Dana Blankenhorn

Is the Volcker Precedent Wrong?

Fed chairman Jerome Powell is basing his anti-inflation fight on the success of Paul Volcker from 1979-1984.

The myth is Volcker sent interest rates higher than that era’s inflation, but the resulting recession set the stage for decades of growth to come.

What if it’s wrong?

I had already begun my reporting career in 1979. Volcker’s policy did cause pain. But interest rates didn’t start falling until the 1980s, and the Fed wasn’t the only cause.

The other cause was the State Department. In 1981 the Reagan Administration quietly negotiated an alliance with the Saud family based on a simple premise. They would sell oil in dollars and pump a lot of it. We would extend to them our military protection, specifically against Iran.

That alliance has held firm from that day to this. It held firm through the Gulf War. It held through 9/11, even though the attack was committed mainly by Saudi nationals and inspired by the son of a Saudi billionaire. It held through the disaster of Iraq.

It was this alliance that sent inflation down in the early 1980s, not Volcker’s Fed. Oil went from over $125/barrel to $80 in Reagan’s first term. Texas’ economy was crushed, but everyone else prospered. It was morning in America.

Our present inflation is also based on resources. Oil costs spiked from $80/barrel last September to over $115 in May. They’ve since fallen back to $80. The fall came about because we’re no longer in an economic era defined by resources.

Reject Panic

The best reaction for investors to what is happening in the stock market today is no reaction.

Traders and speculators should feel free to panic. People who own cryptocurrency should feel free to panic. If you define your wealth by your market position on a day-to-day basis, panic away.

But investors? No.

The underlying strength of the American economy is obvious. Moore’s Law runs in every direction, from clouds to chips to software to systems. Entrepreneurs are constantly finding ways to turn these resources into savings, into value worth buying and owning. America has never been stronger.

Life in Prison

The most ironic point to be made about the late Elizabeth Windsor is this.

She spent her whole life in prison.

It was a gilded cage, but it was still a cage. She first appeared on a magazine cover in 1929, age 3. Reporters ogled her from that time to this, like visitors to a zoo. Some threw things at her, unjust criticisms. She took it. Even in death she’s taking it.

The only area of life where she had any autonomy was within her family. She chose her husband, Philip. Her parents demanded she wait two years before they would consent to the marriage. It lasted 72 years. It was the greatest personal achievement of her life.

Everything else was a matter of state. All she had to do, all she had the power to do, was wave at it as it went by. She waved as the empire collapsed, waved as the commonwealth shrank, waved as her great nation became small, cramped, and finally poor. The Irish are now wealthier, and England’s per-capita total is inflated by the fortunes of its ultra-rich. Like the Windsors. Unlike the middle-class monarchs of Europe, the Windsor fortune, and the resulting power, kept Elizabeth locked away.

The Climax of the Story

Most Americans are taught that the climax of the Civil War came at Gettysburg, and that of World War II on D-Day.

These were turning points. Just as last November was a turning point.

Contemporary accounts tell a different story.

The climax of the Civil War came when Atlanta fell in September 1864.  Atlanta was the center for Confederate manufacturing. Birmingham hadn’t been invented yet. Wars are won by logistics. Without weapons or ammunition the Confederacy was toast. Lincoln was an underdog for re-election before Atlanta. After that he romped to victory.

The climax of World War II came with the Battle of the Bulge. News of the result didn’t come until practically the New Year. Even then the headlines were filled with the bloodier battles of the Pacific, which high school historians now ignore.

I believe we’re now at that point in the current struggle with fascism.

Kherson will be our Atlanta.

Revenge of the Norms

For months liberals have been screaming at Merrick Garland to DO SOMETHING about Donald Trump.

For months liberals have been expressing disappointment with Joe Biden over a lack of action on his agenda.

Whether you’re of the left or the right, the democratic and societal norms that restrict action are frustrating. I’ve been unhappy about it too.

This week, the norms struck back. Garland approved the search at Mar-a-Lago and offered to justify it with court documents. Biden got at least part of his agenda passed.

The Straight Ticket Election

Senate passage of the Inflation Reduction Act was the final act of political policy season. It was the opening of campaign season.

Midterms are usually a verdict on the President, a simple game of inside vs. outside. That’s not true this time. Both parties have done things and it makes both parties incumbents. Republicans hold most state houses and the courts. Democrats hold the Presidency and the Congress. It’s finely balanced.

Both parties are also more united than at any time in American history. There once were liberal Republicans. There once were conservative Democrats. This is a straight ticket election.

Side Effect

I should be dead. So should my wife. So should most Baby Boomers.

In my case, statins saved me. I have naturally high cholesterol, 373 when I got it checked in 2000. My dad (right) had a heart attack at age 47, a decade before this picture was taken.

Statins didn’t exist when  dad needed them, but today they’re generic, cheap. Same with my hypertension drug, an Angiotensin Reuptake Blocker (ARB). Without it my blood pressure was erratic in my 40s. In my late 60s it’s steady.

It’s not just my life. My mom went blind in her 50s, from retinal detachments. I just had my second retinal operation. It took 5 minutes. I was back at my desk the next day.

The good news is that Norman Lear and Mel Brooks are still alive. The bad news is, so are Rupert Murdoch and Donald Trump.

Break From Google

Once news distribution became free, almost 30 years ago, publishers forgot what made the business go and they all went for scale.

What makes journalism go is knowing your audience. You don’t write for everyone, but for specific readers. You monetize the credibility you earn based on who you do business with.

The Internet opened the whole market to every publisher. It also opened the whole market to every advertiser. What Google and later Facebook did was let businesses reach just the people they wanted for a “run of network” rate, which kept declining as Web content expanded.

This broke the connection between writers and the audience. We stopped trying to write for specific sub-segments of the population and went for the mass market. Advertisers took the job of targeting in-house, using the Web only for branding and spot sales.

I said from the beginning that was a mistake. This is obvious now. Along the way we have raised a generation of publishers on the mass market model, and as they’ve come to power, they’ve lost the plot.

The Oh Noes

Thanks to technology the U.S. economy works well.

We dominate the world. Our gross domestic product is 25% higher than China’s, with just one-fourth as many people. Half the world’s cloud data centers are located right here. Scaled software lets us adjust to change faster than any economic rival.

Most of the time, these adjustments are minor. Some of us are retiring and want trips. Others are just entering the workforce. Some of us are saving for homes, while others are eating out or seeing shows.

The last two years have been different. We’ve all been doing the same thing. We were all locked inside during the worst of the pandemic fear. We all opened-up together, then we all sought to take trips together. Now we’re all watching a war together.

Counterculture

Here is the most important point about Trump, his acolytes, and the Christianist forces allied with him.

They’re a counterculture.

They’re not the culture.

The dominant culture of the West is tolerant. It’s tolerant because that’s in the best interest of technology, where creativity is the gating factor to economic growth.

The economic facts aren’t changing. China isn’t going to beat us because you can’t get mass creativity from slaved minds. Russia remains tied to the old economy of resources, money coming out of the ground. Even the Middle East is liberalizing, because the Sauds and their fellow sheikhs can see the handwriting on the wall, can see Israel becoming more powerful than they can ever hope to be. They know they must get on the right side of the new economy. It’s where they’re investing their oil wealth.