Bill Bonner

No lobbyist left behind!

That’s the new motto of the whole Washington establishment. Every spending bill has something in it for everybody.

Today is a holiday in America. It’s “Presidents Day,” a day set aside for Americans to honor those who rule over them. Most Americans think of Washington, Lincoln and Roosevelt…but here at The Daily Reckoning we honor America’s truly great presidents – William Henry Harrison, Chester Arthur and Warren Harding – those who didn’t make things worse.

But look on…ye dead chiefs…at what your country has become:

Europe has only 1,800 registered lobbyists. There are 15,000 of them in the US. Most of them probably live in our new neighborhood…getting in our way as we drive around the Beltway…taking our parking places…hogging the tables at Starbucks… The parasites!

The Financial Times reports that companies spent more on lobbying in 2009 than they had the year before. Investment in new plants and equipment fell dramatically. But investment in lobbying rose by 5%.

You don’t need a Ph.D. in political science or economics to figure out why. Returns from lobbying were higher. That is the big shift in the US economy…the final shift.

We’ll come back to this theme in a minute. First, let’s look at what happened on Friday. Just to set the stage…we’re trying to figure out whether the stock market has entered a declining phase. At the beginning of last week, we thought so…by the end of it we weren’t so sure. And on Friday, the evidence was mixed. The Dow fell 46 points, but still ended up for the week. Gold dropped $4.

As to the economy, the evidence was mixed too. Consumer spending rose in January…but consumers are still reluctant to spend. And they don’t have any money to spend anyway…

So let’s return to our Presidents Day theme…

The US economy began as a frontier economy on the tidewater area of the East Coast…with a few big planters, but mostly small farmers, merchants and artisans.

Then came the entrepreneurs with their mills and factories.

Then, a few of the entrepreneurs grew to be captains of industry – the Vanderbilts, Carnegies, and Rockefellers.

When the inventors, founders and innovators died off, their businesses were taken over by corporate managers.

And then the leading corporations shifted their focus, from making things to marketing them. This shift corresponded roughly with the ascendancy of New York over Chicago…and, then after 1980, the focus shifted again – to financing. Wall Street grew rich. Motown – Detroit’s automotive industry – fell into decline. For a while, even the auto businesses made more money financing cars than they made building them.

Finance blew itself up in 2007-2009. Now, there’s a new shift underway…from the private economy to the government. Mommas in the ’20s and ’30s wanted their babies to grow up and go into manufacturing. In the middle of the century, marketing was more rewarding – Madison Avenue was the best address in America. And by the end of the century, the best and the brightest were headed to finance.

Where should bright young grads go now? Well, follow the money…! Where’s the money now? Not in manufacturing…at least not in US-based manufacturing. And not in marketing either – gone are the days of selling soap to big families with big pay raises. How about finance? Forget it. The boom in credit lasted more than 50 years. But who can borrow now? Only the feds. Sure a few big banks will make money by helping the feds raise cash. But the big expansion in consumer credit is over.

Now, government is about the only major industry that is expanding. The feds have the money now. They’re even handing it out. Get in line!

Remember our Daily Reckoning Dictum:

Anyone can make a mistake, but to really make a mess of things you need taxpayer support. Well, now the feds are getting plenty of it…

Over the last decade, federal spending in the US has gone from less than 35% of GDP to well over 40%. In Britain, the increase has been even more dramatic, from about 36% of GDP to nearly 55%.

Not only are the feds taking up a bigger percentage of GDP, they’re also becoming bossier. During the Bush years the federal register recorded 7,000 more pages of new rules.

And, of course…they’re making a monumental mess of things. They’re spending money they don’t have on things no one in his right mind would pay for with his own money.

Want an example? Go to Jonestown, Pennsylvania. They’ve got an airport there that is the envy of travelers everywhere. Lots of airport, in other words…few passengers. That’s because John Murtha – when he was still among the quick – used his power in Congress to build an airport that would be convenient for him…and reward local contractors and unions who had supported him over the years.

Few politicians dug more deeply into the pork barrel than John Murtha. But almost all stick their hands in it. Why else would you bother with the trials and tribulations of ‘public service?’ There’s got to be a payoff that makes it worthwhile, right? Of course, there are a few – like our friend Ron Paul – who are just trying to do the right thing. But for every Ron Paul there must be dozens of Congressmen and federal employees who are in it for the power, the money – or both. (Neither Stalin nor Hitler squeezed much personal wealth from the taxpayer tube. Mao Tse-tung, on the other hand, knew how to live – with plenty of palaces and young women. Most government employees are probably more like Mao than Adolph. That is, they are motivated by money as well as power.)

Have you wondered why the costs of running for public office have soared? That’s obvious too – because the stakes are higher. As the federal budget grows so does the pork that each member of congress can pull out of the barrel.

The number of congressmen is more or less constant (though it grows with population…after a 10-year lag for the census). But the amount of money given out increases…making each congressional seat more lucrative. You can do the math yourself, but the point is – crime pays. At least, for a while…

The trouble with crime is that it only makes the criminals rich. Everyone else gets poorer. That’s the problem in places such as Nigeria and Haiti. Crime pays. Nothing else does. Economists have done studies of this…and, of course, they’ve discovered the obvious. In “high trust” societies, people are wealthier. No wonder; when people know they won’t be ripped off, they accumulate more money.

A high trust society is one where property rights are respected…and where the rules of the game are known…and change very slowly. A change in tax rates, for example, discourages wealth – especially if it comes unexpectedly. So does a change in monetary policy. When people don’t know what to expect from the currency they become reluctant to invest for a long-term payoff. Instead, they invest in lobbying.

For the most part, tax rates haven’t gone up. Instead of taxes, government gets its money from borrowing. The immediate effect is much the same; resources are absorbed out of other sectors of the economy and into the public sector. Once in government service, they are used inefficiently or completely squandered. Result: John Murtha gets an airport…a kid in Brooklyn doesn’t get a bicycle… The long-term effect is unknown…but will almost certainly be unwelcome. The government will eventually be unable to borrow at low rates…and unable to finance its deficits. This will result in default…or hyperinflation…or both. In anticipation, trust in the future will go down…and so will America’s wealth.

That’s why the shift to politics is the FINAL stage of an economy… It is inherently wealth-destroying. In politics the rewards are distributed according to who you know or who you are. What you know and what you can do scarcely matters. Trust declines…because the rules change as wealth is taken away from some and given to others. The incentive to produce new wealth declines. Investments in new capital, new businesses, new innovations and so forth go down. Investments in lobbying go up. The insiders get rich. The rest get poor. And the nation’s wealth declines…along with its economy and its power. This will continue until the political sector blows itself up – either in default, bankruptcy, hyperinflation, revolution or defeat by a foreign power. Then, the cycle can begin again.

Regards,

Bill Bonner,
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • Harry

    I only need to quote from GNE here:

    “U.S. labor market is on the cusp of substantial, sustained positive job growth. And this net jobs creation is coming only two quarters after the end of our deep recession. That’s just one-third of the 21 months it took for job growth to resume after the 2001 recession.

    A jobless recovery? Not this time. Given current trending, the U.S economy will likely add more than 100,000 jobs in February. And the picture looks even better come springtime.”

    -Yet all you do here is ignore the positive news as if it doesn’t exist. Shame on you! Ignoring all the strength and economic growth is misleading and certainly supportive of whatever agenda you’re trying to push.

    It’s President’s Day. Let’s pay some respect to the strength of our leaders and the amazing job President Obama has done (with Bernanke, of course) in turning this economy swiftly and putting people back to work.

  • Glad Itsa Holiday

    Let see, when the S&P and AAPL are up Harry talks specifics.
    When they are down we get generalities like, “Let’s pay some respect to the strength of our leaders and the amazing job President Obama has done (with Bernanke, of course) in turning this economy swiftly and putting people back to work.”

    Have you considered a career in politics, my friend?

  • Harry

    SPX was at 666 last March and is no 1070+. AAPL was at 80 and is now 200+. It’s beyond hysterical how doomers get excited about a 9% pullback after a 60-100% run!

    Get real!

  • http://www.eparent.com Matt

    Bill, its JOHNSTOWN not Jonestown…I know because my office is based there..just an FYI

  • Lost & Found

    Great article, Bill, I learned a lot today. Thanks. Unfortuantely, the borrowing of the government can go on a long, long, long, loooooooooooooooooooooooooooooonnnnnng time. If the lenders were contrained to US territory, things were different, but they are not.
    And Harry: shame on you. Just because.

  • Lost & Found

    Constrained

  • Scooter

    Dear Bill,

    Another great article.

    One point often overlooked in the decline of America is that she gave up on Protective Tariffs (which brought her to greatness, 1789 – 1950).

    With the doctrine of Free Trade advanced by both parties since about 1950, America’s industries have been crippled by the flood of cheap imports.

    This is why America went ‘corporate': Owners began investing overseas so as to stay in business. Meanwhile, America’s industrial base has declined.

    If America would restore protective tariffs once again, people would invest here, and Americans would be put to work once again.

  • Daniel Miller

    I’ll short AAPL any F*@&KING day of the week Harry.

    Hope you bought it when it was $20, ’cause it’s going back there.

    Are you really ignorant Harry, of the fact that never in human history have we gone UP in employment by 5 percentage points in less than three years (other than in WWII, which I’m sure your heroes are working on a successor to)? And even going up by 5%, our unemployment would still be over 10% because DoL doesn’t report people who have been out of work since the Fed and Treasury and Congress created this depression more than 2 years ago.

    Oh, and the only Presidents I respect are the ones that do the decent thing and die in office. Fed heads, too.

  • Harry

    Daniel Miller: You represent Bill’s erroneous reasoning as well. We know, from the quote above, that employment is getting better. Now, Bill can’t seem to figure out if inflation or deflation will get the better of us. Well, if you believe either will take hold, and I strongly doubt it, then equities is where you would want to be.

    Shorting the market here, especially a company as strong as AAPL, is naive at best and idiotic at worst.

  • Lost & Found

    Hey Harry, you remind me somehow of the great comedian Jerry Lewis. Do you look and act like he did in his films when you are formulating your answers in this blog? No offense meant. Just curious. Really.

  • Lost & Found

    Also a little bit Charlie Chaplin when he mimiques Adolf H. in The Great Dictator.

  • JMR bayou bobby

    “Then, the cycle can begin again.”
    _________________________________

    Yay! I live for the day.

  • http://www.eparent.com Matt

    I feel bad for that kid in Brooklyn.

  • Happy

    Boy, you guys are really hardon Harry.

    I like Harry’s stories, they make me feel good as I listen to construction workers scrambling for work, hearing from day-laborers who cannot afford to stay in the US, teachers that can’t find jobs, schools that cook up BS charges against teachers to get them to agree to pay cuts, postal workers getting their hours cut back/no promotions/no hope of getting fulltime work, telecom workers hopelessly unemployed, carpenters going interstate to take on work projects, unions opening contracts and agreeing to accept lower wages, the trucking/transportation numbers in the basement… darnit! Harry makes me feel good about this depression, and then you guys come along and start dumping all this bad news. I don’t know… even if he’s wrong about employment picking up, it sure is nice to hear some happy.

  • TRR

    “The number of congressmen is more or less constant (though it grows with population…after a 10-year lag for the census).”

    Umm…the number of congressmen does stay constant, the census only shifts their origin from state to state based on population changes.

  • Harry

    Empire number knocked it out of the park! No growth?? LOL! Hop on the equities train now. Greece out of the way and strong numbers at home equals a very, very strong stock market!

  • sierra

    You’ve all made my day!!

    I was “down” until Harry wrote; then “up” until “Happy” threw cold water on the party!!!!

    Yuck!!

  • http://SJ Stephen Johnson

    I don’t get it. . .

    Agora sells their investment opinions to those of us looking for guidance in creating wealth and all their Newsletters tease of making BIG money investing.

    However, after reading most of their authors and their daily articles, I’m less inclined to invest and more inclined to buy guns, ammo, dry goods, go into hiding, cling to God and wait for the country and the rest of world to collapse.

    My question is, why would I invest in any of Agora’s suggestions or anything for that matter when they claim?:
    -The world is coming to an end
    -All governments are run by idiots
    -The only good guy is Ron Paul
    -Gold is the only “safe” investment
    -Most of Agora’s portfolios currently report more losers then winners
    -Interest rates are so low that we’re now looking at a Bond bubble once rates go up
    -My house is a bad investment
    -Stock are falling out of bed as of the first of the year
    -Taxes are going to go through the roof due to all the debt
    -Even IRAs aren’t safe from the reach of the government
    -The government will run and own everything by the time Obama leaves office
    -Pending hyper inflation will destroy any wealth we do have and crush the economy
    And to cap it all off, in the end (when it does come), all my hard earned money will be worthless anyway

    I guess this is why they call it a “Depression”

  • Slingblade

    In answer to Stephen, I would say that I only read Agora because I trust where they are coming from BECAUSE they will tell it’s bad and getting worse.

    But I think anyone is a FOOL right now if they’re not stocking up on food and arms and a quick way out of the country to a safe haven.

  • http://www.agorafinancial.com Addison Wiggin

    Stephen,

    Unfortunately you’re not reading very closely. If you gathered 15 Agora writers in a room, which we do during our editorial meetings, you’d learn that they rarely agree on a single idea, theme or suggestion. Our annual symposium in Vancouver is a real hootenanny, too. Fact is, they writers a nappy headed bunch. But we like it that way. We don’t know where the next best idea is going to come from, so we encourage independent thinking. What you appear to be reacting to is the fact that not a single one of the writers in our stable will suckle up to mainstream opinion.

    Neither must you be a subscriber to any of the services. Sure, some of the open positions in the editors portfolios are down. What would investing be if you didn’t take risks? Covering the markets from small caps to resource companies, short plays, options and breakthrough technologies, we’re bound to make mistakes. But we’re also willing to stack our advice up against any investment advisor you talk to from your local shop up to the largest investment house on Wall Street.

    The world isn’t coming to an end. Just the world as you have known it. You can do what you like with our advice. And, yes, buy gold as insurance. Or silver.

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