Farmers are already moaning...
WHAT a spectacular summer! writes Bill Bonner, reporting for his Diary of a Rogue Economist from his new retreat in Youghal, Ireland.
People may be frying eggs on the sidewalks of Algiers and fighting forest fires in Sweden, but here in Ireland, the heatwave is a delight.
Farmers are grousing, of course, but we are enjoying daytime temperatures in the mid-70s and beautiful, clear skies.
Farmers are grumbling in the US, too. The weather is always a favorite subject. And this year, they have something more to kvetch about – the trade war.
Casualties are beginning to pile up. This from Bloomberg:
"Harley-Davidson Inc. on Tuesday cut its profit margin forecast, citing tariffs. The iconic motorcycle maker was caught in the crossfire of the trade war last month when it announced plans to shift some US production overseas, prompting attacks from Trump.
"Dutch electronics firm Royal Philips NV Chief Executive Frans van Houten says an escalation of tariffs may mean it has to pass on costs to customers, and Whirlpool Corp. said rising raw material costs hurt results in some of its markets in the second quarter."
Out on the Great Plains, the bodies lie especially thick. The damage estimate so far: $11 billion.
But US farmers are not locking arms like Londoners during the Blitz, or going on short rations like Soviets during the Siege of Leningrad. If anyone is going to make wartime sacrifices...it's not going to be them.
They've got two senators per state...and a Republican Party that needs their money and their votes.
As expected, America's president proposed yesterday to bail out the farm sector with $12 billion in welfare payments.
Naturally, the president feels some responsibility in the matter, since it was he who put the hayseeds under water.
He also looks ahead to the midterm election season, when the fellows with the big tractors make a big impression on the politicians.
The Donald has replaced win-win with win-lose. But the $12 billion won't come out of Donald Trump's pocket.
Nor will it come from the US Treasury. The feds don't have any money; they're already projected to run a trillion Dollars in the hole for fiscal year 2019.
So where will the money come from?
Will taxes be raised on consumers, also hurt by the trade war? Will the steel producers...or steel workers...or steel buyers – similarly damaged – pony up the money? Which group will get the rewards? Which will be punished?
Even Republicans are beginning to notice that the trade war threatens profits, jobs, and incomes. It also hurts our system of government, they say. Per Politico:
"Pro-free trade Republicans were already furious with Trump's escalation of tariffs against US allies and China – a multi-front trade war they say is hurting US farmers and manufacturers. But the administration's response Tuesday – sending $12 billion to farmers hurt by retaliatory tariffs to ease the pain – is the precise anathema of conservative, free-trade orthodoxy, they said.
"This is becoming more and more like a Soviet-type of economy here: Commissars deciding who's going to be granted waivers, commissars in the administration figuring out how they're going to sprinkle around benefits," said Senator Ron Johnson (R-Wis.). "I'm very exasperated. This is serious."
"Taxpayers are going to be asked to initial checks to farmers in lieu of having a trade policy that actually opens and expands more markets. There isn't anything about this that anybody should like," said Senator John Thune of South Dakota, the No. 3 GOP leader. He suggested the new spending might need to be offset by cuts in other funding areas.
"Senator Ben Sasse (R-Neb.) said Trump is giving farmers "golden crutches." And GOP Senators Jeff Flake of Arizona, Bob Corker of Tennessee, and Pat Toomey of Pennsylvania said their legislation to tie the president's hands on tariffs should pick up new steam now that the Trump administration is distorting the market.
"This is what we feared all along, that these markets would be replaced by handouts," Flake said. "You lose some of these markets, you lose them for good or a long time."
And here we see how an economy works when win-lose replaces win-win.
Farmers, steelworkers, secretaries, and car salesmen turn their faces away from the lathes...away from their customers...and away from balance sheets and fields.
Instead, they turn toward that cornucopia of endless bounty – Washington.
But Washington has no money. Unlike Dubuque or Las Cruces, Washington is in the win-lose business. Every penny of bailout, subsidy, boondoggle, and giveaway must come from someone, somewhere else.
You will recall that we ended our Diary on Monday with a provocative comment...that the coming poverty will be neither gentle nor genteel.
It will not be like a frayed jacket from Savile Row...or worn Stieff silver. It will not be like an eccentric uncle translating ancient Aramaic fragments while the family fortune runs down.
Nor will it be like an idyllic life in the countryside, tilling your family farm in the summer and sitting in front of an open fire in winter.
Instead, it will be mean, brutal, and rude...as the feds squeeze the economy hard...and groups fight among themselves for the juice.