Monday, April 10, 2017

1. “Walter Russell Mead’s Awful Idea”


Be careful what you wish for.  You might get it.
A number of times we’ve commented on this blog that we like to receive comments and questions from the floor.  Responding to them is an easy way to write a daily blog.
It’s also an easy way to give up in despair about the future of the world. . . .
Take, for example, the transcript a loyal reader sent us last week.  We’ll keep the name of the reader confidential since we don’t want any Ninjas or something going after our sources.  Besides, we took the title of the blog from a comment by the informant, which hints at a desire to be as far away as possible from such financial fatuity.
Walter Russell Mead, Academic
The transcript is the recent testimony by Walter Russell Mead before the United States Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy.  Dr. Mead is the James Clarke Chace Professor of Foreign Affairs and Humanities at Bard College and previously taught American foreign policy at Yale. He is also the Editor-at-Large of The American Interest and a non-resident Distinguished Scholar at the Hudson Institute.  He is clearly some punkins.
The Wikipedia gives Dr. Mead’s occupation as “Academic.”  We could do a lot with that, but we’ll settle for commenting that it is an excellent example of just how far Academia has fallen.
Anyway, Dr. Mead testified on “The Current State of Retirement Security in the United States.  His analysis is, perhaps, the best example even we have come across recently of how Academics and politicians have what seems to be an infinite capacity for missing the point.
Dr. Mead begins his testimony by discoursing on the American Dream . . . or what he thinks is the American Dream: breaking your back working on a family farm:
By promoting land ownership at low cost and encouraging agricultural education, the Green Model [of the American Dream] sought to deliver for Americans the unique financial and societal security that a family farm could provide. Besides the revenue and sustenance from working the land, family farming helped Americans accumulate wealth. Additionally, family farms provided for retirement. Grown children could continue tending the land while taking care of their elderly parents, or the family farm could be rented or sold, providing an income for farmers who could no longer work.
The American Dream?
Only someone in Academia or Political Lalaland who has never worked on a farm could say such things.  Dr. Mead keeps repeating that farming was good because it allowed Americans to accumulate wealth.
There are two things wrong with Dr. Mead’s delusion:
·      Farming was good because agriculture was the most productive sector of most economies until the early nineteenth century.  Manufacturing, the trades, the professions, and government were very, very small relative to agriculture.  Consistent with Say’s Law of Markets, if you want to consume, you have to produce, and agriculture was pretty much the only way to be productive.  As industry and commerce grew, the percentage of consumption income going to agriculture shrank dramatically, a problem throughout the nineteenth century.
How to get rich and accumulate wealth in agriculture.
·      Farming was good if you owned the farm and the means of working it at a profit.  Dr. Mead does mention this, but fails to note that the people who accumulated wealth through agriculture were the planters who owned vast amounts of land and grew cotton with slave labor, or the ranchers who controlled huge tracts of grazing land they didn’t own by owning the water.  The small farmer after the Civil War was typically strapped for development capital, used technology that was not cost efficient for a single small farmer, and was often only the nominal owner of a farm with a perennial mortgage.  You had to own a number of farms free and clear before renting them brought significant income, especially for retirement.  Selling a farm with a mortgage only got you out of paying interest, leaving you with nothing from the principal.  Prior to the Dust Bowl of the 1930s mortgage principal payments were almost always “balloon payments,” with all the principal due at the end of the mortgage period . . . at which time you renewed the mortgage . . . if you hadn’t defaulted on the interest payment in the interim and become a tenant-at-will until the lender could find a buyer.
Dream or Nightmare?
The points Dr. Mead missed?  Yes, ownership is good, but what is owned must be both productive and profitable, and the typical American family farm was typically not profitable, even when very productive.  Further, Dr. Mead’s lumping home ownership together with farm ownership fails to take the distinction between productive and non-productive assets into account.
Nor is job security a replacement for capital ownership, as Dr. Mead suggests.  He eulogizes Franklin Roosevelt’s New Deal in terms suggesting that it was the embodiment of Theodore Roosevelt’s Square Deal (no, it wasn’t), and confusing Theodore Roosevelt’s democratic progressivism with Franklin Roosevelt’s socialist populism.  (Progressivism used to be something good.)  As Dr. Mead gushes,
FDR and the New Deal undermined the American Dream.
The policies of the Roosevelt cousins advanced the economic transition from agriculture to industry. By 1950, both blue-collar and white-collar workers found themselves in stable, lifetime jobs in an industrial economy. Within this new economy, high school graduates were essentially guaranteed lifetime employment in a job that, at a minimum, provided a comfortable, lower middle-class lifestyle. Likewise, college graduates could expect an equally secure future with an even greater standard of living.
The new economy transformed the American Dream. Americans no longer dreamed of owning a family farm, rather they dreamed of owning a suburban “homestead” accompanied by a consumer lifestyle. Within this context, the United States government created a novel policy system during the 1950s and 1960s — a novel policy system sometimes called the “Blue Model.” New transportation measures, like the Federal Aid Highway Act of 1956, aimed to link cities and employment centers with cheap, suburban housing, so that geography would not prevent Americans from achieving the new American Dream. Likewise, thirty-year mortgages with low interest rates allowed lower- and middle-class Americans to own suburban homes and accumulate wealth.
No, Dr. Mead.  Ownership alone is not enough.  It’s what you own that matters, and whether it can be owned profitably.  If you want “a consumer lifestyle,” you’d better have a profitable productionstyle, whether through your labor or your capital, both of which you must own.
Don’t worry.  It gets worse.  And we’ll look at how tomorrow.
#30#

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