Generous Tit For Tat

“We all know deep down inside this it is reciprocity that keeps society going.”

Ken Binmore Is it love or money that makes the world go around?

Maybe it is both.

In almost all primate species the males hunt. The females gather. Men in primitive tribes gain status by hunting big game. The more successful they are, the more affairs they have. Some monkeys are more direct, males returning from the hunt trade meat for sex.

But along the Rue St. Denis, they take cash.

I decided to walk home from work on Wednesday night. We are in a new office in a new part of town. The walk would be an exploration.

The streets are just as packed this time of year as they are in the winter months – but the people are different. Tourists replace locals. And there is less dog poop on the streets. The disgusting little dogs have gone off to the country with their masters.

My route home took me across the Rue St. Denis, where economy-class tourists jostled lowlife locals on the crowded streets. This is not a high rent area. The whores look as though their peak earning years are behind them. One, a woman with legs as straight and skinny as tomato stakes and a body like a sack of potatoes, made a beckoning motion to me as I passed. Ah…the division of labor, I thought. Something for everyone.

“Eeuuwww,” I heard behind me. A pair of Japanese women were practicing the tight French vowel, “u”. But the sound they were making sounded like it came from a duck blind on the lower Chesapeake. It was nice to know that some people have a worse accent than I do.

I continued down the rue St. Jacques. Ahead of me were 3 young men – unmistakeably American. “It was like awesome…” said one, beginning a line of conversation that would go nowhere…”all the like masterpieces…like altogether….I was like…” They had the baggiest shorts I have ever seen, with pockets so big you could take a nap in one of them. And the young men walked in such a loose manner I thought their arms would fly off.

As you go west along the Rue St. Jaques, you are going up market. The women get prettier. The crowds thin out. There are storefronts of Christian Lacroix, Yves St. Laurent, and other fashion moguls. As the rents increase, the displays in store windows thin out. Volume must decline – replaced by thicker margins.

I have been trying to connect the dots – between instinctive behavior, the division of labor, productivity and the price of gold. As the division of labor expands people become more dependent, and more willing to trust, others. They develop an expanding faith in an expanding system… such that they no longer feel the need to protect themselves with their own stocks of grain, or their own stock of money.

Recalling Adam Smith’s dictum that the division of labor would increase with better communications and a bigger market, I wondered how the Internet boosts productivity, expands the marketplace and reduces the need for gold as money.

“Are you kidding,” said Addison, “the Internet isn’t increasing productivity at all. Do you realize how much time it takes to read the Daily Reckoning every day? And there are thousands of readers. We sent the latest one to 27,845 people. You are personally,” Addison pointed his finger at me, “responsible for a big drain on output.”

I was thinking about that, crossing a square near the Louvre, when all of a sudden… a man on roller skates smashed into me, practically knocking me to the ground. He apologized and set off on his way before I could get his license number… But I was ready to forgive anyway; it was an accident. Generous Tit for Tat is the best philosophy.

All along the way, life went on. Buyers met sellers. Lovers walked in each other arms. On the rue de la Colisee, about 8 men stood in various spots – each talking on his cell phone. I wondered if they were talking to each other.

Finally, I stopped for dinner at the Cafe de La Trocadero. Behind me, a woman of about 80, who looked as though she had been very beautiful as recently as a quarter century ago, sat at a table with a younger woman. The older woman was dressed in what looked like a gypsy skirt – a light, multi-colored fabric coming down to the ankles… and a conservative blue sweater. I didn’t get a good look at the younger woman.

But I heard her speak: “So please go on….” she said, “tell me what happened when you went off with your philosophers.” There was something about the way she spoke the word, “philosophers” that made me wonder what meaning to give it. Was she mocking the idea? Were they a rock and roll band with that name?

“Oh,” replied the older woman, “it was wonderful. We had all gone to Corsica. I was deeply in love with Jacques, as I explained to you. I was in love with them all, actually. But there was something special about Jacques. The sun shone so bright every day… I got quite a tan. And we went to a bar every night and stayed almost until dawn. Laughing. Singing.”

“But you know,” she confided, “you can’t do that forever. After a while, something went wrong. Maybe we had had enough. Paul seemed to get very jealous. He stopped painting. And we were out of money. But those were the happiest days of my life. I knew they couldn’t last. And maybe that was why I loved them so.”

Your humble reporter…listening…watching. Taking it all in. Trying to make sense of it.

Bill Bonner

Ouzilly, France August 11, 2000

*** Blah, blah, blah….another blah day. The Dow rose less than 3 points. The Nasdaq fell 93.

*** The price of gold rose a little as the dollar fell a bit against the euro.

*** Who can get excited about this kind of action? Wait…here’s something interesting. The International Herald Tribune headline: US Reports A Surprising 5.3% Gain in Productivity… What makes it especially surprising is that it suggests that productivity is growing faster than GDP. Hmmm…. if output per unit of labor is going up faster than total output, this means that the labor figure must be falling. People must be working less. Do you believe that?

*** “What do the numbers show?” I once asked our accountant when we were considering selling a business to another publisher. “Whatever you want them to show,” he replied, explaining how the complexities of the profit and loss statement could be stretched in a dozen different ways without violation of the accounting profession’s elastic code of ethics.

*** Likewise, the inflation, productivity, and GDP numbers have come to resemble a bricklayer’s tee shirt – so stretched is it from the original garment. Once you allow the idea that output can be determined by what the number stretchers think something should be worth – such as additional units of computer power – rather than what people are actually willing to pay for it… the whole thing is hopeless. Output is imaginary. And productivity – the amount of output per unit of labor – is an illusion too.

*** Meanwhile, back in the Old World, they measure the economy in the old way. “Hedonic” metrics are used only in the U.S. (Though they are sure to catch on elsewhere – accounting fads that obscure the truth are always welcome.) Even with honest measures, Germany is doing pretty well. Unemployment is falling – to its lowest levels in 5 years. Chancellor Shroeder has pushed through a Reaganesque tax cut. And economic activity is reaching such a pace that the central bankers are threatening an increase in interest rates.

*** And in France, things are booming too. President Chirac has said he would like to follow the German’s tax-cut lead. And what Ed Yardeni calls a “stealth New Economy” is producing a “quiet revolution” in the way the country does business. Industrial production is up 4.6%. And the streets are mobbed, even in August, as tourists from all over the globe come to France to spend their money.

*** But pity the poor Japanese. “Clueless in Tokyo,” is how Yardeni puts it. “Rather than jumping aboard the New Economy bullet train,” says the economist best known as the popularizer of Y2K, “they’ve chosen a discredited Keynesian policy mix of profligate fiscal spending with zero interest rates.”

*** What’s wrong with the Japanese anyway? How is it that they are completely cut off from the benefits of the New Era? Doesn’t information technology work on the island? Have they no computers? All the things that Greenspan applauds – innovation, technology, productivity – are they unknown west of the Aleutians?

*** The clueless Japanese save. Americans spend. The U.S. boom owes nothing to the New Era, and everything to the willingness of U.S. consumers to draw down their savings. “Coming from a high of 8.7% of disposable income in 1991, the personal savings rate hit a historical low of 0.6% in the first quarter of 2000,” writes Dr. Kurt Richebacher in his latest letter. “Could this be the way nations prosper?”

*** Perhaps not. But is certainly the way they light a fire under the economy and the stock market. The billions of dollars worth of foregone savings are taken up as additional consumer spending and investing. Business revenues increase. Stocks go up. It has nothing to do with innovation, technology or productivity. Of course, the fire goes out quickly if and when people decide that a dollar to two stashed away might not be a bad thing. That moment may have occurred in the 2nd quarter when, for the first time in many years, savings rates began to rise.

*** Cisco fell more than $4 yesterday. Investors must have come to their senses. It may be a good company. But it’s not a $68 stock.

*** More bad news from the retail sector. Walmart is close to $50 a share. Gap fell almost 15% after a poor earnings announcement.

*** For the third time in a row, all three contestants in the latest WSJ stock-picking contest lost money. The latest results: the pros lost 6.6% of their money over the last 6 months. Journal readers lost 17.3%. And the dart throwers lost 40.2%. It is hard to make money in this market.

*** Sept. crude oil is at $31.34. And AMZN is still fighting to stay above $30.

*** I came back to Ouzilly on the train last night. All the family is now here – all six children… including Sophia, who spent much of the summer in Rye, NY. There’s also Will’s girlfriend, Suzannah. Plus, we have Elizabeth’s brother and his family visiting, with their three little children. What a tribe!

*** We installed a local network on our computers in the Paris office. But when I got back to Ouzilly, I discovered that somehow my normal compuserve system didn’t work. I can’t connect. I am cut off.