The Slow Decay of a Healthy Economy

Today, we boldly announce a NEW THEORY about the way the world works.

Yes, dear reader, you are the first to hear it.

But before we get to that, let’s talk about what’s going on in the markets.

Stocks continued shuffling along like zombies…the Dow rose 24 points. But gold shot up to $1,248 – a new record.

Makes you wonder. Inflation is no threat to anyone…at least, not now. The economy is recovering – at least, that’s what everyone says. So why is gold hitting a record high? Something must be wrong.

Something is wrong.

Gold buyers are probably just like us. They’re not sure exactly what is wrong. But they know something is rotten in the state of Denmark. And Greece. And Spain. And New York. And California. In Washington, DC. And in the Gulf of Mexico.

We just had the biggest financial crack-up of all time. Even under ideal conditions, it will take people a long time to rebuild lost savings…to get rid of houses they can’t afford…and to restructure debt they can’t pay. While this restructuring and adjustment is going on, you’d expect the markets to be a little punky.

But instead of letting people get on with it, the zombies have moved in. At first, you hardly notice. An arm here. A leg there. Pretty soon, you’re dead!

The percentage of the economy controlled, guaranteed, or paid for by the government is increasing. Since the feds were already deeply in debt themselves, the only way they could spend more money was by borrowing more. You can’t cure a debt problem by borrowing more money. Net debt is going up. So, there’s something wrong. The economy isn’t recovering… It’s just not possible.

Which brings us back to our new theory…

Many are the ideas about how the world rumbles and trundles along. Most have some sort of dialectic at the center of them…some tension between one thing and another that causes them to oscillate to and fro…some yin and yang of opposing forces, constantly battling it out for control.

Good vs. Evil. Progress vs. Backsliding. The proletariat against the bourgeoisie. The moneyed elite vs. the people. Democracy vs. Totalitarianism. Freedom vs. Slavery.

Here we offer a new and improved theory with a dynamic of its own: the producers vs. the parasites.

Yesterday, we read in the local Washington newspaper that the parasites gained more ground in suburban Maryland. It was a minor issue on a minor page of a minor section of the paper. But that’s the way the parasites work. Little by little…an arm here…a leg there.

In the present instance, people who live in trailer parks can now feed on the people who own the ground beneath their feet. The state government has added a term to their contracts that neither party agreed to. Henceforth, if the trailer park owner wishes to close down his business, he cannot merely honor the terms of his contract with his lessees. He must also pay them off according to a formula decreed by the legislature. Trailer park residents have been zombified.

A bigger illustration can be found on the front page of yesterday’s paper.

BP has agreed to provide the zombies with $20 billion dollars of raw meat:

“BP backs $20 billion spill fund,” says The Financial Times.

BP is a producer. It makes something valuable. In fact, it makes the thing that is the pentagon’s most valuable and most important resource – liquid energy. It does so at a profit, also rewarding all the little old ladies, lonely orphans and rich sons-of-a-gun who own its shares. BP normally pays dividends; those dividends are currently suspended, as BP diverts cash to the spill fund.

Yes, it also makes mistakes, for which it must pay.

But circling BP today is an army of parasites. Zombies who toil not. Neither do they spin. Instead, they file lawsuits and try to get something from the producers without paying for it. BP’s Gulf disaster is a godsend for them. Like a busload of plump English tourists delivered to a bad neighborhood…

The Democrats have always been the recipients of big donations from tort lawyers. Many lawmakers of both parties are lawyers, which is to say they were probably parasites even before they entered public service. It is not surprising that their instincts are the same – to leech onto productive businesses.

Remember the giant tobacco settlement? In 1998, the tobacco companies lay down and opened their veins. A quarter of a trillion dollars was paid out in a huge class action settlement. The money was supposed to go to redress the damage done by smoking. But $19 out of every $20 found its way, instead, into the pockets of the lawyers, the activists, and the bureaucrats. That is to say – the zombies got it.

Will the oil settlement be any different? Not likely. The zombies will take most of it. Much of the rest will be used to turn honest working people into zombies. Instead of finding new work in new areas, for example, Gulf-area residents will be encouraged to stay put and collect checks. If they take up new work, the measure of their ‘damages’ will go down!

Here is our theory: in the beginning, an economy, a business, a nation…or even a family budget…is fresh, clean and dynamic. Over time, little by little, the parasites encrust themselves –like barnacles on a ship. Then, they grow. Eventually, they become as fat as ticks on a hound in the summertime…

At first, they are just nuisances. The economy can support them.

‘The masses want bread? Sure why not. Give them a circus too. And give my lazy brother-in-law a sinecure.’

Gradually, more and more people get their teeth into it. An unnecessary department in a thriving business. A subsidy to one group. A special favor to another. A make-work job…a handout…a bailout… An expense here. An extravagance there…

When things go well, the parasites take more blood. Heck, the economy can afford it. When they go badly, they grab the weakened host and pull it down in a feeding frenzy. BP, are you ready?

They succeed because in most cases it is generally cheaper to go along than to fight.

Without hardly noticing, the living become cooperative zombies too. The cigarette companies become tax collectors for the feds. The oil companies too. Doctors go along with nationalized health care. Teachers get their lifetime tenure. Ordinary citizens stand in line to be inspected at airports, counted by census takers, interrogated by tax collectors. Soon, the whole nation is zombified.

The zombies win. And then…there is collapse, war, revolution, bankruptcy… The zombies are killed off…new life begins.

That’s why the feds fight so hard to prevent a financial collapse. The last thing they want is a fresh, new, healthy economy…

Bill Bonner
for The Daily Reckoning