MARCH 12, 2023 – Sorry, back to the dismal science, because truthfully, I’m fascinated by dismal science and . . . of all the immediate and intermediate things for us good people to worry about, the economy ought to be front and center. If a light breeze now carries our excursion vessel—full lunch buffet included—around a sun splashed Caribbean island, the National Economic Hurricane Center warns of a potential CAT 5 storm heading our way. If we’re lucky, the storm will swing innocuously “upstream,” raining and blowing only lightly on our parade. If we’re not so lucky, we could find ourselves wishing that we’d remained hunkered down in the endless snow back home.
My dad, who also happened to be very interested in economics, was chronically certain the world economy was going to hell in a hand basket because government-issued currencies were no longer tied to the gold standard—an idea reinforced by the doomsday newsletters to which he subscribed. The newsletters were based on the simple business model of fear. And greed: the publications were cash cows for their purveyors, based on hefty subscription fees plus advertising revenues from outfits selling (not buying) . . . GOLD.
I’m not buying a doomsday scenario out of fear or selling one because of greed. But I do monitor economic storm warnings. Without yet losing a good night’s sleep, I have growing concern about rough seas ahead, particularly over “X Date.”
But rather than dwell on economics per se, my aim here is to connect the dots between our current troubled political environment and our troubling economic prospects. My immediate thoughts on the matter were triggered by a point raised by Fed Chairman Powell in his testimony Wednesday before the House Committee on Financial Services. In addressing whether the dollar as the world’s reserve currency was in danger of being replaced, Powell observed that trust in the dollar—and by extension, support for U.S. Government-issued debt—is dependent on more than a narrow financial analysis by global investors. Trust in our debt and currency turn just as heavily on faith in our whole political system—our democratic principles and the rule of law.
My mind went directly to January 6 and the still unfolding ramifications of that assault on our democracy. With most Congressional Republicans dismissing the attack and given how the gang who’ve turned Speaker McCarthy into their marionette actively support the insurrectionists as “political prisoners” . . . we should worry. And we should have equal concern about the larger pattern of attacks on democratic principles—everything from book bans to voter suppression to unfounded claims of election irregularities to the unapologetic injection of religion-based dogma into the body politic. Cumulatively, these trends threaten our democracy . . . and investor faith in our government-issued debt.
If, by our distractions and consumption of Fox-flavored Kool-Aid, we allow political extremism to become the unshakable norm, the storm—the day of economic reckoning—could unleash its fury upon us when it’s too late to escape.
None of this takes into account the extent to which a burgeoning federal budget deficit also threatens investor confidence. Yet, far better for informed citizens to compel Congress to act responsibly before political grand-standing pushes us all overboard into raging seas.
To avoid the potential CAT 5 economic storm on the horizon, we need not panic but we do need to defend our democracy from further attack and re-dedicate ourselves to its foundational principles.
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Ó 2023 by Eric Nilsson
