Category: Commentary

Yesterday, I sent you a short quip on application of the reality principle to economics and finance, what seems to me to be an ethical position of great integrity. Today, the Editorial Board of the Wall Street Journal added its own thinking about who will actually pay for “lunch” here in the U.S. I include excerpts from the editorial here:

Jerome Powell lobbied publicly for months for more fiscal spending in the name of spurring the economy. Congratulations to the Federal Reserve Chairman, who has succeeded in catching the fiscal bus. Now his wish is Treasury Secretary Janet Yellen’s command as the Fed has to finance the vast fiscal deficits to come.

That’s the context to consider as the Federal Open Market Committee meets this week amid rising interest rates and market inflation jitters. Fed officials have been telling the public there is nothing to worry about, that they have the tools to manage any rate or inflation breakout. But investors aren’t crazy to be watchful, no matter how blithely the Fed assures.

The sheer magnitude of the deficits to be financed is a rare experiment in U.S. fiscal history. Even before the $1.9 trillion spending bill passed, the Congressional Budget Office estimated the deficit as a share of GDP would be 10.3% in fiscal 2021. With the Pelosi-Schumer-Biden blowout, the deficit this fiscal year will now be in the neighborhood of 18% of GDP. That’s the highest by far since the four wartime years of 1942-1945.

That’s also a lot of Treasury bills, notes and bonds to sell. U.S. investors have historically been able to finance about 4%-5% of GDP. The appetite of foreign buyers will depend on relative interest rates, currency values and confidence in the U.S. economy. Treasury’s Feb. 25 auction of seven-year notes was a warning sign as low demand almost led to failure.

Treasury auctions since have been more robust, but there’s little doubt that the Fed will be a bulk purchaser of U.S. debt for years to come. The Fed is currently buying $120 billion a month of Treasurys and mortgage securities and (unlike in Europe) there is no limit on the amount it can buy.

The fortunate news is that the economy is about to zoom ahead as the pandemic and social distancing ease. This year could see the fastest GDP growth since 7.2% in 1984 and the economy is poised to make up all of the ground it lost during the pandemic as soon as this quarter. The main effect of the $1.9 trillion will be to rob growth from the future by giving consumers more money to spend now. The Fed will no doubt bask in this near-term happiness.

But eventually there is a price for everything in economics, notwithstanding the assurances of modern-monetary theory. The test for the Fed will come in future months as the economy recovers. The market may demand higher interest rates, even as the Fed will want to keep them low to finance continuing federal deficits. The political pressure from the Biden Treasury and Congress will be enormous to keep rates low as far as the eye can see.

One challenge will be maintaining a calm Treasury market. This probably means waiving again the Supplementary Leverage Ratio for banks, a measure of capital adequacy. The Fed waived the rule last April and the waiver expires March 31. Restoring it now would penalize banks for holding Treasurys as reserves. This is one way in which the government response to the pandemic will continue to block a return to normal monetary and regulatory policy.

Good luck to Chairman Powell and the FOMC in this brave new world in which politicians believe they can spend as much as they want without policy consequences. Mr. Powell won’t be able to say he warned us.

Today’s Wall Street Journal has a front-page article on the Biden Administration trying to find a way to pay for the $1.9 trillion infusion of liquidity into the American economy as transfer payments to many and then for the infusion of even more liquidity with spending on infrastructure, clean energy and education.

The article notes that the Biden team is caught between raising taxes or incurring more debt to pay for making their dreams become real.

In other words, Biden is eyeball to eyeball with reality and reality “sucks:” there is no free lunch.

Where spending is concerned, if you want to buy anything, then someone at some time – in the past, right now or in the future – has to create real wealth and you need to get a share of it. Money is only a claim to some part of real wealth. You can’t eat gold or paper money or build a house out of paper collateral debt obligations or digital options contracts.

This is an iron law of the cosmos. Something cannot come from nothing, except possibly the big bang. In the Judeo-Christian tradition, there was God before there was our created world.

Thus, the fundamental moral justification for capitalism is that it pays for lunch. More than that, it pays for more lunches (and even for leftovers to eat later) and for better lunches and leftovers than any other human system of mutual collaboration has done – ever.

Capitalism, to be sure, produces material, not spiritual goods. But to what end is the spirit in this life if you starve to death?

All lives in America will be better off (we presume) if the Biden Administration spends $1.9 trillion, but does not offer up one prayer of supplication.

And I note that in the New Testament, two of the most appreciated stories are of Christ miraculously feeding the multitude with loaves and fish and the Good Samaritan selflessly taking care of the robber’s victim lying by the side of the road. The New Testament also gives us the thought that by feeding the hungry, we also feed the divine. The spirit, thus, becomes part of the world through the use of wealth.

As we have reported, for the last two years, the Caux Round Table has facilitated a small study group seeking to learn more about covenants given to Christian communities by the Prophet Muhammad.  I would like to note in the context of our initiative the very auspicious visit of Pope Francis to Iraq last weekend.

I had hoped that some comment would be made during this remarkable, historic visit, holding up the Prophet’s covenants as a model for mutual respect and reciprocal appreciation.  While this did not transpire, very much in the spirit of the covenants, the Grand Ayatollah Sistani said, “You are part of us and we are part of you.”

His transcendent vision was written on public posters like this:

 

In the days leading up to the Pope’s visit, I was in contact with colleagues in our study network close to the Pope and others in contact with the close associates of the Ayatollah.  It is my sense from the tenor of my phone conversations and emails with them that our report on the covenants, which was shared with both leaders, quite possibly did help to reduce anxieties by providing an historical precedent for mutuality between Muslims and Christians and so contributed to confident expectations of good results from the visit and so to the goodwill and collegiality animating the historic meeting of these two spiritual leaders.

One of the organizers told me afterwards that the meeting resulted in a “new mentality and culture.”

I was particularly moved by the Pope’s decision to visit Ur – the birthplace of Abraham, the place from which he set forth on his life-long pilgrimage as inspired by God.  Personally, reminding us of the fidelity of Abraham, the Pope, with his presence there, brought into one heritage the three Abrahamic faiths, similar to the way of the Prophet Muhammad who, in his covenants, brought together, in mutual consort, both Christians and Muslims.

I was reflecting a day or so ago that could it be possible that a short visit by one man, a religious leader, to Iraq has done more to put out the fires of intolerance and violence than nearly two decades of American efforts to “win the war on terror” and “pacify” Iraq?

Then, I recalled the cynical quip of Stalin as reported by President Harry Truman (there are other versions as to when Stalin made his observation):

“I remember at Potsdam we got to discussing a matter in Eastern Poland and it was remarked by the Prime Minister of Great Britain that the Pope would not be happy over that arrangement of that Catholic end of Poland. And the Generalissimo, the Prime Minister of Russia, leaned on the table and he pulled his mustache like that (gesturing) and looked over at Mr. Churchill and said: ‘”Mr. Churchill, Mr. Prime Minister, how many divisions did you say the Pope had?’”

Many around the world today are still talking about the self-centered presentations on Sunday of Meghan Markle and her husband, Harry Windsor.

I was a bit taken aback after listening to them with the realization that the Caux Round Table Principles for Government set a standard for persons in their position as members of a royal family.

You can read my thoughts here.

Recently, I sent to our network some observations on the collapse of the center in American culture and politics. A few days ago, a friend sent me the poll results found below, revealing the inconsistent narratives in which the two poles of American culture and politics have separately adopted.

I cannot vouch for any degree of credibility in these poll results, nor in the polling methodology used to obtain them. That inability is one of the afflictions, I think, we suffer from, living in this age of Twitter truths – nothing is really demonstrably true, that all we read might be empty-headed gossip or worse.

Nevertheless, the different opinions reported do track my personal experiences with friends on the right and on the left. Thus, I wanted to share with you this quite dramatic demonstration of how far apart many Americans are from one another.

In such a culture, what can possibly lift-up ethical discourse or promote the common good?

Here is the February edition of Pegasus.

In this issue, we provide an overview of some of the main organizations and initiatives proposing systemic reform of capitalism. We also include two short pieces about our round table project on racism.

WE would be most interested in your thoughts and feedback.

For months now, I have been trying to better understand the evolution of the old socialist left into today’s “progressive left,” which has suddenly, since last summer, become so dominant in our media, institutions of higher education, elite culture and politics.

When I was in college, the first stirrings of the “new left,” as it was then called, were of some interest. I remember the 1962 Port Huron Statement of Students for a Democratic Society. That heralded the beginning of a shift in fixing blame for social injustice on culture and not on economic class.

My tutor during junior year was the brilliant American Marxist scholar Barrington Moore, who was firmly set in the classical socialist tradition of class antagonism as the cause of injustice and the economy as the primary determinant of class power and prerogative.

But today’s progressive left in American seems to have switched out economic class for racism as the villain in our society.

The summer’s protests, some violent, led by Antifa and Black Lives Matter, provoked me to read Georges Sorel’s Reflections on Violence and discover, really for the first time, the historic occurrence of syndicalism, which evolved into national socialism in the 1920s in Italy and Germany.

I had overlooked the long-standing division within the socialist movement between internationalism – classical Marxist preference for the proletariat class in every society – and a more ethnic, even tribal, socialism, which sought justice in one society only. National socialism needed a narrative with which to engage both the workers and the bourgeoisie together in the same national community. The foundational concept was that of a “folk,” an identity construct. The economic system was a corporatist one where production was largely left for profit enterprises under state direction.

To explore the possible emulation of today’s progressive left in America, a cultural force at the root of our current distemper in politics and of older national socialist models, I wrote this personal essay.

I would be grateful to learn your thoughts on reading it.