Dr. Deirdre McCloskey’s Personal Page


In an earlier post we mentioned the “Forgotten Man.” Originally, he was identified by this situation: Individuals A and B want to help disadvantaged Individual C, so they vote democratically to tax Rich Man D and then give the money to C. C’s problems are solved in the short run; it’s all legal in a civilized, democratic nation and, therefore, not theft, technically. 

Of course, no one cares at all about D, and why should we? At some point D has made enough money, and he didn’t make it himself anyway. We made it together, even though D says he put in long hours as the leader entrepreneur for many years under great pressure risking most of his hard-earned money, and even though he took on the administrative task of simply “paying taxes” multiple ways as he went. (Please note that neither A nor C probably pay any income taxes when they have income.)

The term Forgotten Man originated in 1883 with a series of lectures by William Graham Sumner during the developing “Progressive Era” to portray the micro issues involved in wealth redistribution. Then, in the 1930’s, FDR co-opted the term to describe the average worker who had built America and whom the Depression had victimized.

(Of course, the Great Depression did not discriminate between A, B, C, or D in its destruction, though A, B, and C as a group are almost always hurt much more in these situations. That’s why our American political and thought leaders, usually in the D category today, have a duty of stewardship always to act responsibly. In managing someone else’s money, it’s called a fiduciary duty. But we get ahead of ourselves, and should return to the forgotten historical story.) 

Following FDR in 2016, President Trump then used the Forgotten Man metaphor again to describe those Americans whom globalization and outsourcing had damaged and whom a much wealthier American economy had left behind. In 2007-8 Amity Shales completed and published a book that became a best-seller with just that title, offering the Great Depression a fresh narrative. It’s perhaps where President Trump got the idea. 

In any case, today no one cares about balancing the federal budget (“it’s free and all on the government”) any more than they cared about Forgotten Man D back in the late 1800’s before progressive income taxes, or Forgotten Man C back in the 1980’s before outsourcing accelerated. What is clear, however, is that the C-19 virus and resulting Cares Act (with PPP) has quickly taken the budget issue to a significantly higher level. If you ever had any doubt, you can safely conclude now that the Era of Big Government did not end as President Clinton famously announced on January 23, 1996 in his State of the Union address.

In fact, in hindsight, President Clinton was telling what Southerners and American hamburger lovers call a Whopper!



In the video above, our PC Contributor, Deirdre McCloskey, explains why she did not believe balancing the budget was a critical issue in May, 2019. In the video at bottom, in contrast, another PC Contributor, Dave Brat, explains why he believes it’s among the most serious moral problems of our time. Please see their Full Interviews to get a better idea of how they handle related issues.

We offer both opinions because balancing the budget is a complicated policy matter with no easy political solutions and where good and reasonable people can disagree, even though we’d expect Dr. McCloskey and Dr. Brat to agree more here given their views on other important matters. Clearly, it’s hard to know where “fair” is in tax and spend policy because there’s no cosmic standard, other than treating every individual American who forms “We the People” the same under the law. Beyond that it’s all a power play unless reasonable Americans find common ground. 

But we do not try to hide our position. We believe it’s one of the most important and difficult issues America faces, and we believe it crosses party lines and requires cooperation and compromise to find a solution. 



In this Q and D post today, we also feature Robert Samuelson’s recent column on the balanced budget issue entitled Our Borrowing Power: Blame the Economists or The Debt Reckoning Has Finally Arrived , published in The Washington Post. We wish it were so easy to blame economists – Praxis Circle having interviewed four excellent economists so far – Brat, McCloskey, Wight, and Williams. However, in America during presidential election years the buck stops not with the president, but ultimately with the American voters, who over decades get the political leadership they produce and deserve.  

We have published Mr. Samuelson’s writing before, believing he is a good middle-of-the-road economics journalist to the extent anyone can exist in the middle today. Mr. Samuelson recognizes macro-trends as they happen and can think outside generally accepted economic paradigms, both as an economist and humanitarian when the two don’t always mesh.

Of course, in these pages we’ve addressed the federal budget issue several times, and we will continue to do so. To offer a comparative framework before proceeding, here’s a brief summary of the national budget and debt situation.

In 2019 the federal government produced revenues or $3.5 trillion and spent $4.4 trillion. A conservative estimate is that this year the budget shortfall will increase from $984 billion to $3.8 trillion due to the Cares Act, but this could easily increase if more relief is passed. Such uncertainty produces unusual, widely ranging estimates of Debt-to-GDP over the next three years.

Estimates of current total national debt vary depending on what’s included, of course, with the National Debt Clock today at $24.9 trillion. How debt is defined is a complicated matter, and opinions range all over the map. One conservative estimate using a GDP figure of $20.6 trillion has Debt-to-GDP overtaking our previous WW II high of 106% in 2023. Higher debt estimates have us already over 106%.

In comparison, China is at 51%, European Union 79%, U.K. 81%, France 98%, Greece 177%, and Japan 238%. Quite frankly, we would not want to be comparing ourselves to most of the countries floating around our level (Bhutan and Mozambique just above and Djibouti and Jamaica just below).

Another interesting statistic is the Government Spending-to-GDP ratio: China 15%, America 38%, U.K. 39%, Germany 45%, European Union 46%, and France 56%. Most knowledgeable or “expert” economists and business persons will tell you that low taxes and government spending offers nations a huge advantage in wealth and prosperity creation. In fact, this factor helps explain America’s phenomenal economic growth during the 18th and 19th Centuries in surpassing the British Empire as the world leader. In this statistic the U.S. trend has been from 7% in 1902, before 1909’s Constitutional Income Tax Amendment (the 16th), to our 40% range today. (See this link.)

As an important aside, the Scandinavian countries on Government Spending-to-GDP are grouped around 50%, so their governments are spending half of what their citizens produce. Finally, to get a better idea of where A, B, C, and D stand today as we sit in the C-19 “timeout chair,” please see this Praxis Circle post.

In sum, if one’s going to be a slave anyway (defined as owning less than half of ones work product or living under a totalitarian regime), China might not be such a bad option. We’re quite sure that the mobile Rich Man D’s of the world are taking notes.

Today, we’ll resist listing the many reasons why our debt situation is much worse than Mr. Samuelson or the above figures present (reasons he would recognize), or why we’re well past the point of needing to pay down America’s debt to continue as a world leader. Praxis Circle will have plenty of time to begin listing reasons this year and in future years. Moreover, we suspect all of the reasons we could mention now will become quite apparent soon enough as debt, the money supply, labor dislocations, and scarcities ratchet upward, while recovering aggregate demand meets lower aggregate supply. (We would love to be wrong.)



As Dr. McCloskey recognizes, it’s often said that a government should never, outside emergencies like war, do anything with its budget that a normal, well-managed family or business wouldn’t do. Well, we believe you can put this advice in the bank, buy gold, silver, or land with it, or place it under your safest mattress. Good families and businesses don’t spend money they don’t have (borrow) in mass quantities unless they’re purchasing necessary investments (like housing) or ones producing a reasonable return or source of repayment. 

America’s Founders likely did not require a balanced budget in the Constitution because they couldn’t have imagined how any American republican government elected by prudent voters could operate so irresponsibly for so long during normal times, while financing its debt so easily. The Founders would probably have done so if they could see us today. A country needs to empower many very smart, able, and hard-working people who are also equally unwise, selfish, or compromised for years to accomplish this feat. 

Not possible in America to be that irresponsible? Welcome to the Great Recession as the most recent, glaring example. There have been many others. Managing debt levels is not easy, and our educational system does not stress personal and business financial management, critical skills needed today.

We are not saying that the C-19 crisis is not the moral equivalent of war and that relief from the federal government is not warranted in certain cases, especially when government forces taxable and non-taxable businesses to close. (BTW, Praxis Circle defines a “business” as any organization formed to meet human needs.)



As a final point, we want to mention another similarly old-school and common-sensical standard, time-tested in actual human experience over the years, that used to be commonly taught in undergraduate and graduate business schools across the country: F.R.I.C.T.O. analysis. 

FRICTO is an acronym standing for Flexibility, Risk, Income, Control, Timing, and Other. It’s a qualitative methodology employing quantitative tools that asks management to think systematically about various common issues that fall into those fundamental categories. It’s not a formula that gives one the answer, but rather a methodology forcing consideration of the right things.

 While there are certainly numerous apps available today where we can just plug in data and AI will give us the answer, it sometimes helps to put a human mind on situations, while relying on nothing more than adding, subtracting, multiplying, and dividing. It worked well for the most visible American financial “Rich Man D” in history, J.P. Morgan. Bankers didn’t have HP 12-C’s and more recent calculator equivalents back then. They had to get good at doing math in their heads and understanding its importance in managing reality.  

FRICTO is taught as one of many methods or tools to consider when deciding how to make business investing & financing decisions, typically debt versus equity decisions. A focus is managing unused debt capacity, one of a company’s most precious resources. It’s a key financial safety valve. Most of the corporate America’s day-to-day financing decisions are fairly routine and covered by established company policy, but not always at critical moments. 

The FRICTO idea is that it’s not just what companies invest in that matters, it’s also how they finance marginal investments themselves. Actually, the nature of an investment should influence its method of financing, and the available and prudent method of financing (given the financing options and environment) can even influence which new investments are finally selected, if any new investments are funded beyond maintenance & repair at all. As we know, companies either grow or perish, but they only last by acting prudently.

FRICTO analysis can also play a role in leading companies to stop investing, reduce debt levels, pay out or increase dividends, or sell whole divisions, other assets, or the company itself. When companies run out of good options because they don’t make good decisions or do the proper analysis over an extended period, shareholders often have to “fire themselves” and the management team itself in a company sale or merger, if any buyers or partners can even be found.

Well, America, let’s hope this doesn’t happen on our watch.



Our point here is not to give a lesson on FRICTO analysis or attempt to explain it in detail. Instead, we just want to highlight that the first letter F in FRICTO, again, stands for Flexibility, which means that a strong company will always have sufficient access to financial markets or “flexibility” when it needs funds and so that it can take the financing type of its liking.

The first thing companies need to do for the benefit of their customers, employees, and other stakeholders over the long run is to survive, and maintaining adequate financial flexibility, often called debt capacity, is what all strong, healthy, and prosperous companies and individuals do. They don’t live well beyond their means, and governments are no different and must do the same.

You’ve certainly heard of the infamous “ship that goes bump in the night”? 

A strong balance sheet maintained by governments, companies, and individuals is the only way to assure that ships can survive such collisions – which in the long run always happen. Take for example in the case of the U.S., we’ve had the Civil War, World War I, World War II, Korea, Vietnam, the Persian Gulf War, Afghanistan, Iraq, several lesser known but severe conflicts, wars, and recessions, and the Great Depression and Recession. Take today’s C-19 crisis. Good entities, families, and individuals who maintain strength and flexibility survive and prosper. Those that don’t, don’t; it’s just that simple. 

Cynical and even corrupt politicians will enter the picture and offer A, B, C, and D legislated money for votes even with an intent to break government, calling it privately an “intent to transform.”  

The cost of debt then accelerates in later stages as debt rises and governmental credit quality declines. Governments and affected citizenry enjoying the benefits often don’t recognize when they pass the point of no return. In the darkness something unexpected slams into the ship of state, and government then can’t recover quickly, if at all. This has happened to American cities, states, and provinces, and countless foreign governments throughout history. In fact, it happened to the U.S. government itself in the late 1800’s. The destroyer is almost always bad fiscal management and too much debt that used to seem limitless.     

What is prudent for one organization or individual can be crazy for others. There is no general rule other than Flexibility, a condition that should always be preserved under normal circumstances. There must always be a good fallback position. That’s why stock investors often look for the best companies with the most cash flow and the strongest balance sheets with the best market position. America as a nation easily qualifies for two out of three of these considerations (cash flow and market or national position), but every year our balance sheet weakens. This is a very sad thought and selfish of Americans living today, outside times of crisis.

Due to many national balance sheet mistakes during the late 1800’s and early 1900’s at home and abroad duly noted, Americans and their elected officials understood implicitly after World War II the critical importance of a strong national balance sheet.  America lowered its National Debt-to-GDP ratio (Total Public Debt) from 121% in 1946 to 31% in 1981, before its debt level started increasing again, slowly, compared to our last decade.

Take at look at that graph linked in the prior sentence.

The Greatest Generation beat our extremely powerful enemies and the Great Depression, then paid America back, literally, for the privilege of risking their lives and fortunes to make the West free again. And as if that wasn’t enough, before getting started after WW II, they decided to move the GDP home run fence back even farther by paying Europe and the world the unprecedented in history Marshall Plan dividend before stepping up to bat. Talk about the Babe and pointing to where they were going to hit it.

In hindsight, as great as they were, we rarely if ever recognized them for restoring our balance sheet to its prior bullet-proof strength. That’s stewardship, friends. Talk about amazing people whom all of us Boomers knew so well. They almost never complained or asked for handouts, and they regarded taking them as a disgrace, unless necessary for survival. Whether we approve of that attitude (call it a worldview) or not, no one can deny That’s Character. It’s probably a good one to instill in ones children.

So, it’s no surprise that the 1980’s TV character Archie Bunker, whom some mocked mercilessly, wanted every American to pull his or her own weight, to add wood to the family and national wood pile. Since 1776 we had survived many recessions, depressions, and pandemics, and somehow made it through without relying on the government for personal support. Americans only asked government for good leadership while they fought, paid, and died for it.



While America balanced its budget in the late 1990’s, the Era of Big Spending Government is not over; far from it. The opposite is true. Those who have lead us will not be present when it’s time to pay or lay blame. 

How high can Treasury interest rates go at our current debt levels before foreclosing all discretionary spending? Some say 5% with higher rates crowding out legal obligations, generally benefits paid to citizens. Does 5% sound high to anyone over 50? What happens when the money supply jumps, and GDP remains the same or declines (and money velocity remains stable or increases)? How do interest rates usually vary with inflation? What happens when key Treasury investors abroad run into trouble or loose interest? And how realistic now are recent “socialist options” that would add up to $55 trillion of debt in some proposals? Why not make all hard costs of life free? Rich Person D won’t mind, and, if she does, she won’t have anywhere to flee, if we can just shut off her legal options. We’ll see how long her wealth lasts. 

Why do we listen to such ravings? 

Would you want to run this type of personal risk, while spending well more as you go each year indefinitely? You would? 

Okay then, would your child or grandchild assuming he or she had your level of knowledge or experience? 

The money will be spent, and we Boomers will be gone soon enough. Who will be left with No Flexibility just when it’s needed the most? Our loved ones – that’s who.

“Thanks, Mom and Dad.”

But, of course, this time it’s different. If ever there was an issue involving worldview and the circle of praxis where gravity will cause those flying too close to the sun to crash back to earth, this one is it. Financial laws of nature don’t change over time any more than regular laws of nature. Why? Just like physics, that’s what they are.

In a sense this is not a political statement: All presidents and Members of Congress over at least the last 20 years are guilty as charged for placing our country’s future into this dangerous situation, along with We the American People who elected them.

The question is whether there is anyone inside the Beltway, otherwise called the Deep State, in DC who is in control or who even could control this cascading situation? Certainly, no household could run itself successfully this way. If our elected officials can’t get it under control, then somehow maybe the People need to try harder. We have to get it done. 

To be continued . . . 



We offer two of Dave Brat’s videos to provide time equal to Dr. McCloskey:




Dave Brat’s Personal Page




Finally, here are two of our friend Steve Kelley’s recent best cartoons to illustrate Forgotten Men A, B, C, and D – have fun picking out who’s who:











This post is dedicated to Andy and Julia Burns of Chapel Hill, NC. Andy is a Dad and founding partner of Hamilton Point Investment Advisors. He began learning finance in the Irving’s (Irving Trust Company’s) training program in New York City on One Wall Street in the late 1970’s, and he uses a modified FRICTO analysis occasionally in his business and personal affairs. We have published his writing before. We also share with Andy having learned FRICTO from two different “Bobs” at the University of Virginia’s Darden MBA School and Executive Program – Robert Bruner (Dean Emeritus) and Robert Vandell (Ace Finance professor). Julia is a Mom, psychiatrist, and special Praxis Circle Member Contributor. Any editorial opinions expressed above are those of the editorial staff of Praxis Circle alone.