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.
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| 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,
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| 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#
