Another Lost War

The U.S. has been fighting in Afghanistan for 17 years, the longest war in our nation’s history. Yet the Taliban, our adversary, is stronger than it’s ever been since the American invasion. By now it’s clear to all but those wearing rose-colored glasses that America has lost another war. It just refuses to admit it. So it will spend billions more and suffer who knows how many more casualties before eventually conceding defeat. Just like Vietnam (although with fewer American casualties). Continue reading

Higher Prices Thanks to Trump

I thought I’d try to track, by category, some of the things that are going to cost you more due to actions taken by President Trump (punitive taxes on certain imports) and the retaliatory measures that are likely to be imposed by other governments. Here’s the starter list, which does not include any retaliatory tariffs*:

  • homes (lumber prices have already risen precipitously)
  • home renovation
  • any product or service purchased from a business that owns or rents a new building or office (due to higher construction and, therefore, higher capital and leasing costs)
  • autos and machinery
  • produce and other crops grown in the U.S. (due to higher machinery and fuel costs)
  • any beverage or food that comes in a can
  • washing machines, refrigerators, and other appliances
  • solar products
  • air fares (airplanes will cost more, unless airlines shift their purchases to the European producer and away from Boeing)
  • gasoline and natural gas (higher drilling and transportation costs)
  • baseball bats
  • tools
  • any other steel or aluminum-containing product
  • any other product that is transported by rail or truck (higher rail and rail car costs as well as higher truck and trailer manufacturing costs)
  • state and local taxes, which will have to be increased to pay for the higher cost of building and repairing roads and bridges (unless infrastructure is allowed to degrade further, which is a possibility)

What isn’t included in the above list are the following:

  1. If the tariffs result in a weaker dollar (as they did when George W. Bush imposed tariffs on steel), the cost of all imports will rise. Because a lot of the stuff Americans buy is imported (e.g., just about everything at Walmart), the cost of living would increase.
  2. Jobs will be gained and jobs will be lost due to these higher taxes. I have no idea what the net impact will be. Most economists say it will be negative; however, I don’t have confidence in macroeconomists and their models so I’m not about to endorse any of their opinions. We’ll know more in the months and years ahead.
  3. Trade wars can trigger recessions. If that happens, the cost to Americans will be huge (lost jobs, skyrocketing deficits, higher interest expense, etc.).
  4. Higher defense costs and the cost of wars are not included. Trade wars don’t always lead to shooting wars, but they frequently do. We’d be foolish to think it can’t happen this time; in fact, it’s prudent to assume it will. (For this and other reasons, I do think the U.S. is on a path to war.) Even if there is no war, Americans will pay more due to significantly higher costs for military equipment as well as higher logistics costs.

It’s also impossible to calculate how many of these higher costs will be absorbed by businesses versus passing them on to their customers. Certainly, due to the recent tax cuts, many corporations have room to absorb higher costs if they so choose. But that doesn’t mean it will happen, particularly since the capital markets will be expecting those costs to be recouped through higher prices. Ultimately, competitive forces will determine how much of the increased costs are absorbed and how much is passed on. The concentrated market power that exists in some sectors bodes well for companies that plan on passing the costs through to their customers.

In the final analysis, whether the higher taxes and higher cost of living are worth it is for each voter to decide for him or herself. At this point, a sufficient number of voters thought the tradeoff justified the higher costs and diminished purchasing power to elect Mr. Trump. Whether enough of them will change their minds in the days and months ahead remains to be seen. It will be interesting to observe human behavior as their living expenses rise and purchasing power declines. Whether they’ll still think the benefits (jobs saved in the protected industries) justify the costs remains to be seen.

*At the time of this posting, no country has formally announced any retaliatory tariffs; however, the E.U. informed its members that such tariffs would probably be assessed on American shirts, jeans, cosmetics, other consumer goods, motorbikes and pleasure boats; orange juice, bourbon whiskey, corn and other agricultural products; and steel and other industrial products. If they follow through on these threats, expect job losses in all of these areas in the U.S.

The Newest War

I think yesterday will mark the beginning of our newest war. Yesterday is the day the Trump Administration announced new stiff tariffs on solar cell imports and washing machines. China and South Korea will not be pleased. Nor will American consumers, who will end up paying more for electricity and home appliances. Some people will be pleased though. They include stockholders in Whirlpool, domestic solar cell producers (if there are any), and some people who will end up being hired by Whirlpool, although their numbers likely will be dwarfed by the number who lose their jobs in the solar industry. In short, there will be some winners and some losers in the short term. The long term is a different matter.

We’ve been down this path before so we have some idea what to expect. In fact, a lot of what’s happening these days is reminiscent of the years leading up to, and the early days of, the Great Depression. Then, the nation decided to pull back from its open border policies, both in commerce and immigration. It seemed like a good idea at the time, at least to some people. But as we know, it didn’t turn out so well.

That’s not surprising. For when one nation takes actions that hurt other nations, it’s reasonable and predictable to expect retaliatory measures. And that’s why I suspect yesterday marked the beginning of the newest war: it could well be the day the 21st-century trade wars commenced.

The problem with trade wars isn’t only economic. The larger problem is that they often lead to military wars. And casualties. And that’s exactly where I fear we’re headed. I will be surprised if we don’t find ourselves at war with China in my lifetime. And perhaps Russia, too.

Meanwhile, our stock market is looking a lot like the market in the 1920s. And we know what happened in 1929. I’m not predicting a repeat performance, but it’s safe to say there are risks that are being minimized or ignored. And that’s never a good thing.

Given extraordinarily high asset values and a highly leveraged corporate sector, along with unprecedented peacetime sovereign debt levels, it’s easy to imagine an eventual outcome that entails a lot of financial carnage, especially against the backdrop of economic inequality the likes of which we haven’t seen since the 1920s. Yet we don’t seem to be concerned.

The nation chose to go in a belligerent, self-centered, tribalistic direction in the last election. It was a foolish decision, but it was the decision we made. And now we’re seeing it play out.

The worst is yet to come. Nonetheless, I suspect most of us will come through it just fine. But some of us won’t. And it’s hard to know today who the winners and losers will be. We just have to keep our ears to the ground and be quick to react, I suppose.

We’ll do our best for you, Vera. And for your parents and your uncle Andrew. I suppose it’s my main mission in life now. I consider myself fortunate to have all of you in my life. Fortunate indeed.

Celebrating a Declaration of War

Two hundred forty-one years ago the elite of the American colonies met in Philadelphia. They agreed on, and then signed, a declaration of war against England. For obvious reasons, the declaration was called something different: a Declaration of Independence.

It took a while longer, but eventually their act led to the creation of these United States of America (which later became known as the United States of America).

A lot has happened since 1776. Some good. Some bad. Some, who knows?

One thing is indisputable, however: people immigrated to this land from around the globe. Obviously, they thought life could be better here. And for many, it was.

People still want to come. Yet we’re no longer sure we want to welcome them.

Your ancestors on your father’s side came from Europe, Vera. Your ancestors on your mother’s side came from Mexico (although some of them probably hail from Europe and Asia if you go back far enough).

I don’t much care. It’s you who matters. Where your ancestors were born and raised is of no consequence. People are people. The idea that worth is somehow tied to skin color or ancestry is absurd and ridiculous. It’s nothing more than a lie some people tell to feel better about themselves.

But I’m not completely stupid either. I realize tribalism is real. It has been since humans started keeping a record of their affairs. And it probably was even prior to that.

We all belong to at least one tribe. That’s fine. But it’s hard for me to think it’s fine when we start believing our tribe is inherently more worthy than another tribe. Such thoughts always turn ugly. Sometimes they turn violent.

These words are written in that document signed in Philadelphia nearly two and a half centuries ago:

“We hold these truths to be self-evident, that all men are created equal.”

Since then, we’ve revised the principle to include women. And people of color. And people of non-Christian faiths.

We didn’t live up to our principles in 1776. But we’ve been working at it. And we’ve made progress.

My hope today is that we don’t decide to forfeit the progress we’ve made. And that we’ll continue to pursue the ideal that has helped make this tribe of ours so appealing to so many.

It was a declaration of war. But it wasn’t one primarily directed at England. It was war against something far more insidious and destructive. It was a war on the principle that all men and women are not created equal.

The Risk of War Is Growing

Nationalism and protectionism lead to war. Always have, always will.

If war is what it takes, then war is what we’ll have. That’s the view of some.

All I ask is, if you embrace war, then please have the courage to be on the front line. Or to send your children or grandchildren to the front line.

If you don’t, then you’re what some call a chicken hawk.

That’s a nice term for coward.