01/12/11 Paris, France – There are some activities that are positive sum activities. That is, they are productive. They increase the total of real wealth in a society.
There are other activities that are zero sum activities…or even negative sum activities. War, for example. Excess legal wrangling. Paperwork. Too much time spent in schools. Too much support for the unemployed, the malingerers and the loafers. These things decrease the total of real wealth in a society.
Sometimes people are bright, honest and hardworking. Sometimes they are lazy, shiftless and cunning. They always prefer to get wealth and status by the easiest means possible. In some societies, the best way is by working hard. In others, it is by being clever…becoming a lawyer…a banker…or a government hack.
A new society…or a fresh economy (such as one that has just been flattened by war or hyperinflation)…or a new model for an economy…is generally a wealth-creating society.
A free society is also generally a wealth creating society. People do what they want. If they want wealth, they are free to create it.
But as societies (or economies) age, they become decadent, arthritic, and backward-looking. They shift from wealth creating to wealth shuffling…and then to wealth destroying. They evolve into societies that are more concerned with redistributing wealth than with creating it…more focused on the appearance of wealth creation than with the real thing.
People shift with their societies. When hard work and creativity pays off…they become hardworking and creative. When connections and corruption pays, they are up to the job.
That is true in almost all aspects of the society. Education, for example. In a new or free society people turn to education because they want to learn useful skills…or for the pure love of learning and contemplation. In decadent societies they covet degrees and diplomas – often in such drivel as “communications” and “political science,” not to mention “gender studies” – and count on the paper to get them a cushy job where they don’t really have to do anything. Since everyone believes “education” is such a good thing, there is little resistance to further spending by government and parents – even though the threshold of declining marginal utility for this type of education may have been passed long ago.
This is also true of military spending. A little military spending may be a good thing – it protects the society from outside predators. But “defense” spending soon becomes totemic. Eventually, the decadent state is realizing a net negative return. The private entrepreneur switches from producing work boots at a 10% margin to furnishing the Pentagon with combat boots at a 20% margin. Not only is the productive economy squeezed to support the defense establishment, the over-financed military itself increases the odds of attack by foreign powers…and decreases the real defensive position of the society.
Then, of course, there is the government itself. As Jefferson pointed out, a little of it may be a “necessary evil,” but a lot of it is unnecessary, expensive, and a nuisance. Government does not create wealth. Governments shuffle wealth and stymie it. So, the more government you have, the less wealth-creation you have.
Right now, America is beginning a transition. It is an old, decadent society…headed for bankruptcy…and trying to find a new model. One of the elements of that new model is lower wages. People who thought they should earn $100,000 a year because they have a masters degree are finding that their services are really only worth $9 an hour. More generally, people in the advanced, decadent societies – who are accustomed to earning 10 times as much as a person in China, India or Brazil – look over their shoulders and see the foreigners gaining on them. Americans’ real wages, for example, are likely to be stagnant or falling for many years. Meanwhile wages in emerging markets are likely to double every 10 years or so.
The latest figures from the US show national income still increasing at about 1.5% per year. Nominally. Before inflation. Adjust for the increased cost of energy and food (both of which are moving up fast…some setting new record highs) and the real income of the typical family in the US is actually falling.
Tomorrow, we’ll talk about the role of the Federal Reserve…the banks…and the financial industry…
Stay tuned.
Regards,
Bill Bonner
for The Daily Reckoning
Bill Bonner
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.
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Hmm. Corruption and connections don’t pay in China, Brazil, Indonesia, Russia and all of the other rapidly growing economies? Really? I’ll keep that in mind.
I’m losing track of all the contradictions. Germany a new society? Say what? Is Switzerland going downhill too? How long have they been around?
The bottom line is it is easy to double your income when you have practically nothing to start with. Why bring morality into it? It clouds your view.
Desperation breeds a certain inclination towards productivity, in other words. Hardly an original conclusion, though perhaps put forward in a more socially acceptable way than what what Ted Kaczynski stated in the in the Unabomber Manifesto.
Perhaps Bill is confusing societal decline with something a bit more personal…old age?
Bill is right. All the college kids I know are headed for law school. No one wants to study anything difficult or productive. We are an aging society obsessed with shuffling wealth around rather than producing it.
“Wealth.” Good god give it up. The rat race the maze of cometition, the consumption, The very word productivity needs to be examined. And what is with the global economies? There is excitement that there is a growing middle class in Brazil. Well I guess we don’t need to worry here. Our middle class is disappearing so what our consumers lack to pick up the Brazilians and their middle class will be happy to pick up. What a joke.
Well I can see Bill is not doing anything productive either. He’s saying degrees and diploma’s are worthless. The problem in the US is not because you have degree that’s not worth much or nothing. You can earn a productive degree it’s just that it’s cheaper to produce in the BRIC countries and with the government blessings the job you’re depending to get with your degree is outsourced.
I’m surprised at the negative responses here, I thought this was one of Bill’s better columns. He lays out some basic root level economic truths here. People will only knock themselves out when they have to, they will take advantage of whatever slack they can. I am pretty much that way myself. As far as advanced degrees it seems some are sensitive about the subject. I have worked in software development for 30 years with only a high school diploma, I can tell you a degree has nothing to do with a workers productivity value. A lot of advanced degrees are garnered by unimaginative drones as far as I have seen.
there seem to more comments daily, from peeps who MUST have english for a 2nd language.
weird.
What do you mean by working hard? Traditionally, A man earns the title, a hardworker, if he sweats and toils for the whole day in his small plot of empiry.
Or, in a simple straight forward entity that he work attentively and diligently throughout the day, 365 days without failure.
Things are getting more and more complex.
A huge conglomerate may not place all his eggs in just one basket. Funds may be invested in legal activities, which form the core business or the mainstream activities. Or, subtly, under water and air proof camouflage, funds may be channelled into some hanky-panky businesses, to tap maximum return for the teetering entity’s survival. Under abnormal circumstances, there may emerge an empty sea-shell company which resorts to such tactic inorder to garner the entire entity’s cashflow requirement.
Then, one maybe a doctor with the establishment. He may be proud that he works 365 days a year, to medically treat workers or to save their life. Sound like a divine job. And, of course he work very very hard!
Beware. In the absence of transpancy or a watchful eye, an entity may have a diversified portfolio in the sense that it maybe diversified into legal, illegal, sinful or hanky-panky operations. A well balance fund!
It is up to you to give credit to the doctor. Some may have the opinion that if one work for a crook, no matter how hard or divine he works, still, he ends up as a crookee. The payroll system is thus of crooker crookee relationship. Argument continues and controversy goes into an endless loop.
Physicists long ago found that ‘speed’ was not adequate in application. So, they invented ‘velocity’, speed in correlation with direction. Say, 100mph/East, means that we are speeding 100mph towards east.
Timely enough, economist has to come up with a term to supplement the vocab ‘hardworking’, say, with a rating of 1 to 100. Things such as, 70hardwork/paradise, 30hardwork/hell or 50hardwork/neutral would be more meaningful. Thus, the direction is crystal clear.
Reckoners and reckonees alike. Sorry folks for this time being. Happy in anticipation of the advancing lunar new year.
The idea that governments can not create wealth is obviously false. One of the very first thing that the local government did in my town was to build a road to connect inland farms to a nearby sea port. This greatly increased the land values inland. Another early function of local government was the creation of schools. I can’t even begin to take this post seriously.
This is a proposterous little piece of story-telling about how American working people need to just lump it. Well, we may just lump the likes of the author of this smug piece of claptrap. Weath creation has many parts, and a rich society needs many improbable things, such as gender studies majors and perhaps even smug economists.
This is a lazy piece of writing. Its opinion, there are no facts. It reminds me of an essay I wrote in college that was based on my own thoughts, and no research, and because I wrote well and had reasonable arguments that some could agree with, I was lucky to get a B.
This is pure garbage- his opinion. Proof something. Where are the facts?
Bloviating bloggers are the future of finance
The wealth in the US is being reshuffled alright – from the poor and middle class to the already filthy rich.