I owe a massive debt to David Stockman.
I’d spent more than two decades in the markets when I read his 2013 opus, “The Great Deformation,” so I had managed to collect a long list of pathologies that I’d list to anybody who cared to listen. What I had failed to achieve was to put them together in a “synthesis,” so to speak, leading to an explanation of why markets had been able to allocate capital efficiently for longer than half a century before becoming the tools of rent extraction by an elite.
His explanation, gleaned from his (failed) personal efforts to create an auto parts monopoly, is always worth repeating:
At the end of the 20th century three separate factors appeared for the first time simultaneously, namely:
1. The tax deductibility of the cost of servicing debt (which had been with us for a while)
2. Reagan set the tax rate on passive income --and capital gains in particular-- significantly lower than the top bracket income tax rate; that’s still status quo, Obama’s promises notwithstanding
3. Wide ownership of equities made it acceptable for the Fed ‘s “dual mandate” to be hijacked to protect risky asset holders via low rates, giving rise to the Greenspan put, Bernanke’s QE and Yellen’s obsession with employing the proletariat in crappy non-jobs
These three factors in combination enabled
1. The merger frenzy and internet bubble up to year 2000
2. The housing bubble that led to the 2008 crisis
3. “corporate equity extraction” whereby CEOs, private equity principals and (more recently) indexers can lever corporate America up to the sky to make large payments to themselves
So that was, as far as I’m concerned, one of the most important books I’ve ever read. Dense, repetitive, unedited, mainly about something totally different (Ike Eisenhower, if you must ask), but hey, it changed my outlook.
--- > His last couple books, on the other hand, have been about Trump!
Or rather, this most recent one is. The one before pivoted to Trump rather opportunistically as it went to press, but this one is the real deal:
IT’S ORANGE, for crying out loud, like its subject.
And it’s massive too 😊
On that front of course, Trump should not be given any credit. This is a Stockman effort and it’s as wordy and repetitive as we, his readers, have come to expect from him. And just as unedited. About 50% of “it’s vs. its” decisions are grammatically correct, which is exactly how lady Luck would like it.
The most important message is in the introduction (“prologue” to us Greeks, thank you for the acknowledgment, sir):
Trump did us a good turn by frustrating the establishment from saddling us with yet another of its stalwarts in the White House, but he’s not going to serve a second term, because he’s suddenly gone all “mainstream” on us, has identified his presidency with the price of the stock market and the stock market happens to be toast.
So he’s going down. Down with the stock market he’s embraced and with the economy too, because for the US economy to still be buoyant in 2020 it will have to stage the longest recovery in the history of the nation, by some margin.
Some 30 chapters follow, on a number of topics, chiefly the ones that get discussed on Fox News. Stockman is nobody’s patsy, so he does not always agree with Fox News, but that’s very much his patch.
On Trump’s tax cuts, Stockman thinks they’re impoverishing the state while not really helping the economy too much. Shame on you, Mr. Stockman, that’s not at all what you think, deep down inside you cannot but approve of a measure that, modulo some buybacks in 2019-20, pulls the carpet from under “corporate equity extraction.”
On the trade war, he correctly points out that neither Canada nor Mexico are guilty of imposing any significant barriers on American exports and then blames the massive trade deficit of the US versus China (i) on the fact that poor people in the US can borrow money to buy Chinese products (ii) on the Fed’s 2% inflation target, which makes American workers expensive. Personally I disagree, but perhaps because I also happen to disagree with the theory that a country’s future depends on its ability to mass-produce goods (as opposed to ideas.) Perversely, I happen to agree with his conclusion, that the US really does not need a trade war right now!
Regardless, if you can assert a hundred times over a hundred pages that overborrowing must lead to a trade deficit, you at least owe it to your readers to take them through the old
(1) Y = C + I + G + (X - M)
(2) Ydisposable = S + C
(3) Ydisposable = Y - TAX + TR
(2),(3) => S + C = Y - TAX + TR =>
(4) Y = S + C + TAX - TR
(1),(4) => C + I + G + (X - M) = S + C + TAX -TR =>
(5) (TAX - TR - G) + (S - I) = (X - M)
…but then of course I’d argue against you that US companies are exporting all you like, but simply happen to be booking their sales and profits in Ireland and other such tax havens.
From the trade war with Mexico, the argument moves to immigration. Here Stockman will not make many friends among the conservative crowd, as he argues we need to re-draw the border to include more “tax mules” from Mexico, who will pay for the promises his least favorite presidents (FDR and Johnson) have made to all Americans, including the massive retiring cohort of baby boomers. So he does not really approve of that wall, let’s say. Ex immigration, the size of the workforce is shrinking in the US, bottom line, so bring’em in! That’s his main argument.
And he’s not done. Legalize drugs, he says, and you won’t need a wall to keep violence out of the country. Not only are immigrants in the US less likely to commit crimes that US citizens, but if you strip out drug crime they are A WHOLE ORDER OF MAGNITUDE less likely to engage in criminal activity. They come to the US to work. Not to steal.
His chapter about the futility (and stupid, self-pepetuating expense) of drug prohibition is an echo of his multiple chapters on what he considers to be a particularly objectionable part of the “deep state” in the US, which he traces to his absolute-least-favorite US president, Wilson.
Wilson, he claims, by entering WWI, got in the way of what would have been its natural conclusion (an armistice between two equally tired alliances, as neither the Entente nor the Central Powers could carry on for much longer), brought Lenin to power in Russia, imposed the humiliation on Germany that led to WWII, caused the Holocaust and set the stage for the US to get involved in the Korean War, Vietnam, and the Middle East.
Yeah, probably a tad far-fetched.
By that point Stockman is only getting into gear, however, and goes on to explain that the deep state is now a self-perpetuating machine for inventing enemies (like Russia’s troll farms, which pale in comparison with the USD 75 billion he alleges the US spends on cyberspying) and necessities (like access to oil) that the free market would take care of by itself without even noticing.
This segues into his deep insights regarding the Mueller investigation, on which he comments (unlike me here) without the benefit of knowing its results and gets the answer bang-on: it’s principally the work of the old guard in the Democratic party that will not admit it fielded a poor candidate and would like another chance to run against him in 2020. It started, basically, as a weapon for Hillary to bludgeon him with and ended up as an elaborate excuse for her loss and basically there’s absolutely no substance to it.
Knowing Trump, of course, we can conclude that he will now postpone the timing of the full disclosure of the report until when he needs another win, so he can spring another “nothingburger” on his opponents (probably worth the cost of the purchase price, that expression) at the time that is most opportune to him. Not so poorly played for an orange-colored buffoon!
There’s chapters here on other favorite topics of the Fox News crowd:
• A full chapter where he attacks the science of global warming with scientific arguments (I’m a patient man, I read it, obviously I don’t get my science from political analysts, I was in the tube, that’s my excuse)
• a chapter on the “Trump Tower meeting” (something to do with the Ukraine, where Nazis appear out of nowhere as well as rather unflattering profiles of both CIA man Brennan and Stockman’s former colleague Bill Browder of Magnitsky Act fame –the bankers always hated the traders at Salomon);
• a shameful, have-it-both-ways chapter about gun control that Hillary herself could have penned
and even, finally, an account of how Stockman himself rose to prominence in Reagan’s OMB: he’d played Carter against him when the Gipper was preparing for the candidates’ debate!
So there’s a lot here and it’s immensely varied in scope and quality and there’s the habitual 100-odd pages where the catastrophe is previewed that will come when the richest country in the world with the stingiest benefits in the civilized world has to take care of its ageing population, but
1. It’s about Trump
2. It makes some decent points
On the other hand, it’s repetitive, you can’t be seen to be reading it and it’s a bit like when Michael Douglas escapes into the surplus store in “Falling Down:” from one second to the next, you go from agreeing with your host to thinking he’s absolutely nuts.
Ultimately, I’d rather have spent this time reading something else.
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