The Financial Seminary
What Our Leaders Won't Tell Us About Our Economy
"If we just want the Republicans or the Democrats to be totally right
or America to be perfect, then we are incapable of depth or truth.
When everything becomes a secure 'belonging' system instead of a transformational experience, people simply localize themselves inside
their little world of shared beliefs, and there the fragile self quickly takes
on some sense of identity and power...Remember every viewpoint is a
view from a point [as opposed to a Reality-centered perspective]."
A Lever and a Place to Stand
Financial Times, July 23, 2012
Financial Times, July 25,
The Economist, July 21, 2012
Have you ever wondered why the perspectives of many "Christian" leaders, including religious leaders, who follow a Man who spoke more deeply and radically about wealth and power than anyone in history, too often sound just like the shallow, partisan platforms of political parties? If so, Richard Rohr's book is for you.
In essence, Rohr explains how our egotistical yearning for belonging and control rather than truth and transcendence causes us to settle for "civil religion" based on cultural values. In our money culture, this is the popular church of capitalism attended by most politicians, as well as followers who vote their wallets election after election, praying for different results each time. Occasionally, a few progress to "prophetic religion." It questions cultural values, albeit temporarily due to some external stimulus like hearing a prophetic sermon or reading a prophetic book. But on rare occasions, a tiny remnant rises to "transcendent religion," an internal faith that truly and permanently changes hearts, minds and souls to actually love God and neighbor as ourselves in all we do. Rohr relates these three stages of spiritual development to the Law, prophets and Wisdom literature of the Bible. Rising to the Wisdom level of Christ dramatically alters how we see things, not simply until the election is over, but in all things, all the time.
More self-centered perspectives in 2012 means it is the job of Governor Romney to be quite negative on the economy. That has been demonstrated most clearly recently as he's had to:1) argue President Obama is a socialist, rather than the Northern European-style social democrat he likely is, while the July 11th Wall Street Journal said federal taxes are their lowest since before President Reagan took office, 2) pretend Obamacare is different from the healthcare legislation he passed as governor of Massachusetts, and 3) had to ask the Republican governors of major states to tone down their positive claims about their economies as those realities obviously conflict with his message that things are still a mess due to President Obama.
Yet our jobs as spiritual and financial leaders should be to help Americans who live in the richest country the world has ever known understand our true problems are not "the economy stupid." It's surely ironic that a recent Merrill Lynch survey said Americans are as negative about our economic future as at any point in history while investors from around the world are sending their money here as they believe America is a safe haven. Such dichotomies of perceptions and realities often compel me to differ with leading economic pessimists, usually meaning those in the political opposition.
As I was a life-long member of the GOP until recently turning Independent, albeit one who still shades to the right of center on most economic issues, I often focus my critiques in that direction. That's as my faith commands me to take the log from my own eye, even if politics insists I remove the dust from the eyes of others. Yet I often share a 1976 quote about Washington being out of control from then-Governor Jimmy Carter. It could have been said by Newt Gingrich in his 1994 revolution or Governor Romney yesterday in his campaign to force President Obama from the White House. Yet I also remind people that after Governor Carter became President Carter, Washington suddenly changed for the better while the American electorate began suffering "malaise." Not be partisan, I also note every Republican candidate suggests we read his or her lips about the twin evils of taxes and deficits. But that didn't keep Vice President Cheney, who wanted both two wars and tax cuts, from saying President Reagan proved deficits don't matter.
That's just the dualistic nature of partisanship in our two-party system. When not held together by the transcendent Truth of Judeo-Christianity, dualism is like protons and electrons repelling each other. It causes things to disintegrate and does particular violence to the claims of both parties regarding morality. So here's my view, hopefully from a Reality-centered perspective rather than a point of partisanship, about what you should understand about our political-economy as the campaign grows ever more partisan:
First, today's economic problems are largely a result of yesterday's political and moral decisions. I believe those problems took root with President Johnson signing the Civil Rights act while I was studying political science in the sixties. When doing so, Johnson quipped he had just handed the south to the GOP. Most were skeptical of that claim as less affluent social conservatives in the Bible-belt had little in common economically with the corporate wing of the GOP. The most visible capitalist philosophers from Hayek to Friedman were quite anti-religious. But once the federal government began desegregation in the South, both wings were united in wanting federal powers to be more limited. Nixon's "Southern strategy" cemented the unlikely coalition of social conservatives and economic libertarians.
Since 1980, that political coalition has favored various shades of Reaganomics, which was built on "supply side economics." It was a response to the Keynesian policies that had shaped America since the Great Depression. Keynesian policies essentially sought to put buying power into the hands of the populace. Reaganomics sought to put capital, like more of your IRA, in the hands of wealth creators, largely meaning our corporations and the 10% who own them, who "supply" what we need, want and too often desire. No investment advisor can be totally opposed to that; but there's such a thing as too much of a good idea. I thought that was a good idea in 1980 when returns on capital had hit historic lows and investors were wasting trillions on non-economic tax shelters. That's a major reason I signed on to the board of advisors to Jack Kemp, a Christian who might be termed a compassionate conservative and co-author with Art Laffer of Reaganomics.
Reagan also spent the Soviet Union into oblivion by putting more money in the hands of those who supplied our nation's defense, while also cutting taxes for the highest earners. That combination did send corporate profits soaring. But it also sent the federal debt soaring, as indicated by the following chart. So as the nineties began, even Christian best-sellers were about the dangers of the federal debt, even if it was less than half its post-WWII peak at the time. But by 2000, the end of the Cold War had cut defense spending by 3% of GDP, the economy enjoyed a peace dividend, and The Economist was projecting the federal debt would be nearly paid off by 2012.
Wall Street Journal, June 6, 2012
Financial Times, July 11, 2012
Financial Times, July 11, 2012
The two wars and tax cuts of the Bush/Cheney administration turned that into false prophecy. Bush/Cheney also sought to develop the "ownership society," which largely meant turning renters into home owners. So as he had done with the savings and loan industry years before, Fed Chairman Alan Greenspan ignored Einstein saying the definition of insanity is doing the same thing over and over and expecting different results. He allowed, perhaps encouraged, Wall Street to leverage up in order to underwrite sub-prime mortgages. Suddenly, Americans could buy a home if their breath could fog a mirror when they were making a mortgage application. But it turned out the ignored conservative orthodoxy that most governmental interference in an economy causes unfortunate distortions was correct and the housing market eventually collapsed. Unemployment soared as the construction of housing is still one of America's labor intensive industries that hasn't been off-shored. It didn't help that corporate CEO's earned more by getting more from fewer employees, which capitalism calls productivity.
The collapse of subprime mortgages threatened to take a huge part of Wall Street with it. While the much feared federal debt was still below 50% of GDP, financial sector debt alone had soared to 120% of GDP. Bush/Cheney began the process of bailing out Wall Street, as well as major employers like General Motors that depended on Wall Street for financing each day. The deficits and debt began soaring as bailouts continued under President Obama. Yet the Wall Street Journal has just acknowledged the much criticized TARP may produce a profit for taxpayers while it most likely kept America from falling into a depression and even worse unemployment. That suggests political orthodoxy is to Reality as theology is to Faith: helpful but hardly absolute in all cases.
Now President Obama's deficits and unemployment are again twin evils the GOP sees as mattering a great deal. Critics are correct that that America has recovered more quickly from other recessions since World War Two. Yet it's also true that our GDP has recovered to pre-recession levels faster than our major trading partners (see chart.) It just hasn't been as quick as usual as this "Great Recession" was prompted by a banking collapse. That's a different animal. A typical recession is like taking your foot off the brake when you've been driving too fast for safety. A banking collapse is like running out of gas at best, or needing to rebuild your carburetor at worst. At best, the Fed needs to re-prime the pump, or banking system, with more money. At worst, our banking system must be rebuilt. Once that is accomplished, it must receive and hold a lot of gas, or money, itself before letting some flow on to the economic engine that powers jobs and wealth creation for us passengers. The chart at the beginning suggests they are now holding $1.5 trillion more in excess reserves than before the banking crisis and recession began.
We're only now beginning to see banks make more loans, particularly to the housing sector where there are so many looking for jobs. Yet non-financial corporations are sitting on record amounts of cash as they continue to lay off more employees. The good news is that housing stocks have been among the very strongest lately, suggesting better times ahead for the unemployed. And not just in the housing industry. The Wall Street Journal recently paralleled new home construction with the sales of new pickup trucks. Of course, challengers suggest current deficits will bedevil America into eternity. And they will if nothing changes. But economic reality since the days Joseph foresaw the seven fat and lean years for Egypt has been cyclical. And the chart at the beginning shows this age of deficits shall also pass, perhaps during the next administration, no matter who is president.
Both President Obama's budget proposal and the law passed by our stalemated Congress are projected to reduce America's deficit to the 3% or less that most economists consider manageable as our economy recovers. Of course, with Europe being so very weak, the law passed by Congress will likely throw America, and probably the world, back onto recession. Still, if the projections hold, the next president will take credit for reducing our deficit, just as President Clinton did for balancing the budget after the Berlin Wall came tumbling down during the administration of his Republican predecessors. That will simply confirm the old political wisdom that in a nation of 300 million people, politicians shouldn't try to organize a parade as much as jump in front of an existing parade and take credit for leading it.
Contrary to what we've heard from politicians, the Wall Street Journal editorial that contained the chart of the federal debt said: "Inside of a decade, the country will have a debt-to-GDP ratio well into the 90% to 100% danger zone where economists say the economy begins to slow and risks mount" (emphases mine.) I have no doubt that politicized fears of the debt have hurt our willingness to invest and create wealth. Yet economists have long known that we're years away from the debt being a true economic problem in and of itself. For example, the United Nations recently had Cambridge University estimate America's assets. Cambridge concluded they are $117 trillion. That is almost exactly what the Bush White House estimated when its last budget said our $15 trillion debt, only one-half of which is owed to non-Americans, is "relatively small" in comparison to our assets.
So what might we expect going forward? I believe the odds favor the next president, regardless of party, to favor policies that better balance supply and demand. Even a major investment firm has recently said investors should operate according to the theme of "empty pockets" for a while. It essentially argues, rightly in my view, that America has become an oligarchy, or economy dependent on the spending of the very wealthy as no one else has any money. When Wall Street firms acknowledge that, political change, or revolution, cannot be far behind. That might be accomplished by President Obama feeling free during his second term to pursue his true inclinations. Or as it took Nixon to go to China, it might require a Wall Streeter like a President Romney to get Wall Street, our banks and corporations to fuel our economy rather than simply themselves. That might hurt corporate earnings. On the other hand, our corporations might actually benefit from having more customers with money in their pockets.
Seeing beyond our own selfish interests requires more wisdom and humility than most leaders display these days. It requires the more transcendent character displayed by Lincoln when he preserved our union when it resembled protons and electrons repelling each other. A new book about him imagines that had he survived his assassination, he would have been impeached by Congress. That's not far-fetched as he was most unpopular when president. We can only thank God that his love of the greater good caused him to transcend what was popular with either warring faction. We can only pray that more of our leaders soon remember and emulate Lincoln's example.
Gary Moore is a Sarasota-based investment counselor who has authored many publications and articles on the morality of political-economy and personal finance. He is a registered representative of, and offers securities through, National Planning Corp (NPC), member FINRA/SIPC, but opinions expressed here are his alone. The Financial Seminary and NPC are separate and unrelated. His comments are included in the More Good $ense newsletter in an effort to expand stewardship leaders’ understanding of broader economic issues.