Return to Normalcy? “Normalcy” Caused It in the First Place

May 8, 2020
By Amb. Patrick N. Theros

Trump has bet the farm on getting the country up and running “like normal” to enable his reelection in November. The pandemic cratered his plan to campaign on the full employment and record-breaking stock markets he “created” in his first term. I doubt that even at his most delusional, Trump believes we can get back to the February 20th peaks of 3.5% (+/-) unemployment and a Dow Jones Industrial Average of 27,551.42. However, he hopes he can point to an upward trend by November to clinch an Electoral College victory. (Only the most unhinged members of the Trump Cult believe he can win the popular vote.) It may or may not happen.

But we should first ask ourselves if we truly want to restore the over-juiced economy that imploded when the microbe hit. Trump’s stock market surged because his pro-plutocrat tax cut and unprecedented deficit spending pushed so much money into Wall Street. In February, the S&P 500 price/earning (P/E) ratio stood at 23.50 (In layman’s terms, total shares were valued at 23.5 times the annual profits.) By way of comparison, the S&P P/E has generally stayed within the 10 to 15 range since it started in 1871. Coincidentally, it broke that 20.0 ratio just before the 1929 Depression, the 1933 relapse, the 1995 dotcom bubble, and the 2008 Great Recession.

The tsunami of money pouring into Wall Street drove much of that dangerously bloated overvaluation. Companies bought their own shares with their earnings. This allowed corporate executives to increase their already obscene compensation. Most received more money through various schemes related to the value of company shares. Most of these CEOs survived the Great Recession of 2008 on the backs of you and me, the ordinary taxpayer who forked over hundreds of billions of dollars to save their cushy lifestyles. They took our money and spent it on share buybacks. If this were not enough to satisfy the financial moguls’ greed, they took their companies deeper and deeper into debt after Trump took over in 2017 so that they could buy back more shares to make more money and send the stock market soaring, which kept Trump happy. When the microbe hit, they had spent all the money and have run back to the taxpayer begging for more to stay afloat.

To make matters worse, the same financial geniuses crippled the most productive parts of the U.S. economy. For the record, I do not consider making money through financial transaction fees ‘productive’. The destruction of Trumbull County Ohio, once the very heart of the American steel industry, serves as an object lesson. (My mother’s family lives in Warren, Trumbull’s county seat.) In 1970 Trumbull County was the most heavily industrialized political unit in the United States, perhaps in the world, hosting big steel companies and scores of related industries. The owners of these companies, their management and their workers all lived in Trumbull County. In the early 1970’s, Wall Street acquired the steel companies. Soon the owners left town for warmer climes followed by upper management who moved to Wall Street. The financiers then loaded debt on the companies, profiting both from the fees and share buybacks and then bankrupted the mills. In the process they took down the related industries. The Wall Street money managers figured correctly that outsourcing to China, Mexico, and elsewhere produced more money than investing in the modernization of the mills. Just remember that China and the others did not ‘steal’ our industrial sector; Wall Street gave it to them. After all, the University of Chicago and Milton Friedman taught Wall Street that “shareholder value”, AKA making money for the owners, was the highest of human aspirations. If you are interested, Warren’s population fell from a peak of 63,494 in 1970 to an estimated 35,000 today.

Another current drama illustrates the harm created by Wall Street’s takeover of American industry. Readers should know that virtually the entire management team at Boeing, America’s premier aerospace company, originated in the investment arm of GE (itself once a famous company called General Electric). The aeronautical engineers who created Boeing no longer run the company. Putting profit over safety, the ex-GE management created the disaster of the 737 MAX. The federal government pursuing the chimera of deregulation contributed to the disaster by outsourcing safety oversight to the manufacturer. In the same way, USDA and OSHA outsourced safety inspections to the four companies that own the 400 or so meatpacking plants that produce 80% of chicken, beef, and pork found in supermarkets. Now we wonder why COVID19 decimated their work forces?

Juicing the economy did create jobs, but what jobs? An extraordinary portion of those jobs paid little, had no healthcare or retirement benefits, or job security. And now, the pandemic has put these people in the unenviable situation of deciding between dying of starvation or dying in a ventilator. Space limits further examination of the unemployment problem in this article.

Trump’s “best economy ever” had no foundations. The massive input of cash from tax cuts and deficit spending combined with the reckless acquisition of debt by financial management, a disease that also infected ordinary consumers, would have brought the economy down in the next couple of years. COVID-19 only brought the date forward.


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