- Apr 2013
- The Milky Way
How Washington’s Money-Printers Betrayed American Workers
Trump Isn?t All Wrong About Trade Deficits?-How Washington?s Money-Printers Betrayed American Workers | David Stockman's Contra Corner
…….Needless to say, the lack of good jobs lies at the bottom of the wealth and income drought on main street, and the recent BLS jobs reports provide still another reminder.
During the last seven months goods-producing jobs have been shrinking again, even as the next recession knocks on the door. These manufacturing, construction and energy/mining jobs are the highest paying in the US economy and average about $56,000 per year in cash wages. Yet it appears that the 30-year pattern shown in the graph below——lower lows and lower highs with each business cycle—-is playing out once again.
So even as the broadest measure of the stock market—-the Wilshire 5000—–stands at 11X its 1989 level, there are actually 20% fewer goods producing jobs in the US than there were way back then.
This begs the question, therefore, as to the rationale for the “Jobs Deal” we referenced in chapter 1 and why Donald Trump should embrace a massive swap of the existing corporate and payroll taxes for new levies on consumption and imports.
The short answer is that Greenspan made a giant policy mistake 25 years ago that has left main street households buried in debt and stranded with a simultaneous plague of stagnant real incomes and uncompetitively high nominal wages.
It happened because at the time that Mr. Deng launched China’s great mercantilist export machine during the early 1990s, Alan Greenspan was more interested in being the toast of Washington than he was in adhering to his lifelong convictions about the requisites of sound money.
Indeed, he apparently checked his gold standard monetary principles in the cloak room when he entered the Eccles Building in August 1987. Not only did he never reclaim the check, but, instead, embraced the self-serving institutional anti-deflationism of the central bank.
This drastic betrayal and error resulted in a lethal cocktail of free trade and what amounted to free money. It resulted in the hollowing out of the American economy because it prevented American capitalism from adjusting to the tsunami of cheap manufactures coming out of China and its east Asian supply chain.
The full extent of the Fed’s betrayal of Flyover America can only be fathomed in relationship to the contrafactual. To wit, what would have happened in response to the so-called “china price” under a regime of sound money in the US?
The Fed’s Keynesian economists and their Wall Street megaphones would never breath a word of it, of course, because they have a vested interest in perpetuating inflation. It gives inflation targeting central bankers the pretext for massive intrusion in the financial markets and Wall Street speculators endless bubble finance windfalls.
But the truth is, sound money would have led to falling consumer prices, high interest rates and an upsurge of household savings in response to strong rewards for deferring current consumption. From that enhanced flow of honest domestic savings the supply side of the American economy could have been rebuilt with capital and technology designed to shrink costs and catalyze productivity.
But instead of consumer price deflation and a savings-based era of supply side reinvestment, the Greenspan Fed opted for a comprehensive Inflation Regime. That is, sustained inflation of consumer prices and nominal wages, massive inflation of household debt and stupendous inflation of financial assets.