Friday, February 13, 2015

George Gilder On the Welfare State, and the Implications For Treasuries

New Republic:

George Gilder, a pro-family conservative who was the person most often quoted by President Ronald Reagan, believes that welfare “usurps the male role as chief provider and undermines the foundation of families. His provider role is absolutely central to the family; if the state replaces the male provider, you don’t have families. The welfare state cuckolds the man.” In other words, if the state provides women a source of income that doesn’t require marriage, Gilder surmises, women simply won’t marry. Worse yet, in Gilder’s parlance, welfare constitutes state cuckoldry, as though food stamps steal sexual access men are rightfully entitled to. Thus, in the words of once and likely future Republican presidential contender Mike Huckabee, Uncle Sam becomes “Uncle Sugar.”
The original Gilder interview:
Religion is primary. Unless a culture is aspiring toward the good, the true, and the beautiful, and wants the good and the true, really worships God, it readily worships Satan. If we turn away from God, our culture becomes dominated by “Real Crime Stories” and rap music and other spew. This is the most fundamental point. When the culture becomes corrupt, then the businesses that serve the culture also become corrupt.
The legitimate purpose of public debt is to borrow money to build infrastructure improvements that have a positive net present value. However, a vast portion of federal expenditure now leaves nothing tangible, leaves no collateral. A treasury bond is a certificate that money has successfully been expended on section 8 housing, or on make-work military "jobs".

The lack of collateral makes these treasuries creatures of social mood. In a way, they are as valuable as tulip bulbs or south sea shares.

What is a treasury going to yield when mood darkens, and a distressed investor who looks over the enterprise for scrap value is the marginal buyer?

10 comments:

James said...

George Gilder, a pro-family conservative who was the person most often quoted by President Ronald Reagan, believes that welfare “usurps the male role as chief provider and undermines the foundation of families.

Over the past few decades, liberalism has moved away from economic Marxism and replaced it with cultural Marxism-- welfare programs that undermine the family being a case in point. I'm sure that's partly because liberals have gotten older and richer and realized how much taxes suck, but it's also an example of big government taking the path of least resistance.

Any government that nationalizes all its businesses is going to run the economy into the ground within a few years-- e.g. Chile under Salvador Allende-- and that will quickly generate a lot of anger and resistance.

By contrast, a government that wrecks families through liberal divorce laws and liberal welfare may be even more destructive in the long run, but it will play out much more gradually. If you have a bunch of feral kids who were born out of wedlock, it will take 15 or 20 years before they're old enough to start causing problems. That's long enough that many people won't notice what's happening. It's also long enough that technological innovations can raise living standards enough to offset the social decay.

James said...

IIRC the yield on US Treasuries rose modestly in 1932. With the national debt being so much larger now than it was then, it's possible that yields will blow out during the next crisis, although I don't expect that personally.

CP said...

Great Depression example is tricky because the 10 year yield rose to close to 4%, but there was significant deflation - 10% in 1932. The real yield was huge!

Think of the ten year yield rising a couple percent while prices are falling ten percent!

Steve said...

There are powerful forces (for now) suppressing rates. One is bank capital requirements and NIM needs. Another is the lack of mortgage affordability and LTV requirements. A third is foreign sovereign buying.

However, one can imagine many reasons rates could someday, inmany years, spike.

One would be removal of current marginal buyers, via relaxed capital requirements for banks, relaxed LTV requirements for home buyers, and saturation among foreign sovereigns.

Another could, paradoxically, be higher tax rates in the US, as well as caps on IRA accounts. That's because treasuries aren't 'parkable' the way gold, real estate, and index funds are. Investors paying full 50-75% tax rates every year on interest income would demand very high yields to justify a marginal purchase of treasuries.

CP said...

The yields are already spiking. They spiked 30 bps from the most recent *higher* low of 1.68%.

Anonymous said...

I stopped reading after "Religion is primary. Unless a culture is aspiring toward the good, the true, and the beautiful, and wants the good and the true, really worships God, it readily worships Satan..."

eah said...

I stopped reading after...

Baby, bathwater.

ADL said...

A lack of hard collateral is certainly an issue when the hard times come (but who's collecting the Hoover Dam, again?), but then again, the hard times come a lot sooner when you have armies of the homeless and jobless roaming the streets...

Also: ladies, you agree your default setting should be inside the home, right?

Anonymous said...

Subsidizing low IQ reproduction is what causes the "armies of the homeless and jobless roaming the streets".

Read Gregory Clark "Farewell to Alms":

"the Industrial Revolution was the gradual but inevitable result of a kind of natural selection during the harsh struggle for existence in the pre-industrial era, in which economically successful families were also more reproductively successful. They transmitted to their descendants, culturally and perhaps genetically, such productive attitudes as foresight, thrift, and devotion to hard work"

http://www.amazon.com/Farewell-Alms-Economic-History-Princeton/dp/0691141282

This process is now operating in reverse. We can expect the Industrial Revolution to be gradually reversed for as long as this continues.

ADL said...

@Anonymous:

I'm not going to address your low-IQ assertion. Suffice it to say that we likely disagree on most of that.

But I will say--and I realize that I'm simply responding to a quotation--that I remain skeptical of any history which uses the word "inevitable."