POITOU, FRANCE – Well that was easy!
After less than two years in office, Trump says it’s “mission accomplished.”
A presidential tweet:
I have already MADE America Great Again, just look at the markets, jobs, military – setting records, and we will do even better.
Hey, hey… we used to think a nation was made great by its hard-working people… its sturdy institutions… its capital formation… its art and culture… and its vernacular of unwritten rules and manners.
But now, we see how all it takes is one man…
…one genius… one brave patriot… one tireless advocate for all that is great.
Poor Herbert
Poor Herbert Hoover. What went wrong for him?
If a great man can single-handedly make America great, how come Hoover – who took office shortly before the 1929 stock market crash – failed?
Unlike Mr. Trump, who inherited a fortune from his father, Hoover was orphaned at nine years old.
He got himself through Stanford by working odd jobs… and became a mining engineer with projects in Australia, China, Russia, and South Africa.
While in China, he and his wife learned the language, and later used it to have private conversations in the White House. In China, too, he was besieged in the Boxer Rebellion. Mrs. Hoover used a .38 caliber pistol to fight off the insurgents. In Burma, Hoover survived malaria.
In less than 20 years, Hoover rose to become a very wealthy man, helping to put in place major new innovations in metallurgy in his mining interests all over the world.
He gave lectures at Columbia and Stanford, wrote a textbook on mining, and even translated the 16th century classic, De Re Metallica, from Latin.
During World War I, he managed the food program in the U.S. and the food relief program for victims of the war in Europe.
After the war, there was mass starvation in Russia, naturally, after the Bolsheviks had taken over. Working 14-hour days from an office in London, Hoover met the challenge as he always did, as unstoppable in his public service career as he had been in business.
Rejecting appeals from Congress to let the Bolshies die, he replied:
Twenty million people are starving. Whatever their politics, they shall be fed!
And fed they were.
So if there was anyone who could Make America Great Again after the Crash of ’29, it was the man in the White House, President Herbert Hoover.
He promised as much (but did not presume to be able to do it by himself):
We shall soon, with the help of God, be in sight of the day when poverty will be banished from this Nation.
Alas, even Herbert Hoover could not do the trick. The Great Depression began on his watch. It did not end until World War II.
Maybe Mr. Trump is smarter, more dynamic, or just luckier… Possibly. But the gods lay traps for those who think they are… and laugh at them later.
But let’s do as we have been bid to do. We will look at markets, jobs, and the military.
Inflating Employment
First up, jobs…
Our colleague and President Reagan’s budget advisor, David Stockman, writes that, while the official unemployment rate has gone down, the number of full-time, “breadwinner” jobs in America, as reported by the Bureau of Labor Statistics in July, was 73.83 million.
When the century began 18 years ago, the number was 72.73 million. Only 1 million decent new jobs have been created – while the U.S. population has grown by 48 million people!
Almost all the rosy jobs numbers are traceable to 1) people dropping out of the workforce, 2) low-paid, part-time jobs in the leisure and medical service sectors, and 3) inflation.
More than 50 years ago, a sharp French economist, Jacques Rueff, noted cynically that the reason inflation seemed to boost employment was that real labor costs declined as the currency depreciated.
Labor was cheaper; employers bought more of it. In other words, it was a way to rob the working stiffs without them realizing what was going on.
That is what is happening now. The inflation reading for July was 2.9%. Officially, wages are said to be increasing by about 2.8%.
This means the typical worker is now getting poorer. His main asset – his time – is losing value. How does that make America great again?
Extra Sugar
Next up, the military. When America really was great – the 1950s – President Eisenhower was cutting military spending, not adding to it.
As a soldier himself, Eisenhower knew the Pentagon operated like every other Deep State bureaucracy – gathering power and money to itself… while neglecting its core mission.
Trump’s extra sugar for the military will make America poorer… and weaker.
Finally, the markets.
To cover some old ground… the Fed is predictable. It is always making one of three mistakes: Mistake #1: lending too much for too little for too long… Mistake #2: raising rates to try to correct Mistake #1… or Mistake 3: cutting rates in a panic after Mistake #2 causes a crash.
After the crash of ’08–’09, it made the biggest Mistake #3 ever: pumping nearly $4 trillion into the credit markets through quantitative easing in order to get interest rates down to zero.
Real rates (after inflation) were even lower. And even after being in “tightening mode” (Mistake #2) for the last two years, the fed funds rate – the rate at which banks lend money to each other – is still below the level of inflation.
The biggest Mistake #3 of all time produced the biggest stock market rally of all time… which finally peaked out on January 26 of this year.
Since then, we’ve been waiting to see how and when the stock market will get down off the ledge.
So far, it has failed to take the leap. In addition to the Fed’s negative real rates, buybacks – when a company buys its own shares and “erases” them from the board – have held it back. Goldman Sachs says buybacks will hit $1 trillion this year.
A stock buyback is an odd thing in a great economy. It suggests that the managers of companies can think of nothing better to do with company money than buy their own shares.
Buying your own shares makes your business look more valuable… But it doesn’t increase sales or profits. And it doesn’t add jobs, productivity, wages, or anything else that might really make America great.
Capital investment – building new factories, offering new jobs, doing more training, research and development… is what brings home the bacon.
But capital investment has been in decline for 50 years. In 1968, the U.S. devoted 24% of its GDP to capital investment. In 1988, the figure was 22%. In 2008, it was 20%. And now, it’s about 17%.
By most measures, stocks are way overpriced. And sooner or later, we should see the kind of crash that wrecked Hoover’s reputation.
Then, we’ll see what it does to Mr. Trump’s reputation, such as it is.
Regards,
Bill
Category: Geopolitics