Wealth And Poverty

My last trip to London reminded me of how much better off we are today than in times past. I was stopped at the security station and patted down so thoroughly I thought I should leave a tip.

“A little further down and to the left…” I mused.

“Ah, thank you.”

Not only are we massaged before boarding the train to Paris, we also have campaign finance reform and a whole New Era in which we can look at dirty pictures in the privacy of our own homes.

Even Ramses II, among the richest and most powerful of the Pharaohs, had none of these things. He lived without the conveniences we take for granted today. When it was hot, he had young, half-naked maidens to fan him with palm fronds. But they were no match for a good Carrier window unit.

Philip of Macedon’s face was reconstructed by scientists — based on reports from the time. It can be seen in a recent issue of “National Geographic.” He looks terrible. One eye is sealed in a ghastly way — after he was struck in the eye by an enemy arrow early in his career. What he would have given that day, I imagine, to have been picked up from the field of battle in a medevac helicopter and whisked to the Shock Trauma unit at Johns Hopkins. The surgeons there take out bullets every night. An arrow would have been a piece of cake.

It is often said that even the poorest of the poor in America today live better than these ancient monarchs did. But the benefit of being rich — apart from the absolute benefits of calories, painless dentistry, surgery, antibiotics and air conditioning — is to be able to feel superior to others. Most of the pleasure comes by way of comparison. And most people do not seem to get a huge ego boost from the knowledge that Ramses II did not have air conditioning, while they do. Instead, they yearn to surpass their neighbors.

Which is getting hard to do. Because all the neighbors have air conditioning now. Even the billionaires are finding it hard to stand out. I do not know Michael Saylor, but I bet he eats pretty much the same food you and I do. He probably wears similar clothes. His car is not too different from yours or mine. Even on vacation, he must find it hard to distance himself from the shoe clerks and other millionaires next door.

What is going on? Well, wealth itself is perhaps reaching a kind of point of diminishing returns.

We have been exploring the nature of wealth. I will tell you now where I am going with this inquiry so you can decide to get off here…or go along for the ride.

I hope to draw out a, uh, richer, more complex view of wealth — based on what I have been able to get out of this research into France’s wealthy families. There’s more to being wealthy, as I hope to show, than just having a lot of money. In fact, having a lot of money …without more…may actually be negative in some ways.

We have seen over the past few weeks that the Law of Diminishing Returns reduces the marginal utility of every additional dollar you earn. So does it reduce the value of every incremental unit of information. Or each additional ton of horse manure that piles up in my yard. Or each excess calorie you consume.

At some point, the extra calories or additional horse manure become worthless. You have all you need. Beyond that point — more is less. You would actually be better off if the additional eclairs and horse apples didn’t exist.

Surplus information — interviews with Al Gore or reruns of Oprah Winfrey — does not make us smarter. It wastes our most limited resource — time — and diminishes our quality of life.

Humans have been on earth for only about 100,000 years. During 99% of that time, wealth for most people meant calories. The more calories you had available to you…the richer you were. The richer you were, the more likely you were to survive and reproduce. Gold jewelry was merely a way of storing calories — because it could be traded for food when the need arose.

The legend of King Midas seems to make the point that even gold becomes toxic if you get too much of it. The poor king with the Midas Touch turned everything into gold — even his own daughter.

Is this a general principle? Have we discovered a new, unnoticed Law that governs the affairs of men? Beyond the point of Diminishing Returns is the Point of Increasing Toxicity. First, things become worthless. Then they become a burden. Even a threat. Could this be true for wealth itself?

Or is it merely a matter of learning how to control your appetite?

More tomorrow…

Your correspondent,

Bill Bonner

Paris, France March 16, 2000

*** Convergence. This was one of my big predictions for this year. That somehow Main Street and Wall Street would at least converge — if not intersect. And that prices of Old Economy stocks and New Economy stocks would move towards one another.

*** After continuing to diverge for the first two and a half months…finally, it’s starting to happen. Some of that money that has been leaving the Old Economy for brighter prospects in the New one decided to pack its bags and go home yesterday. The Dow rose a spectacular 3%. And the Nasdaq fell 3%.

*** What happened? Well, most likely, the New Economy is beginning to disappoint people. They get there and discover that the houses are not built of Godiva chocolate…the public fountains do not bubble with Taittinger champagne…and the streets are not paved with paper money…nor even with gold.

*** The “Forbes Internet Index Exceeds $1 Trillion,” explains the headline on Forbes’ website. This is more than the entire stock market in 1977. Is the Internet really worth as much as everything else…all the cars, planes, houses, nursing homes, soup, nuts and polyester…of a quarter century ago?

*** Banks and Transportation stocks did especially well yesterday. The Transports were boosted by a fall in the price of oil. I don’t know what got into the banks.

*** Mostly, yesterday’s action can be understood as a typical bear market rally. Old Economy stocks have been falling for so long — they were ready for a rally. The A/D ratio shows that breadth finally improved — with 1,914 stocks advancing and 1,121 declining.

*** Meanwhile, it looks more and more as though the final top — the Nasdaq — may have finally rolled over. The Nasdaq has played the important role of “hook” to keep people happy about stocks while the bear did his work on the great majority of shareholders. Now the hook passes to the Dow…where this rally brings renewed hope of higher prices and easy money.

*** The IIX, the Internet average, was down a big 22.8 points yesterday. Eventually these stocks need to be priced for their ability to earn money. There’s no other reason to own stocks over the long haul. As the Internet business matures — the ones that can earn money will endure. Those that can’t will get chucked out of the window on the digital highway. The whole sector will be probably marked down about 95%. Most of the companies — like the auto businesses 100 years ago — will go out of business. Then the values will begin to emerge.

*** Boy, I’m beginning to sound like I know what I’m talking about. Better watch it. “The challenge,” said Bernard Baruch, “is to become more humble as the market moves your way.” I don’t even know if the market is moving “my way” yet. It’s just that this Internet mania looks more and more like a loser to me.

*** An AP news story says that hundreds of investors took to the streets of Athens chanting, “We want our money back,” following losses on the Greek stock market. Sore losers.

*** “Fortune” magazine reports that Priceline.com gave itself credit for $152 million of revenue last year. But the figure really should be only $18 million — because that’s all Priceline.com got from the transactions. The rest went to the real sellers — such as the airlines who use Priceline to help move discounted tickets. This is a little like a newspaper that takes the value of the sales that result from its classifieds rather than the actual advertising income alone. It wouldn’t make any sense for the newspaper — because it cares about profits, not sales figures. But the dot-coms usually have no profits…and trade at remarkable multiples of sales.

*** Margin loans rose 8.9% in February. The total amount of margin loans has increased $83 billion since October of last year — to $265 billion.

*** The kids got an unexpected reprieve from school today. The teachers are on strike. They want more money and more help. Several of them are on a hunger strike.

*** Meanwhile, remember MicroStrategy? Its CEO, Michael Saylor, is in the news again today. The company is worth about $26 billion — for no apparent reason. Which makes Saylor worth about $13 billion…for even less cause. Saylor now says he intends to turn his shallow ideas into actions. He is giving away $100 million to provide “an Ivy League Education on the Net.” He’s going to create a free online university with lectures from the world’s “geniuses and leaders.”

Uh, Michael, the world’s geniuses and leaders already make their ideas available very inexpensively and conveniently…in books. And the last thing people need is lectures from Ivy League professors. How about “Queer Studies & Utopian Vaginas — a Post-Deconstructionist, neo-Lacanian Perpective?” I made that up…but it’s not far from the kind of things leading professors are talking about. The real challenge is not providing access to more and more information — but eliminating bad ideas that take up time and attention.

*** And another frightening item: a report in the “International Herald Tribune says that people are e- mailing the White House to warn against a test at Brookhaven National Laboratory that might have a negative effect on Hillary’s Senate campaign. It seems the scientists are about to try to recreate the conditions of the Big Bang. No, this has nothing to do with Bill and Monica…but with the origin of the Universe. And people are afraid that the test might get out of hand and cause a “world-destroying black hole.”