Washington DC

Here’s Why the Donald Is the President (Or: The Rise of the Plongeur)

By David Stockman  |  October 2, 2018

A plongeur is a slave, and a wasted slave, doing stupid and largely unnecessary work. He is kept at work, ultimately, because of a vague feeling that he would be dangerous if he had leisure. And educated people, who should be on his side, acquiesce in the process, because they know nothing about him and consequently are afraid of him.

– George Orwell, Down and Out in Paris and London (1933)

Let’s say misanthropic gods of economics and politics want to punish the American worker.

It sounds ominous. But their worst is nothing compared to what monetary central planners have already done.

Because the American worker is on an increasingly steep treadmill of the Federal Reserve’s design.

Here it is:

Since August 1971, the rise of the Consumer Price Index (CPI) is virtually identical to the second decimal place to the rise in the hourly rate of pay for U.S. workers.

CPI has grown by 3.95% per year, wages by 3.96% per year.

This, friends, is a whole new genre of “spurious accuracy.”

The average U.S. worker has had a zero real wage increase during the past half century.

“Zero”…

But that’s not the most remarkable thing about our situation.

The 521% cumulative rise in the hourly wage corresponds with a 518% total CPI gain. By the lights of our Keynesian overlords, at least the average worker didn’t lose purchasing power.

These are consequences of long-reigning ideas that became “official” in early 2012. That’s when the Fed formally stated its 2% inflation target policy.

It means the U.S. economy is effectively indexed.

When prices, wages, and costs march higher together at essentially the same pace, it’s all to the good.

Just the right amount of goods and services inflation brings out the best from our toiling masses – labor and capital.

Workers of blue and white collar, left to their own devices, would stumble into subpar growth and bouts of recession – but for the guardrails provided by a wise Fed.

In other words, “2% inflation” is the Keynesian secret sauce.

I say it’s the kind of bullshit that ensures the vested interests maintain their vested interests.

No economic logic supports the idea that 2% inflation optimizes growth. And there’s no evidence to support it, either.

In fact, history tells a different story.

U.S. gross domestic product (GDP) grew by an average of 4.4% per year from 1880 through 1912. The best measure of inflation of that era – the producer price index (PPI) – was the same in 1912 as it was in 1880, with a mild deflation in between.

From 1881 and 1912, U.K. wholesale prices were similarly flat. Yet U.K. GDP nearly doubled.

The good of it isn’t proven.

And the bad of monetary central planning’s key idea is as plain as the nose on your face.

Indeed, the Fed’s pursuit of 2% inflation is why Donald Trump was elected president and is aggressively executing his “mandate.” And that includes new tariffs and a Trade War.

“MAGA” is the response to decades of “dirty floats” by global competitors who’ve exploited the wage disparity between “developed” and “emerging” markets.

China is the all-time world champion at this currency-pegging game. The Middle Kingdom swooped up more than $4 trillion of reserves between the early 1990s and the peak in 2014.

Nowhere in his writings on behalf of government-regulated fiat money did Milton Friedman ever anticipate a dirty float this monumental.

China traded the sweat of its workers’ brows for Uncle Sam’s IOUs, aided and abetted by our central bankers.

The geniuses at the Fed have spent the last 30 years widening the labor-cost gap with China, from about 33 yuan per hour to 125.

Main Street and American workers have suffered this kind of foreign-exchange-pegging export mercantilism.

But Wall Street and Imperial Washington have prospered.

And we’ll soon see whose folly proves greatest.

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan.MORE FROM AUTHOR