Author: George Noga

It’s Getting Better All the Time

George Noga
The environment is the best it has been in at least 75 years and is getting better all the time.   
It’s Getting Better All the Time
By: George Noga – April 15, 2018

       We will celebrate Earth Day 2018 on April 22 with a special posting; today’s posting is a prequel. Since Earth Day began in 1970, Americans have been bombarded with ersatz horror stories even though every significant measure of environmental well being is the best it has been and is getting better as well documented in numerous publications including: It’s Better than it Looks, It’s Getting Better All the Time, Enlightenment Now, Progress, Abundance, Rational Optimist and The Moral Arc.

        Following are but a few of the metrics that are doing great: deaths from extreme weather, ambient air quality, emissions per GDP unit, streams suitable for swimming and fishing, oil spills, wastewater treatment, energy use by GDP unit, auto fuel economy, food production, commodity prices, timber growth and use, environmental quality and natural resource abundance. And the list goes on and on.

        Malnutrition in the US (and globally) is at its lowest level in history. Virtually all hunger that remains is due to distribution failures and government corruption – not to lack of food. Obesity in the US, and increasingly worldwide, has supplanted hunger as the more significant problem. Not only do we now feed an astounding 7.6 billion people, we accomplish the feat with a much smaller environmental footprint due mainly to GMOs. This doesn’t stop environmental alarmists from incantations and screeds warning of population growth and demonizing GMOs. Note: The population growth rate already is falling globally and will turn negative by end of the century.

        Despite the epic proliferation of people and the concomitant improvements in their standard of living and consumption, the earth’s minerals and resources are more abundant than ever before – and are getting more abundant all the time. The price of virtually all resources is falling, signalling that we are finding and replacing them faster than we are using them. Remember peak oil? On past Earth Days, scaremongers in science, media and politics warned we would run out of oil by 2000; instead, energy is in worldwide oversupply (really, there is a glut) and prices have plunged.

        Brace yourself for the soporific palaver you will be force fed during the coming week by the Chicken Little triad of media, progressives and environmental wackos. They will regurgitate their imperious, dog-eared shibboleths about greedy corporations spewing carbon, polluting and despoiling the environment. They will rant about frankenfoods, population growth and, of course, their favorite whipping boy (or should it be whipping person?), climate change. But you know the truth, i.e. every metric of environmental well being is the best it has been and is getting better all the time!

      As for us at MLLG, we have written an uber-special Earth Day post to be distributed on Earth Day 2018, which is next Sunday, April 22. Its topic is an environmental issue we never before have written about since these posts began in 2009. It should be a real eye opener; please be sure to read it on Earth Day!

On Earth Day (April 22) we will have something truly provocative for you.

Business Ethics and Social Responsibility

George Noga
Profit is the appropriate measure of a corporation’s value to society.
Business Ethics and Social Responsibility
By: George Noga – April 8, 2018

      A professor I know teaches corporate ethics and social responsibility at a local university. She asked me to provide a video for her class, knowing my presentation would be provocative and in sharp contrast with videos provided by other business leaders; I did not disappoint. Following is a lightly edited transcript of my video.

Question from professor:  You have done considerable service for the community; does this mean business leaders have a responsibility to give back to the community?

I did community service because I wanted, not due to some wrong-headed cliche. The responsibility of business is to earn profit; by doing so it serves the community. Apple makes a billion people more productive and enriched; they do more good going about their business than they ever could through community service. The term giving back implies something has been taken. People who should give back are those who have taken; that’s why criminals are assigned to perform community service.

Question from professor:  Should companies do nothing in way of community service?

Companies should act in their self interest. Their mission is to provide the best possible products and services to consumers and value to shareholders; by accomplishing this they enrich the community. If businesses choose to sponsor community projects, they should do it for the right reason – not because of some platitude from a can.

Question from professor:  Should companies have a written code of ethics?

Restaurant washrooms have signs “Employees are required to wash their hands.” Such signs are posted to make customers comfortable, not to remind employees. So it is for codes of ethics. A written code of ethics probably can’t cause harm but it is mainly for window dressing. Enron had a 64-page code of ethics distributed to all employees.

Question from professor:  What about sustainability and green initiatives?

I never met one businessman who was against the environment, social responsibility, sustainability or other similar catch phrases. Recognize however that such argot is virtue signalling and a dog whistle for political correctness. Greenwashing and green preening is ubiquitous and serves the same purpose as the restaurant washroom signs.

Question from professor:  Is there a role for socially responsible investing?

The people that P.T. Barnum said are born every minute believe in socially responsible investment. I fail to see the social value in throwing money away. Profits are the best metric of a corporation’s value to society. If it makes you feel virtuous, go ahead; you are helping people but just not in the way you believe; you are helping me and other value investors. What is socially responsible anyway? Is blacklisting defense stocks responsible; or, is it more virtuous to have a strong defense to maintain the peace?

Question from professor:  In closing, what is your advice to students?

Single-mindedly focus on truth; do not unquestioningly accept conventional wisdom or political correctness. Businesses must operate in the real world; perforce, focus laser-like on your customers’ needs and wants and the rest will take care of itself.

Next up: Americans are not as divided as their political parties.

Startling Climate Change Perspective

George Noga
Ominous pronouncements from science, government and media about climate change 
Startling Climate Change Perspective
By: George Noga – April 1, 2018

       The following excerpts from respected sources in science, government and media just might change your outlook about climate change and global warming.

        Newsweek: “There are ominous signs earth’s weather patterns have begun to change dramatically; these changes may portend a drastic decline in food production. The evidence has begun to accumulate so massively that meteorologists are hard pressed to keep up. . . If the climate change is as profound as the pessimists fear, the resulting famine could be catastrophic. . . . The longer we delay, the more difficult it will be to cope with climate change once the results become grim reality.”

       New York Times: “Some experts believe mankind is on the threshold of a new pattern of adverse global climate change for which it is ill prepared. . . this climate change poses a threat to the people of the world.”  Time Magazine: “The scientists at the National Oceanic and Atmospheric Administration are confidently predicting the current weather will continue.” New York Times: “The US and Russia are exploring why Arctic climate and sea ice is changing so rapidly and so ominously.“

       Science Digest: “World’s climatologists are agreed we must prepare for the next climate epoch.” Professor Hubert Lamb: “We are on a definite course for the next two centuries. There may be a few fluctuations but these are more than offset by the general trend.” New York Times: “An international team of specialists has concluded there is no end in sight to the trend of the past 30 years.” CIA: “Climate leaders agree climate change has caused major economic problems throughout the world.“

       Professor James Hays: “A trend has already begun. . . and it should continue for the next 20,000 years.” National Center for Atmospheric Research: “There are strong signs that recent climate disasters were not random deviations from the usual weather, but instead signal the emergence of a new normal for world climate.”  Reuters: “The threat of climate change must now stand alongside nuclear war as a likely source of wholesale death and misery for all of mankind.” Harper’s Magazine: “Rising ocean waters may flood most of our port cities within the foreseeable future.“

       I could fill many more pages with the same stuff. How certain and how dire their warnings – comparing climate change to nuclear war, predicting massive starvation and severe climate for the next 20,000 years. Their predictions for 20,000 years did not survive even 20 years; all the quotes in this post are about global cooling and the coming ice age! Today, science, government and media are equally certain and apocalyptic about the opposite of what they were certain about a few decades ago.

     There constantly are new revelations about contrary science, shoddy research, concocted data, fraudulent peer review, plugged computer models, compliant scientific journals, refusals to debate, quashing of dissent and warming throughout the solar system. These often involve the same people who were so wrong about global cooling.

       But wait; it gets worse. The UN IPCC predicted that by 2010 there would be 50 million climate refugees and even published a map showing where they would be as a result of rising sea levels. That was 8 years ago; today there are exactly zero climate refugees, no rise in sea level, no food shortages and even the ozone hole has filled in.

       I apologize if you were momentarily fooled, but it is April 1st. We will have more to say about climate and the environment as we approach Earth Day. Stay tuned.

Our next post is about business ethics and social responsibility.

The Debt Crisis Revisited

George Noga
Many readers responded to my assertions that the US has crossed the point of no return on the debt crisis and that it is Gotterdammerung for America.
The Debt Crisis Revisited
By: George Noga – March 25, 2018

      Wow! My recent posts about the debt crisis Point of No Return (February 18) and Gotterdammerung for America (February 25) (available at www.mllg.us) elicited many questions and comments from readers. Following are my responses.

Question: Your current position differs from what you wrote in the past; explain.

Some readers have long memories. I wrote in 2010 and 2011 that the debt crisis would arrive in the early 2020s and possibly sooner. Now, I project it will arrive in the mid 2020s, maybe sooner. The difference is entirely explainable by (1) the budget sequester passed in 2013; (2) nine years without a recession; and (3) the lowest interest rates in history. There is another key difference: in earlier years I believed the crisis was still avoidable; now I believe we have crossed the point of no return. Fundamentally, nothing has changed except the timeline – thanks mainly to the sequester.

Question: What about Japan; isn’t its Debt/GDP ratio above 200%?

Japan’s ratio is 235%; however, it has pension and other assets, which partially offset the debt part of the equation and lower the ratio to around 100%. The NIKKEI 225 stock index nearly hit 40,000 in 1989; currently, it is around 21,200 – a drop of 47% that has persisted for 28 years and counting. Economic growth has barely averaged 1%; they have chronic deflation and now more deaths than births each year. They have avoided default mainly because Japanese citizens are willing to buy government bonds to finance the deficit. However, Japan has paid a steep price for its debt crisis.

Question: Hasn’t Greece avoided default despite a ratio way above 90%?

Greece’s ratio is around 175%. It has staved off default because it is small (GDP size of Massachusetts) and was bailed out by the EU, which imposed severe austerity in exchange for the bailouts. The US is far too big to be bailed out and if we go under, we drag the rest of the world with us. If Greece were on its own, it would have defaulted and would now be a third world country. Moreover, Greece has suffered; its economy has shrunk, pensions have been cut nearly in half and there is societal upheaval.

Question: Isn’t the US okay as long as people keep buying Treasury bonds?

Yes, witness the situation with Japan – which likely is unique to that country. When US debt reaches a level where it can’t be repaid, why would anyone buy more bonds? The very nature of a debt crisis means the debt can’t be repaid without default, devaluation or financial repression that forces bondholders to accept less than full value.

Question: Is a soft landing possible?

Translation: can we suffer a debt crisis with minimum pain and disruption? The debt ultimately must be reduced via: (1) less spending; (2) higher taxes; (3) inflation; (4) repudiation; or (5) a combination. However, the magnitude of the spending cuts or new taxes would be devastating. A crisis could take the form of a sudden cataclysm or a slow motion train wreck. One way or another, the debt must be purged and every possible method results in a crisis that will fundamentally reshape America.

Question: What do you really believe will happen and when?

If something cannot go on forever, it won’t. No nation has recovered from 90% without economic and social upheaval. The US will surpass 90% within a few years and the ratio will continue to skyrocket after that. The point of no return is 90%; that does not mean the crisis begins the day we reach 90%; it only means disaster can’t be avoided. The ratio may hit 125% or even 150% before the bottom falls out. Government will attempt fixes but they will be too little, too late. A painful readjustment process will purge the excess debt from the system. When it is all over, America will be a different country. Some readers have expressed a more sanguine outlook; I hope they are right.

Our next post on April 1st focuses on a serious environmental problem.

Seventy-Five Years and Counting

George Noga
None of the promises government has made to you will be honored, including, healthcare, Social Security, defense and a stable currency.
Seventy-Five Years and Counting
By: George Noga – March 18, 2018

        Today, on my 75th birthday, I take the liberty to share what I have learned in three-quarters of a century about human nature and the relationship of man and the state. This comes hard on the heels of jeremiads wherein I asserted capitalism is self-destructing and that America has crossed the point of no return in the debt crisis.

     Government is evil. Some government is needed to avoid an even greater evil: anarchy. Because government is evil, it stands to reason we want as little of it as possible. Our founders understood the key is to limit its power; but the trend always is for government to gain and for liberty to yield. Government has ballooned from 5% of GDP in the early years of the republic to nearly 40% today – and rising rapidly.

       Government can’t be reformed because its evil is inherent. Waste, fraud, abuse and corruption are endemic; any attempts at control or reform are futile. The evil spawned by government is directly proportional to its funding; hence, the only way to reduce the evil is to reduce the funding; nothing else works. Power corrupts; even neighborhood homeowners’ associations quickly transmogrify into power-hungry wannabe dictators.

Politicians respond to personal incentives. Public choice economics explains why elected officials don’t care what you want – except to get elected. Government (and socialism) fails because there is an unbridgeable chasm between self-interest (human nature) and the public interest. This is unlike business, which does a good job aligning personal and corporate risks, rewards and incentives. Everything politicians say and do is to further their own interests which, most of the time, are contrary to your interests.

       People are incapable of sacrifice absent serious and present danger. We refuse to act even to stave off a clear and inevitable disaster unless it is manifest in our daily lives. A good example is the present debt crisis which, as demonstrated in these posts, will inflict unspeakable horrors on America; however, the crisis likely is still years away and there is not yet any discernible impact on our daily lives.

       We have lost the connection between capitalism and our liberty and prosperity.  America has become so rich and the wealth is spread so broadly, we are disconnected from what created the wealth in the first place. That is why polls show us so enamored with socialism. I recently read John Steinbeck’s book, “In Search of America”, wherein he prophetically observed: “We (Americans) can stand anything God and Nature throw at us save only plenty. If I wanted to destroy a nation, I would give it too much.”

 

        Americans are losing touch with reality. We spend more and more time transfixed by our devices in the virtual world rather than connecting in the real world. We confuse junk science with actual science, fake news with real news and political fantasy with reality. We are suffering mass delusions about, inter alia, anthropogenic climate change, GMOs, organic food and fascism. Our lassitude conflates identity politics with existential threats – we glom on to the ephemeral while ignoring the consequential. Our politics appeals to people’s prejudices, passions, jealousies and apprehensions.

     In the end, I always harken back to the eternal lesson of Kipling’s Gods of the Copybook Headings; i.e. we ignore the hard-learned wisdom (copybook headings) of the ages at our great peril. Human nature is unchanged since we were living in trees; and just as water surely will wet us and fire will burn, the gods of the copybook headings, with terror and slaughter, will return!

       Above all, I learned what America needs is more liberty and less government!

Our next post takes on business ethics and political correctness.

Destroying the Link between Capitalism and Wealth

George Noga
If  capitalism and liberty lose the culture war, it will be because Americans have lost the link that brought us our unprecedented cornucopia of  wealth.
Destroying the Link between Capitalism and Wealth
By: George Noga – March 11, 2018

      This is the second and final post seeking to answer the question: Does capitalism sow the seeds of its own destruction? The first part is on our website: www.mllg.us. This question first was posed 100 years ago by economist Joseph Schumpeter. We will conclude by comparing Schumpeter’s predictions with where America stands today.

       We are engaged in a great culture war for the preservation of capitalism along with wealth and liberty, which are symbiotically linked to capitalism. If we have capitalism, we ipso facto have liberty and wealth. Without capitalism we become poorer and less free, while under socialism we are impoverished and tyrannized; think Venezuela.

     How bad is the anti-capitalist mentality? One poll showed 4 out of 10 US adults preferred socialism to capitalism. A YouGov poll asked if respondents had a favorable view of capitalism or socialism. With Democrats, it was tied at 42%; millennials chose socialism 43% to 32%. In a Gallup poll, 47% of respondents reported they would vote for a qualified socialist for president; 69% of those ages 18-29 said they would. Of  millennials, 58% would rather live under socialism than capitalism. In a Politico poll, Democrat voters in every age group, gender and race said they liked socialism.

     Unsurprisingly, few people, especially millennials, understand what capitalism, socialism or communism really is. Large majorities conflate European social welfare states with socialism. They particularly believe Sweden is the model of a successful socialist country. Read our October 15, 2017 post “Socialism and Sweden” on our website; it shows Sweden as a free-market capitalist country. Liberals and millennials it seems are not only brainwashed but ignorant. Perhaps they can spend their next vacation in Venezuela, Cuba or North Korea to see real socialism at work.

Let’s revisit Schumpeter’s prediction, which contained five sequential points.

  1.  Capitalism will create great wealth. This has come true to an extent few dreamed.
  2.  More people will be educated. Again true, in America education is universal.
  3.  Professors and teachers will promote anti-capitalist ideas. BINGO!
  4.  People will vote for social welfare states. Already true  as shown by polling.
  5.  Capitalism’s success brings about its own destruction. This hangs in the balance.
     Schumpeter feared the demise of capitalism, along with wealth and liberty, would usher in a new dark age and we may have to wait centuries for the reemergence of capitalism and liberty. If Schumpeter’s final prediction comes true, we will drag the entire planet into a lengthy and unspeakable Orwellian torpor where men lead lives of quiet desperation, where war is peace, bad is good, immoral is moral and big brother always is watching. Nowhere is it written that liberty will survive.
My March 18th post is mega special; hint: it is my 75th birthday!

Why Intellectuals Hate Capitalism

George Noga
Does capitalism really sow the seeds of its own destruction? 
Why Intellectuals Hate Capitalism
By: George Noga – March 4, 2018

       This is the first of two posts seeking to answer the above question about capitalism and self destruction. This question has a nexus to our three February posts (available at www.mllg.us) about the debt crisis. Both stem from the consequences of the stunning success of capitalism in creating enormous wealth for all. This first post explains why intellectuals and progressives loathe capitalism and love socialism.

       A century ago economist Joseph Schumpeter wrote that capitalism would self destruct: “I do not think capitalism can survive. Its demise will not be due to economic failure; instead, its very success undermines the institutions which protect it and creates conditions in which it can’t survive.” He theorized: (1) capitalism would enable more people to become educated; (2) they would be taught anti-capitalist dogma by professors now free to promote their ideas rather than to work; (3) people thusly (mis)educated would vote for liberal welfare states leading to the end of capitalism.

       Vituperation from socialist professors has infected college students and wafted into the general population. There are six main reasons liberals hate capitalism.

1. Capitalism evolved organically. No intellectual wrote a capitalist manifesto; Adam Smith merely explained what happened naturally. Capitalism just happens; it doesn’t require professors to theorize. No one is capable of controlling capitalism, whereas socialism requires controllers, i.e. intellectuals who know what is best for everyone.

2. Capitalism is egalitarian. An uneducated, uncouth bloke can make a fortune by say recognizing the market for used auto parts and buying and stripping junk cars. He gets rich because he provided a valuable service to consumers. In contrast, the intellectual is unrecognized and unrewarded. Successful capitalists repulse elites.

3. Professors are rewarded by bureaucrats, not markets. They succeed by pleasing their statist employers, not by pleasing students (customers) or by attracting new students. Capitalism does not reward them based on their exalted education and good intentions. They prefer regulation to the chaos of the marketplace. They believe their pet theories should override the free decisions of individuals, if necessary by using the police power of the state. Their peers all are anti-market and they must go along to succeed.

“Capitalism is: To each according to his accomplishments.” 

4. Consumers are sovereign; intellectuals have no special status. The common man holds all the power; his decisions to buy (or not to buy) determine what is produced and makes suppliers rich (or poor). Wealth is achieved only by serving consumers.

5. Capitalism brooks no excuses for shortcomings. Capitalist success is based strictly on one’s ability to provide value to his fellow man. Capitalism is to each according to his accomplishments; those who fail are found wanting by their fellow men.

6. Intellectuals desire control over others. They fail to understand why the unwashed, poor ignorant rubes in flyover land believe they know what is best for them and for their families. Intellectuals see themselves as heroic emancipators, crushing greedy capitalists, saving helpless victims and reaping the just approbation of all mankind.

      America’s immense, broadly shared wealth comes with pernicious consequences.  Any society rich enough to have millions of pet insurance policies with acupuncture, chiropractic and mental health benefits is a society that arguably has lost its critical connection between wealth and capitalism. More on this next week along with our conclusion about Schumpeter’s prediction of capitalism’s self destruction.

Our March 11th post is the second and final part dealing with Schumpeter.

Preventing Future Parklands

George Noga
The response to the Parkland attack is different from the other school shootings. Most Americans (except progressives) seem prepared to support realistic actions.
Preventing Future Parklands
By: George Noga – February 28, 2018

        Is it different this time? After Parkland, most Americans, for the first time, seem ready to eschew ideology and to embrace realistic preventive measures. The skunks at this garden party are progressives and the media, who are determined to regurgitate the same ineffectual and symbolic canards that are non-starters with the public and the Supreme Court. We owe the Parkland victims more than empty political posturing.

        In that spirit, we outline a practical plan to prevent school shootings; it involves gun control, mental illness, school security, media, law enforcement and progressives. The plan excludes banning AR type guns; this was tried and failed. It also excludes banning large magazines; that would make no practical difference. Groups pushing for banning ARs and magazines are simply posturing and are not serious about solutions.

Gun Control
  • Institute mandatory universal background checks
  • Impose a 3-day waiting period that sunsets in 5 years to permit NICS compliance
  • Loss of gun rights including confiscation for those subject to a court injunction
  • Ban on bump stocks and similar devices
Mental Illness
  • Increase hospital/institutional beds for mental illness patients
  • Force treatment/institutionalization for the untreated violently mentally ill
  • Take away gun rights including confiscation during period of illness
  • Criminalize knowingly or carelessly making guns available to the mentally ill
School Security
  • Train and arm school personnel including bonus pay for those armed
  • Make clear that schools no longer are gun free zones
  • Increase readiness via realistic planning and drills
  • Adopt relevant parts of the successful run-hide-fight business paradigm
  • Enhance school choice to permit parents to choose more secure schools
Law Enforcement/Criminal Justice
  • Change the culture at the FBI; hold accountable those who fail to respond
  • Enable courts to suspend gun rights, including confiscation, for cause
  • Enact penalties for failure to timely post to the NICS system
  • Fire and charge officers who fail to confront an active shooter situation
  • Penalize making guns available to anyone not permitted to own them legally
  • Charge chronic troublemakers with crimes that suspend their gun rights
Media  (Due to the first amendment, these must be voluntary)
  • Substantially limit coverage of all mass casualty attacks
  • Rarely, if ever, show pictures or use names of perpetrators
  • Do not use body counts, comparisons, talk about records or use superlatives
  • Honestly report instances where legally armed citizens prevent crime
  • Do its part to change the toxic political culture in America
Progressives
  • Cease politicizing school tragedies and promoting fake, feel-good measures
  • Allow treatment and institutionalization of the violently mentally ill
  • Do their part to change the toxic culture permeating America

      Nothing will prevent all school attacks, but implementing the above outline will go far. It is a non ideological, practical and effective compromise. There are virtually no attacks on businesses, theme parks, airports and sporting venues because they are highly prepared, have guns and are adept at understanding personality and risk. We owe our school children nothing less. Is it different this time? Only time will tell.

On March 4th post explains why intellectuals hate capitalism.

Gotterdammerung for America

George Noga
Recent developments have sealed America’s fate; it is only a matter of time until some event (perhaps minor) triggers a crisis – forever changing the United States.
Gotterdammerung for America
By: George Noga – February 25, 2018
      Gotterdammerung is the final opera in Richard Wagner’s Ring Cycle. It means twilight of the gods and is marked by a catastrophic and violent societal collapse. It was the final performance of the Berlin Philharmonic on April 12, 1945. It is an apt choice for the above headline because, for the first time ever, I believe America has crossed the point of no return on its way to gotterdammerung. The climax of the crisis  is years away but we have crossed the Rubicon and jacta alea est – the die is cast.
       I was not this apocalyptic when I wrote the February 11 and 18 posts. The February 11 post identified the three root causes of the fiscal crisis as health care, Social Security (pensions) and interest on the debt. Because of recent developments, these root causes plus defense now will suck up the entire federal budget (and then some) by 2020 – much earlier than I believed scant weeks ago.
       The February 18 post showed the public debt/GDP ratio surpassing 90% within 5 years. No nation has escaped from a ratio that high without societal upheaval and a lost generation. Subsequent to that post, things have gotten worse. Congress’ budget deal increased spending $150 billion/year and permanently raised the baseline for all future spending. Add another $200 billion for infrastructure plus billions more for higher interest on the debt and there are trillion dollar (and bigger) deficits forever. The US now will reach the critical 90% ratio much earlier than I believed on February 11th.
       We were lucky until recently. The 2013 budget sequester restrained spending; we are in the ninth year of an economic expansion; and interest rates have been at historic lows. These factors delayed our fiscal death march to Gomorrah. Meanwhile, the demographic time bomb keeps ticking as health care and pensions spiral out of control. Now, the sequester is busted, interest rates are exploding and a recession is due soon.
       There is no way out of this fiscal rathole. Slashing spending requires cuts of 25% and must include health care and pensions – sowing the clouds of civil unrest. Raising taxes also requires a 25% increase and kills economic growth leading to stagnation and lives of quiet desperation. Other possibilities such as runaway inflation and repudiation of the debt also would rent the country’s fabric. All possible solutions are nihilistic.
       Most politicians, however venal, are not stupid. They fully understand everything in this post. They do not attempt to halt America’s entropy because they know voters will not support drastic action unless there is an existential crisis. Speaker Ryan wanted to tackle entitlements but he would be demagogued to death merely for trying. Nothing will happen until it is far too late and then it will be only quarter-measures.
     Charles Murray, one of the titans of our time, recently said: “the American experiment in self-government is essentially over“. Hamilton said it well: “The only path to a subversion of our country is by flattering the prejudices of the people and exciting their passions, jealousies and apprehensions, to throw affairs into confusion  and bring about civil discord.” That describes America today, dithering over identity politics and playing to peoples’ fears and prejudices, while ignoring existential threats.
       With profound regret, I now must concur with Charles Murray. I fear our beloved republic of 230 years has passed the point of no return; I hope and pray I’m wrong.
Next in 3 days: Special Posting on the Parkland school shooting

Point of No Return: 90% Debt/GDP

George Noga
When a nation’s debt reaches 90% of its GDP, it crosses a bright red line after which recovery is nigh impossible. We explain why that is true.
Point of No Return: 90% Debt/GDP
By: George Noga – February 18, 2018

       Our last post (Fiscal Gorillas) was a lead-in; if you missed it, try to read it first here. It is accepted economic wisdom that once a nation’s debt exceeds 90% of its GDP, there is no recovery. Is 90% an arbitrary ratio plucked from the ether? No. Governments have been borrowing money for 600 years and not one has recovered from a 90% ratio without experiencing social and economic upheaval and a lost generation. Why is this so and why is 90% the magic threshold?

       We begin with some numbers. The US public debt is now $14.8 trillion (total debt is $20.5 trillion) and GDP is $19.7 trillion. This makes the public Debt/GDP ratio 75%. The total Debt/GDP ratio is 104%, but that is not the relevant metric, as the $5.7 trillion difference between public and total debt consists mainly of non-interest bearing intra-government debt. If GDP grows at 2% (it is growing faster, but we must factor in recessions) and if debt grows at 5% (its current rate), the ratio will reach 90% in 2023 and 100% in 2027. Even if my assumptions are off, it is clear the US is on a trajectory to breech 90% and then 100%  in about 5 and 10 years respectively.

Mathematics of a 100% Debt /GDP Ratio

      I discovered a simple but gripping way to look at the Debt/GDP ratio. When the ratio is at 100%, i.e. debt and GDP are equal, it is easier to grasp the crisis. In 2027 both GDP and public debt are projected to be $24 trillion. When these metrics are equal, the economy must grow at an identical rate as the debt to prevent a death spiral.

     If GDP increased only 2%, we would have to limit the debt increase to the same 2% merely to maintain the ratio at 100%. However, if debt continues to grow 5%, there would be added debt of $720 billion per year (compounded) and the ratio would skyrocket. Given our aging demographic, out of control Social Security and pensions along with exploding health care costs, we will be lucky if debt grows only 5%.

     GDP historically has grown about 3% – but much less in recent years. The debt is growing at 5% and that is under highly sanguine economic conditions. When we have the inevitable recession (we are now in the 9th year of an expansion), GDP growth will turn negative and debt will balloon to 8% of GDP or even higher. It doesn’t take advanced econometrics to quickly see this is a recipe for disaster.

      Then there is the matter of interest rates on the national debt. As the US slouches toward a 100% Debt/GDP ratio, buyers of Treasury bonds will require ever higher interest rates to compensate for the greater peril. The historic average composite rate (across all maturities) on Treasury debt is 6%; if that went to just 7.5%, it would mean interest on the debt would constitute $1.75 trillion per year, or over 30% of the budget. Long before that happened, the Minsky Moment (point of no return) would have passed and the United states would begin to resemble Greece, Zimbabwe and Venezuela.

      The only possible ways to avert default are: (1) massive spending cuts on the order of 30% which would shatter the social contract; (2) draconian tax increases which would halt economic growth; (3) runaway inflation, the cruelest tax of all; and (4) repudiation of the debt. The ensuing crisis would not be limited to the economy. We will be lucky to maintain the rule of law and America as we know it will disappear.

    The World Bank asserts that the Debt/GDP tipping point is reached at 77%. No nation has ever escaped a 90% ratio. The United States of America today stands at 75% and will reach 90% circa 2023. The clock is ticking but the band plays on.

Our next post February 25th revisits Antifa and fascism.