If we buy Richard Duncan's contention (Pain or Death? The view from the balloon) that the American economy is so far up in balloon territory that we have no choice but to borrow and print trillions more dollars to keep it all going or face a disastrous -- potentially civilization ending -- reset of conditions, then what do we do?
I do agree with this contention, mind you, and my response is to build strong towns. Our cities, towns and neighborhoods are financially fragile and we need to get to work shoring them up. Fine-grained investments. Get small and get agile. Shift our investments from, in the words of Czech economist Tomas Sedlacek, chasing growth to building stability. Lots of resilient local shops. Lots of adaptable building types. Different, low-cost transportation options. Less dependence on cheap energy. Local food production. That kind of thing.
That is not the response that Duncan has, however. And again, I think his brazen honesty -- his willingness to take the showering of free money beyond easy platitudes (green energy, free college, high speed rail, etc...) and into a workable strategy -- is what fascinates me.
In fact, here's Duncan repeating the Keynesian platitudes before he gets to specifics:
The Fed has bought these government bonds, and the government still must pay interest on those bonds to the Fed, but at the end of every year the Fed takes all of its profits which come from the interest on those bonds and gives it right back to the government, meaning the government is not really paying interest on that debt, meaning that those bonds have essentially been cancelled, so with every month that passes we hear more and more about helicopter money and perpetual debt, issuing perpetual bonds, meaning bonds that will never be repaid. That would make it possible for the government to spend more on infrastructure in the short term, and ideally, on investing in new industries and technologies over the longer run, investment in things like genetic engineering, biotech, nanotech, green energy, to restructure the U.S. economy, creating new jobs and inducing a new technological revolution.
We have all this free money -- the debt is essentially canceled -- so now we can do all these great things. Note that it goes without saying that today's great things will turn out better than the great things we did the last time we had lots of cheap money (urban renewal, highways through the middle of our cities, a highway interchange with a big box store for everyone, etc...).
So how do we do all these great things? Here's a thought that Duncan puts forward:
The government, for instance, could fund a government/Elon Musk joint venture, and fund it with, let’s say, ten billion dollars, or 25-billion dollars, or 100 billion dollars, and see what kind of innovation you get out that. It would mind-boggling. It would induce the most incredible technological revolution you can imagine.
Now, pick out the 10,000 most promising entrepreneurs and scientists and have the government fund them and set up joint venture projects with them where the government funds it, keeps a majority stake, and therefore shares in the profits. But let the entrepreneurs run them. And we would usher in an age of technological miracles and medical marvels that would certainly take us far, far from the brink of collapse where we are at the moment.
That is mind-boggling, but not for the reasons Duncan -- and like-minded Keynesians who, by the way, are running our economy -- might believe.
First, this is how innovation happens? We pass around billions of dollars to smart people and see what they can do with it? I love how he phrases it, "Let the entrepreneurs run them," as if our definition of entrepreneur is now the rich kid who inherited his family fortune and managed to not squander it. In the new economy of free money, in the world of Richard Duncan, being an entrepreneur doesn't involve taking a real risk, unless you consider gambling with house money (while personally getting paid huge sums of money) some kind of a risk.
In a world without real feedback, we're not going to get the outcomes we want, regardless of how much money we can throw at something. Technological miracles and medical marvels do not benefit large parts of the American population today, an astoundingly high percentage of whom are living paycheck to paycheck and can't afford them. What makes us think that will change, especially if our plan is simply to throw more and more money at the current winners?
Second, you think we're having a revolution now? You perhaps don't like Trump and his supporters? The rhetoric of Bernie Sanders makes you uncomfortable? They are going to look like Eagle Scouts compared to what will come next if Duncan's kind of plan is adopted (and I think it is increasingly likely that it will).
You think that guy who had the auto assembly job in the 1980's, who shifted to home construction in the 1990's and now finds himself unemployed or working the night shift at Walmart post 2008 is going to be one of the lucky 10,000 to be handed a government lottery ticket?
Yes, our economic approach for generations has been to bribe the working poor and middle class with bread and circuses, from highways to housing subsidies to stadiums. Promises of a new "technological revolution" full of advances in genetic engineering, biotech, nanotech and green energy sound great for the hipster class and the high net worth retirees, but it loses its sheen when viewed through the glass at the Dollar Store.
Again, it's hard to argue that this vision is little more than an expansion -- perhaps a grand expansion -- of our current approach. Does this approach seem to be working? Does it seem to be trending in the right direction? Even if it is for you, this political cycle should be Exhibit A to suggest that's not a broadly shared experience. Even if Duncan's plan was great economics -- and I'm highly dubious -- it's socially unacceptable (except during an extreme crisis, me now subtly channeling Oliver Stone).
Finally, and most relevant to our conversation here, this takes us further and further from a Strong Towns approach. There is no way that people with even the best of intentions can distribute trillions of dollars from a centralized system and have it result in anything fine-grained. Helicopter money in a modern state means subsidizing the current pattern of development, from expanding highways and the outward expansion of cities to the big box stores and chain destinations to suburban McMansions and high rise condo units. This is who we are today, a byproduct of the systems we established to get our balloon this high in the first place. More money -- more hot air into the balloon -- is never going to result in the substantive changes we seek.
The Strong Towns movement is a response to how financially fragile our cities have become. In a representative democracy such as ours, Duncan's approach -- and the bipartisan approach of others who would shower money on our current system -- can only make the fragility problem worse. This thinking scares me.
You have to admire the sheer hubris of Duncan, however. I'm a huge Disney fan, but his vision is when-you-wish-upon-a-star-your-dreams-come-true thinking on steroids. Escapism is wonderful, but it shouldn't be the basis of an economy.
(Top photo by DarlArthurS)