How the Feds Sedated American Capitalism, By Bill Bonner, 3/28/19.
GUALFIN, ARGENTINA – A Diary Dictum: People
are neither always bad nor always good, but always subject to influence.
Want to know why tax cuts,
spending increases, and EZ money from the Fed don’t work? Wonder how the feds
could add $4 trillion in new money, suppress interest rates below zero for an
entire decade, add $13 trillion in deficit spending, and still end up with the
weakest expansion ever?
What’s the matter with
“stimulus,” anyway?
Try this experiment at home.
Tell your teenager that he will get $5,000 a month for the rest of his life,
and a lifetime supply of marijuana. See how that stimulates him. Think he’ll
study harder… work harder…?
We remind readers that we’re
down in Argentina studying the evidence firsthand. Despite runaway budgets,
out-of-control spending, and lusty, gaucho printing-press money – that is,
despite “stimulus” up the kazoo – the Argentine economy is now in a depression,
with a 6% annual loss of GDP and an inflation rate estimated as high as 100%.
Why?
TS = rv (w-w – w-l). Total Satisfaction equals
the real value of win-win deals minus win-lose deals.
Our formula recognizes that
money isn’t everything. So, it focusses on satisfaction, rather than GDP or raw
wealth.
It also recognizes that
win-lose deals are negative… They subtract from total satisfaction because they
force you to do something you don’t want to do. When a stick-up man confronts
you in an alley, for example, he takes your wallet and greatly reduces your
satisfaction.
But the biggest win-lose
deals are much more subtle. Most people don’t even know they’re being robbed.
And yet, these hidden win-lose deals too greatly reduce net satisfaction, which
shows up in lower incomes, less growth, and poorer people.
Remember, win-lose is
the opposite of a win-win. In a win-win deal, wealth is created as people do
things for one another.
They work. They learn.
They save. They take chances. They trade with one another. Not because they
want to… but because they have to. And little by little, as they succeed at
satisfying each other’s wants, progress happens.
In a bakery, for
example, the baker gets to work at 4 a.m… kneading his dough in the wee hours,
so that the sweet smell of freshly baked bread will draw in the customers at
dawn. He would probably prefer to stay abed. But nobody’s going to pay him to
sleep in.
Now, suppose something
strange happened. Imagine that the Bakers Union hired a particularly powerful
lobbyist who persuaded Congress to pass the Bakers’ Income Enhancement Act.
This law changed the win-win deal into a win-lose deal, requiring customers to
pay the baker whether he baked any bread or not.
The baker… a nice
fellow… might still feel an obligation to put out a few loaves. Out of habit,
he would probably get to work early and fire up his ovens. But after a while,
he would probably slack off. He’s only human!
Well, guess what.
Capitalists… investors… businessmen… and speculators are no different. Like the
lucky bakers or the lucky teenager, imagine that they don’t have to work so
hard.
Imagine that they can
make profits without risk. Imagine that someone gives them money without
demanding any quid pro quo. Imagine that the feds force a win-lose deal on the
whole country… in which, a few people – the rich, the insiders, the elite – get
money without having to give anything in exchange.
Would they work harder?
Would they still take long-term risks with their money in order to develop new
products and services for consumers?
If the stock market were
rising at 10% per year, would they still invest their money in new plants, new
equipment, and new lines of business that might earn them – if they work out –
5%?
Is it because they are
saints that they do the hard work of capitalism… or because they have to
produce some real product or service in order to earn a profit?
We have the answer to
these questions right in front of us. For the last 30 years, capitalists could
take advantage of a special win-lose deal offered by the feds. They didn’t need
to work so hard… They didn’t need to save their money. They didn’t need to take
chances.
In effect, the feds took
money from the public – via taxes, artificially low interest rates, debt, and
printing-press money – and gave it to the elite.
The insiders could
borrow from the Fed at a rate near zero (after inflation). And then, they could
buy stocks and watch them go up from Dow 2,600 in 1989 to Dow 26,000 in 2018.
Or, they could do even
better… with buybacks, mergers, bonuses, or special dividends, funded by the
Fed’s win-lose fake money.
With the Fed’s fake
money available to them, capitalists didn’t put their money and talents to work
– in win-win deals – for the benefit of others. Because they didn’t have to.
Win-lose financial tricks were much more profitable.
Corporate borrowing hit
new records. So did stock buybacks and stock prices. And crazy startups, like
Uber, Wag, and WeWork, can hit billion-dollar valuations without ever earning a
penny.
But net of inflation and
depreciation, real capital investment – the essential ingredient in a
capitalist economy – fell to zero.
Norb Leahy, Dunwoody
GA Tea Party Leader
