September 26, 2017

I Can’t Come Back! I Don’t Know How It Works!

I have refrained from commenting on the complaints of Jamie Dimon, CEO of Goldman-Sachs, about the U. S. economy and political system. Here’s Jen Wieczner at Fortune:

Jamie Dimon is sick of America’s “stupid shit,” said the J.P. Morgan CEO during the bank’s earnings call Friday. And it’s up to Donald Trump to clean it up if the President really wants to make America great again, he added.

Even as J.P. Morgan Chase (JPM, -0.91%) reported its biggest quarterly profit ever in the three months ended June, the bank’s CEO—once a candidate for Trump’s Cabinet—ranted about the U.S. government’s failure to pass corporate tax cuts and regulatory reform. Dimon warned that failure is hurting Americans.

“We have become one of the most bureaucratic, confusing, litigious societies on the planet,” Dimon lamented, noting that he recently returned from a globetrotting circuit with visits to France, Argentina, Israel, Ireland, India and China. “It’s almost an embarrassment being an American citizen traveling around the world and listening to the stupid shit we have to deal with in this country.”

Dimon has been vocal in urging the Trump administration to enact certain financial and tax reforms. Like the President, Dimon has insisted that the U.S. economy can grow much faster than its current rate of about 2% or less, despite many economists’ skepticism. But he argues that’s not unless Trump, who has promised to double GDP growth to 4%, can get Congress to act.

“I don’t buy the argument that we’re relegated to this forever,” Dimon said in response to an analyst’s question on the call. “We’re not—if, you know, this Administration can make breakthroughs in taxes and infrastructure and regulatory reform.”

at least in part because they’re so obviously self-serving. It also reminds me of a wisecrack by my old business partner that I refer to as the “reverse Voltaire”—I agree with what you say but I deny your right to say it.

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The financialization of the U. S. economy is one of the main culprits in our low rate of growth. Do I really have to go back and dredge up the several papers that have found that our financial sector is three times the size it should be for an economy of our size and that paring the financial sector back would produce more robust growth? At one level that’s obvious. When people with money to invest can put their money into financial instruments that have value because they’re traded, they put less money into things whose value depends on activity in the real economy.

And not only does Mr. Dimon benefit enormously from that financialization, he’s proximally responsible for it.

It also reminds me tremendously of the plaint from the Wonderful Wizard of Oz in the 1939 movie The Wizard of Oz as he’s carried off willy-nilly by the hot air balloon that brought him there in the first place: “I can’t come back! I don’t know how it works!”

The U. S. economy grew amazingly quickly over a remarkably long period because it was unique and isolated from the rest of the world. What the social engineers and the captains of finance like Mr. Dimon didn’t realize was how fragile it was. It depended on a large overseas market in which we had little competition, a large domestic market in which U. S. companies faced little competition, a strong Protestant work ethic, restraint on the part of both business and government, solid support for absolute nuclear families, high wages for workers, a workforce educated by the standards of the time, and so on.

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I agree with Mr. Dimon that we would see more robust growth if we reduced government regulation and restored the balance between public and private spending to historic levels, i.e. around 22% of the economy devoted to government at all levels. I don’t believe we can go back there again.

Originally published at The Glittering Eye

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