Thursday, June 02, 2005
The Paradox of the U.S. Economy in the Age of Empire
To Whom Does the Future Belong?
by Bill Bonner
June 2, 2005
"Millionaire Ranks Hit New High," says the Wall Street Journal. Not since 1998 – near the peak of the dotcom bubble – have so many people gotten rich.
"The number of U.S. households with a net worth of $1 million or more rose 21% in 2004, according to a survey released yesterday by Spectrem Group, a wealth-research firm in Chicago," continues the article.
"There now are 7.5 million millionaire households in the U.S., breaking the record set in 1999 of 7.1 million. The study excluded the value of primary residences, but included second homes and other real estate.
"A separate study, also released yesterday, by Boston Consulting Group found that the U.S. continues to lead the world in creating new millionaires. The number of households in the U.S. with liquid assets of $20 million or more is increasing by 3,000 households a year."
Once again, we are confronted by a contradiction, a paradox, or a damned lie.
Overall, the American economy is in decline. It "grows." But its growing is progress on the downhill slope. It is like a man on his deathbed advancing to the grave. Every day brings it closer – at a rate of about $2 billion per day. Earnings are stagnant. People spend more than they earn...while their biggest living expense – the cost of housing – soars.
How could it be that they get richer at the same time?
We have come to a curious conclusion. That once the zeitgeist...the ruling spirit...of these united states inclined towards empire, all its institutions, its constitution, its news media, its philosophies and folklore, its theories and popular hysterias, and even its statistics had to bend. After 1989, the United States was clearly the master of the world. If it was master of the world it must be superior to it. Everything about it must be superior; its intellectuals and public chatterers just had to explain why.
Why is the U.S. economy so superior? Because it is a paragon of "technological dynamism, openness to trade, and flexibility," volunteered David H. Levey and Stuart S. Brown, writing in Foreign Affairs magazine. "Would-be Cassandras have been predicting the imminent downfall of the American imperium ever since its inception," the pair begins. But don't worry, "U.S. power is firmly grounded on economic superiority and financial stability that will not end soon."
How they know what will be reported in tomorrow's newspapers they do not bother to explain. Nor do they explain how being open to trade helps a country that has given itself a competitive disadvantage, or why, if the U.S. economy is so dynamic and flexible, it cannot afford to raise wages...or pay for what it consumes on a current basis.
But when the "facts" seem to contradict the imperial theory, the "facts" are bent. Here, misters Levey and Brown go to work with crowbars:
"Capital gains on equities, 401(k) plans, and home values are excluded from measurements of personal saving; when they are added, total U.S. domestic saving is around 20 percent of GDP – about the same rate as in other developed economies. The national account also excludes 'intangible' investment: spending on knowledge-creating activities such as on-the-job training, new-product development and testing, design and blueprint experimentation, and managerial time spent on workplace organization."
Intangible investment? Why didn't we think of that sooner! The trouble with the concept is that it produces intangible products, intangible profits, and intangible wages. Maybe the employees will get to enjoy an intangible sandwich someday.
The only way Americans continue living in the style to which they've become accustomed is by mortgaging the inflated value of their own tangible homes...and running public sector deficits – both are forms of stealing from the future. Only an old man with nothing more to prove would say so, but the U.S. economy in 2005 has become what Warren Buffett calls "Squanderville." Americans, he says, are becoming "sharecroppers," in an "ownership" society.
But whence cometh these 7.5 million millionaires?
They blow in on the same gust of deceit that bends the rest of America. Even though primary residences were not included in the calculations directly, the whoosh of debt lifts up all assets. Owners' equity sustains borrowing...and other assets, including second homes and property investments – rise too. And it reduces the need to sell other assets – since equity can be taken out and spent almost as easily as you can order a pizza. This boosts up asset prices generally and puts millions of people with rather ordinary finances into the millionaire category.
It is all a conceit and a fraud. But at least people are enjoying it.
• "Despite what the drug ads on prime-time TV say, true 'breakthroughs' in the drug industry are relatively scarce. Sure, every once in a while, a new medication or class of drug is introduced that makes a huge impact on the industry or on patients' lives. Pfizer's VIAGRA comes to mind in this regard," Jonathan Kolber informs us. We had been wondering how it was that pharmaceutical companies are the world's most profitable businesses – but without many bona fide breakthroughs.
"However, the dirty little secret of the pharmaceutical industry is that a lot of 'new' drugs are simply modified (and not necessarily improved) versions of existing medications," Jonathan continues, "It's a sort of a "planned obsolescence" trick of marketing.
"Most drugs lose the protection of their patent after around seven years on the market. This means that other companies can then make generic (cheaper) versions of the same drug. So to stay hyper-profitable in the face of much cheaper generic products, drug makers simply wait until a product goes 'off patent,' and then unveil – amid millions of dollars worth of media hype – a new, slightly different version of the same medication.
"While I abhor such behavior, the young, Nordic company I've been looking into isn't one of the participants. It's an innocent beneficiary."
• In Orange County, CA, the property bubble floats higher and higher. The latest numbers show that barely one in ten buyers can afford the median home. How does a real estate market function when so few people can actually buy? "Creative financing," says our old friend Rick Ackerman. Finance companies no longer verify income – which invites buyers to lie. And they welcome "neg am" – negative amortization – mortgages, which put the borrower deeper into debt every month. The lenders are colluding with the borrowers, in other words, each winking at each other's scam. The lenders pretend to be doing the borrowers a favor. The borrowers pretend that they are people the lenders would want to do a favor for.
• The "liberation" of women and minorities meant giving them the right to vote, which meant not "liberation" at all – but merely including them in the process of bossing other people around. A person is truly liberated when he is free from the whole affair. People are most free when they have no political power of their own...and when they are left alone by the people who do.
Americans living outside of America are among the world's freest people. Except for the requirement to pay tribute to the homeland, we are remarkably exempt from many of the day-to-day indignities of citizenship. That is especially true of your author who travels between several countries regularly. He is practically a stateless person.
But yesterday, he had a run-in with the forces of national improvement here in Britain. He was forced to go get a National Insurance number. He had no desire for such a number. He had no plans to ever use the number. He cared neither for the public health benefits...nor for the retirement benefits...nor for any other benefit with which British politicians had bribed the masses. So it was plainly a waste of everyone's time for him to get such a number. But he is not one to defy the law – when he thinks he won't get away with it.
And so he sat before an agent of the Blair government in some godforsaken slum and answered questions as truthfully as he could without dispensing more information than was likely to be necessary. Yes, he lived in London. No, he did not live in London all the time. Yes, he traveled frequently. Yes, he was employed in London. Yes, he had an apartment. No, he was not HIV positive, as far as he knew. No, he had never held up a bank. No, he had never pointed a firearm at Her Majesty's Officials.
The official asking the question looked like a skunk with a mustache. She was from Pakistan or India, we couldn't tell which. She spoke English and was very pleasant. After a while, we began to realize that many of the questions were not really part of the interview process, but merely designed to pass the time of day.
We also noticed that the woman was exceptionally helpful. If we suggested one answer, she would suggest another – one that would cause less trouble for the processors and the applicant.
Waiting around, we began to notice a curious collusion between applicants and interviewers. They were like mortgage lenders; these agents were no longer working to protect the government's money – but actively trying to find creative ways to get rid of it.
"Oh, no...if you say that, you won't be eligible for benefits..."
"Okay...I will put down that you ..."
"You don't have your passport with you? Well, we'll work around it...."
All very civilized...and mad!
• "If the Dutch follows the lead of the French and shoot down the EU constitution, the biggest winner could be China," Dan Denning explains.
"More than ever, investors want to own a currency backed by strong economic growth. Right now, the default winner is the dollar. But there is no economy in the world growing as fast as China.
"Since I was there last year, the China story has only become more compelling. Not without risks, to be sure. But if you have the right strategy, China is still a profit opportunity."
June 2, 2005
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.
Copyright © 2005 LewRockwell.com
Bill Bonner Archives
Condo sales in costa rica, Retirement property in costa rica. Visit us for more info at: http://www.ramadajaco.com/
Links to this post: