Saturday, February 9, 2019

The Delirious State Of The Donald's Delusions

By David Stockman.

We attended our first of five State of the Union (SOTU) speeches as a young congressional aide beginning way back in 1971---followed by four more as a Congressman from Michigan, and then the opportunity to march into the hall as a member of Ronald Reagan's cabinet five additional times. After that, came another 30 or so SOTUs----these ones beaming from our home boob-tube in the civilian world.

So we have no illusions about the purpose of SOTUs. They're about flag-waving, gallery guest parading, constituency pandering, promise making, POTUS boasting, partisan bragging, bipartisanship feinting, rhetorical flourishing and patriotic posturing.

What they don't address is anything serious about governance, policy or the actual state of the union.

Needless to say, the Donald checked the box on both of these dimensions last night, beginning with his rhetorical flourishes.

When we heard the following passage we thought for a moment that he was cribbing from Woody Guthrie's "This Land is Your Land".

But we then remembered Woody was actually a communist---and that the string of lefties who subsequently recorded his ode to America---Pete Seeger, Bob Dylan, Arlo Guthrie, Lead Belly and Joan Baez--weren't too far removed.

Here tonight we have legislators from across this magnificent republic. You have come from the rocky shores of Maine and the volcanic peaks of Hawaii. From the snowy woods of Wisconsin and the red deserts of Arizona. From the green farms of Kentucky and the golden beaches of California.

In fact, a very large portion of Teleprompter Donald's 82 minute read-through (third in length only behind two Bill Clinton SOTUs which lasted 84 and 89 minutes, respectively) might well have been embraced by Woody Guthrie himself.

After all, the commies were actually on our side back when the Donald's three octogenarian gallery guests---Private Riley, Sergeant Locker and Sergeant Zeitchik----landed on the Normandy beaches in June 1944; and when it came to liberating Nazi concentration camps, it was actually the Red Army that ended the horror shows at Auschwitz, Birkeneau, Belzec, Treblinka, Sachenhausen and Ravensbrueck.

Of course, when you have to reach back 75 years to establish common ground or even 50 years to a moon-walking Buzz Aldrin, it tells you something about the fraught climate of the current moment.

Still, there wasn't alot the assembled Dems, Congressional ladies in white and Washington pooh-bahs, apparatchiks and factotums could take issue with in much of the speech's airballs, such as the the following call to bigger and better things:

Now we must step boldly and bravely into the next chapter of this great American adventure, and we must create a new standard of living for the 21st century. An amazing quality of life for all of our citizens is within reach. We can make our community safer, our families stronger, our culture richer, our faith deeper, and our middle class bigger and more prosperous than ever before.
Needless to say, that's the kind of motherhood and apple pie that every President bloviates about, but it's the "we" part of it which ought to give pause. That's because in these flourishes the Donald and all his predecessors are not talking about some grand United Way outpouring of voluntary citizen action at the grass roots.

The "we" here is the central state. It's the Washington Leviathan horning into every nook and cranny of American life in the name of economic uplift and social betterment-- -outcomes which are actually not in its power to deliver or within its constitutional remit to pursue.

Likewise, the Donald went on an extended rife about the virtues and glories of bipartisanship. But that was the Javanka wing of the White House speaking.

Lest we forget, Trump was not elected to embrace the bipartisan establishment. He was chosen by the desperate citizens of Flyover America to disrupt it-----to discredit its self- serving and counter-productive assault on capitalist prosperity, constitutional liberty and honest democratic self-government.

Indeed, when the Donald uttered the following words, no one sitting on their hands on the Dem side of the aisle believed it anyway. So why not remind the 46 million TV viewers last night that the assembled bipartisan party of the status quo is what threatens America's financial and political future?

That is, there are deep policy and philosophical differences between the power and privileges of the Washington governing class, on the one side, and the needs and rights of the main street citizenry, on the other. And that the raucous disorder in the Imperial City at present represents the Deep State's attempt to repel an unwelcome intervention by the unwashed electorate in their own supposed process of self- governance.

What needs to be broken, in fact, is not political stalemate, as Trump averred, but the baleful status quo of Empire abroad and debt and speculation fueled financial bubbles and artificial prosperity at home:
Together we can break decades of political stalemate. We can bridge all divisions. 
We can bridge old divisions, heal old wounds, build new coalitions, forge new solutions, and unlock the extraordinary promise of America's future. The decision is ours to make.
What these words and much else in the 82 minutes really told us is that the Great Disrupter was MIA last night. He's now focused on re-election at all hazards---even if it requires dutifully lip-synching the words written by Jared, Ivanka, Mnuchin and their coterie of ill-informed, philosophically neuter, power-seeking swells.

In all, it led to a rhetorical crescendo that most definitely was not about the fractured polity, wizened economy and egregiously inflated financial bubble and mal-distribution of wealth that defines the actual state of the union.

Indeed, the Donald ended up talking rank nonsense---somehow implying that the state of the union is rock solid and that from a booming Trumpian economy there is nothing ahead but unicorns and rainbows, and ever more magnificent feats of national grandeur:
Together, we represent the most extraordinary nation in all of history. What will we do with this moment? How will we be remembered?
I ask the men and women of this Congress: Look at the opportunities before us. Our most thrilling achievements are still ahead. Our most exciting journeys still await. Our biggest victories are still to come. We have not yet begun to dream.
We must choose whether we are defined by our differences — or whether we dare to transcend them. We must choose whether we squander our inheritance — or whether we proudly declare that we are Americans: We do the incredible. We defy the impossible. We conquer the unknown. 
This is the time to re-ignite the American imagination. This is the time to search for the tallest summit, and set our sights on the brightest star. This is the time to rekindle the bonds of love and loyalty and memory that link us together as citizens, as neighbors, as patriots. This is our future — our fate — and our choice to make.
I am asking you to choose greatness. No matter the trials we face, no matter the challenges to come, we must go forward together.
When push comes to shove, the Great Disrupter went a long way to proving himself not all that last night. Beneath his serial tweetstorms, it now seems clear, the Donald is just another statist at heart who has a fondness for debt, anti-immigrant demoguery and 17th century mercantilism. Economic Delusions Last night's boasting about the hottest economy in the world made it abundantly clear that there is nothing strategic or even tactical about the Donald's foolish embrace of an aging stock market bubble and wizened economic cycle.

It's just a glandular lurch---the impulsive action of an incorrigible megalomaniac grasping for anything which can be portrayed as a personal "win", including even dodgy successes (like the U-3 unemployment rate) that are sure to implode at any moment in the months ahead.

In fact, the Trump Boom---which the Donald embraced with all fours again last night--- will prove to be the most lunatic stock market mania of modern times. As its implosion now gathers force, even the casino revilers will soon be shaking their heads in a grand consternated chorus of "what were we thinking?"

The truth is, the main street economy went essentially nowhere during the radically lopsided post-crisis recovery since 2009---where Wall Street boomed and main street flat-lined.

And, aside from short-run aberrations in the recent headline GDP numbers which resulted from the Trump's impending trade wars and tax cuts financed by Uncle Sam's credit card, the main street economy has not accelerated in the slightest.

For example, the chart below shows seasonally adjusted annualized rates of change for real final sales. The latter is a more stable and indicative figure than real GDP because it excludes highly volatile quarter-to-quarter changes in the rates of inventory stocking and destocking, which essentially wash-out to zero over any meaningful period of time.

You don't need a calculator to see that there is essentially no difference in the fluctuating quarter-to-quarter growth rates during the past seven quarters of the Trump economy compared to results during the Obama presidency after the US economy had dug out from the Great Recession.

In fact, the average real final sales growth rate under Obama's last 11 quarters was 2.53% per annum and under Trump it's been 2.67%. We'd call that close enough to the same thing for government work and also tepid on both accounts.
Moreover, the more salient point is that 90% of the gain depicted by each of the red bars below reflects not the fruits of White House policy machinations, but the workers, entrepreneurs and companies of capitalist America pushing the ball of economic activity forward yard-by-yard, quarter after quarter---just like they always do no matter who is President and no matter how strong the policy headwinds emanating from Washington.

Indeed, the great scam of the present era is the bipartisan lie under which Washington policy makers take full credit for growth and jobs, as if the $20 trillion American economy would be one great big stagnant void without monetary and fiscal stimulus from Washington.

That's just plain tommyrot. But like his predecessors before, the Donald has embraced the delusion that it's "his" economy hook, line and sinker

As we have demonstrated elsewhere, monetary stimulus after 2008 essentially never left the canyons of Wall Street. And fiscal deficits never really stimulate unless they are monetized by the Fed, but in today's world Fed bond-buying only fuels financial asset inflation, not main street activity.

In fact, the only contribution to growth attributable to either of the last two presidents is a negative one. That is, both Obama and Trump heavily mortgaged future taxpayers as they attempted to inject borrowed spending power into the short term GDP prints.

But that's nothing to boast about since these obligations will eventually take a far greater toll in debt service payments and reduced growth over the indefinite future.

In any event, there is no more comprehensive measure of current activity rates in America's $2o trillion economy than real final sales. And by that core metric the main street economy was essentially chopping slowly forward under Obama.

Alas, that punctuated pace of slow advance has not accelerated one bit since the Donald moved into the Oval Office---including the mere 1.5% growth rate of the most recent quarter (Q3 2018).

At the end of the day, most of the Donald's boasting about the "greatest economy ever" amounts to claiming credit for the daily sunrise. Thus, having entered office at the top of a labored but long running business expansion, which is now in month #115, Trump inherited 83% of the improvement in the unemployment rate shown below between the 10.0% recessionary peak posted in early 2010 and today's 3.9% rate.

To be sure, the U-3 unemployment rate is a pretty lousy statistic and misleading measure of labor market conditions. But notwithstanding its manifold defects, it is self- evident that the U-3 unemployment rate tracks the natural growth of American capitalism during a business cycle expansion, and that there has been no meaningful acceleration from the pre-existing downward trend since January 2017.

Technically speaking, in fact, during 2010-2016 the unemployment rate declined by 0.7% per month and during the 22 months on the Donald's watch the decline has averaged 0.6% per month.

Likewise, on a nonfarm payroll count basis, the jobs gains was 208,000 per month during Obama's last 22 months and 196,000 per month during the first 22 months on the Donald's watch

Unless you have the GOP talking points, therefore, this chart will give you no hint as to when the Donald took over and turned around the failing Obama economy. That's because he actually didn't.

Accordingly, the above chart is not any kind of success marker at all; it's a clanging warning bell that unless the economic gods have abolished recessions, the likely future direction of the red line in the graph is up, and smartly so.
The same kind of cyclical fortuity also pertains to the Donald's boasting about workers finally getting a wage gain, as purportedly reflected in the most recent year-0ver-year gain of 3.2%.

In fact, the September 2018 nominal wage gain (red line) is about at the lowest it's been since the late 1960s; and in real terms, the story is even worse.
To wit, between 1955 and 2000, inflation-adjusted compensation per hour (purple line) grew at a 1.75% annual rate----and that's the average across seven business cycle, including recession years.

By contrast, we are now at the top of the second longest business expansion in history, and real compensation was up just 0.1% over the 12 months ending in September. That's not even up---it's a rounding error.

That's right. Siting check-by-jowl at the no change level, the purple line below shows that year-over-year real wage growth has now clocked in at virtually the weakest late cycle gain on record.

Finally, there is the matter of the crisis on the Mexican border that is no such thing. The Donald had not a single word to say about the massive---even existential---- fiscal calamity barreling down the pike, but what amounts to an Unreality TV crisis about marauding immigrants and menacing caravans--- largely manufactured by Fox News--- took up most of what passed for policy content in the Donald's otherwise content-free Teleprompt.

Needless to say, the whole Border War thing is a completely Fake Crisis, if there ever was one. Contrary to the Donald's SOTU bombast, there is no horde of entrants swarming the border; no outbreak of crime on the US side of the line; and absolutely no shred of a national security threat whatsoever.

As to the alleged hordes of menacing immigrants, you only need to glance at the chart below to see that is pure Fox News bunkum.

The 310,000 unauthorized immigrant apprehensions at the southwest US border in 2017, in fact, represented a 78% plunge from the level in the year 2000. And when it comes to Mexican migrants, the decline has been nearly 90%.

Likewise, there is no evidence of crime spilling over the borders. To the contrary, on three leading measures of crimes per 100,000 population in 2017, the counties which border Mexico have lower rates than for the rest of the US.

For example, there are 3.4 homicides per 100,000 in the border counties compared to a 5.2 per 100,000 rate in the rest of the US.

In the case of the property crime rate, it is 2,207/100,000 in the border counties and 2,256/100,000 in the rest of the country. And when it comes to all violent crimes including assault, battery rape, muggings etc the rate is 348/100,000 in the border counties and 379/100,000 in the rest of the nation.

Indeed, on the crime flowing over the border file, the Donald pulled a downright fast one in his speech. He again cited ICE arrest statistics, which suggested that a huge share of these cases involved illegals who had previously been convicted of a crime----and in many cases violent ones.

But here's the thing. The Immigration and Customs Enforcement agency (ICE) doesn't patrol the borders!

For better or ill, it is in the deportation business, and as a matter of operating procedure targets likely criminals for its raids and arrests throughout the interior of the USA. That is, there is an inherent high criminal ratio in the ICE arrest statistics because that exactly what its mission entails.

By contrast, it is the Border Patrol which picks up illegals along the border. For the year 2018 through August 31, it apprehended 361,993 undocumented immigrants, but only 6,259---or 1.7%---had a prior criminal record according to Border Patrol data.

Moreover, 3,600 or 58% of these criminals were actually circular criminals. That is, they had previously been convicted of illegal entry into the U.S. (a misdemeanor) or reentry (a felony). Another 1,000 had been convicted of driving under the influence of alcohol.

In fact, among last years 361,993 apprehended illegal border crossers, there were only three convictions for manslaughter, which implies a rate per 100,000 that is 75% lower than for the general US population; and a total of 506 convictions for assault, battery or domestic violence, which also implies a rate far below the US average.

Yes, there is a serious crime problem associated with the Mexican border, but it is one manufactured in the legislative chambers of Washington, not along a fenceless border.

We are referring, of course, to the War on Drugs, which makes prohibited substances immensely and artificially valuable, thereby fueling a massive, violent underground distribution system that is the number one source of violent crime in America.

To be sure, many if not most illegal drugs can be harmful to personal health or even fatal----just like cigarettes, too much alcohol or Kentucky Fried chicken or sky-diving. But the distributors of Marlboros and Jim Beam don't kill people who distribute their product or inflict violent mayhem on neighborhoods in order to enforce business deals, such as cartel territorial rights.

There is no better evidence for this than what is now happening in states where weed has been made legal. According to a recent story about Oregon, there is now a glut of producers and a 70% decline in prices , which is the very opposite of the kind of high- priced scarcity that results from drug prohibition. In fact, as drug prices fall to free market clearing levels the criminal gangs and cartels would be squeezed out because they couldn't possibly compete with legitimate commercial businesses.

The irony here is that two of Trump's gallery guests were actually victims of Washington's failed war on drugs, who unjustly spent years in prison for petty distribution. Yet repeal the drug war---and crime at the border will disappear; and offer anyone who wants a job a guest worker permit, and the human trafficking will disappear, too.

So will the need for the Donald's vaunted steel-slate barrier. Yet long before he figures that out, the monumental Fiscal Debauch he has exacerbated and the massive Wall Street Bubble he has foolishly embraced braced will come crashing down on his head.

When that happens, the work of the Great Disrupter will finally be done.

David Stockman was Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.

The above originally appeared at David Stockman's Contra Corner.

1 comment:

  1. 300,000 is still a hell of a lot of people to deal with and such. These people are still a burden to the local systems and the taxpayers who support it. I don't like the drug war but I don't need thousands of addled druggies burdening the system either.

    Here is a leftist with some sense:

    The free zone scheme was introduced last month after President López Obrador announced it at the end of last year.

    Running the entire length of the 3,180km (1,954 mile) US-Mexican border, and 25km wide, the sales tax inside the area has been halved from 16% to 8%.

    At the same time, income taxes have been cut from 30% to 20%, and the minimum wage has been doubled to 176.20 pesos ($9.24; £7.12) per day.

    In addition, fuel prices in the zone have been reduced to the same level as in the US.

    I hope the Mexican president is successful.