Enemas Of The State III

It has become hard to find a good French prostitute. At least that’s what a recent article in the `Figaro” tells readers.

“Russian girls have flooded Paris,” reported the headline, recalling the well-known Baptist hymm — “We’re sinking deep in sin.”

My brother-in-law, a Baptist preacher in Southern Virginia, recalls that as a boy he and his friends would crouch behind the last pew and add a “whee!” after the last verse.

As a happily married man I cannot take on the kind of undercover research required to verify the facts — so I have to rely on secondhand sources.

Still, I’m glad to hear about the Russian women. They represent an extension of the division of labor and hope for the future. Not that the local girls didn’t provide a quality product. But they couldn’t compete with the Eastern Europeans on price. The Russians brought deflation to an industry traditionally marked by tumescence, if not actual price inflation.

Elizabeth, who runs in the Bois de Boulogne, reports that the girls are everywhere. In fact, the more enterprising among them have taken to plying their trade in motor homes, an innovation that should give encouragement to Winnebago stockholders.

She says she saw one yesterday…sitting in the front seat of a motor home, in the skimpiest, leopard skin dress Elizabeth had ever seen — with her legs propped up on the dashboard. There was no sign out, but she couldn’t have advertised it better — she had realized every auto buff’s dream — a whorehouse on wheels.

Even writing about this makes me a little flush…with indignation, I suppose.

It wasn’t always so, of course.

Most of mankind’s sojourn on Earth was marked by isolation and bloodlust, as well as the other kind of lust. The Old Testament records the tribal battles in the Mideast in the time before Christ. It was customary, at least on the part of the Jews, to slay one’s enemies at the drop of a sandal.

This was the practice in the New World too. A marvelous book, “The Hudson Bay Company,” recites the tales told by early trappers. One, for example, tells how he accompanied a band of Indians on what he thought was a hunting expedition. For six weeks, the group traveled — through forest and tundra — towards the North. They were traveling over some of the least inhabited land on earth — where one could hike for weeks, months even, without seeing another human being or any trace of one. Finally, though, they came upon an Eskimo village. Without wasting a moment, they went to work — they killed every one of the Eskimos, for no apparent reason.

Progress requires the division of labor. And trade. Francis Fukayama has described what he calls “high- trust” societies — where trade and the division of labor flourish — because people are reasonably sure that they won’t be killed or ripped off.

Primitive societies are typically, extremely low-trust societies. New Guinea tribesmen kill each other with such regularity, for example, that murder is the leading cause of death. And when property changes hands, it is usually by theft.

But advanced societies are more peaceful and more predictable. A person can spend his time making silicon chips because he knows he can depend on others to make his bread and draw his water. Exchanges are based on persuasion, mutual interest and tradition. Force and violence are restricted to special situations.

It is no accident, therefore, that the most high-trust societies are also the most prosperous.

Nor is it coincidental that the payoff from violence declines as a society become richer. Even as recently as the Industrial Age, taking someone else’s oil wells or his heavy industries might have been an effective way to increase wealth.

At the close of WWII, for example, Stalin had many of Germany’s factories dismantled and moved to Russia. To this day they are still manufacturing motorcycles in Russia from a 1938 BMW design.

But imagine Stalin “stealing” Microsoft. What would he have? Could he treat the workers as slaves and force them to write code? Could he threaten suppliers and customers…and keep marketing channels open by violence? Could he continue to innovate in the face of competition? Actually, what would happen is that the whole thing would immediately collapse. In a matter of days, the world’s second-most valuable business would be worth nothing.

The world’s most prosperous countries — not surprisingly — are those that are least Stalinist, that is, the most free. Such countries allow the creation of extended, high-trust, enterprises.

And yet, I return to my question, why — after at least 10 centuries of progress from the Dark Ages — progress marked by vast increases in the division of labor…and a steady increase in “trust,” too…why did the 20th century produce such profoundly reactionary and destructive aberrations?

I have compared, loosely, almost recklessly, markets to politics. Markets are features of evolving civil society. People decide among themselves how much things are worth — and they work our intricate relationships, involving an ever-expanding division of labor. The prostitutes in Paris are now almost all Eastern European. In Baltimore, it is the taxi drivers who seem to all come from Russia. Both trades require a certain amount of trust and liberty.

Politics, on the other hand, is a different kind of activity altogether. At its core is barbarism — a willingness to use violence to force people to do something they don’t want to do — or kill them.

Markets are peaceful — and progressive. Politics are not. In fact, politics could be described as a reaction to peaceful, market evolution. There is no such thing as progressive politics — because the nature of politics is profoundly barbaric. A man uses politics in order to tell others what to do. He may tell them to do something that seems marginally sensible — such as wearing a helmet…or something that seems utterly loony, such the Zulu war chief who marched his men over a cliff.

In both markets and politics, history is marked by episodes of manic, destructive behavior. From time to time, crowd psychology runs wild. Mob thinking seizes the imaginations of people — so that they begin to think they can get something for nothing…or somehow become more than they are…simply by going along with the crowd.

People react to whatever trend has been under way…and frequently, overreact. The Industrial Revolution and the rise of the bourgeoisie were the biggest, most important trends the world had ever seen. It was a market-driven, evolutionary development.

Socialism was a monstrous, political overreaction to the progress of markets in the Industrial Age. The socialists sought to destroy the new bourgeois order and put society back on some more controlled basis.

Once freed from the rules and restrictions of “trust” which characterized civil society in the early 20th century, the revolutionaries were almost unstoppable. The most extreme elements among them triumphed — by the sheer brutality with which they went about their business.

Liberal reformers in Russia were simply stunned by the ruthlessness of the Bolsheviks. They could not believe that the Communists did not share their goals for opening and liberalizing Russian society. Within months, the reformers had been gunned down, hung or starved.

In Germany, the aristocratic officers had both the training and the means to stop Hitler. Many of them came from Prussia, which was most vulnerable to the Soviet onslaught. They realized that Hitler would not only destroy the nation, but also ruin them personally.

And yet, conditioned by the hidden rules of order — the evolved rules of trust that marked German society — and particularly by the iron law of the German military establishment, that they did not interfere with politics, they were unable to take effective action to stop Hitler before it was too late.

And so, the manic overreaction had to play itself out. Your correspondent, off to Normandy for the weekend…

Bill Bonner

Paris, France March 31, 2000

*** “Quarterly Growth Rate of 7.3%…Highest Since 1984,” proclaims today’s page one headline in the “International Herald Tribune.” The paper goes on to explain that this adds to “the mystery of how nine years of expansion at increasingly torrid rates could fail to generate significant inflation.”

*** Hmmm…it’s not as if prices have been standing still. Equity prices have soared — with the Nasdaq leading the way. But this is not the kind of inflation that people worry about. And yet it does explain a bit of the mystery.

*** Money is not flowing into consumer prices — but into stock prices. In fact, money flows to stock funds hit a new record this month — $39.1 billion.

*** Plus, inflation and business profits are being exported. The U.S. net trade deficit…that is, net cash flowing overseas…is running about the same pace as the new money flowing into mutual funds, about $1 billion per day.

*** And on top of all this, the U.S. GDP growth rate is a nonsense number anyway. Dr. Kurt Richebacher describes the GDP and productivity figures as “Statistical Fudge”: “During the 1 1/2 years from the end of ’97 to mid-’99, business investment in computer hardware, measured in current dollars, was a mere $24 billion, accounting for 3.3% of nominal GDP growth. But the `hedonic’ deflator turned this trivial amount into a pompous $286 billion…accounting for 55% of real GDP growth.”

*** “All in all, we have to conclude,” says Dr. Richebacher, “that the alleged productivity miracle and the whole of the new paradigm economy are nothing but a statistical mirage.” http://www.dailyreckoning.com/rich_report1/index.cfm

*** The real mystery is why — if the economy were booming at such a “torrid” pace — bonds are going up and gold is going down. Sooner or later, I guess we will find out.

*** Yesterday, the Dow lost a little ground — down 38 points. But the market’s breadth actually improved. There were 1,555 advancing stocks and 1,445 declining ones. There were also more stocks hitting new highs than hitting new lows — 81 to 57.

*** But the Nasdaq took a nasty little fall. It was down as much as 300 points during the day, but recovered to close at 186.

*** Among the “Cool Posts of the Day” on SiliconInvestor.com was one that reinforced my views on Cisco: It is a “massive company in a maturing product space,” said the writer, adding that there was “no justification for a 200-plus P/E…The commoditization of routers is just around the corner.”

*** The slip of the Nasdaq had CNBC commentators wondering if this was the bottom for the index. Hmmm…I’m still looking for the top. T-Online, soon to be the biggest Internet service in Europe, announced it was cutting its offer price for next month’s IPO. And Micron announced a 2 for 1 split — and the stock went down. This may not be the top, but the market does seem to be getting pickier.

*** The talking heads on CNBC can imagine a bottom. But their imaginations recoil at the concept of a “top.” Their universe has a floor, but no ceiling. “A bear market is impossible” said a Mr. Battapaglia on CNBC, recorded by Ray DeVoe and placed in his “Stupidest Things From the Media on Stocks” file. “You can’t have a bear market without a recession. And there’s no recession on the horizon. The economy is just too good.” Ray points out that the bear markets of ’62 and ’87 occurred without the customary recession. But who’s to say there won’t be a recession?

*** Another item from Ray’s file, a Boston fund manager, to whom people have entrusted their money, was quoted, “I cannot imagine any set of circumstances that would lead to a bear market. Today’s investors are too sophisticated.”

As Dr. Evil would say, “Riiight…”

*** One of the world’s few remaining National Socialist sympathizers made news yesterday. Eugene TerreBlanche went to jail in South Africa for assaulting a black gas station operator. TerreBlanche may not have any sense, but at least he has a sense of style. He rode up to the courthouse on a black horse…and kissed his horse goodbye before entering the jailhouse.

*** Meanwhile, in Rome, the struggle between law and civilization continues. A new law forces moped drivers to wear helmets — and the bikers aren’t too happy about it. “The law will be difficult to enforce,” said one Roman, “In Germany, they pass a law and people obey it. But Italy is different than anyplace else. People make a point of honor to flout the law.”

*** People still outraged over the Crusades might want to turn their indignation to something more recent. Many of the murderers of WWII vintage are still alive — and as yet unpunished. Quite a few of them live in Latvia — which was occupied by both Nazis and Communists. The problem seems to be figuring out which to honor and which to prosecute. Latvia has decided to do a little of both.

*** More trailers that ain’t trash, from Lynn Carpenter: “Here’s a company that does the same thing Winnebago does, but its real strength is in the other part of its business…inexpensive modular homes. It actually did start as a trailer manufacturer, but saw a need for cheap, decent and quickly-built housing to fill the enormous demand after the GIs came home from World War II. Fifty years later, it’s the largest manufacturer of prefab housing in the United States with 20% of the market.

“And it’s even cheaper than Winnebago. It’s going for a P/E of less than 6 (5.8). Its historic average is 15. Buy now and if it simply rises to its average P/E level over the next two years, you would see 150% per year gains. Company insiders and officers have been buying numerous and large blocks of shares for themselves for the last six months. Why not? The stock is going for just 88% of its assets. If it went bankrupt, the business would sell for more per share than the shares cost.”

The company? Fleetwood — which I mentioned here a couple months ago.


*** What else is new? Well, it’s Friday, and I’m getting ready to head up to Omaha beach. We’re also looking at the old family stronghold — Toncarville, a town on the Normandy coast, from which my ancestors left, along with William the Conqueror, to despoil, enslave and rob England, many, many years ago.