Once upon a time the US was not a profligate nation. In fact, its citizens saved and invested and didn’t borrow money. From Bill Bonner at bonnerandpartners.com:
BALTIMORE, MARYLAND – Round us swirls a blinding dust of accusations… slurs… mad dogs… lost thoughts… and screwball ideas…
“You dog-faced pony soldier,” says a rattled Joe Biden to a student protester.
Senator Romney is a “pompous ass,” says the President of the United States.
The Trump Team’s budget for 2021 came out yesterday. The press said it planned to “slash the safety net.” The Democrats said it was “dead on arrival.” The Wall Street Journal had this comment:
The $4.8 trillion budget for fiscal 2021, released Monday, assumes that economic growth will be stronger than most forecasters project. To hit its targets, the budget excludes tax cuts the administration may propose later and includes spending cuts that are vague, unlikely to advance in Congress, or both.
“A lot of specific policies are meaningful, but the overall numbers are largely phony,” said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, a group that favors deficit reduction.
Lost in the Shopping Mall
Here at the Diary, we eschew politics. But now, politics is like raw sewage backing up the city drains. We’re forced to put on our hip boots and have a closer look.
There in the putrid muck float the numbers – GDP… unemployment… debt… deficits… the budget.
And there, too, are the “feelings.” Some people feel so much better now that we have Donald J. Trump in charge. Others feel like the whole thing stinks.
But there is more to the story. It is a story with heroes and villains… with Sturm and Drang… and a moral.
Yes, it is the story of the rise and fall of great empires. Told often. Rehearsed sequentially. And it goes on.
Part of the tale is merely the story of all natural things. Empires age. They add a few pounds. They slow down. Eventually, they get lost in shopping malls.
But another part of the story begins with a specific event. The feds replaced the old dollar with a new dollar on August 15, 1971. The queer new money queered and corrupted everything it touched – including politics…
Like a ’56 Chevy
The U.S. empire reached its first peak on July 20, 1969. That was the day an American astronaut stepped out onto the moon.
Even today, more than 50 years later, the whole project seems almost fantastical, as if we couldn’t do it again.
But that was after nearly 200 years of growth… huge technological breakthroughs… and two world wars from which the U.S., alone among the world’s nations, came out not only stronger, but richer.
The economy was purring like a ’56 Chevy. Quarterly GDP growth rates hit over 15% in the ’50s and over 10% in the ’60s. Real incomes had been increasing since the Great Depression. And not just for the rich. Au contraire, the gap between rich and poor had been closing, not widening.
Importantly, people were starting new businesses.
By the late ’60s, 17% of businesses were less than 12 months old. Many of these survived, grew, and became the dominant businesses of today. And they sold their products all over the world. Until 1971, the country had an unbroken record of trade surpluses stretching back two centuries.
People were young and vigorous, too, with a median age of less than 30 years in 1969.
And compared to today, the nation managed its money well. Eisenhower had cut the budget and paid down the national debt. In the ’60s, the government began running deficits, but they were small – less than 1% of GDP.
In 1969, even after sending a man to the moon… and paying for the two big boondoggles of the era, the war in Vietnam and the Great Society, the feds actually managed a $3.2 billion surplus.
And the entire federal debt equaled only $353 billion, barely a third as much as the market value of a single company, Microsoft, today.
Bent and Twisted
It was with this background of success, achievement, and youthful optimism – set to the tune of “Sugar, Sugar” by the Archies – that Neil Armstrong became the first human being to walk on the lunar surface.
Then, just two years later, the Inflationary Era began. The feds pulled a switcheroo, substituting a paper dollar for the gold-backed dollar that had worked so well since 1792.
The Nasdaq was founded that same year. The first email was sent. Starbucks opened its first store. Nixon announced a “war on drugs.” And Ed Sullivan went off the air.
And gradually, the empire bent and twisted like arthritic fingers.
Today, only about 10% of businesses are less than a year old. And while half of all companies were less than five years old as late as the 1980s, only 39% were that young by 2010… while more than 34% had been around for more than 15 years.
People are older, too. And fatter. The median American is almost 10 years older today than he was in 1969, and he weighs 30 pounds more.
Wage increases stopped in 1975. The convergence of rich and poor also came to a halt. The divergence is now greater than it has ever been since the Census Bureau started keeping track in 1967.
And the unbroken history of trade surpluses turned into an unbroken future of trade deficits.
As for federal finances, we have oft recited them. The deficits now are five times greater – as a percentage of GDP – than they were in the ’60s. And today’s $23 trillion in federal debt is 65 times larger.
Finally, GDP growth rates have come down, from an average of around 5% in the ’50s and ’60 to about half that today.
Make America Great Again?