We begin another look at Zombieland with this editorial from Martin Wolf in The Financial Times:
Why did it take so long? It is over four years since the financial crisis began. Yet only now are anti-capitalist protests emerging, including at St Paul’s Cathedral. So is this the beginning of a resurgent leftwing politics? I doubt it. Are the protesters raising some big questions? Yes, they are.
Socialism failed as a way of running economies. It did, however, succeed in establishing welfare states. Socialism is a conservative force, dedicated to defending entitlements built up over a century. Meanwhile, organised labour is only strongly entrenched in the public sector. This gives it the same conservative agenda: defending the welfare state. Strikes by UK public sector workers against the fiscal cuts will demonstrate this.
We have promoted an insider form of capitalism which exploits and indeed creates subsidies and tax loopholes on which the insiders prosper. The need to rescue banks was horrifying. The role of money in politics is disturbing. The danger is that we are moving from what the Nobel laureate economic historian, Douglass North, calls an “open-access order” to its opposite, a system in which political influence is decisive.
The era of bail-outs must end.
We rarely agree with Mr. Wolf. But he is right…so far. Later in his editorial he proceeds to fall into gross and obvious error — arguing that “we” need to find solutions to capitalism’s inherent excesses.
Humans seem prone to self-fulfilling waves of optimism and pessimism. Ways of mitigating the extent and the consequences of such instability always need to be found.
We see no reason to mitigate the instability of free markets. That’s what makes them so much fun!
But when The Financial Times undertakes to encourage its readers to fix capitalism, you realize how few real friends that disagreeable creed must have.
Few people really like capitalism — even people who call themselves capitalists. The feds could probably round them all up and gun them down in an afternoon. Capitalism is too chancy…too unpredictable…and too uncontrollable. No wonder so few people are fond of it; capitalism is a poor friend. It is disloyal. It is mischievous and willful. It is hard to get along with.
Capitalism offers is no sure route to success. You can be smart, work hard, and go to the best schools. There is still no guarantee that you will succeed.
Nor, once you’ve succeeded, is there any sure way to maintain your wealth, power and status. Wealth has no fidelity, neither to any one person, group, or family. It goes where it wants. It is fickle and unreliable.
Nor does it go necessarily to the strongest, fastest, or smartest. As it says of the race in Ecclesiastes, time and chance play a big roll. Neither can be made to stay put. Once you have made a lot of money, the same wheel of fortune that brought it to you can take it away from you. It never stops turning.
The rich tend to be even bigger anti-capitalists than the poor. As soon as they get some wealth they try to put the brakes on. They set up tests and hurdles…designed to keep the hoi polloi off their tennis courts and out of their businesses. They use every means possible to separate themselves from the masses — language, education, dress, customs, geography. They tend to speak differently…sometimes even using a completely different language. Probably the most recent and best known example comes from Britain, where the upper classes still speak a heavily Latinized version of English, called “RP” for ‘received pronunciation,’ while the lower classes speak a more Germanic, more archaic version. A thousand years earlier, the upper classes actually spoke a different language all together — French.
In France itself, the development of “French” was itself a long process; until the 19th century the language was foreign to most people who lived in France. It, and Latin before it, was used almost exclusively by the rich, the powerful, and the well-educated.
Education is another common means of helping the rich to hold onto their money. Special schools typically cater only to the upper classes, teach the right accents and attitudes, and help young people make the sort of connections that will keep them, and their money, in the same group. These schools were rarely hermetic, however. They usually allowed a few particularly bright people from the lower orders to enter into the moneyed classes. This had three beneficial effects. It nourished the gene pool of the rich. It provided them with the top talent they needed to stay rich. And it drew in ambitious and able young people who might otherwise compete against them.
Of course, the rich — especially if they are a coherent cultural group — tend to live together, socialize together, and do business together. These things too help to keep money “in the family” and out of the hands of strangers.
Nor do the rich typically stop at honest means. They also avail themselves of the police power of the state. Many laws, edits, and rules have been announced to regulate everything from the professions people must practice to the clothes they wear. “Serfs” were shackled to their farms, masters, and their station in life by law as well as by custom. Sumptuary laws forbade new money from imitating the fine dress of old money. Licensing requirements, tariffs, and regulations generally make it more difficult to enter into a profitable trade or business, thereby protecting those who are already in it.
The rich are not above using the tax code either. In pre-revolutionary France, for example, the aristocracy and the clergy were exempt from taxes. Even today, most taxes are taxes on getting rich, not on being rich. Governments tax income, not wealth. France is an exception with a wealth tax. But it is a relatively modest one — never exceeding 2% of assets. Compare that to the top marginal rate on income. Combined with social charges, it rises to more than 71%.
Warren Buffett has famously pointed this out, indirectly. He claimed that he paid a lower tax rate than his secretary. That was because his taxes were paid at rates levied on people who were already rich — capital gains and dividends — rather than income. The poor secretary had to pay taxes on the fruits of her own labors.
Does that mean the rich like government? Yes, of course they do. The state is a rich man’s best friend. The rich return the friendship, in cash.
As Bill Gross reported in January of 2010, what is amazing is not that politicians can be bought, but that they can be bought so cheaply. He wrote that “public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return.”
But while hardly anyone actually likes capitalism, there’s a problem with the alternative. Efforts made to hinder, tame, and put a ball and chain on it always make things worse. They lead to zombification.
Here is the foundation of our General Theory of Zombieism:
1. All (or almost all) people want wealth, power and status.2. They want to get it in the easiest way possible.3. The easiest way to get wealth is to steal it, which is why all groups turn to the government, the only institution which gets to steal lawfully.4. Over time, more and more groups are able to use the system for their own ends.
If they are poor, they implore the government to ‘tax the rich’ and give the money to the poor. If they are rich, they want the government to protect their wealth and status — with every means available to them. Democratic governments generally do both. They support the poor with loud attacks on the rich combined with whimpers of money (for the poor can generally be bought — vote for vote — much cheaper than the rich). As for the rich, their support is more subtle and underhanded. There are tax credits and loopholes for anyone who can afford them; sugar-laden contracts for the insiders and plenty of jobs for well-credentialized blowhards.
The rich complain about the poor. The poor complain about the rich. Both complain about the government. And everybody hates capitalism.
But over time, the giveaways, bribes, regulations, intercessions and meddling on the part of the government have a big effect on the economy. The more the government interferes with market signals and market-based capital allocation, the less able the economy is to produce real wealth. More and more resources are purloined by the insiders before the truck reaches its destination. Paperwork, lawyers, administration, regulation, taxes take a toll. So does misallocation of capital investment to huge, unproductive industries such as education, health, and defense. There is also a shift of wealth generally from those who earn it to those to whom it is redistributed…and from capital formation to consumption. And gradually the economy becomes paralyzed and parasitic…and nearly everyone gets poorer. And often, the state…and the mobs that support it…become desperate for more money. Then…the rich had better watch out!
We’ve already seen how zombieism overtook the education industry. Now lee’s look at another one — health.
The health care industry is demonstrably unproductive. We know that because we can compare the spending with the results. For our purposes we will measure ‘health’ by life expectancy. They are not exactly the same thing; but close enough.
The relationship between spending money and living long is weak, if there is any at all. Singapore spends about $1,000 per person on health care. Its people live longer than those in the US, which spends about $5,000. In fact, the US stands out in health care…as it does in education and defense. It spends more and gets less. Money is invested badly, with either no return…or a negative return. The people of the US are not very different culturally, racially and economically from the people of the United Kingdom. Yet the British live longer while spending less than half as much on health care.
Most of the health improvements in a society can be achieved by simple procedures at modest cost. This is another thing we can thank the communists for. They demonstrated that “barefoot doctors” in China, or poorly supplied, underpaid doctors in Cuba do about as well as the expensive professionals that fill South Florida. Cuba spends barely $100 per capita for health care; in terms of life expectancy, it gets the same results that Florida gets, 90 miles away. In Florida, however, people spend 45 times more on health care.
But isn’t the US a free economy? Why would people spend so much and get so little for it. Why don’t competitors step up to the plate and offer a better product? Why doesn’t someone start a “Pretty Good Health Care 4 Less” franchise? You have a problem? We can imagine how it might work. You walk in. You don’t see a doctor. You see someone with a computer who has been trained for 6 months on how to use it. He listens. He gives you an exam. He asks questions. He reviews your symptoms. He feeds the data into a computer. The computer is programmed to draw upon the entire world’s medical experience and give you an answer. Or…to pass…and tell you to go see a real doctor.
Most people do not have strange ailments. They have the problems that most people have. Those are the ailments that a person with modest training could recognize and treat with simple procedures and cheap generic drugs. Aided by electronic tools…and perhaps a few good doctors in India, connected by Skype…you could probably get as good advice as you could get anywhere. Maybe better.
You would pay about as much as you would pay to have your muffler changed. You would agree not to sue anyone. In and out. No muss. No fuss. Nothing fancy about it. And if you had a brain tumor you should probably go elsewhere. But if you want cheap medical care…it would be the place to go.
Soon, there would be competing nationwide chains…giving customers a choice…and a range of prices that would accommodate each income bracket. Employers would pay a modest fee to enroll their employees. If the employee wanted to spend more, he could enroll in a more traditional program.
Why won’t that work? Really, dear reader, sometimes you surprise us. Were you born yesterday? It’s against the law! The feds reward their protected industries with almost boundless wealth. And they punish interlopers. You can’t practice medicine without a license. And you wouldn’t be re-imbursed by insurance programs…and certainly not covered by Medicare or Medicaid. And even though your clients had specifically agreed not to sue, you’d be pursued by every shyster lawyer in the country.
Health care is a protected industry. It’s a zombie industry, which cushions life for the people who profit from it. And based on the numbers…it squanders at least $2,500 per person per year. That’s the equivalent of the entire Pentagon budget…or nearly half the entire 2011 deficit. It’s spent on unnecessary and ineffective tests and treatments — not to mention a mountain of patent medicines. And these costs do not include all the indirect costs of lawyers and court time, caused by the medical malpractice industry.
Why can’t a patient agree not to sue in return for lower medical costs? Where have you been, dear reader? Tort lawyers, those who bring these sorts of cases…and who advertise on billboards in poor neighborhoods…are among the biggest campaign contributors to the political system. They, along with doctors, pharmaceutical companies, hospitals, insurance companies — all support lobbyists. All have an interest in keeping the industry alive — as it is. None wants to see an upstart competitor bringing destruction to his zombie life. None wants to give up his edge…his subsidy…or his privileges. None wants capitalism in the health industry.
More to come…
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
Democracy is one vote per person. Capitalism is one vote per dollar. Ergo, the poor hate capitalism. (Bill, did I learn that from you?, I forget)
Well, I gotta’ run now. I’m off to the secret meeting of the rich to collude on how to stay rich and keep the riffraff out. Bill I thought we were sworn to secrecy about this??? Why did you blab?
Shawn, me and the President are still awaiting your recommendation on sanction against a certain country’s CB.
Good explanation on the HC industry Bill. I hope you do legal next. There is another industry who doesn’t want more competition. More simple laws and different licensing requirments would do just that.
You know, the awful government wouldn’t be so involved in daily life, slowing down capitalism, if someone, somewhere, had not, in the last 235 years, been either killed or screwed over by someone or something operating strictly under “capitalist means.” Government has little use for making stupid rules no one is gonna want to follow or understand, unless there was, in the past, some reason that couldn’t be ignored.
If you want capitalism, then we have to collectively agree that the U.S. is indeed the wild, wild west, where anything goes, no matter what. Apparently the rest of the world does not agree with this idea. Most of the world is now “socialist,” including the US! (we just like to pretend we are capitalists, borrowing instead of taxing.)
Human beings have romantic notions about crossing the prairie, looking for new adventure … up until the point a snake kills a daughter, and then government can not be called upon fast enough.
ChairmanoftheBored, you and the President will just have to subscribe to my paid stocks picks service on my Site. (No tickee, no laundry.)
OKAY, I am grabbing my shield to protect me from pitchforks and I am off to the protect the rich meeting. No more emails please.
Real Socialism is alive and well in places like Scandinavia.
Carrera, thanks for the warning!
(And I really MUST get off to that meeting!)
3. The easiest way to get wealth is to steal it, which is why all groups turn to the government, the only institution which gets to steal lawfully
Actually Bill, some corporations here in the USA would make any government green with envy when it comes to theft.
Hey, Scott, there is a point where “government” is no longer your snake killer but is the snake. You’re right, “Most of the world is now “socialist,” including the US!”……wonder if that’s the reason bankruptcy is staring all of them in the face?
The rich, in power & money, both in the private sector and government are conveniently socialist expediting legislation to keep us off their roads, out of their hospitals, and back to the farm. Just as BB writes and he’s usually right…in more ways than one. Taxing income versus taxing wealth is a huge distinction not made often enough. Not advocating taxing wealth but if the socialist in DC can’t control spending, and they can’t, let’s see them go after the wealth. There will be changes then or fireworks for sure.
ok government, put the shovel down, you’re in deep enough. deep enough to be covered over and set with a tombstone that is: RIP Big Nanny State.
I’ll kill my own snakes, suck the poison out of those that get bit or bury the unlucky dead who couldn’t get out of their way in time.
BB, can you elaborate on the below in one of your future posts?
Is there any hope for the little guy to live in a stable non-anarchic society? Stable meaning one in which one person can go from 40 billions to 800 millions in the span of a few years, but not one where (barring unlikely circumstances) a modest middle-class family goes homeless in the span of a few years (if they made all of the sensible right choices).
I’m addicted to Bill Bonner “story”.
I am out of work with no insurance.
I had a respiratory problem. I went to the clinic at walmart. I saw a nurse in 20 minutes, no appontment. She examined me and sent me to get an x ray. I came back with the xray the same day and she had it examined. I was diagnosed and prescribed medication. The office visit was $35, the x ray $25. The pharmacy was about $110. Walmart clinic is onto something.
As fa as I am concrned half of dermatology practice can be reduced to an iphone app.
The first step towards true health care reform in the United States would be the elimination of health care insurance. All of it, the entire industry plus medicare etc.
Next would be the elimination of many of the regulations surrounding practicing medicine much as Bonner suggests. There would be good health care, and lousy healthcare in such a scenario, but the cost would drop by 75% almost immedaitely. Maybe doctors would start driving Buciks again, and their wives would fill in at the office when the receptionist called in sick.
Much as Bonner suggested, the real logjam is created by government regulation that has created a cartel. Everyone is forced to play the game or lie dying on the sidewalk in need of a simple medication only available by perscription. This, in spite of knowing what drug they need.
Get rid of the controlled substance laws save for narcotics, and let the internet provide diagnostic analysis to make most recommendations just as suggested.
Additionally, let internet entrepreneurs create different rating mechanisms for rating doctor performance by current patients as a check and balance.
Would it shorten some people’s lives? Absolutely. But its important to realize that more than half of Medicare disbursements are made for care provided in the last 6 months of life. Not sure how anyone could describe this as anything less than a collosal waste of resources.
Why hate only Capitalism? Some people don’t discriminate. They hate everyone and certainly every “ism”.
Bill, nobody enjoys your essays more than I do, but sometimes your comments are pure nonsense. Your general theory of zombieism is pure nonsense. Besides that, just making money is not the entire purpose of life. Our society has many faults, but mostly our faults are not the faults you complain about. There is nothing wrong with caring about the well-being of our fellow citizens and trying to make a better life for everyone, not just the Ayn Rand diciples of Objectivism, or Me First, last, and always. Stop griping about the Nanny State, and start preaching ethics, morality, and good character to Wall Street. It wasn’t the social safety net that got us in the mess we are in today.
Daily Reckoning Editors,
Please Please Please disable the comments section.
Investorsfriend sthu kthxdie
I like the fact the the OWS peeps are aiming their protest and anger at the moneylenders. Why protest the government? Afterall, politicians are just lackeys for the power barons who control all the wealth. Government didn’t create the mess we are in today, they were only doing as they were told. They were just following orders….
“They set up tests and hurdles…designed to keep the hoi polloi off their tennis courts and out of their businesses.”
This made me spit out my coffee and had me in stitches. So true. It’s not just the rich. I remember some years back in Florida there was a huge hubhub over the need to get a cosmetology license. It seems the hairdressers wanted to keep out competition and thus instituted some ridiculous “licensing” scheme to keep out upstart competitors.
It was not a great piece. It irritated me and made me feel nauseous. There is something emetic about Bill’s smug tone that brings up the bile after a longer piece like this one, which was also rambling and illogical. There is no mention of the banks, which Martin Wolf was particularly talking about. What about the zombification of the banks? Why do we have to impoverish ourselves to dig the bankers out of the hole they dug? Let’s have some competition there too. Why is it so difficult to become a bank? Or an energy company? You can see why there are regulations and licensing in healthcare and legal practice. You need to know what you’re doing. But nobody knows what’s going on in banking, and nobody knows now. That’s why capitalism is failing. It’s not for want of competition, actually. It’s for want of common decency. You can’t just be glib and flippant and bat away people’s protests. There’s plenty wrong with capitalism, and you need to recognise it. Whether or not you think there is enough wrong to change to another system, and not everyone is saying socialism is the only alternative, people are angry about the continuing unfairness of a system they are obliged by dictat to support. Not much longer, if events in Europe go the way a lot of people are predicting.
The Roman elite figured out a long time ago you can keep the lumpenprole quieted with bread and circuses. Today, the modern version of that stategy is unemployment checks and Nascar. When the checks quit coming and someone finally pulls the plug on the boob tube….watch out!
But, zombies love capitalism.
When you've got a room full of 200 oil insiders scratching their heads at current high prices, something's gotta give.
For most investors, it’s weird to think of stocks as their go-to investing option.
The petropoly has bills to pay and setting the price of oil was a simple way to balance their budgets.
Investors don’t seem to care that what's propping up their investments is what will ultimately destroy them: government monetary policy.
For the next decade the energy revolution will be likely confined to the US, displaying the robustness of American entrepreneurship.
Why the Sage of Baltimore’s commentary persists through America’s changing times.
After attending Platt’s oil conference in London I want to relay two important themes you need to know.