Menckens Ghost

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The Consequences of Unasked Questions about Capitalism

You've no doubt heard why Donald Trump was elected to the presidency, why French President Emmanuel Macron is facing a crisis, why the Brits voted for Brexit, why German President Angela Merkel is hanging on by her fingernails, and why there are populist movements in Italy and elsewhere in the West.

The conventional wisdom is that the working class and the lower middle class feel that they have been written off by establishment political parties and shortchanged by globalism and immigration.

But there is another reason:  The geniuses in government, think tanks, academia, and media aren't as smart as they appear.  They went all-in for global trade, for NAFTA and other trade deals, and for massive immigration, without first asking some no-brainer questions, such as:

- Is anyone going to be hurt by this?

- Who is going to be hurt?

- Is it ethical to hurt them?

- Should we do anything to help them?

- What can we do to help them and what will it cost?

- Will the indirect social costs of not helping them exceed the direct costs of helping them?

- How will they vote if we don't help them?

Former Federal Reserve Chairman Alan Greenspan, who is a current resident of the Upper East Side with his media darling wife, is considered a genius extraordinaire. Yet as his latest book makes clear, he still doesn't realize that he should've asked these questions when he was at the helm of the economy.  He doesn't say it this frankly, but his clear message is that the creative destruction of capitalism is what makes society prosperous; therefore, those who are hurt in the process can kiss his royal ass.

Lucky for Greenspan, Americans don't have the same riotous streak as the French.  If they did, they might storm his New York apartment with pitchforks and skewer his royal ass, figuratively speaking.  The same for all of the theoreticians and politicians who are so heartless and cavalier about the downsides of trade and creative destruction.

In their intellectual smugness, they make fun of Trump and his followers for worrying about trade imbalances and not knowing that trade imbalances are irrelevant because of capital flows, national accounting, and the economic growth that results from multiplying GDP by the velocity of money, squaring the product, and dividing the result by the speed of light, minus the exchange rate between pounds and dollars in London at 4:00 PM Greenwich time.    

Strangely, the geniuses are silent about how the humongous national debt and the equally large unfunded liabilities come into play.  Maybe they don't see a problem with the nation being deep in debt while it buys stuff from other countries.  For sure, they don't see a downside of American capital going to China for the building of state-of-the-art factories and gleaming modern cities with new infrastructure instead of being invested domestically.  However, they do recite the boomerang theory of money—that the dollars sent to China have to eventually come back to the USA. 

Perhaps my recollection of history is faulty, but didn't Great Britain almost go under from being in debt and shipping tons of pound sterling to the States?   

Meanwhile, schlemiels who get dirty at work and shower in the evening instead of the morning don't like being treated as expendables, the poor sports.  To make it worse, they have to hear how Apple and other noted companies are such great places to work, because they treat their employees so well.  It doesn't cross the sharp minds in the fawning media that these companies are able to treat their white-collar employees as a fixed cost worthy of pampering and job security, because they have outsourced their manufacturing to countries where employees are treated as a variable cost that fluctuates with market conditions.

Those pesky blue-collar workers have always been hard to manage.  Get rid of 'em, send their jobs overseas, let 'em buy Cheetos and Chinese goods at Walmart, and watch their life expectancy plummet from diabetes and drug overdoses.  Once they're gone, hip companies can get accolades for giving their remaining white-collar workers free yoga classes and health food. 

There are still manufacturing companies that know how to motivate blue-collar workers, treat them well, give them as much job security as possible in a dynamic economy, and get high productivity from them in return.  I've been fortunate to have worked with a couple of them.  But don't expect reporters who live amongst so-called knowledge workers in hip downtowns to sing the praises of such companies or even know about them.   After all, tangible manufactured products are passé in this software era, although everyone is surrounded by tangible products.

One tangible product is paper, not only the paper in our desktop printers and the paperboard in Amazon boxes, but also the tissue in Greenspan's marble bathrooms and the paper in Starbucks' cups.  The paper industry is very capital-intensive, competitive, commoditized, and usually located in rural towns.  Workers in the industry had always understood market forces and problems with overcapacity, but they had difficulty understanding the economics of huge and hugely expensive paper machines being dismantled and shipped to Vietnam, along with their jobs.  

Not having the intelligence of Alan Greenspan, they also couldn't understand how the capitalism of the likes of Sir James Goldsmith benefited them, their towns, and the nation.  Who was Goldsmith?  He was the leveraged buyout guy who orchestrated a hostile takeover of Diamond International paper company.  He didn't buy the company to be in the paper business.  He bought it because the company's extensive forest holdings were on the books for considerably less than their market value.  Goldsmith could make a lot of money by clear-cutting forests while letting the paper mills deteriorate.  After his pillaging and plundering, he could then sell the mortally wounded business and move on to the destruction of other businesses, towns and workers.   (The book, The Life and Death of a Mill Town, gives an ethnographic history of a mill town in New Hampshire.)     

Working stiffs questioned this kind of rapacious capitalism, but geniuses didn't.  Which is why Trump is in the White House.

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