Seeming Contradiction

CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes. But there is a serious side to it, too. Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.

Is it real? Is it real? Is it real? Above you can see what the problem with reality is, or potentially is, in a 6-phase research undertaking that has landed its protagonist in a very disagreeable situation (a corner of reality best avoided, so to speak). 1. he learns that something is amiss. 2. he has to measure reality, otherwise it doesn’t exist! He does so, and 3. strange people show up at his doorstep, giving him ominous messages. 4. At least reality is now real! Then he learns about a philosopher, who asserts that while it may be real now, in a sense, it is nevertheless a computer simulation. Oh well, what does he know? Unfortunately, a bunch of serious-sounding German physicists calculate that he actually appears to be right. 5. By now our protagonist will believe anything, so when he hears about Dr. Schreber’s efforts to keep the universe from dissolving/imploding by thinking about it all the time, he is no longer even surprised. 6. He enters the Tearoom of Despair – a “world of horror, futility and endless buttered scones” – click to enlarge.

Reading the Diary mailbag, it is obvious that many dear readers are confused by what seems like a contradiction. On the one hand, we recognize that what goes on in public life can never be fully understood; it is infinitely complex and unknowable in its entirety.

Nor can we ever know what will happen as a result of a law, an idea, or a policy; there are millions of possibilities and only one forthcoming reality. Nor can we ever know whether the results will be “good” or “bad.” Only God knows what is good or bad; we know only what we like.

On the other hand, it is our lonely and frustrating role in life to try to look through the leaves and dust to try to see what is really going on, realizing that we will only see “through a glass darkly,” at best.

And so, today, we lift our head up above the leaves… and we look at the last 17 years as though it were a vast historical tableau hanging in the Musée d’Orsay. Yeccch!

Big, Fat Flop

From almost every angle you look at it, the 21st century – so far at least – has been one big, fat flop. Putting it in context, the century opened with high hopes. In technology… broadband internet, mobile networks, and “cloud” computing seemed to open vast possibilities.

Naturally, we believe the intertubes are absolutely great (for many reasons, not all of them economic). Clearly though, a number of things have gone wrong in since the turn of the millennium. Evidently, the boundless optimism of the late 1990s was in many ways misguided.

Photo credit: DPA

In the new century, almost everyone would have unlimited access to the information on which progress depends. No need to go to MIT to learn how to build a nuclear bomb; it’s on the internet! The need for old-fashioned capital – savings, resources, energy – seemed greatly diminished, too.

Knowledge, traveling at the speed of light, would break through the old physical barriers. Poor nations didn’t need to go through the Industrial Revolution; they could go right to the Information Age.

In politics, the Clinton administration had reduced the rate of growth of the national debt… the Berlin Wall had fallen 10 years previously… and George W. Bush was elected on a promise of making government less interfering – especially overseas, where he called for a “more modest” foreign policy.

A piece of Berlin wall gets kicked down. We remember these glorious moments, and the even more momentous and incredible days after Boris Yeltsin had climbed on a tank in Moscow and told Gennady Yanayev and his fellow putsch conspirators to go to hell. Shortly thereafter the Soviet Empire crumbled to dust. At the time it seemed that anything was possible. It was very easy and tempting to be optimistic.

Photo credit: AFP / Getty Images

In the economy, too, there was cause for optimism. Not only were the new information technologies reducing costs and promising faster progress, but also corporate governance was allegedly improving.

Alert boards and activist shareholders were pushing for more efficient uses of capital. Middlemen were being “disintermediated,” which shortened production-to-consumer supply lines and lowered prices.

And globalization allowed countries to do what each did best, further increasing the world’s output. As for employment, the internet opened up new opportunities for work all over the world; you no longer had to be physically on Wall Street to earn Wall Street wages.

Time Waster

Yes, as the new century dawned, U.S. GDP was growing at a rate of about 3% a year. Meanwhile, unemployment was near record lows… stocks were at record highs… the government’s finances were stabilizing… the threat of war was low… and new technology, abundant capital, and 20 centuries of compounded learning promised to make it the best ever.

But then something went wrong. Or many things went wrong. New technology reduced costs. But it didn’t seem to increase output. Shoppers can save money by buying from Amazon.com; but the company virtually makes no profit outside of its cloud computing unit (its operating margins on its core e-commerce business are negligible).

New technology makes it possible to send and receive all the data, information, and entertainment you want. This may or may not increase the quality of life. It makes a few “platform” companies – companies such as Facebook and Google that connect users with information and advertising – very rich.

But it doesn’t create the kind of economic output that provides good jobs and makes ordinary people (outside of Silicon Valley) better off. Just the opposite: More than anything else, the new technology may be a time waster. It is now estimated that America’s unemployed spend as much time on electronic pastimes as they would spend at full-time jobs, if they had them.

Communication – progress and regression at the same time…

Photo via imgur.com

Alcohol, Drugs, and Suicide

Which brings us to the economy. Despite the marvels of new technology, economic growth rates have fallen. Throughout eight years of the most aggressive pump-priming in the history of central banking, the flow of new goods and services never got above a trickle.

Now, GDP growth – clocking in at an annual rate of just 0.7% in the first quarter – is at stall speed. The average American family earns scarcely more today than it did when the century began. Home ownership has fallen back to levels last seen in the 1960s. And there are now fewer people – as a percentage of the working-age population – with full-time jobs than there were 40 years ago.

Particularly hard hit were middle-aged white men. Not only did they lose jobs at the highest rate since the Great Depression, but as a result of higher levels of alcohol, drugs, and suicide, their lives also shortened.

Death from despair – in the US, middle-aged white men are suddenly dropping like flies… the feared patriarchy is removing itself from the scene – permanently – click to enlarge.

Meanwhile, the Fed – desperate to put some distance between it and zero so it will have some rates to cut in the next crisis – claims to be in a “tightening cycle.”

But the world economy now has $215 trillion of debt. This makes it extremely vulnerable to interest rate increases. The Fed will never be able to get far in its “tightening cycle” before it turns around and offers more emergency funding.

Total Disappointment

Finally, politics has been a total disappointment. Instead of a more modest foreign policy, President George W. Bush launched America on the longest, costliest, and losing-est war in its history. Bush Jr., the son of a president and CIA director, was about as deep as you can get in the Deep State. So, it wasn’t surprising that he would start a war in which only Deep State cronies would come out ahead.

Then Barack Obama was elected. He also promised a change of direction. He was supposed to bring the troops home and end the mindless wars overseas. But he was either captured by the Deep State almost immediately, or the fix was in from the get-go.

In either case, he broadened the battle overseas – and increased the level of surveillance and control at home. He also added a medical care boondoggle that guarantees national bankruptcy. As baby boomers retire, support for “free” pills increases… costs rise… and (as Republicans just discovered) there is no way to stop it.

Plus ça change… a series of disappointments, fully in thrall to the Deep State as soon as they were elected.

The latest of America’s 21st-century presidents, Donald J. Trump, pulled the same trick. He campaigned on a platform of “making America great again.” Almost everyone took that to mean great as in how it was before O’care, before the Forever War on Terror, before the EPA, the NSA, the Department of Homeland Security, and the rest of the snoops and regulators were barking orders at us all day long.

Mr. Trump said so many preposterous and contradictory things that it was hard to know what he meant. But three months into his administration, it is clear that there will be no change of direction.

O’care goes on, so does the wacky War on Terror, so does all the meddling, interfering, and crony, win-lose gamesmanship. In fact, it may have gotten worse; Mr. Trump seems to lack any sense of limits, prudence, or constitutional restraint.

So, here we are. Seventeen years into the new century, and we have less peace, less freedom, and less prosperity than we had in the last one.

Chart by: Angus Deaton / Brookings Economic Studies

Chart and image captions by PT

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

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