support the use of interrogation tactics widely regarded as torture. The officers also scolded them for opposing President Obama’s proposal to close the prison for suspected terrorists at Guantánamo Bay. … and “The statement by the retired brass called Guantánamo “one of the most powerful symbols for terrorist recruitment” and said torture “abandons the principles that this country was founded on, compromises our position of leadership on the world stage, and puts our troops, frontline civilians, and all Americans at risk.”

Let’s be clear.  The senior U.S. military officer corps is the third best-educated clade in American life, after university professors and medical doctors.  They are tested and tempered so hard, year after year, that (for the most part) they tend to be the most self-disciplined and logically focused individuals you will ever meet.  And religiously devoted to subservience to civilian rule. 

They are the sons and daughters of George Marshall, who should have been named “Person of the 20^th Century” … and while they tried their best to hide it while serving, upon retirement a very large fraction of them have let slip that they deem both Bushes to have been among the worst U.S. Presidents, ever.

American Exceptionalism... versus what has made America exceptional

At their convention, the Republicans chose their theme. The coordinated message from two-thirds of their speakers would be American Exceptionalism.

Unable to gain leverage by using the economy - which is slowly but clearly recovering from their own train wreck depression - and with the GOP suffering from devastating credibility gaps on everything from the deficit to medicare to taxes to women's rights to skyrocketing wealth disparity, they decided to fall back upon...

...patriotism.  Waving the flag and hoping that the left wing of liberals would react with sneers.  (Post convention note: the dems did not fall for the trap.) 

Was this a case of using patriotism as a "last refuge"?

Let me surprise you by saying that, when it comes to many of the surface statements, I side with the Republicans!

The United States of America has been the most exceptional thing ever to happen to humanity. I say this not out of reflex triumphalism or chauvinism, but as a simple matter of outcomes appraisal. Indeed, I bet that in the grand context of time, the American Experiment will turn out to have been one of the major reasons, if we wind up succeeding as a species and even reaching for the stars.

Alas, in a supreme irony, those who most fervently push this overall viewpoint in fevered generalities have also been the same folks responsible for severely damaging the American republic, far more than any enemy has in 150 years.

== First - the case for exceptionalism ==

Most moderns have no idea how stunning the American Revolution seemed, to onlookers around the world.  Especially the example of "Cincinnatus" George Washington, who turned his back on power not once but three times.  Or Abraham Lincoln, whose legend penetrated all the way to tribes deep in the Caucuses, as told by none other than Leo Tolstoy.

If Britain and France had listened to U.S. President Woodrow Wilson in 1919, and imposed a gentle peace on Germany, there would have been no Weimar Depression, no seething resentment leading to Hitler.

Later, in 1945, when America stood as the world's behemoth, men like George Marshall, Dean Acheson, Harry Truman and Dwight Eisenhower had their chance to impose structure on the world, an imperial peace or "pax," as had Rome, China, Babylon and Britain in their day.  The long (comparative) peace that ensued - Pax Americana - was deeply flawed in many ways. But compared to all other "pax" eras -- and especially to the lawless times in between -- it was the gentlest ever known.

Certainly it was beloved by those we defeated in war. Today the U.S. has no better friends than those former foes who benefited from the plan of the 20th Century's greatest man.

Marshall aimed to avoid a core mistake of every previous pax empire.  All the others - even Britain - set up mercantilist trade patterns that sucked fortune out of distant satrapies and fed gold back to the central kingdom, fostering poverty and resentment everywhere else, making inevitable a later collapse.

In contrast, the counter-mercantilist pattern imposed by Marshall's unusual Pax Americana favored transferring low level, labor intensive industries (e.g. textiles) en masse to poor regions around the globe in a cascade sequence that uplifted, successively, Germany and Japan, then Korea and Taiwan, then Malaysia and Singapore and so on, until right now this program of "foreign aid via WalMart" is raising up more than a billion people in China and India at the same time.

The core of modern development, this innovation is the number one reason that two thirds of children on this planet live in clean homes with electricity and sanitation, never hungry, and go to school every day. A program fueled in large measure by the American consumer, thanks to wise patterns enacted a lifetime ago. Patterns unique in the long and lamentable history of human empires.

(An aside: How did we manage for seventy years to pay for such a program - shipping low level jobs overseas in return for cheap products? It was financed by the rapid advance of new technologies, from jets to rockets, satellites, transistors, computers, telecom, pharmaceuticals and so on, created largely by American engineering and science. A joint effort of government, companies and individuals, that none could have accomplished alone... but that's another story.)

== Have I made you angry? ==

Do I have the liberals out there shaking their heads and the leftists seething with purple wrath, by now? Stammering with eagerness to remind us of Pax Americana's crimes?

Hey, I said I was aware of how many times this century's "empire" lapsed in its ideals, was hijacked to ill ends or just did bad things, from banana republic invasions to Vietnam to realpolitik nasties committed during the long slog to achieve another part of Marshall's plan -- "containing" the crazy Soviet empire till its fever finally broke. I never denied the flawed fallibility that emerges whenever barely-uplifted cavemen get their hands on tremendous power.

What I ask you liberals out there to notice (the lefties are hopeless) is that your reaction -- shared by millions of fellow citizens -- is unique in the history of nations on Earth.  You grew up in a place where most people are brought up never to be satisfied with things as they are, even when the situation is far better than our ancestors ever knew. Pax Americana clearly committed a higher ratio of good deeds to crimes than any ten other top nations in the history of the world. Just look at how little-hated it is! But you focus on the mistakes, the faults...

...in hope of improving things, eliminating errors, re-charting a course that is even better!  An imperative of which I wholly approve. I believe your willingness to criticize the nation that you love is far more sane than the reflexive, blithering "exceptionalism" that we witnessed in Tampa a few weeks ago.

Yours is the true patriotism... if only you would recognize and admit it.

== The true exeptionalism ==

Those amazing accomplishments -- creating the world's longest best peace, along with the spectacular rise of billions out of poverty, plus the driving of racism and sexism and other ancient traditional obscenities into ill repute -- these weren't accomplishments of jingoist flag-waving but of relentless, day-to-day creativity, good-natured progress and lots of self-critique by every generation of new Americans.

The true exceptionalism is that habit of self-critique! And for that reason liberals (not leftists) are far more responsible for the accomplishments of America -- and Pax Americana -- than the manipulative "Yew Ess Hay!" rants of Sean Hannity and the puppet stringery of Rupert Murdoch.

But -- oh, liberals -- you do harm when you fail to take in that context. So I ask that you go over my core point, a second time.

You are critical because your society taught you to be! It is a wholesome reflex to cry out "we could be even better!"  Criticism is the only known antidote to error and you serve your nation by zeroing in on mistakes. In so doing, you are America's truest children...

... though, like teenagers, sometimes many of you forget the context. You forget to openly avow that the thing you want to make even better was already the best thing the world has ever seen.  The nation of Lincoln and both Roosevelts, that took humanity to the moon and kept the longest, greatest peace the world has ever known, allowing a higher fraction of people to live violence free lives than any other time in the history of the race.

You forget that other societies, which you hold up as deserving tolerance and understanding, would never have said the same in reverse. They did not tolerate, or even encourage, the habit of us-criticism from their subjects, that we relish from citizens like you.

You gain credibility when you admit that context.  When you admit that yours is a nation worthy of your love.  When you accept that flaws are inevitable, but that you are part of that nation's healthy immune response against those flaws! That you are a product of that nation's upbringing, a reservoir of its hope for positive change.

A symptom of its health and youthful vigor and readiness to grow.

== Don't give fools a monopoly on patriotism ==

Their version is jingoism, a dullard thing seen in all cultures.  A kind of masturbation to the clan's tribal symbols, similar to what occurred in any and every nation across time, when the Romans or Assyrians or Pax Britons cheered their flags and called themselves "exceptional" each in their turn, and then - with their aversion to criticism - proved themselves wrong.

Can I tell you a secret? By sniffing and rolling your eyes at patriotic symbolism, you are spurning real allies. The men and women of our military, for example, who may be straitlaced and ramrod-backed... but who also happen to be the third best-educated clade in American life. The officers know that democratic presidents listen to advice when it comes time for war, and democrats keep those wars tiny, surgical and professional, like Bosnia and Libya and the hunt for bin Laden.  The generals and admirals remember - in sharp contrast - what was done to our forces by George W. Bush, who plunged us into huge, garish, endless quagmires of attrition "nation-building" in Asia, a president who many of those flag officers deem the worst in living memory.

Sure, you don't like talk of war. You strive to end it altogether. Terrific. But amid your eager looking ahead, to a much desired time without conflict, stop!  Pause. Look back across 6000 years and know that it won't happen overnight.

Realize and admit that it is impressive progress that we have changed the definition and meaning of war.  Recent struggles look more like intense SWAT team action than the indiscriminate rolling thunder of times past. And it's been proved that violence on Planet Earth has plummeted each decade in the era since 1945.  The era of Pax Americana.

If we are stuck having some war for a while longer, be proud of the nation that tries, each generation, to do it with incrementally more care. A little more like rough cops -- more closely watched, each generation -- and less like barbarian hordes. Go ahead and nag for that progression to move faster; that's your job!  But also shudder over what the world would be like, if anybody else had the power that we've wielded with a (relatively/comparably) light hand.

Liberals, you must learn to do jiu jitsu. Don't spurn American Exceptionalism, and thus leave the scoundrels with their last refuge unchallenged.  Challenge them even over patriotism!

They whose warped version of a once proud conservative movement has harmed this country - more than any enemy has in 150 years - should not be left with that refuge, the refuge of a flag they relentlessly harm.

Like Washington and Lincoln and both Roosevelts and Ike, who saved the experiment and made it a beacon to the world... wear the blue of our revolution.  Wear it proudly.

=======

See also: Four Reflections on Patriotism