Dana Blankenhorn

Putting Our 20th Century into Perspective

As much as we’re (rightly) reviling Woodrow Wilson for his racism, he’s still an important figure in liberal history.

Wilson named Louis Brandeis to the Supreme Court. He initiated the income tax and the Federal Reserve. During Wilson’s term, the 19^th Amendment was passed, giving women the right to vote.

But it’s what was done with Wilson’s memory that we should focus on. Wilson was one of only two Democrats elected to the White House between Lincoln and FDR. In building a history for his own ideas, Franklin Roosevelt didn’t have much to choose from. He had also served Wilson’s Administration as assistant secretary for the Navy and tried to succeed him as James Cox’s VP candidate in 1920, running on a Wilsonian platform.

Thus, Roosevelt used Wilson’s memory as a gloss to pass New Deal programs like the Tennessee Valley Authority, which transformed the South. Even more important was how Roosevelt used Wilson’s last crusade, on behalf of a League of Nations. You can see this laid out in the propaganda Hollywood produced about Wilson in 1944.

“Wilson” is garbage as history or biography. It starts in 1912. It ignores Wilson’s racism entirely. But as hagiography it’s first-rate. In it he’s an academic and reluctant politician, incorruptible, a relentless reformer. In life he was nothing of the sort.  

Why Jay Powell is Worse Than Trump

The COVID-19 pandemic was the greatest transfer of wealth, from the poor and middle class to the very rich, in the history of the world.

But the transfer wasn’t done by Donald Trump.

It was done by Federal Reserve chair Jay Powell.

The $2.3 trillion the Federal Reserve created out of whole cloth in March  went almost entirely to people who already had money.

Powell bailed out every bad and stupid bet the market had made. He bailed out the airlines. He bailed out the cruise lines. He bailed out the casinos and the oil companies.

Capitalism is supposed to be about private risks that can go bad, and risks that work fueling the greater good. At a stroke, Powell turned that truth on its head, removing the risk markets are built to protect, and socializing it. The vast majority of people were told to pay their rent and buy food while tens of millions were losing their jobs.

Carnival Cruise Lines should be out of business.  They bought back stock and handed out big dividends when times were good. Technically they’re not even an American company. While they have offices in Miami, they’re legally run out of tax havens. But if you bought Carnival when I said sell, on May 15, you’re up 50%. That’s because, after Powell’s actions, Carnival was able to borrow $6 billion from investors desperate for yield, something that was only possible because of the Fed’s money creation efforts.

Why Black Lives Matter to Me

You’re looking at the face of an old white guy and wondering about the headline.

Here’s the story.

I was brought up racist, on Long Island. I didn’t think that was the case, but I know now it was. I knew people like Roger Stone, Eugene Delgaudio and David Keane when they were kids. That’s because during the height of the Vietnam era I was part of a group called Young Americans for Freedom, a right-wing agitprop created by William F. Buckley when the SDS was getting started.

I’m not proud of it. I got falling-down drunk at age 16, and the hangover lasted until the day after school started. I told my parents I was sick.

We weren’t rich, but we had a lot of white privilege. It helped me get off Long Island and into Rice University, even though my parents had saved nothing for college. It got my dad a small business loan when he fell through a false roof and became disabled. The parents of the girl I married turned out to be well-off too. Most Rice parents are.

I was blind to my own good fortune. I saw myself as an idealist. I went to Northwestern, got a job at a business newspaper, and covered the end of the Houston oil boom.

The Cost of Free Money

With the Federal Reserve having thrown trillions of dollars into the economy, many people ask where inflation went?

Look at your portfolio.

What should have happened in March was that helicopter money would go into spenders’ pockets. That money would have then gone into rent, into food, and into other necessities, increasing the value of companies that made and sell those goods, keeping the economy going.

Instead, the money went to investors who, with bonds priced near zero, bought stocks. Meanwhile the economy collapsed.

Anything that works now carries a ridiculous price. Amazon.com (AMZN) is a great company, but is it worth 110 times earnings? Apple (AAPL) faces huge supply chain problems, so is it worth 27.5 times earnings? Microsoft (MSFT) is at 35 times earnings, and slow-growth Walmart (WMT) is at 25 times.

Money is also flowing into things that should be worthless. AMC Entertainment (AMC) admits its movie theater chain may have to go out of business. Yet the stock is worth $5.50 per share, the market cap is still $575 million. Luckin Coffee (LK) is practically Enron. It lied about its revenues and is facing delisting. But it still trades, at $2.61 per share, a market cap of $650 million.

There’s your inflation. It’s hiding in asset prices.

Trump vs. Tech is The Story of 2020

In his effort to maintain power through the pandemic, Trump deliberately divided America.

He got the smaller piece of it, and figures that’s OK, because Wall Street is behind him.

But that’s not where the money is. It’s why he’s going to lose.

Trump’s economic policies favor investors, Wall Street, and those who can work from home while paying our bills. By pushing out trillions of new dollars, mainly to people who didn’t need it, Trump brought the stock market back. He thinks the stock market is the economy.

It isn’t.

The Fire This Time

Over Memorial Day weekend, my wife drove my son back to his home.

What none of us knew was that she was driving right into the fire of our time.

My son is now a biochemistry Ph.D candidate at the University of Minnesota in Minneapolis. He wants to work on COVID-19, the virus that wrecked the global economy earlier this year, and that is putting America into its second Great Depression.

As she headed home Tuesday morning, the match was lit a few miles from my son’s apartment. George Floyd was murdered by cops using what had become a standard Minneapolis police practice, but which officer Derek Chauvin took to extremes. As most people know now, Chauvin kept his knee on the back of Floyd’s neck for 9 minutes, asphyxiating him. Killing him. Murdering him. Other officers stood by and did nothing.

False Dawn

Because the government (once again) threw money at people who didn’t need it, Wall Street is great again.

Anything that works, the growth stocks and the big retailers, is overpriced. People are even throwing money at things that don’t work, like airlines, cruise lines and casinos.

But this is a false dawn.

Opening too early puts us on track for what the underwriters at Willis, Towers & Watson call their “limited success” scenario.  In this case, deaths continue through the summer, but the fall brings a new, even more-severe outbreak than before.

This is precisely what happened in the 1918 flu pandemic. There were three outbreaks. It was the second one, in the fall of that year, that was the killer.

People think this thing is licked because, as restaurants open and idiots demand haircuts now, there has been no spike in cases. That’s only because most people aren’t going to those restaurants or running out for haircuts. If no one around you has the virus, you’re safe. If one does, and you’re around them for about an hour, then you and dozens of other people get sick at once.

On top of that, we have outright lying about how many people are sick and dying. Georgia, where I live, transposed dates so it seemed case loads were declining. Florida fired a woman who refused to fudge the numbers.

The virus doesn’t care about any of this.

1918 vs. 2020

There are too many differences between the COVID-19 pandemic and the 1918 flu pandemic to count. Here are just a few.

First, the viruses have almost nothing in common except that they’re viruses. No one even knew the 1918 pandemic was even caused by a virus until years later. Over time, virology evolved. We now produce semi-reliable vaccines against mutations in the H1N1 virus that caused the 2018 flu every year.

With COVID-19 we have a lot more tools. But it's a completely different type of virus, as different from H1N1 as you and I are from whales. Still, we had a model of it available within weeks of the outbreak. We understand about messenger RNA and have hundreds of vaccine candidates now going through testing.

But knowledge has yet to bring power. Until science delivers an answer, we’re mainly doing palliative care, just as we did then. That goes for everyone, making this a true global event. But, as it was in 1918, our willingness to listen to what science DOES know makes a big difference.

This time, unlike 1918, many Americans aren’t listening.

Toward a New Normal

A new, post-pandemic normal is coming into view.

It looks different from the world we left.

Presidents and Governors won’t decide when states open back up. Consumers will. Most Americans believe what medical experts are telling us.

That’s not what we’re seeing from Trump, or any other Republican. This willful ignorance is going to get people killed.

The most logical program is to practice social distancing for a year or two, until the pandemic has passed, and vaccines are widely available. Meanwhile, all industries that depend on crowds will have to build new business models. When sports come back, it will be to empty, or near-empty, stadia. Movie theaters and malls are gone. So are restaurants where people sit close together. So are cruise chips and casinos. Bailing them out is throwing money down the drain.

Meanwhile, the Federal Reserve has dramatically expanded the money supply, handing out cash to keep the economy going now. The money will remain after the storm has passed. Further money supply increases will be needed to repay today’s debt. The pandemic has whipped deflation. The worry now is the value of money.

The economy is getting through thanks to the Internet. The Internet lets us continue to work from home. The Internet lets us order the goods we need to get through this. The Internet is telling us what’s what and what’s not.

The 1918 “Spanish flu” pandemic happened two years before the first radio broadcast. It makes a difference. (To learn more, I recommend Pale Rider  by Laura Spinney.)

Cooperation in a New Century

There are two kinds of cooperation between people and government.

There is the kind China has engaged in, cooperation by force. It seems to have worked. They’re getting back into business. Many people will say, out of ignorance, that this proves authoritarianism works.

Then there’s the second kind of cooperation, voluntary cooperation. It’s a cooperation of the mind, not just the body. It’s what I’ve talked about for years now. It’s what makes America great. We call it liberty.

It’s this kind of cooperation that will be essential to America’s comeback, not just over the virus but over the authoritarian Chinese threat, which will be the hallmark of the coming decade. It’s why getting rid of Trump is essential.

I’ve written a lot about economics here. I’ve talked about various economic eras in American history, how each featured a dominant industry, which rose to power and fell as the next took over.

But there’s something these earlier eras had in common. They were all built on resources. They were all built with possession of physical goods as the limiting factor to growth, as the main ingredient in the wealth of nations.