American Consequences - June 2018

Resurgence of the American Heartland Letter From a Rust Belt City AMERICAN CONSEQUENCES The Future of Legal Marijuana

ADVERTORIAL

BY ADAM WIEDERMAN

I

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CONTENTS

JUNE 2018 : ISSUE 12

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6

28

72

82

94

64

AMERICAN CONSEQUENCES

58 The 2018 Farm Bill BY P.J. O'ROURKE 64 Pigs Get Slaughtered BY BILL BONNER 68 The Electoral College BY P.J. O'ROURKE

Inside This Issue BY STEVEN LONGENECKER

4

Letter From the Editor BY P.J. O'ROURKE

6

Editor in Chief: P.J. O’Rourke Editorial Director: Carli Flippen Managing Editor: Steven Longenecker Contributing Editors: Bill Bonner, Ernst Dogsbody, Turney Duff, Sebastián Edwards, Dr. David Eifrig, John Fedderke, Richard N. Haass, Alec MacGillis, Matt McCall, Geoffrey Norman, Buck Sexton, Dr. Steve Sjuggerud NewsWire Editors: Scott Garliss, John Gillin, Greg Diamond Assistant Editors: Chris Gaarde, Laura Greaver Creative Director: Erica Wood Cartoon Director: Frank Stansberry Contributing Cartoonists: Hank Blaustein General Manager: Jamison Miller Advertising: Sam DeCroes, Jared Kelly, Jill Peterson Editorial feedback: feedback@ americanconsequences.com

10 "Coastal" or "Heartlander" Quiz

12 What Moved the Market

72 Revenge of the Forgotten Class BY ALEC MACGILLIS

14 What Could Possibly Go Wrong?

16 From Our Inbox

82 Puppies Are Cute

BY ERNEST DOGSBODY

22 Resurgence of the American Heartland BY DR. DAVID EIFRIG

86 Trading Tragedy BY TURNEY DUFF

28 A Conversation with Mark Spitznagel: The Heartland Will Return

90 America's Forgotten Default  BY SEBASTIÁN EDWARDS

32 Letter From Toledo, Ohio BY JOHN FEDDERKE

94 U.S./China Trade War

BY DR. STEVE SJUGGERUD

42 A Conversation with Matt McCall: The Future of Legal Marijuana

100 A North Korean Opportunity for America and China BY RICHARD N. HAASS

48 Here to Stay: Heroin

BY GEOFFREY NORMAN

104 Read This

57 Back-Off From Opioids BY DR. DAVID EIFRIG

106 The Final Word

BY BUCK SEXTON

American Consequences 3

INSIDE THIS ISSUE

T his month, we’re talking about the Heartland... The mysterious middle of America that few folks on the Coast understand. It’s blamed for weighing down GDP... for electing President Donald Trump... even for holding on to cultural values that are no longer politically correct. Editor in Chief P.J. O’Rourke starts us out by defining what we mean by Coastal vs. Heartlander... and Dr. David Eifrig talks about a resurgence in the Heartland as rural communities start to outpace urban growth. Hedge fund legend Mark Spitznagel talks with P.J. about goats, black swans, and what it will take to “unlock” the Heartland’s undervalued assets... while advertising exec and lifelong Toledo resident John Fedderke asks whether the Rust Belt city will shine again? Financial analyst Matt McCall talks about the future of legal marijuana in the U.S... while author and feature writer Geoff Norman brings us a long read from Vermont, one of the front lines of the American heroin epidemic.

P.J. asks, “What’s up with the Farm Bill?” There’s plenty of manure here to spread around. And Bill Bonner shares an essay from the slaughtering yard that you should keep handy –there’s a chance we all end up raising hogs in our backyards. ProPublica’s Alec MacGillis wrote a great article just after the 2016 election that we’re republishing – mostly because we suspect that most “Coastal elites” still don’t get it... It’s not about people loving President Trump. It’s about people hating them . Then, our anonymous top lobbyist shares how bills are really passed in Washington D.C. with the Puppies Are Cute Act (“PACA”)... And bestselling author Turney Duff details a chilling experience about trading tragedy. Sebastián Edwards details America’s forgotten default... Dr. Steve Sjuggerud shares the surprising loser in a U.S.-China trade war... Richard N. Haass thinks North Korea could be the best thing for the relationship between the U.S. and China since the collapse of the Soviet Union... And Buck Sexton talks about a growing Coastal panic, what if the so-called “blue wave” doesn’t happen? Enjoy the issue. And tell us what you think at feedback@americanconsequences.com. Regards, Steven Longenecker Managing Editor, American Consequences

‘Toledo’s not rusted, we’re just a bit tarnished.’ I couldn’t have said it better myself!

John Fedderke

4 June 2018

A gentleman never cuts corners.

Age may make you a man. But being a gentleman is up to you. Shave like a gentleman | onebladeshave.com

From Editor in Chief P.J. O’Rourke

T

They are the “Coastals” – the enlightened, the progressive, the sensitive, the inclusive, the hip, the aware, the woke . You can tell Coastals from “Heartlanders” the way you can tell... • Theories from Practices • Ideas from Actions • Words from Deeds • The Harvard football team from Alabama’s Crimson Tide The defining feature of Coastals is that they know so much more than we do. (Ignoring, of course, Coastals feeding straw to the horse

hey infest the metropolises of the Left Coast and the Eastern Seaboard and they swarm the atolls-of-the-trendy in between... You find them in Ann Arbor, Michigan... Austin, Texas... Boulder, Colorado... all the other places where the smell of pot is stronger than the smell of factory smoke, crop fertilizer, heavy equipment diesel fumes, or the sweat of hard work... They know all about organic, sustainable, non- GMO, pesticide-free, fair-traded, locavore, artisanal, gluten-free, hypoallergenic, and vegan. But they don’t know hay from straw...

6 June 2018

LETTER FROM THE EDITOR

Heartlanders get drunk and think they’ve become stupid. Coastals get stoned and think they’ve become brilliant. “ watering restrictions. We really care. We care so much we quit using the toilet. And because we care so much more than you do we’re better people than you are. The world should be run by better people. Therefore, we can boss you around.”

and trying to sip their Starbucks Cold Foam Cascara through a blade of hay.) The Coastals know what’s good for us better than we do. They know what’s good for the whole world better than the whole world does. And the Coastals can prove it to you. It’s a bad old world, so the world must not know what the Coastals know or the world would be good. It’s not. Case closed. Another defining feature of Coastals is that they care so much more than we do. They say to us, “Oh, sure, you care about climate change. But you only care because of lawn-

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American Consequences 7

LETTER FROM THE EDITOR

A third defining feature of Coastals is that they are so much more successful than we are. We try to be righteous, and we almost always fail at it. They try to be self-righteous, and they succeed every time. Being a Coastal or a Heartlander isn’t purely a matter of geography. Although it’s interesting to consider why Coastals dominate the coasts. Or some of the coasts. Coastals are scarce on the Gulf Coast, uncommon on the shores of the Great Lakes, and dominate the Atlantic Coast only as far south as Washington’s Virginia suburbs. Hawaii is both lower case c and capital C “Coastal.” While Alaska has lots of coast but is almost entirely Heartland. The Pacific Coast can be explained by a saying we had in Ohio when I was growing up: “Every now and then the country gets tilted and everything that’s loose rolls out to California.” As for New Yorkers, Bostonians, Washingtonians and their smarty-pants ilk... While the rest of the nation was engaged in Manifest Destiny and the Great Western Migration, maybe the Northeast simply missed the bus. But there are lonely Heartlanders in Berkeley and isolated Coastals frantically seeking their “safe space” in Oklahoma City. The Heartland/Costal divide does not fall along strict lines of political ideology either. Harry Truman was a Heartlander. Steve Bannon is so Coastal that he’s up to his furrowed brow in a know-it-all, scared stiff, self-righteousness rip tide. Nor are ethnic, racial, gender, or sexual

orientation “identities” determinative. Justice Scalia – Heartland. Sacco and Vanzetti – Coastal. Likewise: Colin Powell/Ta-Nehisi Coates, Geronimo/Elizabeth Warren, Nikki Haley/Elizabeth Warren, Peter Thiel/Rosie O’Donnell. Caitlyn Jenner is a Heartland Trump voter. Jeffrey Tambor is a fan of Coastal Obama. And, speaking of identity confusion, Trump is a Coastal pretending to be a Heartlander while Hillary Clinton is a lowly Heartlander full of lofty Coastal pretentions.

Speaking of identity confusion, Trump is a Coastal pretending to be a Heartlander while Hillary Clinton is a lowly Heartlander full of lofty Coastal pretentions.

Coastals are not all kooks. Among the flakes there is an upper crust – crumbs that stick together. Some sit atop the pie of finance. Heartlanders make money, but Coastals create money in their central banks, their opaque derivatives, and their cryptocurrency initial coin offerings. Some coat the bread loaf of politics. The political Coastals are devoted to social justice – a large pile of benefits to be distributed to the Heartland many just as soon as the Coastal few have grabbed and horded a large pile of their own.

8 June 2018

The political Coastals are enamored of world peace, although they’ve been to fancy schools and know the words of Tacitus about his own Roman Empire, “... make a desolation and call it peace.” Yet not all Coastals are peace-mongers. It’s Coastals who send the U.S. military on fool’s errands to Iraq, Afghanistan, Libya, and Syria. It’s Heartlanders who join up. The crux of the matter is not about Heartlanders being good and Coastals being evil. It’s about their respective ability to tell the difference. This is similar to their respective judgment about intoxication. Heartlanders get drunk and think they’ve become stupid. Coastals get stoned and think they’ve become brilliant. Heartlanders believe in applying common To take a simple example of good, there’s the Bill of Rights. A Heartlander looks at the Bill of Rights and thinks, “It’s pretty good.” A Coastal has a beef (free-range and grass- fed, of course) with every one of the first 10 Amendments: I. Free speech Coastal: What if it makes college students cry? II. Right to bear arms Unless the guns are scary-looking. III. No soldiers to be quartered in houses in time of peace Does Airbnb count? Because Airbnb is contributing to the shortage of affordable housing in rapidly gentrifying inner cities sense to the question of good and evil. Coastals believe in arguing about it.

and while I don’t advocate the quartering of soldiers per se, because that might be insensitive to anti-war homeowners, there are the homeless to be considered and... IV. No unlawful search and seizure Although in many ways Edward Snowden made important contributions to the goals of transparency in... V. Protection against self- incrimination Unless investigated by Robert Mueller. VI. & VII. Right to jury trial When not already found guilty in a New York Times editorial. VIII. Prohibition of cruel and unusual punishment Except reputational death by Twitter. IX. Enumerated rights Wait a minute! They left out the right to health care, the right to education, the right to a living wage, the right to... X. “The Powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” But... But... But so many of those states are in places like Oklahoma and so many of those people live in states like that and... Which brings us back to knowing hay from straw. It turns out not to matter. Either hay or straw will do just fine to stuff in the mouth of a Coastal.

American Consequences 9

ARE YOU A “COASTAL” OR A “HEARTLANDER”?

It’s not where you live. It’s how you live. Take our quiz to find out whether you’re an Organic All- Natural Unrefined Sea Salt person or whether you’re The Salt of the Earth. Check Option A or B, and tally your scores below

OPTION A

OPTION B

Sushi

Bait

Microbrew Amber Blonde

Beer

Cream Brown Red Fruit Honey Lime IPA Lager Malt Porter Stout Vegan

"Eat your vegetables"

9-grain bread "Just a salad"

Driveway sand

With a double order of fries on the side

Brunch

Second breakfast Farm-to-TV tray

Farm-to-table Locally sourced

Microwave-to-recliner

Wine flights

Box of Franzia

Avocado toast

Bread and butter

Quinoa

Grits

BPA-free water bottle Stone-ground whole

Garden hose

Chicken in a Biskit crackers

wheat crackers Whole Foods

Half of a Black Angus in the deep freezer

__ OPTION A TOTAL

__ OPTION B TOTAL

10 June 2018

OPTION A

OPTION B

Personal Journey Follow your bliss

RV

Garmin DriveLuxe 51 LMT-S GPS got a good review in Consumer Reports The drycleaner shrank these pants

Growing as a person

“Woke”

Snooze button

Burning Man

Out of charcoal lighter and Dad used gasoline Brother-in-law, Ted, never shuts up Smith & Wesson Airweight .38 Special in purse

TED Talk

Kickboxing class

Prius Uber

Jumper cables

AAA

Barista

Diner waitress

Tattoo body art to express your passions Looking for the meaning of life

Semper Fi

Looking for the TV remote

Yoga

Church

Downward dog Micro-aggression

Don’t forget to feed the dog

Kick in the shin

Fearless Girl

Golda Meir, Margaret Thatcher, Corazon Aquino, Queen Elizabeth I, Joan of Arc...

PETA

Petco

Social justice Gender Fluid

Judge Judy

Tyler Perry in Madea on the Run

Speaking truth to power

Yelling at the television Vending machine next to the motel ice chest

Room service

Spanx

Girdle

Climate awareness

Weather report

Raked stone Zen garden Carved stone Buddha statue

Rototiller

Cast concrete Virgin Mary

CrossFit

Cutting, splitting, and stacking cordwood

Dry gardening with drought-

Forgetting to water the plants

resistant native species

__ OPTION A TOTAL

__ OPTION B TOTAL

If you checked 15 or more As, you’re a Coastal. If you think taking magazine quizzes is a stupid waste of time, you’re a Heartlander.

RESULTS: 

American Consequences 11

WHAT MOVED THE MARKET THE BIGGEST STORIES THAT MATTERED FOR THE MARKET LAST MONTH...

about $50 to $100 billion in the context of a global, $87 trillion marketplace. Interest rates settled, and the 10-year Treasury yield moved back below 3%, though the yield curve continued to flatten out. The dollar rallied and the euro traded to the lowest level this year. Meanwhile, emerging markets were volatile... There were leadership changes in Italy and Spain, and the Turkish lira dropped 18% versus the dollar as local interest rates soared. A strong dollar and higher rates caused cash to be sucked out of developing economies. OPEC and Russia announced an end to supply caps, hurting oil prices throughout the month. Tensions in the Middle East have come off the boil, and the civil tone from the Korean Peninsula has been another headwind for crude prices. Gold has been stuck in limbo, and the dollar strength versus the major crosses (and modestly higher global interest rates) have kept buyers at bay. Bitcoin and cryptocurrencies in general have had a horrible month. Corruption and claims of fraud have been consistent headlines and the technical trend shows a complete breakdown. Despite this month’s political turmoil, markets are steady. Investors are ignoring the noise and are focused on earnings, wage growth, employment gains, buybacks, and dividend increases. CHAOS IN COMMODITIES AND CRYPTOS...

THE BULLS TAKE THEWHEEL IN JUNE...

Escalating geopolitical tensions caused global market volatility this month, but the U.S. proved to be a safe haven, and the Nasdaq and small-cap stocks (like the Russell 2000) made new all-time highs. Tech was a consistent growth sector, and first-quarter earnings were up 32% year over year. Global fund managers had to increase exposure to keep pace with their benchmarks. Retailers saw better foot traffic, margin expansion, and revenue growth, and spending patterns look promising. Recent jobs numbers and unemployment data were excellent, and small-business optimism was at a 34-year high. Although discussions with China are ongoing, the argument remains that the U.S. runs a $375 billion annual trade deficit with the country. The recent G-7 meeting was unruly and tense, and theWhite House said that current trade practices are unfair and it will not back down from demands to level the playing field. Equity markets rallied because investors have rationalized the trade debate as an argument TRADEWARS AND TARIFFS HEAT UP...

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THE FED AND THE ECB...

This past week was the most important of the month and likely the year...

12 June 2018

June 22 Markit releases its preliminary manufacturing, services, and composite Purchasing Managers’ Index (PMI) data in the U.S. and the eurozone. This is a vital gauge for judging the state of global growth. began to show signs of weakening. Data in Germany (Europe’s largest economy) and the eurozone told us growthwas slowing. This rallied the dollar whileweighing on the euro. It had a negative impact on the S&P 500 due to concerns multinationals would see sales slow abroad. The conversation changed mid-May, heading into the Fed and ECB’s policy decision announcements. Fed governors speaking intra-meeting said they were willing to let inflation run hot before adjusting their rate- hike thinking. ECB governors said intra- meeting they could end asset purchases in December. This turned the tables from a currency perspective. The dollar tumbled and the euro rallied, once again boosting markets. The Fed became more hawkish. It said it sees the path of rate hikes for this year rising from three to four. This was more than the market was expecting. The ECB became more hawkish, but with a twist. It said it would end asset purchases but would not hike rates before September 2019. Instead of the dovish Fed statement and the hawkish ECB statement the markets were anticipating, they received the opposite. The dollar rallied and the euro dropped, but the market, well, that remains to be seen... That was until this week...

The market dealt with multiple major catalysts, including the G-7 heads of state summit, the North Korean summit, the AT&T/ Time Warner ruling, and the Bank of Japan’s policy announcement. But the key events were the policy announcements by the Federal Open Market Committee (FOMC) and the European Central Bank (ECB). Late last year, the S&P 500 Index had been a beneficiary of a weakening dollar. The index is laden with many U.S. multinational corporations. These companies make up 47% of the index’s revenues. The natural conclusion is that when the dollar drops, it should improve their sales as the cost of buying their goods and services becomes cheaper abroad. However, several big hedge funds latched on to an inflation-related short call in February. They were Citadel, Tudor Asset, and Bridgewater. Between the three of them, they manage roughly $216 billion. When you consider that many hedge funds leverage by a multiple of two to three times, that’s more like $432 to $648 billion. In other words, it can have a lot of market impact. These three promoted the “inflation is on the rise so short the stock market” call early this year. They pounced in late January when wages data rose. They said this was the first sign. Then, they jumped on the Fed when there was a change at the helm. They said new Chair Jerome Powell was more hawkish (inclined to raise rates) than his predecessor. The data kept supporting their cause.

EDITORS

Scott Garliss

John Gillin Greg Diamond

WATCH THIS DATE

At the same time, European growth metrics

American Consequences 13

WHAT COULD POSSIBLY GO WRONG?

Financial follies and disaster in the making

problems for now, there are some signs of potential trouble beneath the surface. Shares of several highly indebted companies have been crushed of late, and the names might surprise you... businesses like mobile telecom Sprint and rental-car agency Hertz. And more important, the so-called “risk spread” in bonds (the difference in risk between high-yield bonds and “safe” government bonds) now appears to be moving higher for the first time in years. Most broad measures of consumer credit stress – like the “risk spread,” and default rates on credit cards, mortgages, and student and auto loans – remain relatively low. But there are reasons for concern. According to recent Federal Reserve data, credit-card delinquencies at the 100 largest U.S. banks sit at 2.5%. This is up from a low of roughly 2% in 2015, but is still well below levels that have warned of previous crises.

A trillion-dollar crisis could be around the corner... Consumer debt – which actually fell for several years following the 2008-2009 financial crisis – has soared to a new all-time high of more than $13 trillion. (That’s more than $500 billion above pre-crisis levels.) U.S. federal debt has more than doubled from a little less than $9.5 trillion in the first quarter of 2008 to more than $21 trillion today, while corporate debt has soared from roughly $3 trillion to a record $6.1 trillion. What could possibly go wrong? There is no doubt a huge amount of this debt will go bad, and another crisis will likely follow. But it’s the “when” that we have to worry about... And we could be getting close. The Federal Reserve is now raising rates and withdrawing stimulus for the first time since this boom began. And while the markets generally remain unconcerned about these

14 June 2018

However, delinquencies at all other banks outside the top 100 have soared from less than 3% in 2015 to more than 6% today... higher than delinquencies at the same banks during the peak of the last crisis. Likewise, credit-card charge-off rates at the top 100 banks have risen from less than 3% to 3.7% over the past three years. But at all other banks, charge-offs have nearly doubled from roughly 4% to 7.6% today. So what explains this discrepancy? The largest banks have ramped up rewards and other credit-card incentives to attract customers. As a result, other banks have loosened credit standards – issuing credit cards to less creditworthy customers – to compensate. And like the mortgage crisis – when we saw trouble in the riskiest subprime mortgages first – these debts are the “canaries in the coal mine” of the larger consumer credit markets. Over the past 10 years, the government, corporations, and consumers alike have loaded up on record amounts of debt they have virtually no chance of paying back, fueling a credit “boom” that looks awfully familiar. We may not know when this boom will explode into a crisis, but make no mistake... it is coming.

Trump, considering his past gambles with the dictator, but the joint statement signed by both leaders lacked specifics. It’s reported that American officials negotiated intensely with the North and hoped the statement would be a road map to a nuclear deal. In the end, it was about two pages of language recycled from previous statements negotiated by North Korea over the last two decades. The statement reaffirmed Kim’s alleged promise to an “unwavering commitment to complete denuclearization of the Korean Peninsula,” while the U.S. agreed to “provide security guarantees” in exchange. But the statement provided neither a timeline nor any details about how North Korea would go about giving up its weapons. There was also no sign of Trump’s “nonnegotiable” demand that North Korea’s complete denuclearization be verifiable and irreversible. At a press conference, Trump insisted the agreement went further than many expected, but he acknowledged the denuclearization effort was in its early stages. He also hailed the talks as a historic, and personal, achievement. “We learned a lot about each other and our countries,” Trump said. “I learned he’s a very talented man.” While we won’t downplay the historical significance of this meeting, the last 20 years have seen the failure of at least three inter-Korean summits and years of failed multilateral peace talks... What could possibly go wrong?

North Korea denuclearized?

Months of feuding and political posturing ended this week when President Donald Trump and North Korea’s Kim Jong Un met for a first-of-its-kind summit between the two countries. The meeting was a clear victory for

American Consequences 15

FROM OUR INBOX

Re: Our Newest Readers Weigh In I had my first experience with your publication today. To be honest I was entranced. I have not read a single thing in the past months that held me so tightly as did your delightful writing. If I didn’t have work that needs to be completed and packing that must be done I’d try another issue. – Leland S. The education perspectives are very useful and timely. America has many issues now but our current education system is the most frightening to me. The phrase “failing miserably” comes to mind, but there are bright spots occasionally. – Lee H. Hello PJ and Contributors, I would like to compliment you on this edition. It was filled with the best articles that I have read in a long time. I should mention that I don’t read many newspaper or magazine articles any more, mainly because of reasons covered in your articles! I try to find unbiased articles online for my “reading enjoyment,” but they are hard to come by. If you know of any other sites, please let me know! – Arnold P. P.J. O’Rourke comment: Arnold, Leland, and Lee – I blush! And I thank you. Or, rather, we thank you. American Consequences is blessed with terrific editors and writers. They tackled a big subject, and I think they brought it down way behind the line of scrimmage, causing

major yardage loss for Education Establishment U. (Team mascot: Cracked Egghead.)

Re: Betsy and the Blob May issue of American Consequences

Betsy Davos? She’s a low life crook who is letting so called for profit higher education schools rip off high school graduates who are trying to get ahead into becoming indentured servants to mafia loan sharks. The same crooks decent people like Elizabeth Warren have been exposing and fighting against. Have you no shame?” – Gerald S. P.J. O’Rourke comment: Gerald, tell us what you really think. As to whether I have any shame... Yes, I’m ashamed of myself for yelling at the dog this morning, just because she chewed on the new pair of shoes that I should have known better than to leave where she could get them. But no, I’m not ashamed of running a piece that yelled at the Education Establishment for chewing on Betsy DeVos. She’s a smart, brave, hard-working woman with good values who has spent millions of her own money to put those values into practice. You may disagree with her, but you have no occasion to insult her the way I’m about to insult Elizabeth Warren. You say Warren is a decent person. I ask – at the risk of a pun that may be offensive to Native American sensibilities – “How?”

16 June 2018

Send us a message, question, or criticism at feedback@americanconsequences.com

P.J. O’Rourke comment: Jan, you may have some good ideas there... A public/private mail-delivery system and privatized DMVs might serve the public better and save taxpayers a lot of money. I believe in choice and individual preference but that’s an oversimplification that doesn’t consider diversity and equality whether due to race or economics. Allow parents to send kids wherever they want to but don’t cut funding of public schools. – Jennifer B. P.J. O’Rourke comment: Jennifer, it’s not really a question of cutting (or increasing) public- school funding. Money doesn’t seem to be the key metric. Annual per-student spending in the Washington, D.C., public-school system is $29,000. Annual per-student spending in the rural consolidated public-school system where I live in New Hampshire (a place with plenty of inequality too) is $17,450. Washington’s public-school system is notoriously bad. Ours is pretty good. Am sick of listening to these teachers boo- hoo about how broke they are paying for the kids’ supplies, etc, and I personally know two who are on holiday cruises. My husband and I worked all our lives and could never afford a “cruise.” Get rid of the teachers union and things would be a lot smoother. – Vicki O. P.J. O’Rourke comment: Vicki, I went on a cruise once and was sick as a dog. Your

The voucher system is a lot like trickle- down economics... It’s good bumper sticker common sense to simple people but as such it is in fact overly simplistic and has never come close to working. – David B. P.J. O’Rourke comment: David, we don’t have space to argue the issue here, but I suggest you dig a little deeper into the subject of school vouchers before you declare that they’ve “never come close to working.” You mention common sense. There’s often a lot of sense in it. When you’re giving help to strangers (in this case, other people’s children trying to get a good education) one common sense rule is to ask, “Is this the kind of help I’d give to my own family?” In the matter of school choice, the answer is yes. Most people who can afford it either live in places where the public schools are excellent or send their children to private or parochial schools. What has made America truly great is its excellent public education system, which is available to everyone. If it’s failing [Betsy] should be urgently engaged in its repair. Suggesting that public tax money should be given to private schools is like suggesting that if you don’t like your postal service, you should be given taxpayers funds if you wish to use FedEx. Or if you don’t like the service at the DMV, you should receive taxpayer funding to be able to get your license at a private provider. – Jan A.

American Consequences 17

FROM OUR INBOX

teacher friends may be getting their, so to speak, “comeuppance.” Teachers’ unions do cause problems, but more in protecting the tenure of incompetent teachers than in providing lavish pay. The average public-school teacher salary is $54,740 a year. That’s better than the national average salary of $44,564, but it’s not too much to pay the third-most important person in your child’s life – after mom and dad. Re: What explains this incredible bubble? May 23, 2018 issue of American Weekly Consequences Today, we receive Bryan Beach’s article about the issues with student loans. I would like permission to share this with my elected representatives. Would you either approve or disapprove? I would be happy to give full credit to American Consequences , along with Bryan Beach. This is yet another shining example of a good intentioned Federal program gone bad, really bad. – Larry F. Steven Longenecker comment: Larry, absolutely. Though we have our doubts they’ll listen. The following is in response to the American Consequences post on student debt. Virtually every article written on the subject of student debt overlooks perhaps the most serious cause – that of student spending irresponsibility. I am a now-retired college professor who taught at two MAJOR Midwestern

universities. Over the years, I had approximately 16,000 (give or take a few thousand) students pass through my classrooms. In some instances, I came to get to know the students reasonably well and in almost every case, the student had a better and newer cell phone than did I, had newer and better and more up-to-date stylish clothes than did I, and many even drove nicer cars than did I! How did that happen? Reckless overspending by the students themselves and easy credit from the student loans is the answer. And that is the cause of much of the massive student load debt they are now facing. Had their parents done a better and more responsible job of teaching them fiscal responsibility, we as a nation and they as former students would not be in this current mess. Consequently, I do not have much sympathy for those facing this massive burden. I could go on and say ‘Back when I was a student and had to take out student loans...’ but I won’t bore you with such out-of-date drivel. – Bob R. P.J. O’Rourke comment: Thank you, Bob. And let me do that “Back when I was a student and had to take out student loans... ” thing for you... I had a hard time getting the money to pay for college, and I had a hard time keeping what money I had. Most of it went on beer instead of textbooks (which I would fish out of the dumpster behind the SAE house). I

18 June 2018

did have a few student loans but, mercifully, they were hard to come by, and they went (thanks to my mom) straight to my tuition bill instead of my bar tab. As a result, when I graduated I was only a few grand in debt, and, when I got my first decent job, I was able to make a lump-sum repayment. I want to mention an aspect about the student loan crisis that isn’t spoken much about – the student loan forgiveness programs are at risk of being cut. If this happens, it will mean that people were led to believe their loans would be forgiven if they work in government or not-for-profit organizations that typically pay less than for-profit employers. While fulfilling their 120-payment obligation (ideally 10 years), they’re making payments that don’t cover the interest, resulting in a vast accumulation of more and more interest. I’ve meet people

who claim that their outstanding loans are now more than twice what they borrowed, despite making their payments every month – some now reaching over $200,000... Ending these programs or otherwise rendering then ineffective will pull the rug out from under these borrowers who will then be stuck with much more than they started with which is already potentially more than they would have borrowed in the first place. Obviously these loans cannot be discharged in bankruptcy, so this either guarantees lenders a great deal of money, or borrowers a lifetime of insurmountable debt. – Jeremiah S. P.J. O’Rourke comment: Jeremiah, you make a good point. Leaving aside the question of whether – and to what degree – student loans are good or bad, they are a business deal. Under rule of law, the terms of a business deal

CHECK OUT OUR LIBRARY OF THIS PAST YEAR'S ISSUES. WE JUST TURNED ONE!

CLICK HERE

American Consequences 19

FROM OUR INBOX

cannot be altered by one party to that deal without the permission of the other party. If politicians promised borrowers one thing and then demand another thing, the politicians are crooks. Re: A Few Political E-Mails I am completely offended by your reference to the anti-American, socialist George Soros in your article. We should never highlight anything he personally invests in or not. He hates America and wants us to fail. You would have had to have lived on another planet to not knowwhat he has done in his life and the agenda he promotes. This is neither a Democrat or Republican issue, it’s an American issue. We should as Americans, distance ourselves from him in all forums and push him back to where he belongs, in the sewers. That’s where he resides. Every day he wakes up thinking of ways to destroy our way of life, our constitution, and our country. In the future, when providing us advice on investments, there is absolutely no benefit to any of your readers what this wolf in sheep’s clothing is doing or saying. The further away from him the better. – Robert W. Steven Longenecker comment: Robert, I doubt that this will change your mind... But while you might dislike his progressive politics, Soros generated more than $45 billion in profits from his investing activities... That’s more money that anyone has made from

investing except hedge-fund legend Ray Dalio. As Porter Stansberry wrote in a controversial essay last year – you could learn something from his investing method. Just imagine we still lived in the horse and buggy world where deficits actually mattered and actually had to be repaid or carried serious consequences. My grandchildren, all hard-working adults with children look at me as if my brain surgery (subdural hematoma) left some screws loose, when I talk negative about the debt-soaked world we live in. They often inform me that there is nothing to worry about as “life is still very good” for them and everyone around them. Reading is not fun nor important for most, unless it is a text message. I am 82, born in Germany, I feel like an irrelevant fossil from another planet in this all knowing and super enlightened surrounding. Yes, you guessed it, the boundless knowledge and enlightenment has come at considerable amounts of student loans. To quote a real expert of “debt science,” the Japanese FED chairman. When he reported that the national debt now stands at approximately 235% of GDP, “Please don’t worry.” – Detlef N. P.J. O’Rourke comment: Detlef, you’re speaking sense. But you might as well be speaking your native German. Let’s try to talk to your grandchildren in a language they’ll understand: WHAT THE MAN SAID!

20 June 2018

ADVERTORIAL

Silicon Valley guru: “ THIS will be the biggest tech story of 2018...”

A word of advice: When it comes to tech stock recommendations, Silicon Valley insider Jeff Brown is the man you should listen to.

In 2016, Jeff picked the best performing stock on the S&P 500. The chipmaker Nvidia climbed over 700% since then. (It’s still going up.)

And the small gene-editing company he recommended next went up 302% in just 16 months...

But what Jeff recently uncovered has a much bigger profit potential than any of those picks combined. In fact, this is such a huge deal that… when the mainstream media catches on... it will become the biggest tech story of 2018. You see, Jeff says one of the world’s largest companies is about to enter the crypto marketplace. “I’m talking about a $196 billion company issuing its own cryptocurrency. Our research suggests they could make this announcement any time. And when they do... it will blow Bitcoin, Ethereum and any other coin you can think of out of the water. ”

But it get s better…

Jeff has found two backdoor ways to profit as soon as this company makes its huge announcement.

22 June 2018

A revival is building all along the “Hillbilly Highway.” The history of America’s heartland dates to the late 1700s, when thousands of Scots and Irishmen left Europe to find a better life on the American seaboard. They gathered in the mountains of Appalachia, filling the foothills of Tennessee, Kentucky, and West Virginia.

These devoutly religious folks tended to keep to themselves, eschewing outsiders and living in tight-knit extended families. And they worked... hard. The coal industry boomed on the backs of Appalachian working men who put in long hours in dark and dangerous mineshafts. At its peak in the 1920s, more than 700,000 miners worked the coalfields in central Appalachia alone. That is, until the coal industry busted with the Great Depression and the end of World War I... Although coal remained a critical commodity for most of the 20th century... increasing mechanization steadily reduced the number of people needed to work the mines. Starting with the end of World War II, a mass exodus took place... In search of high-paying blue-collar jobs, millions left the mountains, traveled up the Hillbilly Highway (first U.S. Route 23 and later Interstate 75) to Ohio, Michigan, and Illinois, where they found jobs in steel mills

By Dr. David Eifrig

CLICK HERE TO READ THEWEB VERSION

American Consequences 23

RESURGENCE OF THE AMERICAN HEARTLAND

a group of folks who have generated a lot of attention and concern in recent years. But now, we’re seeing some hope. The “green shoots” of a growing economy are starting to peek out from the soil of the heartland... RURAL COMMUNITIES ARE OUTPACING URBAN GROWTH Since the Great Recession, I’ve detailed to subscribers to my Retirement Millionaire letter that the economy was grinding higher and constantly improving. Of course, we were mainly talking about New York, California, Washington, D.C., and other areas that were fully involved in the modern “knowledge” economy. We’d often add a caveat that plenty of areas were still struggling with high unemployment and low growth. Now, we can skip the warning. Economic growth in the formerly depressed, blue-collar areas has started to match that of the “urban elites.”

or auto factories. They moved in such great numbers... They brought their entire culture to a wide swath of territory stretching from West Virginia and western Pennsylvania through the Upper Midwest. Like the coal-mining industry, the steel industry today has passed its heyday. Since the 1950s, U.S. steel employment fell nearly 80%. There’s now roughly two times as many folks working at Starbucks (SBUX) than in the steel industry. And even with car sales booming in recent years, Detroit’s auto industry – once a consumer of steel – has declined in terms of manufacturing headcount and wages. Today, when we talk about “America’s heartland,” we often have in mind this stretch of land expanding out from the Hillbilly Highway. But the truth is, the concept of our heartland is less about a geographic location and more about a group of people defined by their social and economic circumstances. And it’s

Economic growth in the formerly depressed, blue-collar areas has started to match that of the

“urban elites.”

Since the start of 2017, the economies of rural states have outpaced the more urban ones (see chart to the left). Not all states fit easily into one category. For example, we consider Illinois urban thanks to Chicago, but left Michigan as rural despite Detroit. But even if you shift some of the borderline states between categories... the results don’t change much. The U.S. Bureau of Economic Analysis’ most recent state-by-state

RURAL GROWTH NOWMATCHING URBAN

24 June 2018

breakdown shows the biggest full-year GDP growth in states like Colorado, Nevada, and Arizona. No one will believe you when you tell them the growth rate of West Virginia more than doubles that of New York, but those are the facts.

CHANGE IN TOTAL NONFARM EMPLOYMENT

Total nonfarm Government Other services Leisure and hospitality Education and health services Professional and business services Financial activities(3)

Information

Utilities Retail trade Wholesale trade Manufacturing Construction Mining and logging

Year over year growth -2%

2%

4%

8%

6%

0%

We’ve long been waiting for a resurgence of the American heartland. Now it’s happening.

running the drills. Homes are being built, and manufacturing is picking up. The types of jobs that can help rural parts of America are showing the biggest gains. Wages in China and emerging markets have risen enough to make manufacturing more competitive. Now, it’s not as cheap as it once was to move your manufacturing outside the U.S. America is making real things again. The Institute for Supply Management’s U.S. Manufacturing Purchasing Managers Index (PMI) surveys managers in the manufacturing sector to see how optimistic their plans are for the near future. A level above 50 means that manufacturing is expanding. Right now, the index is flirting with 60, a level that shows real growth... one we haven’t seen in roughly 15 years (see top chart on next page). And shipments of U.S. manufactured goods have followed... Since 2016, they’ve surged 12.3% and have set new all-time highs (see bottom chart on next page).

America is making real things again.

THE MAKINGS OF A RECOVERY The official unemployment in the U.S. has hovered below 5% for two years now, but job growth has been concentrated among skilled professionals in big cities. Only recently have we seen jobs in blue-collar sectors – like manufacturing and construction – pick up (see above chart). Typically, industries don’t all boom at once. In 2010 through 2014, the oil and gas industry was hiring thanks to technological advances of the U.S. shale boom, but the rest of the economy was in shambles. By the time the recession faded, oil prices crashed in 2014 and 2015 and the industry started cutting back on employees. Now everything is working at once. Oil has settled at enough to keep oil producers

American Consequences 25

RESURGENCE OF THE AMERICAN HEARTLAND

We believe that labor shortages will be the biggest problem these areas face. “If you know someone who can swing a hammer, I can have them on a job tomorrow,” one construction manager told us earlier this year. The question is, how long this will last? This may be happening just because the economic cycle is moving along and finally spreading its reach out to these areas. We’ve been in a recovery phase since 2009. Eventually that growth has to touch areas of the country outside the urban centers, even if they’ll still struggle in relation to more vibrant industries. Or maybe a larger shift is at hand... One in which rising wages in China and more need for skilled and educated workers is moving manufacturing back to the U.S. It’s likely a bit of both. We’ll have to wait and see to be sure. Either way, it’s an opportunity.

MANUFACTURERS PURCHASING MANAGERS INDEX (PMI)

TOTAL U.S. MANUFACTURING SHIPMENTS

school, and became an ophthalmologist.

Dr. David Eifrig worked in arbitrage and trading groups with major Wall Street investment banks, including Goldman Sachs, Chase Manhattan, and Yamaichi in Japan. In 1995, Dr. Eifrig retired fromWall Street, went to UNC-Chapel Hill medical

Today, he publishes a free daily letter on health and wealth that shows readers how to live a millionaire lifestyle. If you’re interested in more ideas like this essay, you can sign up by clicking here.

26 June 2018

WITH GOAT FARMS?

CLICK HERE TO READ THEWEB VERSION

28 June 2018

Idyll Farms complex in Northport, Michigan

A CONVERSATIONWITH Mark Spitznagel

ne of my favorite investors is Mark Spitznagel.

Of course, I admire his success. He is the “Ursa Major” among bears, having correctly (and very profitably) called the stock market crashes of 2000 and 2008. Since then he has “fenced the bull” with his multibillion- dollar Universa Investments hedge fund that not only actually hedges (something many hedge funds, busy making huge derivative bets, forget to do) but is also structured to profit in rising markets.

By P.J. O'Rourke

American Consequences 29

Mark is an intellectual investor. In his book, The Dao of Capital , he combines the rigorous logic of libertarian Austrian economics with the Chinese philosophical tradition of harmonious flow of natural forces. (Hint: Central banks aren’t a natural force.) Forbes magazine called it “one of the most important books of the year, or any year for that matter.” But what I like about Mark is that he’s fun to talk to. You can tell by choosing almost any quote at random from Dao : The real black swan problem of stock market busts is not about a remote event that is considered unforeseeable; rather it is about a foreseeable event that is considered remote. The vast majority of market participants fail to expect what should be, in reality, perfectly expected events. Mark is also an unrepentant Heartlander, born and raised (and raising his family) in Michigan, a graduate of Kalamazoo College who can still recite his college yell... Breck-ki-ki-kex! Ko-ax! Ko-ax! Whoa-up! Whoa-up! Paraballou! Paraballou! Kalamazoo! Kazoo! Kazoo! So, what did he do when he got rich? He started a goat farm. Idyll Farms, in Northport, Michigan, produces artisanal chèvre from pastured goats (not grain-fed, cooped-up nannies). The cheese has won Best in Class at the World Championship Cheese Contest and multiple awards, including Best All-Milk Cheese, from the American Cheese Society. And if praise

like that from the American Cheese Society doesn’t make your heart skip a beat, you should get out of the Heartland and stay out. Mark seemed to be the right person to ask about the main thing that puzzles me about the Heartland – its vast array of undervalued assets. He and I discussed how the Heartland is full of famously sensible, friendly, and hard- working people. It contains a large portion of the most productive agricultural land in the world. The housing stock is extensive and cheap. Industrial sites and commercial locations are ready and waiting. Natural disasters – minus the occasional tornado – are rare. The climate is temperate. The location is central to every form of transportation.

The Heartland would boom if millennials, and “knowledge workers” in general, wanted to live there, but those people would want to live in the Heartland only if the Heartland boomed.

We talked about how the Heartland has water to shame the West, educational attainment that’s the envy of the South, and a freedom from congestion about which the East can only dream. “Why isn’t the Heartland booming?” I said. Mark described it as “a chicken and egg problem.” He said that the Heartland would boom if millennials, and “knowledge

30 June 2018

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