Thursday, February 7, 2008

20th Century Politics

The newspapers are reporting “first job losses in four years” and warning of an economic slowdown...or recession. Polls of economists put the odds of recession at 40% to 50%, for whatever that is worth.
But the biggest stories are always the ones that go unreported. They are missed because they are too hard to understand or too ugly to look in the face.
The big story of the 20th century was the ascension of politics...or maybe we should say, ideology. Everyone was whipped up into such a lather by political ideas that he practically foamed at the mouth, ready to bite any opponent who got in his way. Reporters told the story of what the National Socialists in Germany were doing...or what the Bolsheviks were up to in Russia...or the Khmer Rouge in Cambodia...or the Shining Path in Peru. In America, it was the New Deal or Morning in America that excited the voters. But hardly anyone noticed the big story...of how the whole world had turned in the same direction, towards politics itself.
Then, the world turned again – towards money. Politicians hadn’t made things better; instead, they seemed to make them worse. Subtly, hardly realizing that they were doing it, unannounced by the papers, people began to look elsewhere. “Government is not the answer,” said Ronald Reagan. What, then? Money. The real solutions to the world’s problems were thought to be financial solutions. What caused economic growth? How could foreign investment be increased? How could the world’s poor be lifted up from their misery? What was Lee Iacocca’s saying? People wanted to read the memoirs of industry leaders and find out how ‘elephants can dance’ and other secrets. Ronald Reagan and Margaret Thatcher led the way, speaking of ‘market solutions’ and of how the free enterprise system could make people rich...and how entrepreneurs could be unleashed to create wealth for everyone. And The Wall Street Journal became America’s most widely circulated paper.
Poor countries got new advisors. Che Guevara was dead. Now came Jeffrey Sachs. And Warren Buffett attracted bigger crowds than Lenin; and was quoted more often than Karl Marx.
But the world keeps turning. And now the old complainers are back. Barney Frank wrote a piece for the Financial Times , telling the world that the “laissez faire” system had failed. Robert Reich followed up with a kvetch about how the rich had gotten too rich. And practically every candidate for office promises more and better regulation of the financial industry.
The complainers are idiots, it’s true. But they have a point: Reagan’s capitalism was a failure. Cometh now the nasty facts. We’ve been talking about them here in The Daily Reckoning for the last eight years. Everyone knows them. But they are so disagreeable and so at odds with everything we have come to believe, they are ignored.
Capitalism produces wealth; it makes people richer than any other system. Capitalism we define as merely a state of nature...where people are free to go about their business based on customary, consensual rules in an evolved, vernacular market system. The more you tamper with it, the less well it works.
The Reagan years brought a new respect for capitalism...evidenced by lower marginal tax rates and less regulation. All else being equal, people should have gotten wealthier at a faster clip – especially since the U.S.A. had just humbled its only substantial enemy, the Soviet Union, and taken up the new Information Technology quicker than any of its commercial rivals. Americans should have gotten richer, faster, than at any time in history. They were the world leaders in capitalism, technology, innovation, financial sophistication, education and market efficiency. But in practice, the average man in America got poorer. According to figures sited by Robert Reich, a former U.S. Secretary of Labor who ought to know, the average man today earns 12% less per hour worked than he did in the early ’70s, a fact disguised by longer working hours, more spouses on the job, and debt.
And now word is getting out that the boom of the last five years was a fraud. “Boom was a bust for ordinary people,” says a Washington Post story. The common man didn’t get ahead in the boom; he fell behind.
What does it mean to be wealthy? Either you earn more...or you have more. Americans don’t earn more. Do they have more? We don’t know. We haven’t seen any comparisons. Probably not, though...since their debt levels per person doubled in just the last eight years.
How could it be? How is it possible that in the greatest explosion of economic activity in human history, the economic front-runners were left out?
The candidates for America’s highest office don’t know what to say. They promise to “bring back the American dream” but have no idea what happened to it...or what made it possible in the first place. The Democrats propose higher taxes on “the rich” and more regulations on Wall Street. The Republicans propose more giveaways...higher spending...and hint vaguely that, when it comes to money, they know what they are doing.
But no one really knows anything.

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