What's Wrong With America

“The race goeth not to the swift, nor the battle to the strong. But that’s the best way to bet.”

Jimmy Breslin “Everybody is in such a hurry,” said Mr. DesHais. “But you can’t hurry a good cucumber,” he continued, showing me one of his huge trophies. He was putting them in a shed.

“They’re for seeds for next year. We won’t have to buy many seeds next year. We’ll have our own. We’ll know what we’re getting. And it’s a lot cheaper.”

Mr. DesHais…part-time gardener, sometime philosopher, and full-time dipsomaniac…resists the trends of modern life. He is no fan of the division of labor. No digital man. A good salad, to him, is worth more than a good stock tip. A glass of good, homemade liquor…cannot be valued at all. It is something beyond the money economy – like love and faith.

Mr. DesHais’ traditionalism is thought to be emblematic of Europe’s troubles. Like Mr. DesHais, Europe is widely considered “too rigid” and too conservative to fully benefit from the new technology and the free-spending, easy-innovation ways of America.

In the minds of many Americans, Europe is in a permanent slump…a world that will always be old, with a society that is always on the verge of rigor mortis. America, by contrast, will always be a new world, pullulating with new ideas, and robust energy.

Not that there aren’t troubles in Europe. And not that there aren’t good things happening in the American economy. But the burden of today’s letter is that both are exaggerated.

One of the hints that ‘The Trouble With Europe’ thinking might be overstated is a pair of recent articles in the New York Times. They take up one of Al Gore’s favorite campaign targets – working families – and examine their lives.

‘Working family,’ is of course, a meaningless abstraction. Families don’t work. People work. And the number of families in America without a member who works is not enough to fill a polling booth. Al means people at middle-income levels – who, we discover, seem to have benefited little from the New Economy.

In the last quarter of a century, weekly wages, adjusted for inflation, have fallen 13%. Americans have only been able to maintain their standards of living by putting more family members to work – and by going further into debt.

“Median family income,” reports the NY TIMES, “is likely to pass $47,000,” for 1999. “It was $46,737 in 1998. The gain is small potatoes compared with the most recent high point, $44,974 in 1989, an increase since that year of about $2,000 or 4.5%.”

In the last ten years, in other words, median income is up a paltry 4.5% – not even a half a percent each year. And this is the median. Half the families in America must have done worse.

And even that does not fully describe what has happened. The average poor schlep works a lot harder and longer to get even that measly increase. The Bureau of Labor Statistics reports that the average American works 2 hours more per week than in 1982, a number that is probably distorted to the downside, because more and more women entered the workforce – and many of them are working short hours.

“Twenty years ago,” said a senior economist at the BLS, “you had one person in the household working. Today, you’ve got two. And who goes to the grocery store now? Who takes the check to the bank on the weekend? Who does the dishes after dinner?”

These are the sort of questions Mr. DesHais asks, too. Even without a degree in economics, he wonders whether the rush, rush, rush society is really the big improvement it is believed to be.

“It takes a lot of time to make a good ratatouille,” he told me. “Or to put up all those tomatoes. Oh la la. Did you see all those tomatoes I canned? But then, you have something really good.”

Americans (and Europeans too) work more than ever. You see them on the subway…reading their reports. On airplanes, they work on laptop computers. Even walking down the street, you hear bits and pieces of business conversations…coming from the mouths of men and women who look perfectly sane – yet speak to the air in front of them.

The information age has made it possible for people to work, regardless of the time of day, the place, or the weather. There is no off-season – no idle time waiting for the rain to stop and the fields to dry. No quiet hours around the campfire until the dawn brings a new day of activity.

The Europeans, in their more conservative – and perhaps more socialistic – way, have done much better than Americans. Instead of the bogus productivity increases of the BLS, Euroland has become more productive the old fashioned way – by turning out more real goods and services per hour worked.

“German manufacturing since 1995,” observed Dr. Kurt Richebacher, “accomplished an overall productivity gain of 30%, averaging 6% per year. In East Germany…it was almost 10% per annum.”

How does this compare with America? “Productivity growth in the manufacturing sector, other than high tech, [in America] remains stuck at an unusually low rate of 2% annually, comparing miserably with Germany’s 6% rate.”

Steady improvements in productivity have permitted a steady increase in earnings in Europe, where “real wage rates have virtually doubled,” according to Dr. Richebacher, since 1973. “Just as an aside,” he adds, “the average European has six weeks paid holidays every year, as against two weeks in America.”

Meanwhile, the monetary champions of both Europe and America – the euro and the dollar – battle it out in the currency markets. The betting overwhelmingly favors the dollar. The euro is a long shot…with long odds. Thus, were it able to deliver an unexpected sucker punch to the greenback, investors in the euro would realize a substantial profit.

The odds are set by players who may have the wrong idea. Like soccer crowds and voters – they may be reacting to herd thinking and empty slogans, rather than careful analysis or observation. Thus, they may have gotten the odds wrong.

If the euro were to connect with a good upper cut…or maybe even an old-fashioned haymaker…the next round could be surprising.

Your correspondent…ringside…

Bill Bonner

Paris, France September 19, 2000

P.S. The world economy seems to be slowing…and the dollar is dangerously exposed to collapse. The best investment for the next 6 months might be euro bonds.

*** More bad news from Asia. The Summer of Love is over. The Autumn of Anxiety seems to have begun a couple of days ahead of the calendar.

*** South Korean stocks were off 3% soon after the market opened for business this morning. Then, they bounced back…but remained in negative territory. They’ve lost ground in every trading session in September.

*** Hong Kong stocks were down 2% at noon. And Tokyo stocks are struggling to remain over 16,000. The Nikkei was almost at 40,000 in January of 1990. Here it is, ten years later, and investors are still down more than 50%.

*** During the last 5 of those years, Japan’s interest rates were near zero. But when people lose the urge to borrow, even interest-free loans will be turned down.

*** Meanwhile, back in the USA, the Nasdaq fell 108 points, or 2.83%, yesterday. And the Dow followed in synch, dropping 118 points, or 1.08%.

*** There wee 2,215 stocks declining yesterday – against only 683 advancing. More surprising, the number of new highs dropped to just 92 – while 115 hit new lows. This reverses the trend of recent weeks, in which the number of new highs has outpaced the number of new lows by 2, 3, or even 4 times.

*** The financial media blamed the pullback on surging oil prices…and the slumping euro…both of which are hurting earnings.

*** Oil rose above $37 overnight and is now trading at around $36.73 per barrel. The New Economy may be more efficient in its use of oil per unit of output…but there’s more economic activity all over the world. More cars. More heavy machinery. More power plants. And most of it runs on oil.

*** Inflation-adjusted, that is, compared to the dollar, oil is still pretty reasonable. It has been about $30 a barrel, in yr 2000 dollars, for about 100 years. It’s not too far from there now. But it is a long way from the 1/60th of the Dow that it has averaged for the first 9 decades of the 20th century. The current ratio is 1/310. Either the Dow is much too high. Or the oil price is much too low.

*** A re-adjustment is in order. Most likely, it involves a reduction of the Dow by at least 50%.

*** The Big Techs are becoming less big by the day. Yesterday was not a good day for them. They are trapped in a Kursk from which they can’t escape. The Big Techs aren’t worth their prices. Without the buoyancy of Popular Sensation…they will sink to the bottom.

*** Qualcomm seemed to find an air pocket yesterday. An analyst upgraded it which sent the price up $3.50. But it’s still more than $130 beneath the $200 high it registered in early summer.

*** The dollar rose against the euro. Why do I bother to report it? The dollar always rises against the euro. The French franc is at 7.68 to the dollar. The rent on my Paris apartment has fallen by $500 since last year at this time. If you ever wanted to buy something in Europe – this may be the moment to do it. More below.

*** Al Gore’s top economic advisor said yesterday that he expects the dollar to “tumble” sometime in the next decade. A safe bet.

*** Now Ed Hyman confirms what Dr. Richebacher observed: when stocks go down, so does retail spending. Hyman reports that retail spending seems to track the Nasdaq 100. When stocks are up, consumers spend more.

*** With no savings to speak of, consumers have little margin for error. Most, according to a Bloomberg study, live “paycheck to paycheck.” They have lots of debt – and look to their stock portfolio statements for a measure of their spending power. The stock market really is the economy.

*** So, when stocks go down – expect an immediate downturn in the economy too.

*** Gold dropped $1.90 yesterday. Platinum went up $8.

*** “No matter how the equity markets open this morning… this is not the time or place to ‘buy the dips’,” warns Kevin Klombies our resident expert in ‘inter-market analysis’. “[T]here is an international factor at work more powerful than most will realize.” A sharp decline in share prices – from London to Sao Paulo to Singapore indicates growing worldwide selling pressure…a crisis similar to the Asian Contagion seems to be forming.

*** I’ve been experimenting with various routes on my perambulation home each evening. Last night I walked through the Tuileries garden and then along the river to Trocadero. The chestnut trees are shaped so they form a high wall of green along the riverbank. Lovers strolled arm in arm through the gardens as the soft, evening light of late summer illuminated the yellowing leaves. The French have been working on these gardens for hundreds of years. The effort is paying off.