Not Out Of The Woods

Apparently, the Donald will be spared the ignominy of spending his remaining days in one of Uncle Sam’s hospitality suites, which surely would have been the eventual consequence of his removal from office and the Democrat vendettas which would have followed hard thereupon.

But if he’s out of the woods thanks to Senator Lamar Alexander’s decision to vote no on impeachment witnesses, we are not. That’s because the bipartisan duopoly’s assault on constitutional government in America has not been ended in the slightest, and also because the statist Trumpified GOP remains in power to bring further assault on capitalist prosperity here and abroad.

We were reminded of how completely the Donald has accelerated the transformation of the GOP into the second party of Big Government by the response of his Treasury Secretary to the news of another punk GDP report out of Europe. Fourth quarter real GDP growth printed at an anemic 0.4% annualized rate, bringing growth for the full year down to 1.2%, which is the lowest gain since the crisis of 2012-2013.

Of course, Secretary Mnuchin is a clueless knucklehead and Wall Street flunky who got rich by accident in 2009 when he bought a bankrupt subprime high flyer, Indy Mac, and got showered with billions of free money from the US taxpayers to bail it out. Other than that, he wouldn’t know macro-economics from macaroni-and-cheese, but he’s hung around the Imperial City long enough to ritually intone the most dangerous catechism of modern times.

To wit, the insidious notion that if government agents including the central bank are not all-in, all-the-time on “stimulus”, the main street economy is prone to underperformance, recessionary contraction and even worse.

So after yesterday’s punk economic report crystalizing once again the travails of European economies being strangled by socialism and dirigisme, the Donald’s top economic official did not hesitate to attack the one country on the planet which has shown a modicum of fiscal sanity:

Speaking Saturday in London, U.S. Treasury Secretary Steven Mnuchin urged Germany in particular to act.

“There are countries that have opportunities to expand fiscal on top of monetary,” he said. “Monetary cannot be the only economic tool.”

That’s right, Steven, but what’s wrong with the most potent economic tool of all—capitalism itself?

Governments cannot print, borrow or spend the macro-economy into higher growth and greater sustainable prosperity. Growth comes from the sweat and exertions of millions of workers and the energy and innovations of thousands of entrepreneurs, investors, inventors and savers pursuing their own betterment on the free market.

Back in the day, every Republican knew at least that much. And when in the pre-1980 era Republicans strayed from the gospel, it was more often than not owing to a desire to oil squeaky wheels back home with regulatory or trade protections or fiscal subventions and pork. That is, heterodoxy consisted mainly of parochial exceptions to the general rule of non-intervention at the national or macro-level.

So nobody and we mean nobody would have talked about “expanding fiscal on top of monetary”. That was veritable heresy from Harvard Yard.

And most especially, no one would have advocated deliberate deficit spending to goose the GDP growth rate. The very idea that in normal times—outside of world war or extreme economic collapse—-you would deliberately incur deficits was simply beyond the pale.

Yet here we are today with a top GOP official rebuking Germany for doing exactly what it needed to do—and before the fiscal-demographic disaster struck. To wit, it has one of the oldest populations in Europe and an anemic fertility rate of just 1.5, meaning that its population will be crashing in the decades ahead and the ratio of workers versus retirees will plummet.

So in order to prepare for the soaring costs of socialized medicine and pensions for a ballooning retired population it has worked diligently to get its fiscal house in order.

German population growth

The chart below, therefore, is surely unique among the major developed economies of the world. After running 3-4% of GDP deficits for the first decade of this century, it turned the corner in 2012 and has been generating modest budget surpluses ever since.

Needless to say, this was no mean achievement. That’s because all the while the German government was being importuned by the Keynesian apparatchiks in Brussels and the socialist and statist politicians in the rest of the Eurozone to throw future German taxpayers under the bus in the name of economic stimulus and greater fiscal union.

Germany Deficit/Surplus As % Of GDP, 2001-2019

Germany Government Budget

As it happened, Germany stood its ground against French demands for debt sharing and the fiscal miscreants of Club Med. Accordingly, it has nearly brought its debt-to-GDP ratio back around the barn to where it stood at the turn of the century.



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