Saturday, July 16, 2016

Adventures in Travel (2016)

America is in decline, and everything will be okay. Let me explain. Donald Trump and Hillary Clinton as presidential candidates look terrible, but not when you understand why they’ve become the nominees. Trump’s rise is easy to explain—he's the personification of anti-political correctness and doesn't talk down to non-coastal Americans despite being from New York City. Uneven federal government spending and concentrated corporate technological and VC investment has helped shift affluence, influence, and higher-paying jobs to coasts and larger cities instead of smaller or non-coastal ones, and no one likes feeling unappreciated in today's winner-take-all economic battles. Moreover, Trump voters aren’t all racists or xenophobes and resent being seen as such. A typical Trump supporter may be anti-immigration but may base his or her opinion on valid prima facie data, such as the increase in prisoners from various groups that are immigrants or recent descendants of immigrants.

My conversations with GOP voters revolve around immigrants changing the character of their communities and the federal government doing little to help. One perception is that illegal immigrants receive welfare or “free stuff”; and secondly, that newcomers cost more than native-born Americans, whether by diverting school resources to ESL programs not used by their children or their neighbor’s children, or by requiring more work to be done by existing police and jail employees but without additional tax revenue. Globalization is also an issue in cities that have lost manufacturing jobs, but it’s really the feeling that China is getting the better end of trade deals that riles up the conservative base. To summarize, Trump is winning because the Establishment and younger Americans have either ignored valid complaints from conservative voters or unfairly decided that such complaints are the result of bigotry or ignorance. See, for example, the book titled, What’s the Matter with Kansas? (Which causes me to think, “Nothing. Who wouldn’t want to live in Lawrence?”) “You may not listen to me,” a Trump voter might say, “but you cannot ignore Trump.” 

Now, it is true that cities with immigrants, both legal and illegal, have experienced more economic growth than cities without them. It is also true that the illegal immigrants’ American-born children receive welfare, not the illegal immigrants themselves. The positive impact of immigration on economic growth is not restricted to American cities like San Antonio, New York, or San Jose—Toronto’s private sector working population may be 51% immigrant. What some liberals fail to consider is whether the average Midwesterner or Southerner wants to pay 650,000 USD for a townhouse in a so-so K-12 district, wants to live around neighbors who don’t share his religious values, wants to see his son working as a lawyer rather than a machinist, or wants to see his daughter delaying motherhood until her 40s because two incomes are necessary to buy a home.  (Even coastal voters are starting to acknowledge the problem of constant inflation in essential goods and ever-increasing productivity—witness comedian Ali Wong joking, “I don’t want to ‘lean in,’ okay?  I want to lie down.”). At the end of the day, when you ignore or mischaracterize complaints, there will be backlash. Hence, the rise of Trump. 

What of Hillary Clinton, then? Her rise to power is a logical extension of the Democratic Party's platform: safe positions that provide the perception of diversity and social progress. When you’re winning eight years straight, and your opponent is throwing Hail Marys, there’s no need to rewrite the playbook.  Even the so-called Affordable Care Act required so much compromise, it ended up being a boon to the most powerful lobbyists in D.C.—insurance companies. Younger voters, of course, will get the shaft—they’ve been getting shafted in almost every democratic country in the world, as high schools and colleges fail to teach economics and basic finance properly and as populations age and senior citizens vote consistently, causing tax revenue to shift to government-provided medical care and retirement programs. 

Meanwhile, what’s a top concern for voters in their 30s and 40s in industrialized nations?  Subsidized childcare. You’d think such a request would be easy enough to implement--after all, how hard can it be to pass several individual and childcare provider tax credits?--but you’d be wrong.  As young couples marry later and have fewer children, they don’t have a strong enough voting bloc to be given substantial attention at the political table. Call it the “Curse of Reasonableness,” but studied, incremental reforms require nuanced perspectives and knowledge of the law of unintended consequences, which don't get much play in the age of Kardashians, the six-second Vine, and the Pokemon Go app. If you’re a Democratic politician, are you going to attract attention by promising childcare tax credits or free college tuition? 

That word, “free”—did you see it?  “Free stuff.”  It’s tantalizing, yes? A conservative voter will argue nothing is free. You have to divert tax revenue from existing services if you add new ones; reduce morale by asking government employees to work more for the same pay (in California, during particularly difficult budget negotiations, some government union employees openly bragged about slowing down non-essential work); and/or raise taxes, almost all of which eventually come out of middle class voters’ pockets, because the rich have lawyers and bankers whose jobs revolve around finding loopholes to protect their clients. (Note: using debt to fund government services delays while guaranteeing eventual tax raises and/or uneven inflation.) 

If you’re a liberal voter, you’ll probably respond with arguments about income inequality, actual rather than posted corporate tax rates, the 1%, etc.  Even if you’re right, it doesn’t matter, and it won’t change the fact that about half the country doesn’t care as much about effective corporate tax rates as they do about attracting more jobs while making sure they can pay similar taxes on their house today as they did ten years ago while preventing haphazard social development that changes their community’s character. As I like to tell Californians who don’t own Teslas, “You may look down on Southern conservative voters, but where do you think your car was assembled, and by whom?”

Underneath the Democratic Party’s lofty words and promises is a need for tax revenue and job growth.  First, those pensions promised to teachers and government union workers?  They have an assumed interest rate (or growth rate) established by politicians, usually around 7.5%. Look up where you can increase your assets 7.5% a year, and the correct answers will take you to the stock market and hedge funds, both of which lead you straight to Wall Street.

Second, no political party can escape political reality, which is that if the economy is doing well, the incumbent wins. How are jobs created in the 21st century? Through debt, which has come from central bank printing. That’s why Hillary Clinton is in bed with the big banks and multi-national corporations, and that’s why Bernie Sanders never stood a chance. If you live in a mid-sized city where you’re happy with your local mid-sized bank or credit union that keeps its own mortgages; content to see your daughter married at the age of 26 (maybe even with grandchildren already); and realize one reason Walmart invested in your community and created jobs, including well-paying managerial positions, is because of fewer regulations and lower corporate taxes (one Indiana resident with whom I spoke called the new Walmart the "new downtown"), then why would you vote for Hillary Clinton? If you think fewer regulations necessarily lead to a race to the bottom, consider that Walmart executives may have better reputations than Congress. (Stated another way, do you trust Apple's Steve Jobs to make the right decision, or Iowa Rep. Steve King?) What about abortion?  If you want one, you can find a job at Walmart and fly to California or New York to get it. As for freedom, it’s not just about the 2nd Amendment—as economist Nassim Taleb writes in Antifragility, “[W]e have never been more in debt ([and] for the ancients, someone in debt was not free, he was in bondage.”) 

In short, both Clinton and Trump are extensions of legitimate political positions. Side A is tired of not being heard, while Side B chooses to hear nothing but bigotry. I started this essay by saying America was in decline, and I hold that position. What has changed is that it no longer depresses me. Cities will stay segregated as voters focus more on observable racism than poverty and segregation as root causes of violence. Tax revenues will fluctuate and continue to be uneven nationwide. Central banks will continue papering over structural problems. Lawyers will continue to find loopholes, both legal and illegal, for their clients. Yet, there is value in realizing both presidential candidates, though far from ideal, are extensions of the current political climate, because it means America has not gone crazy—it’s just lowered its expectations. Expectations can be modified, even if it takes another 50 to 100 years. As optimists such as Warren Buffett have written,

“Indeed, most of today’s children are doing well. All families in my upper middle-class neighborhood regularly enjoy a living standard better than that achieved by John D. Rockefeller Sr. at the time of my birth. His unparalleled fortune couldn't buy what we now take for granted, whether the field is, to name just a few, transportation, entertainment, communication or medical services. Rockefeller certainly had power and fame; he could not, however, live as well as my neighbors now do. Though the pie to be shared by the next generation will be far larger than today’s, how it will be divided will remain fiercely contentious. [Italics mine.]  Just as is now the case, there will be struggles for the increased output of goods and services between those people in their productive years and retirees, between the healthy and the infirm, between the inheritors and the Horatio Algers, between investors and workers and, in particular, between those with talents that are valued highly by the marketplace and the equally decent hard-working Americans who lack the skills the market prizes. Clashes of that sort have forever been with us and will forever continue. Congress will be the battlefield; money and votes will be the weapons. Lobbying will remain a growth industry.” [2015 Berkshire Hathaway Shareholder Letter]

One can recognize the absence of psychological well-being (apart from material comfort, anyway) in Buffett’s equation and still appreciate his realism. What does this mean for me, a U.S. citizen and American immigrant who recently told someone, “I hate America,” shortly after police shot and killed an unarmed Philando Castile?  It means I no longer expect as much from America, but just because America has become older and less sturdy, it does not make her less beautiful.  If Tokyo can be the most prosperous city I’ve seen in my travels, despite Japan’s debt-to-GDP ratio of 220%+, perhaps government debt, on its own, won’t cause a country to collapse.

Maybe we’ll adapt, even if it means more segregation, less immigration, more cross-border violence, more divorce, more student loans, more single parents, more incompetent or unaccountable government employees, and more unaffordable housing.

Maybe on the way down, we’ll re-evaluate what it means to have honor as an American.

Will a commonly agreed-upon definition of American honor include the ancient Mediterranean ethic, Factum tacendo, crimen facias acrius? ("He who does not stop a crime is an accomplice.")

Or will we adopt a more modern version of honor similar to George Meyer’s, as related by Adam Grant? "(1) Show up. (2) Work hard. (3) Be kind. (4) Take the high road."

Or maybe cowardice rather than honor will be enhanced by technology, as “society is fragilized by spineless politicians, draft dodgers afraid of polls, and journalists building narratives, who create explosive deficits and compound agency problems because they want to look good in the short term.” (Taleb)

Despite everything, it's possible things will work out just fine, even as living spaces become smaller, consumerism and materialism continue to rule the day, and countries erect more barriers against foreign workers but not foreign capital.

As for me, I’m going to keep traveling.  I’ve been to 10 cities in the past four months, increasing my lifetime “countries visited” count to about 30.  I’ve decided the world is based on academic assumptions that no longer apply, but which have prevailed in large part because central bank spending has maintained the status quo.

For example, most economic theories and approaches are from times when tangible products ruled the day rather than services, which are more difficult to track, more easily manipulated, and more subject to cross-border competition. From Adam Grant: 

“In the 1980s, the service sector made up about half of the world’s gross domestic product. By 1995, the service sector was responsible for nearly two thirds of world GDP.  Today, more than 80% of Americans work in service jobs.” 

Of course, fraud and manipulation occurred regularly in the “analog” world, but the tangible has limits and leaves traces.  (One banker was fooled into guaranteeing a loan to a business by inspecting only the top of a vegetable oil tanker—the rest was water.) Still, there’s an upside to our rapidly changing world: even if you didn’t go to college or pay attention in high school, it may not matter in the long run—the information being taught might be outdated and therefore inapplicable to your life. 

My most interesting conversations have been with women. Educated women worldwide are quietly rebelling against traditional expectations.  (If I faced the prospect of coming home to a man who was content with drinking beer while watching a baseball game, perhaps I’d go shopping more and stay single, too.)  It’s easy to see the future will belong to societies that achieve higher female participation in politics and business through merit-based factors while encouraging career-oriented women to have children.  Whether this means more subsidized childcare, a greater appreciation for introverts, tax credits for each child, and/or social pressure on men to do more housework, I don’t know.  I do know, however, that current and future economic forecasts are based on women continuing to have an average of two consumers—er, children—and those children receiving adequate educations and stable living environments that discourage violent behavior.  Ideally, those two children would not be latchkey kids and would attend college and not graduate with crushing debt and non-existent practical skills, but from what I’ve seen, many educated women are not going to comply with all of the above assumptions. If uneducated women in poorer countries have more children over the next 100 years than educated women in richer countries, and public education systems are not reformed to increase practical and critical thinking skills, we could be looking at a world where we have a few Japans selling products to the rest of the world, or we could be looking at land and water needs and disputes controlling international relations. There are many in-between scenarios, but none likely without more segregation and walls.

Let’s hope we figure out how to appreciate ambitious, career-oriented women and not end the human race in the process. As the folk wisdom goes, “If momma ain’t happy, ain’t nobody happy,” but what happens when there’s no mommas left, or they’re mostly in some countries but not others? 

I’m single, 38 years old, debt-free, and childless.  I’ve decided that my new criterion for a relationship is whether a woman believes in character and whether she has it herself.  In the modern world, where everything is negotiable and where outcomes are unpredictable, only character will remain the true constant.  I’ll be visiting Canada and Australia at some point in my travels.  As Paul Coelho wrote in The Alchemist, “[W]hen you want something, all the universe conspires in helping you to achieve it.” 

 I'm going to find out if he's right.

© Matthew Rafat (2016) 

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