A Rusting City
P.S.
And the mayor’s lasting legacy? The mayor showed us that when the debt to GDP ratio is low, anyone – even a public relations man from General Electric – can kick start an economy by adopting Keynesian fiscal and monetary policy; what takes discipline, foresight and good stewardship is raising taxes during prosperous times.
Ultimately, the mayor’s lasting legacy was his dark words against government turned a generation off on public service, so that the city – all too often – became led by easily manipulated second-string hacks, extremist, and political opportunist. Subsequently, malaise and lost decades ensued.
“I’ve spoken of the shining city all my political life, but I don’t
know if I ever quite communicated what I saw when I said it. But in my
mind it was a tall, proud city built on rocks stronger than oceans, windswept,
God-blessed, and teeming with people of all kinds living in harmony and peace;
a city with free ports that hummed with commerce and creativity. And if
there had to be city walls, the walls had doors and the doors were open to
anyone with the will and the heart to get here. That’s how I saw it, and
see it still. And how stands the city on this winter night? More
prosperous, more secure and happier than it was eight years ago…. And she’s
still a beacon, still a magnet for all who must have freedom…” — Farewell
Address to the Nation, January 11, 1989
By J.M. Hamilton 6-30-12
It
was a dark and stormy night. No, let’s start over.
Once
upon a time, a very eloquent leader came to be elected to run a tarnished and
rusting city. The city had fallen into disrepair and faced double-digit
unemployment, inflation, and interest rates (mostly because the city had been
taken off the gold standard by a prior administrator, and the printing presses
had been maxed out to gain a mayoral second term). An index was even
created to measure just how bad things had become for the citizens, a “misery
index.” Times were indeed difficult. The leader was a gifted
orator and roused his tribe/Party against government; he talked down government
programs, oppressive taxation, and government regulation; and he spoke proudly
of the private sector, capitalism, and privatization.
But
the wise ruler also was smart enough to remember the great depression, and at
one time had actually been a democrat. Oh my!
A Democrat in Wolf’s Clothing?
And
yet, there seemed to be a wide divergence between the mayor’s rhetoric and his
actual policies. For despite his strong anti-government language, the
leader didn’t have the heart to cut government programs for the elderly.
In fact government spending and entitlements expanded and grew, as did
deficit spending; he also protected the city’s workers and jobs from the free
trade policy he advocated, with tariffs and barriers to trade; and the renown
mayor of the city raised taxes no less than eleven times during his two terms,
and yet, the deficits – government spending versus tax revenue – grew and grew.
The top tax rate for the largest wage earners was 50% for much of the
great communicator’s terms in office.
Despite
the mayor’s policies, the city – possibly by shear force of his charm and
persuasion – prospered. While others saw through the leader’s verbal
skills and recognized that he had merely adopted liberal economic policy – held
widely in disrepute within the mayor’s Party, commonly known as Keynesian
Economics; the leader claimed that the free market, tax cuts, and deregulation
had brought the city back and made her shiny again, while failing to acknowledge
government’s role (both fiscal and monetary policy) in his and the city’s
success. After eight long years, the mayor retired for well-earned rest
and relaxation. Indeed, he seemingly had done very well.
Except
the mayor’s words appeared to have cast an enchanted spell.
The
leader was remembered very fondly, and over time his political Party/tribe
built a cult of personality around him and his ideology. The Party
remembered with great relish the great communicator’s words, all the while
ignoring or wishing away his actions and deeds. Or attributing the
continuing problems of the city — rampant fiscal profligacy and deficit
spending — to a failure to cut revenue/taxes. The Party, which prided
itself on its tremendous business acumen, seemingly believed that while no
business could spend indefinitely without raising revenue/increasing sales,
apparently believed that government was magical and that it could continue to
grow and spend indefinitely without raising revenue/taxes. By sorcery,
the Laffer Curve, and supply side economics, the Party of the great leader
wished away the government’s deficits but did nothing to stop its “borrow and
spend policies.”
What Big Teeth You Have…Grandma
What’s
worse the Party ignored their leaders practice – and track record – to avoid
foreign entanglements and wars. Instead, the Party began to fight in
foreign lands seemingly endless wars, or battles to protect oil rich cities,
all to the great benefit of: trade routes, “managed” energy production, commercial
and sovereign interests, and two of the Party’s greatest benefactors, the
military industrial complex and Big Oil. However, these wars cost the
city greatly in terms of blood and treasure, and while they caused a short-term
boom in her economy, they often left the shiny city winded financially,
morally, and martially (for taxes had been not raised to pay for city’s foreign
adventures — indeed, they had been cut). Denizens of the world often
wondered why the shiny city, often fought in resource rich lands, protecting
the interest’s of dictators and despots, while contrary to the City’s ideal,
she often ignored human rights atrocities committed by dictators in lands that
were not resource rich or had minimal links to the city’s economy or business
interests. Worse still, when the city was at the apogee of her power, she
failed to spread democracy and stability globally; but rather, continued to
support military and authoritarian regimes, an opportunity squandered.
And I’ll Huff and I’ll Puff and I’ll Blow Your House Down…
But
worst of all, the great communicator’s Party – having completely abandoned the
financial rules and regulations put in place after the great depression, such
as Glass-Steagall – allowed the city’s banks to gamble and engage in idle
speculation, at the expense of the city’s economy and the banks
traditional role of lending to the fair city’s citizens and businesses. A
tremendous bubble ensued, and the city’s real estate market came crashing down,
and with it a lifetime of accumulated wealth, and the livelihood of a great
many of the city’s businesses and inhabitants. Worse still, it turned out
that the city’s banks had bet against the city and her people, and some of the
banks very own products, and the banks reaped significant financial reward for
their wickedness in the city lead bailout.
Separately
the tax code had been turned to Swiss cheese; the Party having been lobbied to
create loopholes for the rich and the powerful – and having accepted large political
campaign contributions – acquiesced to many demands. The city’s budget
was now ruinous, and she could no longer provide basic services for her people
or make good on her financial commitments. The city’s central banker took
to printing money to pay for the city’s massive debts and tax cuts for the
rich, the Party had so favored.
In
the end, the Party’s and the leader’s free enterprise and anti-government
language had become such a cornerstone of their beliefs that businesses and
entire sectors of the city’s economy were given free reign and allowed to merge
and denigrate into mere monopoly. The cartels often worked directly at
cross-purposes with the city’s consumers, the city’s labor force, her financial
health, and the city’s once great markets. Contrary to the great leader’s
policies and actions that helped and aided the city’s workers and her markets,
trade barriers were taken down, “free trade” agreements ratified, and many of
the city’s jobs were sent offshore – which only made the city’s fiscal crisis
worse, so diminished now was the city’s tax base.
Yes,
inexpensive products were exported back to the shiny city and her once great
markets, but who could afford them, with such high unemployment rates,
depressed wage levels, and monopolies preying upon the citizenry for limited
discretionary income?
The
shiny city and the Party listened to the great communicators words, and ignored
his actions at their own peril, and the city fell into disrepair, was over
extended fiscally, and the need to print money to pay her bills, and for
additional bank bailouts, grew greater. Over the span of time, and
contrary to the Party’s and the leader’s speeches, the shiny city had adopted
the liberal economist Keynes’ policies almost to the letter.
Moreover, redistributed wealth was not shared equally for a just and fair
society; but rather, it went to the wealthy, often in the form of tax cuts,
bailouts, special regulations, inflationary monetary policy, and accounting
magic and subsidies.
The
city soon grew rusty again, along with her infrastructure, and she was ill
prepared for the next calamity to come, because she had squandered her treasure
and credit line.
In
a final irony, the great leader, along with his city, counted among their many
successes their signature achievement – the dismantling of a withering crony
empire. Ultimately, in many ways the shiny city was rapidly becoming the
very thing she and her citizens had fought a great cold war against, an empire
that was overextended economically, militarily, financially and intellectually.
After
a thirty-year reign, the Party and many of the leader’s words became little
more than a fairy tale.
For
while the free market and capitalism are great producers of wealth, the free
market works best when partnered with a strong and healthy government to
ameliorate private enterprises worst attributes: that of monopoly,
concentration of wealth and power, cronyism, and government and regulatory
capture.
The
great communicator knew this, and his actions revealed as much, but his
rhetoric, almost spell like, had been twisted to a very bad end, indeed.
And
the moral of the story: Watch both the words and actions of actors
turned politician. For while actions speak louder than words, sometimes a
leader’s words, unintentionally, may have damaging consequences for future
generations.
P.S.
And the mayor’s lasting legacy? The mayor showed us that when the debt to GDP ratio is low, anyone – even a public relations man from General Electric – can kick start an economy by adopting Keynesian fiscal and monetary policy; what takes discipline, foresight and good stewardship is raising taxes during prosperous times.
Ultimately, the mayor’s lasting legacy was his dark words against government turned a generation off on public service, so that the city – all too often – became led by easily manipulated second-string hacks, extremist, and political opportunist. Subsequently, malaise and lost decades ensued.
The End.
Copyright JM
Hamilton Publishing 2013