[Editor Note: Rather than letting some of you question us how this article by Bill Bonner of Daily Reckoning find its way in GuruFocus, a website dedicated to value investing, the people, the methodology, and the companies. I want to explain why I find this article relevant: the shifts from making things to marketing them, from marketing to financing, and then finally from financing to government-ing, has more or less told the truth. For career advice, mega trends of the world, whether you like the author's opinion or not, it is an article worth reading. ]
02/15/10 Paris, France â No lobbyist left behind!
Thatâs the new motto of the whole Washington establishment. Every spending bill has something in it for everybody.
Today is a holiday in America. Itâs âPresidents Day,â a day set aside for Americans to honor those who rule over them. Most Americans think of Washington, Lincoln and RooseveltâŚbut here at The Daily Reckoning we honor Americaâs truly great presidents â William Henry Harrison, Chester Arthur and Warren Harding â those who didnât make things worse.
But look onâŚye dead chiefsâŚat what your country has become:
Europe has only 1,800 registered lobbyists. There are 15,000 of them in the US. Most of them probably live in our new neighborhoodâŚgetting in our way as we drive around the BeltwayâŚtaking our parking placesâŚhogging the tables at Starbucks⌠The parasites!
The Financial Times reports that companies spent more on lobbying in 2009 than they had the year before. Investment in new plants and equipment fell dramatically. But investment in lobbying rose by 5%.
You donât need a Ph.D. in political science or economics to figure out why. Returns from lobbying were higher. That is the big shift in the US economyâŚthe final shift.
Weâll come back to this theme in a minute. First, letâs look at what happened on Friday. Just to set the stageâŚweâre trying to figure out whether the stock market has entered a declining phase. At the beginning of last week, we thought soâŚby the end of it we werenât so sure. And on Friday, the evidence was mixed. The Dow fell 46 points, but still ended up for the week. Gold dropped $4.
As to the economy, the evidence was mixed too. Consumer spending rose in JanuaryâŚbut consumers are still reluctant to spend. And they donât have any money to spend anywayâŚ
So letâs return to our Presidents Day themeâŚ
The US economy began as a frontier economy on the tidewater area of the East CoastâŚwith a few big planters, but mostly small farmers, merchants and artisans.
Then came the entrepreneurs with their mills and factories.
Then, a few of the entrepreneurs grew to be captains of industry â the Vanderbilts, Carnegies, and Rockefellers.
When the inventors, founders and innovators died off, their businesses were taken over by corporate managers.
And then the leading corporations shifted their focus, from making things to marketing them. This shift corresponded roughly with the ascendancy of New York over ChicagoâŚand, then after 1980, the focus shifted again â to financing. Wall Street grew rich. Motown â Detroitâs automotive industry â fell into decline. For a while, even the auto businesses made more money financing cars than they made building them.
Finance blew itself up in 2007-2009. Now, thereâs a new shift underwayâŚfrom the private economy to the government. Mommas in the â20s and â30s wanted their babies to grow up and go into manufacturing. In the middle of the century, marketing was more rewarding â Madison Avenue was the best address in America. And by the end of the century, the best and the brightest were headed to finance.
Where should bright young grads go now? Well, follow the moneyâŚ! Whereâs the money now? Not in manufacturingâŚat least not in US-based manufacturing. And not in marketing either â gone are the days of selling soap to big families with big pay raises. How about finance? Forget it. The boom in credit lasted more than 50 years. But who can borrow now? Only the feds. Sure a few big banks will make money by helping the feds raise cash. But the big expansion in consumer credit is over.
Now, government is about the only major industry that is expanding. The feds have the money now. Theyâre even handing it out. Get in line!
Remember our Daily Reckoning Dictum:
Anyone can make a mistake, but to really make a mess of things you need taxpayer support. Well, now the feds are getting plenty of itâŚ
Over the last decade, federal spending in the US has gone from less than 35% of GDP to well over 40%. In Britain, the increase has been even more dramatic, from about 36% of GDP to nearly 55%.
Not only are the feds taking up a bigger percentage of GDP, theyâre also becoming bossier. During the Bush years the federal register recorded 7,000 more pages of new rules.
And, of courseâŚtheyâre making a monumental mess of things. Theyâre spending money they donât have on things no one in his right mind would pay for with his own money.
Want an example? Go to Jonestown, Pennsylvania. Theyâve got an airport there that is the envy of travelers everywhere. Lots of airport, in other wordsâŚfew passengers. Thatâs because John Murtha â when he was still among the quick â used his power in Congress to build an airport that would be convenient for himâŚand reward local contractors and unions who had supported him over the years.
Few politicians dug more deeply into the pork barrel than John Murtha. But almost all stick their hands in it. Why else would you bother with the trials and tribulations of âpublic service?â Thereâs got to be a payoff that makes it worthwhile, right? Of course, there are a few â like our friend Ron Paul â who are just trying to do the right thing. But for every Ron Paul there must be dozens of Congressmen and federal employees who are in it for the power, the money â or both. (Neither Stalin nor Hitler squeezed much personal wealth from the taxpayer tube. Mao Tse-tung, on the other hand, knew how to live â with plenty of palaces and young women. Most government employees are probably more like Mao than Adolph. That is, they are motivated by money as well as power.)
Have you wondered why the costs of running for public office have soared? Thatâs obvious too â because the stakes are higher. As the federal budget grows so does the pork that each member of congress can pull out of the barrel.
The number of congressmen is more or less constant (though it grows with populationâŚafter a 10-year lag for the census). But the amount of money given out increasesâŚmaking each congressional seat more lucrative. You can do the math yourself, but the point is â crime pays. At least, for a whileâŚ
The trouble with crime is that it only makes the criminals rich. Everyone else gets poorer. Thatâs the problem in places such as Nigeria and Haiti. Crime pays. Nothing else does. Economists have done studies of thisâŚand, of course, theyâve discovered the obvious. In âhigh trustâ societies, people are wealthier. No wonder; when people know they wonât be ripped off, they accumulate more money.
A high trust society is one where property rights are respectedâŚand where the rules of the game are knownâŚand change very slowly. A change in tax rates, for example, discourages wealth â especially if it comes unexpectedly. So does a change in monetary policy. When people donât know what to expect from the currency they become reluctant to invest for a long-term payoff. Instead, they invest in lobbying.
For the most part, tax rates havenât gone up. Instead of taxes, government gets its money from borrowing. The immediate effect is much the same; resources are absorbed out of other sectors of the economy and into the public sector. Once in government service, they are used inefficiently or completely squandered. Result: John Murtha gets an airportâŚa kid in Brooklyn doesnât get a bicycle⌠The long-term effect is unknownâŚbut will almost certainly be unwelcome. The government will eventually be unable to borrow at low ratesâŚand unable to finance its deficits. This will result in defaultâŚor hyperinflationâŚor both. In anticipation, trust in the future will go downâŚand so will Americaâs wealth.
Thatâs why the shift to politics is the FINAL stage of an economy⌠It is inherently wealth-destroying. In politics the rewards are distributed according to who you know or who you are. What you know and what you can do scarcely matters. Trust declinesâŚbecause the rules change as wealth is taken away from some and given to others. The incentive to produce new wealth declines. Investments in new capital, new businesses, new innovations and so forth go down. Investments in lobbying go up. The insiders get rich. The rest get poor. And the nationâs wealth declinesâŚalong with its economy and its power. This will continue until the political sector blows itself up â either in default, bankruptcy, hyperinflation, revolution or defeat by a foreign power. Then, the cycle can begin again.
Regards,
Bill Bonner,
http://dailyreckoning.com/
02/15/10 Paris, France â No lobbyist left behind!
Thatâs the new motto of the whole Washington establishment. Every spending bill has something in it for everybody.
Today is a holiday in America. Itâs âPresidents Day,â a day set aside for Americans to honor those who rule over them. Most Americans think of Washington, Lincoln and RooseveltâŚbut here at The Daily Reckoning we honor Americaâs truly great presidents â William Henry Harrison, Chester Arthur and Warren Harding â those who didnât make things worse.
But look onâŚye dead chiefsâŚat what your country has become:
Europe has only 1,800 registered lobbyists. There are 15,000 of them in the US. Most of them probably live in our new neighborhoodâŚgetting in our way as we drive around the BeltwayâŚtaking our parking placesâŚhogging the tables at Starbucks⌠The parasites!
The Financial Times reports that companies spent more on lobbying in 2009 than they had the year before. Investment in new plants and equipment fell dramatically. But investment in lobbying rose by 5%.
You donât need a Ph.D. in political science or economics to figure out why. Returns from lobbying were higher. That is the big shift in the US economyâŚthe final shift.
Weâll come back to this theme in a minute. First, letâs look at what happened on Friday. Just to set the stageâŚweâre trying to figure out whether the stock market has entered a declining phase. At the beginning of last week, we thought soâŚby the end of it we werenât so sure. And on Friday, the evidence was mixed. The Dow fell 46 points, but still ended up for the week. Gold dropped $4.
As to the economy, the evidence was mixed too. Consumer spending rose in JanuaryâŚbut consumers are still reluctant to spend. And they donât have any money to spend anywayâŚ
So letâs return to our Presidents Day themeâŚ
The US economy began as a frontier economy on the tidewater area of the East CoastâŚwith a few big planters, but mostly small farmers, merchants and artisans.
Then came the entrepreneurs with their mills and factories.
Then, a few of the entrepreneurs grew to be captains of industry â the Vanderbilts, Carnegies, and Rockefellers.
When the inventors, founders and innovators died off, their businesses were taken over by corporate managers.
And then the leading corporations shifted their focus, from making things to marketing them. This shift corresponded roughly with the ascendancy of New York over ChicagoâŚand, then after 1980, the focus shifted again â to financing. Wall Street grew rich. Motown â Detroitâs automotive industry â fell into decline. For a while, even the auto businesses made more money financing cars than they made building them.
Finance blew itself up in 2007-2009. Now, thereâs a new shift underwayâŚfrom the private economy to the government. Mommas in the â20s and â30s wanted their babies to grow up and go into manufacturing. In the middle of the century, marketing was more rewarding â Madison Avenue was the best address in America. And by the end of the century, the best and the brightest were headed to finance.
Where should bright young grads go now? Well, follow the moneyâŚ! Whereâs the money now? Not in manufacturingâŚat least not in US-based manufacturing. And not in marketing either â gone are the days of selling soap to big families with big pay raises. How about finance? Forget it. The boom in credit lasted more than 50 years. But who can borrow now? Only the feds. Sure a few big banks will make money by helping the feds raise cash. But the big expansion in consumer credit is over.
Now, government is about the only major industry that is expanding. The feds have the money now. Theyâre even handing it out. Get in line!
Remember our Daily Reckoning Dictum:
Anyone can make a mistake, but to really make a mess of things you need taxpayer support. Well, now the feds are getting plenty of itâŚ
Over the last decade, federal spending in the US has gone from less than 35% of GDP to well over 40%. In Britain, the increase has been even more dramatic, from about 36% of GDP to nearly 55%.
Not only are the feds taking up a bigger percentage of GDP, theyâre also becoming bossier. During the Bush years the federal register recorded 7,000 more pages of new rules.
And, of courseâŚtheyâre making a monumental mess of things. Theyâre spending money they donât have on things no one in his right mind would pay for with his own money.
Want an example? Go to Jonestown, Pennsylvania. Theyâve got an airport there that is the envy of travelers everywhere. Lots of airport, in other wordsâŚfew passengers. Thatâs because John Murtha â when he was still among the quick â used his power in Congress to build an airport that would be convenient for himâŚand reward local contractors and unions who had supported him over the years.
Few politicians dug more deeply into the pork barrel than John Murtha. But almost all stick their hands in it. Why else would you bother with the trials and tribulations of âpublic service?â Thereâs got to be a payoff that makes it worthwhile, right? Of course, there are a few â like our friend Ron Paul â who are just trying to do the right thing. But for every Ron Paul there must be dozens of Congressmen and federal employees who are in it for the power, the money â or both. (Neither Stalin nor Hitler squeezed much personal wealth from the taxpayer tube. Mao Tse-tung, on the other hand, knew how to live â with plenty of palaces and young women. Most government employees are probably more like Mao than Adolph. That is, they are motivated by money as well as power.)
Have you wondered why the costs of running for public office have soared? Thatâs obvious too â because the stakes are higher. As the federal budget grows so does the pork that each member of congress can pull out of the barrel.
The number of congressmen is more or less constant (though it grows with populationâŚafter a 10-year lag for the census). But the amount of money given out increasesâŚmaking each congressional seat more lucrative. You can do the math yourself, but the point is â crime pays. At least, for a whileâŚ
The trouble with crime is that it only makes the criminals rich. Everyone else gets poorer. Thatâs the problem in places such as Nigeria and Haiti. Crime pays. Nothing else does. Economists have done studies of thisâŚand, of course, theyâve discovered the obvious. In âhigh trustâ societies, people are wealthier. No wonder; when people know they wonât be ripped off, they accumulate more money.
A high trust society is one where property rights are respectedâŚand where the rules of the game are knownâŚand change very slowly. A change in tax rates, for example, discourages wealth â especially if it comes unexpectedly. So does a change in monetary policy. When people donât know what to expect from the currency they become reluctant to invest for a long-term payoff. Instead, they invest in lobbying.
For the most part, tax rates havenât gone up. Instead of taxes, government gets its money from borrowing. The immediate effect is much the same; resources are absorbed out of other sectors of the economy and into the public sector. Once in government service, they are used inefficiently or completely squandered. Result: John Murtha gets an airportâŚa kid in Brooklyn doesnât get a bicycle⌠The long-term effect is unknownâŚbut will almost certainly be unwelcome. The government will eventually be unable to borrow at low ratesâŚand unable to finance its deficits. This will result in defaultâŚor hyperinflationâŚor both. In anticipation, trust in the future will go downâŚand so will Americaâs wealth.
Thatâs why the shift to politics is the FINAL stage of an economy⌠It is inherently wealth-destroying. In politics the rewards are distributed according to who you know or who you are. What you know and what you can do scarcely matters. Trust declinesâŚbecause the rules change as wealth is taken away from some and given to others. The incentive to produce new wealth declines. Investments in new capital, new businesses, new innovations and so forth go down. Investments in lobbying go up. The insiders get rich. The rest get poor. And the nationâs wealth declinesâŚalong with its economy and its power. This will continue until the political sector blows itself up â either in default, bankruptcy, hyperinflation, revolution or defeat by a foreign power. Then, the cycle can begin again.
Regards,
Bill Bonner,
http://dailyreckoning.com/
