Government growth does not equal economic growth
A couple of years ago, we used to get such a kick out of making fun of the financial industry. Its pretensions were absurd and shocking. Its delusions were breathtaking. Its leaders were lunkheads and grifters.
But the financial industry blew itself up in 2007-2009. Now, what do we have?
The government! Doing all the same things鈥aking the same mistakes (only worse)鈥nd working hard to blow itself up.
鈥淏asically, it鈥檚 over鈥︹�� says Charlie Munger. Warren Buffett鈥檚 partner figures the glory days of the US economy/empire are behind it. He spelled this out in what he calls 鈥渁 parable,鈥� in Slate Magazine.
This puts Munger in direct opposition to all those economists, bankers, politicians, pundits and meddlers who think they can do better than the financial industry. Martin Wolf, in The Financial Times, says the challenge is to 鈥渨alk the tightrope鈥� between too much additional stimulus and cutting off stimulus too soon.
Richard Koo and Paul Krugman think the feds need to give the economy a lot more stimulus in order to offset the forces of contraction.
Most people think the economy will muddle through somehow鈥hanks to all those geniuses working at the Department of the Treasury and the Fed.
Dream on! The economy might muddle through or it might not. (The Wall Street Journal聽says growth rates have already retuned to normal.) But if the economy does pull out of this depression鈥t will be in spite of all those ham-handed central planners who are telling it what to do, not because of them.
Yesterday, the Dow fell 100 points. Gold dropped $9.
As far as we can tell, we鈥檙e still in a depression 鈥� that is, a deflationary contraction. You鈥檒l see a lot of contradictory statistics and BS analyses for the next 5 to 10 years. What you won鈥檛 see is real growth鈥ot until debt is substantially written off, costs are reduced and a new economic model is discovered. The 鈥榞rowth鈥� we鈥檙e seeing now is largely an illusion, a mirage, and an attractive nuisance. We鈥檒l have to pay for it later!
To put it another way, you won鈥檛 see real growth until there鈥檚 something solid to build on 鈥� a new foundation of lower costs and fewer leeches.
Yes, dear reader, the problem is not a liquidity problem. It鈥檚 not a banking problem. It鈥檚 not even just a debt problem. The bigger problem is that the US economy 鈥� but nearly the same could be said of Japan鈥he UK鈥�Italy鈥nd other places 鈥� is too expensive, too rigid and too full of zombies.
Munger is right. At least, he鈥檚 right about what has gone on so far. The financial industry turned the country into a casino鈥nd too many people lost their money.
We don鈥檛 know what happened in the second part of Munger鈥檚 parable. We couldn鈥檛 get the 2nd page of the Slate聽article on our laptop screen. But he鈥檚 a smart guy. We doubt he missed the government鈥檚 role. First, the private sector loaded itself up with debt. Now, it鈥檚 the feds鈥� turn.
Was it Ronald Reagan who said of the Soviet Union, that it was on the 鈥渨rong side of history?鈥� The derelict Bolsheviks were definitely on the wrong side of history in 1989. We knew it. They knew it. It was such a glaring problem; they had no choice. Their economy was imploding 鈥� thanks to rigid central planning. They gave up and switched sides.
But now it鈥檚 the US that is on the wrong side of history. Like the Soviet Union, it tries to impose its will, by force, on Afghanistan. Like the Soviet Union, it has too many expenses and not enough income. And like the Soviet Union, it tries to impose its will on the domestic economy too 鈥� by central planning. Not exactly in the heavy-handed fashion of the old apparatchiks鈥� This is post-Berlin Wall central planning. Collectivism with a clown face.
The US nationalizes key industry and borrows heavily鈥hifting the weight of economic 鈥榞rowth鈥� from the private sector to the government. Everything from home finance, banking, insurance, automobiles, employment and food is now owned, provided or subsidized by the US government.
After the Soviet Union fell鈥he rest of the world went over to look down the collectivist hole鈥nd then slid in too. In October 2009, the IMF counted 153 separate stimulus or bailout programs. If you bought a house or a car in 2009, you may very well have had the government to help you. And now, if you hire a new employee, you will have the government by your side again. If you get sick, you will have the comfort of knowing that the feds are in practically every examining room, every operating room, every drug laboratory, and every pharmacy. And if Obama has his way 鈥� there will be even more of them. Is there any economic act, howsoever trivial, that no longer involves government support, approval, or funding?
Munger may have pointed out. Or maybe he didn鈥檛. In either case, we will: the US economy was at its strongest before it was burdened by so many people depending on it鈥nd so many smart people helping it along.
It won鈥檛 make much progress again until it gets rid of those people. And that won鈥檛 happen until it has crashed鈥nd become desperate. Living at the expense of others is a hard habit to break.
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