2020 Election: Fiscal and Financial Crises Unaddressed

Eviction notice for an apartment in Los Angeles, Calif., in 2009. (File photo: Lucy Nicholson/Reuters)

Welcome to “The Tuesday,” a weekly newsletter about culture, language, and politics. Since there aren’t any big stories in the news today . . .

Bankrupting Small-Time Landlords

Anti-capitalist rhetoric has always relied on artificial oppositions: labor vs. capital, consumers vs. producers, renters vs. landlords. But in a modern economy, we are all in the same boat — even if it sometimes takes us a while to figure that out.

Consider the COVID-19 economic downturn. For the highly educated and the skilled, who at the beginning of the crisis already enjoyed relatively high incomes, COVID-19 has been an economic inconvenience: Vacations were canceled and business trips became online chats, but most workers at the high end were able to make the transition to working remotely relatively easily. Some even took the opportunity to combine working from home with an extended vacation, and the New York Times is here to provide them with advice for sojourning abroad while working remotely.

(The upshot is that the only thing more distressing than the bane of economic inequality is trying to get a reliable high-speed Internet connection in Tulum.)

For low-skilled workers, the past year has been an economic catastrophe. As the Financial Times reports, about one-third of U.S. households are currently facing the possibility of being evicted or having their homes foreclosed on.

Some of this breaks down along familiar sociopolitical cleavages, with the poor and the nonwhite generally getting the worst of it. About one in ten white households missed last month’s mortgage payments, while about one in five black or Latino households did. Poor people often rent from relatively poor landlords. The same FT report finds that while landlord households earning more than $200,000 a year generally get only about 5 percent of their income from residential rents, landlord households with incomes of $89,000 or less get three or four times as much of their income from that source. Peter Spiegel, the Financial Times’ U.S. managing editor, worries that missed rental and mortgage payments could “infect the financial system.”

When renters fail to pay their rent — and those who rent to low-income tenants see more defaults even in the best of times — landlords lose that income. Sometimes, they’ll get some of it back, but, often, they won’t. Normally, they evict non-paying tenants (you can read more about that dreadful and unhappy process here) and replace them with new tenants who will, they hope, pay the rent. But most landlords have not been able to evict nonpaying tenants for months and months because of the eviction moratorium enacted as part of the COVID-19 response. The landlords affected by that moratorium are not all wearing top hats and monocles — many of them are families of relatively modest means. And many of those landlords have only one rental property, and often have a mortgage on that property: When tenants don’t pay the rent, landlords can’t pay that mortgage.

That moratorium may be good policy as a short-term emergency measure, but as the short term lengthens into a year or more, the consequences of those missed rental and mortgage payments eventually must be felt. Citigroup, JPMorgan, and Wells Fargo already have seen loan-loss charges in excess of what they experienced during the 2008–09 financial crisis.

And what is happening in the mortgage world? An IPO boom, of course.

Mortgage originators are having a banner year. They expect to write $3.2 trillion in new mortgages this year, according to the Wall Street Journal, an increase of more than 40 percent over 2019. But most of that business is not for new homeowners: 55 percent is refinancing driven by basement-dwelling interest rates. So they are having a good year, and they are eager to sell that story to investors as quickly as they can — Mammon only knows what the Democrats will do with capital-gains taxes if they hold all the cards in January. John Dizard of the Financial Times writes:

For a crowd of clerks, mass-production lawyers and server farm techs the mortgage industry comeback was impressive.

How? Basically, by doing all the good stuff (house building, cheap mortgages) now and putting off the bad stuff (evictions, foreclosures, job losses from industry consolidation) for later. Genius.

Thanks to the miracle of election year politics, Democrats and Republicans united around good-stuff-now-bad-stuff-later. Cheap Fed money, “forbearance” for distressed voters, any reforms to be arranged after . . . after . . . by the next Congress.

. . . The mortgage banking entrepreneurs who had survived the great financial crisis, and their private equity backers, saw a once-a-cycle chance to move product and cash out before the Democrats got to rewrite Trump-era capital gains and estate tax laws. They took it.

But putting off the bad stuff doesn’t mean that it goes away. As Dizard puts it, “mortgage banks have booked enormous six-month profits, but could have many months, or even years, of drains on cash.”

And that is why the low-income tenant, his landlord, the landlord’s creditors, and the Wall Street giants are all, to an unappreciated extent, in the same pickle. And the rest of us are in that same apparently capacious economic gherkin.

(And, yes, I saw Capacious Gherkins open for Hüsker Dü.)

This has political implications and policy implications, because debt is risk. We hear a lot of moralistic language about the federal debt and what we’re “leaving to our kids and grandkids,” and that line of argument is important. But another possibly more useful way to think about that debt is as a burden of risk. Here I do not really mean the risk of U.S. sovereign-debt default in the near term (a risk that the bond markets currently calculate at approximately 0.00 percent, though they have been wrong before) but the way in which that debt constrains the U.S. government in the face of unexpected challenges, say a worldwide viral epidemic. If you are a thrifty Nordic country (high taxes and high spending, sure, but high sobriety, too) with a debt-to-GDP ratio of 33 percent (Denmark) or 35 percent (Norway), or a very squared-away country with an even lower level of debt (New Zealand at 26 percent debt-to-GDP), then you have a lot of room to take on short-term debt to deal with a crisis. If you are the United States, with a debt-to-GDP ratio of more than 100 percent, you have to take that debt into consideration. The size and robustness of the U.S. economy, the strength of the dollar, and the longstanding stability and credibility of the U.S. government mean that Washington can still get its money for nothing (the chicks for free ended in the Clinton era) but that is a party that is not going to last forever. A spike in interest rates could drive up the cost of federal debt service in the blink of an eye and blow a Pentagon-sized hole in the federal budget. That would be an enormous challenge in the best of times — and these are not those times.

We probably are not facing another financial crisis like the one of 2008–09. But our situation is a lot like it was in 2008 in one way: We are carrying a lot of risks that we do not understand very well. The crisis doesn’t have to look like 2009 — it can be its own thing. Driving a few million small-time residential landlords into foreclosure and penury is going to ripple throughout the economy for the simple reason that they owe a lot of money to banks and other creditors, and the current relationship between Washington and Wall Street means that we all carry that risk together, whether we want to or not. We have had for a generation a bipartisan consensus against serious action on either the taxing or spending side of the ledger, and the Trump-era Republican Party is at least as hostile to entitlement reform as the Democrats are. But: More than half of federal spending is Social Security and medical entitlements, another 20 percent or so is national security, and the next biggest chunk is interest on the debt we’ve already piled up. That adds up to something just short of the whole federal enchilada, more than 80 percent of spending. Even if we froze everything else in place, there would be no way to put our country on a sustainable fiscal path without touching those sensitive interests and/or substantially raising taxes — and we can’t keep everything else frozen in place. We have an unpredictable epidemic on our hands, a financial system still in need of wide-ranging reform, and a fiscal time bomb ticking away in Washington.

And no matter how hard you look at your ballot today, you will not see on it a solution for that compound mess of messes.

Words About Words

The Catholic News Service describes Washington archbishop Wilton Gregory as a prelate “who will be the first African-American cardinal from the United States.” This raises the obvious question: Are there African-American cardinals from other countries? Black cardinals, yes. African cardinals? All across Africa, as it turns out, and if you are looking for some lovely Catholic cultural fusion, behold the wondrous name of the recently retired archbishop of Dar-es-Salaam: His Eminence Polycarp Pengo. The original Polycarp was the bishop of Smyrna, a martyr, and an associate of John the Apostle. A kid named Polycarp probably has a pretty good chance of growing up to be a bishop. In much the same way, the 2020 presidential nominee of the Libertarian Party, Jo Jorgensen, exercised excellent foresight in arranging for herself to be born in a town called Libertyville, in Illinois.

There is a famous story, possibly apocryphal (I never have been able to track down the original) about a television news anchor describing Nelson Mandela as “African American” during his first visit to the United States. Black was out of fashion, but South African or African wouldn’t quite get it done, either, because there are a lot of white South Africans (Elon Musk is from that point of view an African-American entrepreneur), and Mandela was a black leader of black South Africans, in contradistinction to F. W. de Klerk. South African usage differs from U.S. usage. Trevor Noah of Johannesburg points out that at home he is not black but colored, the local designation for those of mixed ancestry.

Some reports style the first African-American cardinal “Wilton Cardinal Gregory,” a delightfully formal and old-timey convention. I first noticed the style in news reports about John Cardinal O’Connor. Sticking “Cardinal” in the middle of a cardinal’s name is a convention predating the common use of surnames in the West and parallel to the style for certain titles of nobility: Charles, Prince of Wales; Andrew, Duke of York; or Armand Jean du Plessis, Duke of Richelieu, who is best known as Cardinal Richelieu.

Journalists probably had better figure out how to refer to His Eminence. If a fanatically pro-abortion Catholic happens to be elected president of these United States this evening, some people are going to want to know what the archbishop of Washington thinks about that. I hope the archbishop has some good answers.

Rampant Prescriptivism

A reader writes to denounce “different than.” I concur in the denunciation. Do not write this.

Than is a conjunction and preposition mostly used to indicate comparison (bigger than a breadbox) and sometimes used to indicate exception (other than that).

What’s wanted with different is from, a word that is used in similar ways, indicating separation or exclusion: They went out from among us, but they were not of us; The distance from x to y is 200 miles; The Man from U.N.C.L.E.

Different from, not different than.

Send your language questions to [email protected]

Home and Away

I would be surprised, though not greatly surprised, to see either come to pass, but I think Texas Democrats have a slightly better chance of delivering their state’s 38 electoral votes to Joe Biden than they do of winning a majority in the state house. More in the Wall Street Journal.

If you missed my piece on Charlie Hebdo for National Review, you can catch it in the New York Post, too.

You can buy my forthcoming book, Big White Ghetto: Dead Broke, Stone-Cold Stupid, and High on Rage in the Dank Wooly Wilds of the ‘Real America,’ here. Think of it as a skeleton key to our current cultural divide.

My National Review archive can be found here.

Listen to “Mad Dogs & Englishmen” here.

My New York Post archive can be found here.

My Amazon page is here.

To subscribe to National Review, which you really should do, go here.

To support National Review Institute, go here.

Bookshelf: What Is China Thinking?

Working from the hypothesis that the U.S.–China relationship is as much a matter of cultural and intellectual rivalry as of military and economic competition, I have been doing some reading in hopes of getting a better understanding of the moral and spiritual basis of the Chinese situation. A few books I recommend: Yasheng Huang’s slightly dated but very interesting and useful Capitalism with Chinese Characteristics: Entrepreneurship and the State; Tingyang Zhao’s Redefining a Philosophy for World Governance, a recently translated entry in the series “Key Concepts in Chinese Thought and Culture,” Julia Lovell’s Maoism: A Global History; LeeJoo Liu’s Neo-Confucianism: Metaphysics, Mind, and Morality. If you have any suggestions for China reading, please share them with me.

In Closing

Something that has changed among conservatives is that while we once were skeptical of excitement and emotion in politics, we now embrace them — we offer a surfeit of them, in fact. I blame Ronald Reagan for that, a little bit: He was an actor before he was a politician, and he rose to national prominence in dramatic times. He could be witty (conservatism and wit once went together), he could be plainspoken, but he also could be soaring — and those moments were thrilling: “Tear down this wall!” Reagan’s thrilling oratory was one political weapon among many in his arsenal, and he used it to strike a moral and intellectual blow against Soviet socialism that proved to be lethal. There is a difference between excitement to some purpose and excitement for its own sake or merely for the sake of trying to gain and hold elected office. It is an awkward thing for someone in the controversy business to write, but one of the things I hope for after the election is a less-exciting conservatism, and a less-exciting politics. I would prefer a conservatism that instead of being seduced by messianic pretensions considered such pretensions per se disqualifying. Sometimes, you need a Washington or a Lincoln. More often, you need an Adams or an Eisenhower.

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