Periscope Depth

what you gonna do (do) after dark?

Did I ever tell you about my time as an economic advisor to the Bush administration? It was a while ago, before I met most of you, and I don’t like to bring it up too often.

I met the C-in-C in a five minute meet-and-greet at his ranch in Crawford. This was early August 2001, I want to say: the first of his regular month-long vacations. But he still kept a busy plate, which is why I’d been brought on. He was in his study, staring intently at one of those momentum transfer desk toys: six ball bearings hanging from strings and suspended between two beams. One end would swing up and then fall back down, striking the row, and the one on the opposite end would swing up. He had his lips screwed up and one eye was twitching.

I cleared my throat politely.

“Professor,” he said, just now realizing I was there. “Siddown, get comfy. Let me be quick, get right to it: I’m looking to make this country grow. I want to make the American middle class better off by 2008, when I’ll be leaving office …” — the boldness of the prediction didn’t even make him hesitate; I think he took it as a fact — “… then when I entered office in January.

“What I need you to do,” he said, “is do extensive research. I want you to find out what wealthy people have in common. See, my thinking is: if we can find all those common factors, and somehow encourage ‘em, we’ll raise the standard of living for the whole country. It’s that whole ‘compassionate conservativism’ thing – we’re mixing free markets and growth and stuff like that, but for everybody.”

“So … just study today’s wealthy,” I began, “and …”

“No, no, no. All throughout history. Don’t want all them Hollywood liberals and their million-dollar paychecks doing a, what’sit, y’know … skewing the results. We want answers that will stand the test of time.” He took this part very seriously.

“Okay,” I said.

At the end of August I came back to him with my research.

“I went back as far as we had data,” I said, “and I even made some educated guesses from historical records. Wealthy people, regardless of when they lived, have a couple of things in common. For one: they owned property; for anoth–”

“Stop,” he yelled, dropping the boots he was buffing. “That’s it. That’s it right there. Property.”

“What?”

“Home ownership. The American dream. If more people owned their own home, more people’d be better off! God, it’s so simple! I’m a genius!”

“Well, not quite,” I corrected. “See, property ownership is an effect of wealth, not a cause. People got to own property for a variety of different reasons. Some were bad – like colonists seizing land from natives or the poor, or feudal baronies and stuff – and some were good – like saving and investment and all that.”

The President chuckled. “Professor, we ain’t living in the time of sharecroppers and barons anymore. This is the Twentieth Century!”

“I was just trying to illustrate a point,” I insisted. “Wealth isn’t like a board game. It’s not like standing on Land You Own is worth 50 points and standing on Land You Rent is worth 10. And you can’t just move all the pieces onto the ‘Owned Land’ squares and increase their scores. You can’t make people wealthier by giving them land in their name.”

“Of course not!” the President snorted. “This isn’t the Clinton era we’re talking about – none of that welfare-state mumbo-nonsense. I’m not giving away land – I’m making it easier to buy land. Through incentives and stuff. I’ve read Milton Friedman, y’know; where do you think I got that ‘school vouchers’ idea?”

I sighed quietly. “Okay, so where’s the money for these ‘incentives’ going to come from?”

“Wha?”

“You’re going to make it easier for people to own their own homes … through what, tax credits?”

“Maybe,” he said, lifting his nose slightly as if he were being mysterious and contrary. “Or maybe the Fed’ll just lower interest rates.”

“So you’re either taking in less tax revenue – which means deficit spending – or you’re adding to the money supply with lower interest rates – which means inflation. Either way, you’re taking money from somewhere and putting it somewhere else: in the hands of potential homeowners. All I’m asking is: where are you taking it from?”

He laughed. “You make it sound like I’m just moving steer from one pen to another! But I’m making people wealthier, remember? That leads to economic growth – which means more cows for everybody!”

“Where?” I asked. “What’s actually growing?”

He thought for a minute – and I mean a literal sixty seconds, squinting and biting his lip and twisting his bootrag into a tiny ball – before he snapped his fingers. “Construction! See, there’s an increased demand for houses because of all these new homebuyers. So that’s more construction jobs. And the construction workers, they’ll spend more money on beer and titty mags and whatever it is they buy …”

“Who’s going to invest in a construction company?” I asked. “You’ve lowered the interest rates.”

“Wha?”

“Lowering the Fed funds rate,” I said, “lowers banks’ interest rates across the board – that’s the prime everyone talks about in the ‘prime plus one percent’ and such. That means fewer people will be looking to invest money – lower interest rates means a less attractive rate of return.”

“No, no, no,” the President said, shaking his head. “Greenspan told me that lowering interest rates stimulates business growth.”

“Lowering interest rates stimulates borrowing, and companies borrow money to grow. But for someone to borrow, someone else has to be willing to lend. And people are going to be less willing to lend while interest rates stay low.”

“So we’ll wait until that happens,” Bush said, “then jack ‘em right back up again!”

“And bankrupt everyone you put into a borrowed home in the process,” I said. “They still have those checks to mail in on the first of the month.”

He squinted at me, confused.

“The mortgage?”

“Oh, right, right.”

I threw my hands in the air and left. “You have my report,” I said over my shoulder. “But I still can’t advise you to go through with this plan of yours.”

“Naw, naw, it’ll work,” he insisted, nibbling his thumb. “I just need some more time to iron out the details. Get that growth and investment all lined up.”

“If you’re sure,” I said. “You think you need another month’s vacation?”

He shook his head. “I think September’s gonna be quiet.”

* * *

The anecdote above is, obviously, fiction. The U.S. federal government has been attempting to artificially stimulate the mortgage market for about seventy years; laying this all at Bush’s feet would be ignorant. And I would never be let within a mile of the Crawford ranch.

But I tell the story that way as a means of illustrating a point: an incentive to create an effect is also an incentive to create the appearance of an effect*. If elected officials have an incentive to make the country wealthier, they have just as strong an incentive to make the country appear wealthier. Moving more people into homes makes it look like the middle class has grown, when in fact we’ve just shifted the goalposts.

The result is always a “bust” – as in the boom/bust of the economic cycle – though it’s not always this bad.

__________
* I wish I could take credit for this bon mot, but I read it somewhere on the Internet years ago. Maybe CoyoteBlog; it sounds like the sort of thing he’d say or link to. If someone can find it, please let me know so I can credit the author.