Coping: Economic Crashes & Contexing “Universal Income”

The unilateral imposition of “smart tariffs” on aluminum and steel imports is both a very good thing, and a bad thing.  Plus, it reveals what we expected about the nature and thinking style of Donald Trump; it is far from reassuring.

This is an almost style of report (sans links and data sources).  It’s the kind of thing that results from getting up at 2:30AM to see how much damage is being wrought around the world by the tariff move of Thursday.  U.S. futures are down another 200 Dow points.

In Japan overnight, the Nikki 225 index (roughly, their Dow analog) dropped 2 -1/2%.  That is echoing around the world this morning as Europe is seeing sizeable declines and we expect (pending data later on) for the US market to drop a good bit further after the open.  But the problems ahead are only now coming into focus, so as an “I can’t sleep, so let me explain a few things…” effort, let’s put some of the major impacts into context.  Because the MainStream Media in largely incapable of doing that.

(Continues below)


A word of confession up front:  My thinking (over almost 50-years of writing about business and economics) has evolved from neo-classical, to wholly exploratory “heterodox economics“, then distinctly Austrian, and now it’s more along the lines of the ICAPE effort.  Learning economics is – as this demonstrates – an evolving life-long pursuit.

Since you have likely never heard of the ICAPE (or economic pluralism) before, a quick Wikipedia cite’s in order:

“Critics of mainstream economics have called for a reform of the discipline in the past. The movement for pluralism can therefore be traced to wider movements for progressive change in the 1960s and 1970s, with economists like Frank Stilwell and Steve Keen campaigning for pluralist and critical economics teaching at the University of Sydney in 1971.[6] In 1992, a petition organised by Geoffrey Hodgson, Uskali Mäki, and Deirdre McCloskey was published as a paid advertisement in The American Economic Review.[7] The petition described itself as a “plea for a pluralistic and rigorous economics” and was preceded by a commission of the American Economic Association entitled “Report by the Commission on Graduate Education”.[8][9] Many critics of mainstream economics began to describe themselves as proponents of pluralism and formed groups or organizations such as The International Confederation of Associations for Reform in Economics (ICARE).[10] In 2000, students at the École Normale Supérieure protested and announced the creation of the post-autistic economics movement.[11][12] Similarly, students at the University of Cambridge and University of Missouri-Kansas City organised petitions in 2001 and in 2011 the Cambridge Society for Economic Pluralism was formed to promote pluralist thinking and pushing for curriculum reform within the university.[13] In 2009, the Foundation for European Economic Development (FEED) organised a plea for economic pluralism with over 2,000 signatures in the first month.[14] In addition, the first Volume of the International Journal of Pluralism and Economics Education was founded and published along with the Handbook for Pluralist Economics Education.[15]

In 2011, Harvard University students organized a walkout from their Economic Principles class, objecting to the one-sided presentations of their professor Greg Mankiw.[16] Paul Krugman and Richard Layard organised a “Manifesto For Economic Sense” in 2012.[17] The Post-Crash Economics Society Manchester published a petition in November 2013 and was involved in setting up Rethinking Economics.[18] They also devised a course entitled “Bubbles, Panics and Crashes: an Introduction to Alternative Theories of Crisis”, which the economic department rejected.[19] Student groups in the United Kingdom published a draft manifesto in April 2014.[20] On May 5, 2014, economics students from nineteen countries published an international student letter and formed the International Student Initiative for Pluralist Economics.[21] The students called for pluralism of theories and methods to provide economics students with an understanding of the broader social and moral implications of economic decisions.[22] In 2016, Promoting Economic Pluralism was formed to launch a dialogue on creating an accreditation system for pluralist economics courses”

My own take on economic pluralism is rather simplistic:  It comes down to acknowledging that everyone studying the field is bound to come up with a piece of the whole Truth, once in a while.

My own “truth” of the sport (it is, after all competitive) is that neoclassical has put far too much emphasis on math and not enough on common sense.

I’ll give you a simple example:

In Peoplenomics this week, we discussed the matter of Machine-Human Overlap.  The idea is big (no question!) but it’s also profoundly important.  Oh…and completely ignored by most convention (peer-review) driven thinking in the field.

To be sure, there are some very bright people who are cognizant of the critical nature of this overlap as a possible driver of macro-economic events.  Take Andrew Odlyzko’s plentiful works (a few of which are here with still more here).  All of which make tasty reading!

The problem in economics (and why pluralism) is so important, is that when an event like the steel/aluminum tariffs pops out of headlines, few grasp it’s multiplicity of implications.

Each “school”  (i.e. herd) in economics has a turf-defending view.  A pluralist approach (like spices and cooking) is more inclined to “a little this, a little that” to get to what really works.

This morning I’d like to run through a few thoughts because (truth being well dispersed in plain sight!) a few of these ideas may be of long-term significance and use to you.

  1. Donald Trump has revealed himself to be very much more like Herbert Clark Hoover – who was at the helm when the US fell into the Great Depression –  than we feared.

I have covered the parallels between Trump and Hoover more extensively both here and on Peoplenomics.  The steel/aluminum tariff decision is not likely to be the end of “Trump Trade Monkeying” because it is just too damn tempting.

What I see being revealed in Trump is a man who, while brilliant in tactical implementations, may fall short in longer-term strategic thinking.

The basis for that is observing Trump’s parallels NOT with Smoot-Hawley (which came after the 1929 debacle (Smoot-Hawley was passed in 1930), but rather in how Hoover was working with labor (the Unions and Steel) in the lead-in to the big market break of ’29.

Rothbard makes the (Austrian, Mises) claim that booms and busts are inevitable consequences of financial interventionism.  He then documents how Hoover (with promises from big Unions and Business) was striving to maintain the huge bubble of growth in the wake of the lesser-appreciated 1920-1921 Depression, which in our work lines up well with the US Housing Bubble Collapse circa 2009-2010.  We’re “in that zone.”

Where the Austrians miss the boat (a bit) is that there was also a huge period of Machine-Man-Overlap in the period.  The overlap back then was transitory in the evolution of autos.  The cars of the day were not going to be able to survive 200,000 mile service lives.  But its where jobs were…but at the same time, autos (and tractors) killed small farms.  Massive tech-shift.

Fortunately (or not) the job losses implicit in the evolution of the traction motors (tractors) that had displaced farmers en masse created a huge new industry we can lump-together as heavy equipment, automotive, and (eventually under Eisenhauer) the national highway system.

The specific problem Hoover had (in trade) was similar to what Trump will have to deal in coming months and years given the continuation of present global trends.

As I wrote in Peoplenomics in 2016, the problem comes down to one of egalitarianism.  Liberals swallow this concept up.  Core idea is that the work of a Mexican, a Japanese, or a Chinese worker ought to be similarly valued as an American worker.

Sounds fine…don’t get me wrong (we’re all about equality)…but it’s a lie and specious bullshit.

You see globalism totally hinges on this Big Lie because while, on the one hand, Globalists claim to be “free traders” they are distinctly not.  Consumer  shit is made in China because they make less than we do.

The Globalistas set up the job-jacking and offshoring of American manufacturing in order to take advantage of lower “purchasing power partity” (PPP) labor rates in (to be Trumperian) “third world shitholes.”

As the Austrians worry, financial interventionism is a bit like pregnancy.  Once you’re on  that road, you’re committed.  Thus, when Hoover faced the prospect of falling wage pressures, he did what the combination of Bush, Obama, Trump, and the Federal Reserve of today have done:  They have (inadvertently we assume) conspired to artificially maintained higher prices and employment as evident in any number of data sets.  Job of the Fed dual-mandate and such.

This week, for example, Home prices were up 6.3% year-on-year nationally in the Case-Shiller data and single-month inflation of import prices totaled a full 1%. That pushes out to 12.58 percent annualized inflation.

What has led to this has been (as correctly warned-of by the Austrians) the continuous watering down of the purchasing power of money.

It’s axiomatic that prices do not “rise” (the great lie of the Keynesians!).  Rather, most of the time, money simply becomes worth less.  Sure, the next effect is that you need more of “worth-less” money to buy things. So, sure, it SEEMS like prices went up. But the Austrians – sporting a keen sense of first causes –  point out this would not be the case if a country followed a responsible monetary regimen.

Sorry, that ship has sailed.  President Kennedy was the last hope and conspiracy theorists hold Johnson accountable.

As of this morning, the US Debt to the Penny (reported by the Treasury Department) was $20.885-trillion dollars.  And we just learned this week that US Gross Domestic Product was running $19-trillion and change in Q4 2017.  This means, essentially, that the Fed has had to “make up” the difference and then some.

And the problem does not cure itself.  We are presently inflating in order to prevent deflation from becoming obvious.

As I reported (Peoplenomics, 2016) I would not be surprised to see the populist Trump – now revealed to be tactical, rather than strategic in economic matters – to be driven toward the liberal-sponsored notion of purchasing power parity (PPP) adjustments to steal-back the least-cost wage benefits presently pocketed by Globalists:

“Now, consider the case of the USA with an average PPP of $58,714 versus a country like Mexico where the wages are $14,867 PPP.  The (simple) PPP import adjustment (we won’t call it a Tariff because those have been hounded by the globalists…) would be 25.3%.

This means when Ford builds a car in Mexico and brings it into the USA, some portion of the car’s labor, say 10%, would be subject to a PPP adjustment of 20%.   Let me give you an example how such a calculation could be made:

    • Car Made in Mexico:  $40,000
    • Car Made in USA:  $50,000.
    • Labor component each:  15%.
    • Mexico Labor Component:  $6,000
    • USA Labor component:  $7,500
    • PPP Differential:  $1,500 payable prior to entry.”

This is how I envision a future “son of Smoot-Hawley Act”  being implemented once we get past the immediate prospect of a crashing economy and the falling market.

2.  The Trump administration  and Congress (what’s left and hasn’t resigned, having seen economic projections of what’s coming) will be left holding the “hot potato” of the massive and sudden pulling-in of consumer spending.  This is even-now beginning to appear on the horizon.

Thus, we expect short-term trends will accelerate in areas like “work-fare” in lieu of welfare.  We will likely see systemic reductions in “entitlements” and reductions in real Social Security incomes.  (Yes, this is why I have been preaching for years the philosophy of personal debt-elimination!)

At the same time government will (again) be faced with the recurring battle over whether to artificially hold wages high (which just made the previous Depression worse and more sudden and severe in its onset), we are also hearing the “next chorus” of “This Time It’s Different!”

It’s not.  Trump is likely (as a tactician) to respond (much as Hoover) rather than anticipate and run ahead of the problems.

You will likely hear a familiar refrain about a concept called ” Universal Income” and, as described by one of our Peoplenomics subscribers, it sounds pretty darned good – on the surface:

“The interesting thing about universal income is that there are no disincentives to productivity, but also, it allows creativity to flourish.

And let’s assume the amount would be small. Presumably this would drive many to small towns and rural situations, where their meager incomes would go further. Maker culture thrives in such settings. And group living would clearly take-off, for the same reasons as in Seattle. And talk about velocity of circulation.

How to pay?

Slash social (engineering) programs, cuz people get direct payments. Slash defense. Print money without borrowing it. Pay interest off with the printed money. Tax all transactions at point of sale, which renders imports less profitable. Tax pollution, slave labor and environmental destruction on products made below civilized standards. Enforce environmental and health regulations on imports. HEB uses farms in Mexico for produce. They do random tests for banned chemicals. One strike and the farm gets a lifetime ban. The Chinese et al. Should get the same treatment.

There is a strong correlation between surplus labor and depression, and technological advances, as you say, cause such surpluses. I have been in the publishing business for over 40 years. For half of that time, we employed typesetters with Linotype machines. As many as 10 or 12 people worked on rush jobs.

Now publishing has been in a depression for 20 years. The typesetters are dead or gone. Linotypes went to South America 20 years ago. Real incomes are down for most. Humans really are at a crossroad. Historically, for true reform to happen, there must be a crash and burn. But out of the embers, technology COULD help build a paradise. And this time we have internet to help. Or hurt. Example. Josh Rogan and Alex Jones each have 2 million YouTube subscribers (GU note: YouTube Terminates Account of InfoWars Bureau Chief).

As they are shoved out, something not censored will give them a platform. Open source and diy videos are everywhere. Want to replace the bumper on a 2005 Accord? There are several videos that walk you through that.  Want to make a world class Caesar salad? You’ll find an embarrassment of riches. Need heavy equipment? There are open source plans for tractors, backhoes, etc. that use trees for structural components. Most villages could collectively afford the motors, pumps, etc.

And blockchain will change many casino games, too. Making them illegal will work as well as making cocaine has. Or weapons bans to South Africa, N. Korea and Iran have. One simple use would be the equivalent of the scrip issued by cities in the Depression. Self organizing collectives could use internal blockchain for internal commerce. One handy feature is that open source code allows the creation of a crypto that is inherently limited in supply, unlike government schemes. And they can be backed by things other than their utility and lack need for trust of trading partners.

I just reread Gatto’s Psychopathology of Public School’s essay. And I realized why the kids 19 and under are so different from their older siblings. They have always had YouTube, Google, complex video games, email, Whole Foods, etc. They naturally do what Gatto says kids should, when not in class.  So many are reverting to the better, earlier models of humans in a technological society. And many more were homeschooled, at least some of the time, breastfed, given clean food and free ranged on the internet.  My 18 year old has lifelong friends in Europe, New Zealand, Russia, etc. whom he met playing group video games, as a boy. Some of them now have huge YouTube followings.  He knows and exchanges emails with heavy hitters in the video game industry. Ironically, it turns out that several of them now live in our neighborhood.  He is a certified welder, makes jewelry and other crafts which he sells. Welds things like broken truck frames. He is going into engineering school next, planning to do robotics and related stuff. He chose UT because they just put in a multistory maker space, free to be used by engineering students, with state of the art machines of every description. He has a plan to use one special printer, plus a lathe to make and sell jewelry. Should net $100 per hour. Maybe more.

I have a feeling this generation will fulfill Strauss and Howe’s prediction that they will be a Hero generation.”

Ah, it sounds so idyllic!  But the Devil is always in the Details.

The notion of “just printing up money” to pay off the debt doesn’t work because it destroys savings and capital.  The free lunch has a hidden price and it is exorbitant!

Let’s say that you decided (before the economy cratered) to buy U.S. government bonds.  Let’s further say that you had $1-million worth of such bonds.

In an amazing example of economic hutzpah, we envision a future Congress ending the Federal Reserve’s franchise to “manage the US money system.”

With the banksters out of the way, the political class would then print up as much money as they want…which they promptly do.  As they do so, a sudden (and massive) hyperinflation occurs that would dwarf the war reparations-repayment renunciation of debt by the Weimar Republic  post World War I.

What results is a likely replay of exactly what Robert Mugabe did in the Zimbabwean hyperinflation:

Hyperinflation in Zimbabwe was a period of currency instability that began in the late 1990s shortly after the confiscation of private farms from landowners, towards the end of Zimbabwean involvement in the Second Congo War. During the height of inflation from 2008 to 2009, it was difficult to measure Zimbabwe’s hyperinflation because the government of Zimbabwe stopped filing official inflation statistics. However, Zimbabwe’s peak month of inflation is estimated at 79.6 billion percent in mid-November 2008.[1]

In 2009, Zimbabwe stopped printing its currency, with currencies from other countries being used.[2] In mid-2015, Zimbabwe announced plans to have completely switched to the United States dollar by the end of 2015.”

At its core, then we see that Universal Income is not a panacea.  As a practical matter it would end up being little more than food rationing under the guise of monetary benefit.

It is clear the US government has known for some time that American mass (over) consumption would lead to collapse.  It’s for this reason that Americorp and the Corporation for National Service bears such an uncanny similarity to the Civilian Conservation Corps and Works Progress Administration during the previous Depression.

It’s also probably why a lot of House and Senate types are resigning and choosing not to run again.  If they knew something was coming – and didn’t speak up about it, wouldn’t that be treason?

(The earlier version of this article listed places you don’t want to go trying to hide from economic collapse – but that didn’t print first time around, so here’s that list again…)

A quick review of this list will reveal places that have historically gone through revolutions under similar global conditions and it may be some of that same real estate may not be where you’ll want to hang your hat during any coming badness in America.

Sometimes, the only way through bad times is to revert to what worked last time similar problems arose.

We know that includes “lost values” like thrift, hard work, sharing, and debt elimination at the personal level.  Lots of lost values.

Oh well…

On to the day’s stream of stuff…

Write when you get rich,


Coping: Economic Crashes & Contexing “Universal Income” — 6 Comments

  1. Ure covered a ton of ground but I didn’t see a stance on Tariffs. “It can be a very good & very bad.” I was hoping for a better understanding of what George thought. Maybe I missed the point that Tariffs could cause another Hoover depression. I believe Tariffs could be very detrimental to our way of life. First, the reason inflation has been kept at bay is that we are able to buy so many things that are produced abroad and that keeps inflation down. If everything was produced in US with labor & steel costs we would definitely have inflation. On the other side of the coin accepting China’s dumping of steel & aluminum is wrong also but to tailor the Tariff only on “Dumping” wouldn’t solve the issue because China would just sell indirectly to countries not on the Tariff watch list. So I’m not sure whether to be in favor of the Tariff or not. Still in limbo.

  2. “The unilateral imposition of “smart tariffs” on aluminum and steel imports is both a very good thing, and a bad thing. ”

    What an interesting thought.
    Back in the days before NAFTA a television for instance was an investment. They were made with American pride and quality. Something went wrong you took it in to be fixed. Employers appreciated their employee’s. Work was family. Then NAFTA and were slowly outsourced mom had to go to work and since employee’s were no longer the valued skilled labor that companies were dependent on to earn their profits.
    Slowly the economy and social environment began to erode. Corporate heads eager for their yearly bonus. The relationships between boss and worker changed. Many today don’t have a clue who is working or anything about their families.
    Society on the other hand became accustomed to the lower priced commodities. Throw away society.
    Now if I was the president..tariff the heck out of incoming goods. Tax corporations that have their corporate headquarters outside our borders to keep from paying taxes. Companies that have customer service centers in other them tariff the services. Then..give huge tax breaks to companies that manufacture in the US. assistance to retool American industries.
    Breaks on American made steel and manufacturing.
    Tax individuals that hide their money in offshore banks. There was what 37 trillion if I’m not mistaken hidden away cut relief funds for any company that gives accessive bonuses.
    Bring American industrial pride back.
    In my opinion it should work. Bring the American steel mills back to life.but..can we do it.. Its been thirty years since we had a country of industrial giants. The last time I read something the estimate was five to ten years to retool and train.
    Would society accept going back to that type of society. Could industrial America revert back to smaller profits and lower bonuses.
    The transition would be hard but in the long run be great. In a plastic have to have it now world would it be accepted.
    Big thought.. Big plan.
    Taxes.. Poverty level deductible then flat tax no could do your taxes on a postcard.. Just my opinions on a huge thought

  3. I didn’t even know Jerry Corsi was at Infowars…

    Folks at Google relented and reinstated his channel.

    I suspect when the economy really does go down the tubes, there’ll be many more “places to not live” than in the previous “poo in the bladed blower” event…

  4. Trouble is these days going back years all things economic are manipulated and controlled by the FED and central banks, Comex etc. There is no price discovery. Computers and Algo trading. It’s a casino, place your bets. No thanks. I work far to hard for my earned dollars to have them stolen by those who create the same dollars out of thin air. System it totally corrupt and needs to die so an honest money system can replace it.