By James Kwak
Loyal blog readers have surely noticed the new left-hand sidebar of the blog and may be wondering what this “White House Burning” thing is about. I wanted to give you a bit more background than the jacket flap copy you can read elsewhere.
You don’t have to know a lot of American history to know that the War of 1812 began two hundred years ago. Yet I doubt there will be much celebration, since it’s not a war we’re particularly proud of, like World War II, nor is it one that is particularly controversial, like Vietnam. Its most famous moment is perhaps the burning of Washington in August 1814, although it also gave us the phrase “We have met the enemy and they are ours” (Commander Perry, Battle of Lake Erie), the words to the national anthem, and the political career of Andrew Jackson, victor at the Battle of New Orleans.
Somewhat less well known is that the United States fought the war in an almost continual state of fiscal crisis, barely able to borrow enough money to mobilize and equip an army and navy that had been starved of resources over the previous decade. That crisis was perhaps not as deep as the fiscal crisis of the Revolutionary War and its aftermath, but there at least we had an excuse: it’s hard to muster the resources to fight an anti-colonial war when your country doesn’t exist yet. The War of 1812, by contrast, was a war of choice, and the government’s fiscal problems were largely self-induced.
The same goes for the fiscal problems the federal government faces today. Our economy generates plenty of resources, yet our political system seems unable to make any coherent choices about how to allocate (or not allocate) those resources. Our main goals in White House Burning were to explain our fiscal and political situation and show one path forward for our country.
The first part of the book describes the political struggles that have always surrounded deficits and the national debt, from 1789 through the Gingrich Revolution and the debt ceiling showdown. The second part explains what the federal government does, where the debt comes from, and why it matters (and also why it doesn’t matter). The third part argues for a certain role of government in society and recommends a set of policy changes that could reduce the future national debt while increasing economic efficiency and maintaining the most important functions of the federal government. I’m sure there is something in there for everyone to disagree with, no matter where you are on the political spectrum.
In many respects, I fall into the “unemployment first, deficit later” crowd. But in politics, you can’t always choose what battles to fight when. And like it or not, for good reason or bad, deficits are a major political issue this year. This is our attempt to explain how we got here and what is at stake in these debates.
The Baseline Scenario 
“Our economy generates plenty of resources,”
You mean our workers perform a lot of labor
“yet our political system seems unable to make any coherent choices about how to allocate (or not allocate) those resources.”
Why would I tolerate — never mind want — you to make any choices whatsoever about the allocation of _my_ labor?
I love the built-in assumption that “our economy” — by which you mean people who actually work for a living — need some political class of mandarins to tell us what to do. But of course! Otherwise, we might make decisions for ourselves. Self-determination is the root of all evil in the world.
@Nemo
“You mean our workers perform a lot of labor”
No, he means we have sufficient excess capacity to provide employment offers to everyone who wants a job.
“Why would I tolerate — never mind want — you to make any choices whatsoever about the allocation of _my_ labor?”
He’s talking about provision of sufficient net financial assets so that everyone who wishes to CAN labor.
“I love the built-in assumption that “our economy” — by which you mean people who actually work for a living — need some political class of mandarins to tell us what to do. But of course! Otherwise, we might make decisions for ourselves. Self-determination is the root of all evil in the world.”
The only person thinking in this way is you. We call this a freudian slip.
now i get it. recently, kwak has gone out of his way to insist that “PIMCO is not wall street. it is the buy side”. hehe.
Surprise, Surprise!!! Lo and behold, PIMCO CEO was hard at work in reviewing Kwaks next book.
Even tough Venture Capital would not exist if there was no IPO or deal making machine at the end of the pipeline, Kwak makes childish comments like VC is not Wall Street.
According to Kwak, Private Equity (which in reality, is also the buy-side, like PIMCO) is no different than “bankers, whose contribution to society is ambigious”.
In reality, Academics like Kwak and Simon are no different from most of the class of people we call “bankers”: they do a job that is good for society in principle, but in practice is more ambiguous; some contribute more to society than they take out, some take out more than they contribute.
Never have i seen a comment from Kwak that Countrywide, the very core of the origins of the Financial Crisis, was NOT wall Street!!. It was a retail mortgage broker!!
Never have i seen a comment that Ken Lewis was not allowed to back out of the deal to buy Countrywide!!!
In the meanwhile Simon Johnson is busy trying to convince the world that If “academic research” is paid for by fleecing 18 to 22 year old MIT students out of 45K in fees every year, it is pristine, and without flaws. But if robust, real world research is conducted by an institution outside of the university system, it is somehow corrupt – when in reality, he is simply unable to comprehend simple, real world concepts.
How about a clarification that of the 13 Bankers, the dude from Freddie Mac was NOT a banker and that at least three of the Bank CEOs did not need any help from the government?
Now, these dudes are going to, “show one path forward for our country”.. Ha Ha. My only thought: “god bless america”
Either Kwak is naive, or he thinks that ‘loyal blog readers’ are naive.
Don’t ever change, Desi Girl. You should do your own entertainment blog I think: “Angry Because I’m Wrong” would make a great title.
Such bitter trolls at this place! I love it. Jimmy K, sounds like you’ve hit a sore spot. Keep hitting it!
Americans probably won’t celebrate (and rightly so) but here in Canada our proto-fascist government is about to turn it into a costly nation-building exercise. That is despite all the historical evidence showing that there is nothing to celebrate at all about this useless war.
From what I understand the British came back from unpaid loans and there response was to inflate the currency by counterfitting it, and burning Washington. The bond money the dutch and brits gave America in 1789 were eventually used to by Napoilean to wage war against the rest of Europe, and that was the pay back for non-payment. But ironicly the war produced enough US revenue in the form of real estate taxes, from the increased value of the land itself, to almost pay off the American debt in @1832. Farmers were not even rich enough to buy their own food being sent to Europe because of the taxes. And property taxes have done nothing but rise since. If thats what he means by the fiscal problems faced today, well I understand him. As much as I understand any reader today, just got faced.
@BenWolf
Angry?? HaHa. That emotion is normally reserved for the ignorant like simon johnson.
You need see Simons response to Bank of Canada’s comment on the Volker Rule. He demonstrates a downright lack of understanding of simple market concepts leading to ignorance, leading to anger..leading to his request to the Bank of Canada to withdraw its comment. Its almost laughable….like watching a whiny toddler.
Ha Ha…..the bank of canada is now scared.
Ben W,
Thanks for taking care of housekeeping chores. The comments section can get mighty untidy if left untended.
Sir Kwak,
Will it be Kindled?
I never quite figured out why Canada would want to celebrate a war between the Brits and the Americans, but ……I just wanted to put in a word for a great book I’m working through (“The Civil War of 1812” by Alan Taylor) which gives a nice account of what a clusterf*** the war was on both sides of the 49h parallel. And, as James notes, it mentions the crippling effects that the combination of (a) state’s rights and (b) low taxes had on America’s ability to finance a standing army.
Why not give a copy to your favourite Republican?
This post is wrong on at least one point: the state of Maryland is quite proud of the anniversary of the War of 1812, as evidenced by the license plate on my car.
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