Rural Sectionalism and the Election of Donald Trump

A December 29  Wall Street Journal piece shows 20 charts that indicate how badly rural Americans have fared. The election of Donald Trump, mostly by rural voters, can be interpreted to be a reaction, and the campaign to eliminate the Electoral College a counterreaction.

Inflation-adjusted household income has declined since 2000, and it has declined the most in rural areas. Much of the decline occurred during the Obama years. That contrasts with the stock market, which has received massive public subsidization. 

Those who foot the bill for "too-big-to-fail" banks are the same people who are dying at increasing rates.

Where I live, Olive, NY, New York City has long played an imperialistic role similar to that of any Roman-style power. It has done so to procure virtually free water; it chose to go the imperial route rather than purchase water ethically back in the 19th century.

In his book Empire of Water, David Soll outlines the 100-year history of theft, exploitation, and regulatory caprice that deprived the ancestors of many people I see each day of their homes and businesses, forcing many who had owned family businesses into becoming day laborers.

Environmentalists, dominant in the Democratic Party, have learned from New York City and since the 1990s have systematically attacked rural areas. This occurred most aggressively during the Obama years.

Not satisfied with increasing death rates in rural areas, Robert Reich, the American media, and their fellow Democrats campaign for more political power to be concentrated in urban centers by abolishing the Electoral College.  The end of the Electoral College would mean even more extreme depredation of rural America than has already occurred. 

Trumponomics = Obamonomics

The Society for Human Resource Management reports the Hay Group's forecast of declining real wage increases for 2018. This is a global phenomenon, not limited to the US. Central banks are expanding credit globally, resulting in escalating stock and real estate markets coupled with stagnant real wages due to what Keynes called "money illusion."

Phil Magness on Facebook has mentioned that Keynes was a leading eugenicist. The coupling of declining real wages for the average worker, especially in rural areas, with increasing subsidization of elite, urban financial and real estate investors is consistent with social Darwinism. 

The strongest proponents of absolute equality, the Democrats, are most closely related with Keynesian economics and social Darwinist redistribution from rural blue collar workers to urban banking interests--although the Republicans are a close second.  

In effect, there is little difference among the econmic policies of the Democrats and the Republicans:  Reagan, Bush I, Clinton, Bush II, Obama, and Trump have all overseen expansive stock and real estate markets with stagnant or declining real wages. 

One clue as to how this has proceeded is in the declining number of commercial banks. Expanding credit facilitates takeovers, which means that urban-centered banks consolidate rural banks. In turn, credit is less likely to flow to rural areas because rural investments are too small for the consolidated banks.  Hence, stagnant real wages have accompanied economic declines in rural areas, a point the Wall Street Journal recently emphasized. 

Lynch's Doppelganger

Last November Adam Thirlwell wrote a brilliant review of Twin Peaks: The Return for the New York Review of Books. I'm going to have to reread it to digest Thirlwell's references, but one I noticed as I researched his review is that the song "My Prayer" by the Platters, which appears twice in the series--in Parts 8 and 18--reflects the recurring Doppelganger theme in the series.

One of the singers on the Platters was named "David Lynch." David Lynch of the Platters died in 1981. In other words, the double use of "My Prayer" involves a reference to Lynch's own Doppelganger, just as Cooper has a Doppelganger and Cooper's Doppelganger has one.

It's a Social Security Scheme

Jim Rickards' s Agora Financial forwarded this Vanity Fair article and video-taped interview with Jeffery Gundlach, a Forbes 400 Wall Streeter. According to Wikipedia Gundlach was the fund manager for the TCW total return bond fund. He was fired; then, he founded Doubleline Capital. Wikipedia suggests that he has sometimes been overly bearish. In 2011 he liquidated 55% of his position in municipal bonds, but municipals did not decline.

It is easier to know what will happen than when. Rickards forwarded the piece because Gundlach is bearish on bonds--six years after his pullout from munis.  That is understandable.  I too have been  bearish, cutting back on my stock holdings in 2016 and hence getting a smaller benefit from the 2017 rally than I might have. (As well, I am a tech skeptic, which also has been a costly mistake. C'est la vie.)

The current rally will snap, either in '18 or later, and there will be a correction. There will then be monetary expansion on top of the already immense monetary expansion since 2008, and Americans will continue to suffer declines in their real wages and real household income as Wall Streeters like Gundlach benefit handsomely and those with at least some assets in the market continue to gain.

What I found most interesting about Gundlach's talk is his cavalier attitude toward screwing middle income baby boomers by instituting means testing for Social Security. He does not seem to have thought through the issue carefully, but he seems to suggest that currently benefit-eligible elderly should have their benefits cut in order to make federal government bonds more attractive to him.

Like all Wall Streeters, Gundlach has benefited handsomely from public subsidization.  No one knows how wealthy Warren Buffett or Jeff Gundlach would have been without the massive monetary expansion since 1971, but neither would be nearly as wealthy as they are.  Feeling comfortable with his own benefits from the public purse, Gundlach sees the need to cure federal indebtedness fast by reducing Social Security benefits. That way bonds will surely rally.

Gundlach is right that benefits need to be reduced. Federal indebtedness is now in excess of 100% of GDP, not including the future unfunded liabilities of the Social Security System.   According to CNBC, if actuaries use an unlimited time horizon (beyond 75 years)  rather than a 75-year horizon, the future unfunded liabilities of the system are $32 trillion.  Current GDP is $19 trillion.

Projections beyond 10 or 20 years have little meaning because the assumptions that actuaries make become increasingly inaccurate.  Technological shifts, demographic shifts, wars, diseases, impoverishment of the middle class, inflation, and monetary expansion change life expectancy.  CNBC claims  that until 2034 Social Security will be able to cover benefits. Thereafter, there will be a 25% deficit until 2090.  After that the system will be in extremis.

Gundlach suggests that boomers' benefits be cut by instituting means testing.  In other words, the middle income savers whom Gundlach's backers at the Fed have screwed by reducing interest rates should be screwed again by means testing Social Security.  Those who made life decisions based on government lies that Social Security is an insurance plan should end their lives in poverty. Gundlach is confident that boomers will not complain. He claims that they are a unique generation, but he does not offer a reason. 

Gundlach is right: Through monetary policy Wall Street has screwed boomers who save, and they have been too dumb to complain for 40 years, so Wall Street's lackeys in Congress might as well once again screw them by cutting Social Security in order to gain a few extra years' bond rally. They likely won't complain again.   Gundlach will profit. That's what the phrase "a good economy" means in today's English language.

As Gundlach suggests, the retirement age should be raised.  An increase of one year beginning with  two years from now might be a fair solution. Thus, people born in 1953 wouldn't get full benefits until 2020; people born in 1954 (my birth year) wouldn't get full benefits until 2022, and so on. The full-benefit age might be raised to 72.  That would likely solve the short-term problem. Actuaries will need to determine the precise increase in retirement age.  Fairer still would be slower increases of say six months or to start the increases five years hence so that those nearing retirement will have time to plan.

In some areas Gundlach is surprisingly uninformed.  He suggests, for instance, that air conditioning repair men, competent, technically trained blue collar workers, are now permanently unemployed. That claim reflects economic illiteracy. I have seen this strange claim repeatedly coming from elite America. It reflects the lack of competent economic instruction at elite, left-wing universities.

In any case, the employment rate in America is currently at an all-time high. Many technical jobs remain unfilled.  The employment-to-population ratio  is slightly lower than in 2008, but that is to be expected given an aging population.  The employment-to-population ratio in Nov. 2017 was 60.1; it was 63.3 in January 2007. The number of employed is at an all-time high.

The high employment rate has been achieved by reducing real wages through monetary expansion.  More Americans work; they earn lower wages.  The wealth is transferred to Wall Street because the low interest rates boost the bond market. Insiders like Gundlach and Buffett benefit most as Americans work harder for suppressed wages.

Social Security was originally sold to Americans as an insurance plan combined with a welfare plan. There is no such thing. Insurance is actuarially fair. If there is no actuarial relationship between contributions and benefits, then the plan is not insurance. Social Security was designed to give higher benefits to lower earners than they have earned and lower benefits to higher earners than they have earned.  There was never any connection between the FICA tax and the OASDI Social Security benefit.

The plan was set up to fool people. It was set up to be a fraud.  The biggest fraud was the impression given to Americans that there is a fund into which their contributions go to fund their own retirement.  That deception was accomplished by pretending that FICA was somehow separate from other federal taxes and somehow linked to OASDI. It has always been just another, albeit regressive, income tax with no connection to the statutory welfare benefit that OASDI provides.

There is no easy way out of the mess that the two parties have caused with respect to Social Security.  There are ways to reformulate monetary policy.  The two parties will not betray Wall Street, and I'm afraid Americans are unable to think without the say-so of Wall Street-backed media.  Perhaps in the future the phrase "Social Security scheme" can replace the phrase "Ponzi scheme."