Reality and the Election of 2008

Reality and the 2008 Election:
I follow the election pretty closely, as you know. As I listen, both to the candidates and the networks, I am struck by the gap between what they are discussing and the reality that I think is facing the United States as we move forward into the future. Essentially, we now have all three candidates committing to the famous Bush(1) pledge; “Read my lips, no new taxes (on people making less than $250,000). For the two Democrats, that pledge is disingenuous, to say the least, since they have equally pledged to allow the tax cuts enacted earlier to lapse and that will result in increased taxes on most people who pay taxes in 2011.

The next image that comes into my mind is the vision of all of the candidates, and most of the news people, standing beside a gasoline pump and decrying the terrible impact of the price of fuel on the consumer. “Oh woe is me! Isn’t it terrible?” That seems to be the lament of almost everyone, but I cannot recall a single serious commentary or comment by any of the candidates on the causes of high fuel prices or on what might be done to correct the situation, other than the usual promise (in the past, empty) to reduce our dependence upon foreign oil.

Since none of the candidates wish to raise taxes, and since the wars in Afghanistan and Iraq are no where near the end under the best of the scenarios, that leaves for us a simple question: what is the size of deficits and the debt that these candidates—all three of them-- think are the limits of acceptability?

We are now borrowing between $400 and $500 a billion a year, mostly from the Chinese and the Oil Producing Countries—to finance all of our adventures, both domestic and abroad. Both of the Democrats promise a whole raft of new government spending and McCain promises a continuing military effort in the Middle East, with renewal of our depleted military resources at the same time. Should we conclude, therefore, that all three candidates will follow courses of action that will escalate our deficits and accumulated debt, increasing the debt payments dramatically over time? Given what they are saying, I think we have to conclude that no one is particularly concerned about the deficit and accumulated debt except to the extent that they can blame it on the Bush Administration.

The accumulating debt is simply a way for the government to print money rather than increase taxes. We know that the excessive printing of a currency creates a supply of money that exceeds demand, and therefore drives down the price of that currency in the marketplace. That is precisely what is happening with the dollar, and it is the behavior of third world dictatorships that emasculate the economies by printing money.

The Decline of the Dollar (1):
The dollar has declined from .98 cents to the Euro, shortly after Bush took office, to a low of $1.60 per Euro reached recently. Most of the oil imported to the United States is purchased in dollars. Assuming unchanged international demand for oil (an untrue assumption), a very substantial portion of the increasing price of oil and gasoline is a direct result of the decreasing purchasing power of the weakened and devalued dollar.

The same increasing prices are true for virtually everything we purchase from abroad. As the dollar declines, prices go up and we have an “inflation” driven by whatever policies drive the value of the dollar downward. Although most voters will probably never understand the argument, the increasing price of oil combined with the higher prices for all imported goods because of the declining dollar, is nothing more than a “tax increase” in another form. These are the prices Americans pay for fiscal irresponsibility on a massive scale by the politicians in both political parties. This is the “politically advantageous” way to pay for the deficits and the accumulating debt that incumbents of both parties so willingly take on. The great advantage to the candidates of this form of tax is, however, that it is very difficult to blame it on the people who make the decisions. Politicians of both parties love to give benefits or the promise of benefits to “current voters” where they can transfer the payment of those benefits to “future voters,” i.e., to our children and grandchildren. They have learned the very unfortunate truth that current voters are much more concerned about current benefits than they are about what we leave for future generations.

The Decline of the Dollar (2):
When we “print” more money that there is a demand for it, the price that people are willing to pay for the dollar declines. Similarly, when we lower interest rate returns on the dollar dramatically, that makes the dollar less valuable than other currencies that do not lower interest rates, and the demand for the dollar declines relative to those currencies. Finally, the dollar comes under pressure simply from speculators who buy and sell currencies for large holders of currencies. If it appears likely that the United States will continue to follow policies that produce massive deficits and long term debt, the speculators are likely to “devalue” the amount that they are willing to pay for the dollar vs. other currencies based on what their “expectations” are. Where does this take us? Given that we continue to follow these policies, I would bet on a continually decline in the dollar, perhaps following a short rally based on the “possibility” that a new administration might behave responsibly – a real long shot, if I ever saw one.

The question is, of course, where does this end? I think this is one of those questions for which no one has an answer, but where we all have a gnawing concern that it will all end very badly—both for the United States as a whole, and for our children and grandchildren. By the time we have the answer; it will be too late to do very much about it, one way or the other.

Great Empires Come and Go:
There simply is no guarantee that the United States will retain its position as the wealthiest and most powerful country in the world. All of the “great empires” have come to an end eventually, often as a result of behaviors internally that undermined the basis of their strength. As I look at what we are doing in the Middle East, wasting a huge portion of our national treasure on a useless war brought on by a small band of arrogant, self righteous, and terribly misguided leaders in Washington, DC, I am struck by the wisdom and self control of our adversaries – China, Russia, and the Oil Cartel – who are piling up our wealth and spending it on enterprises that increase their economic strength relative to ours. As the slogan goes, “they are laughing at us all the way to their banks,” and with very good reason. As they boom with their forbearance, we begin the process of withering, with our misplaced priorities and overblown militaristic zeal.

Broken Democracy:
Candidates of both parties are brought to their knees during campaigns to “genuflect” to democracy and “Love of Country,” elevating the wearing of a flag pin to a position of national significance. They are also brought to their knees to “genuflect” to God, Jesus Christ, and a few other deities to prove how pious they are. When we value our candidates for their sleeve worn piety and flag waving patriotism more than for their intelligence and competence, you know America is in trouble. We have had eight years of flag waving, evangelical piety, and great crusades, led by men and women who asset their moral superiority and patriotism at every opportunity, even as the death toll rises due to their basic military and diplomatic incompetence. The huge military and industrial complexes that Eisenhower warned us about in 1959, and the oil cartel, have profited mightily from this Administration, and they applaud and lend their support to John McCain while they count their winnings in the real hope that he will keep up the process for another four years.

With the sole exception of the campaign of Barak Obama, public policy is directly for sale in the United States, purchased through campaign contributions to the most likely winners and now through the hiring of an ex-President for very expensive speeches and consultancies. When the election is over, the winners—usually incumbents-- return to Washington DC and the state capitals and they proceed to deliver to the groups that provided the funds that made their election possible. What they deliver is more funding for their sponsors and more deficits and debt for the voters, since there appears to be no active way to constrain the mutual desire of the Republicans and Democrats to overspend and where demands for government money from their “client groups” far outstrip the supply available through taxes.

I have no way of knowing what Barak Obama will do if he is elected. He will be, however, the first modern President elected without funding from the special interest complexes that today buy American policies that they profit from. He has not sold a seat at the table to every economic interest that wants a piece of the American pie, delivered at the expense of the taxpayers. It is an experiment, and maybe it will turn out badly, although it is hard for me to imagine how anything could turn out worse than the election of 2000.

Just my opinion,

Gordon Black