Hollow Dummies

Institutions have a way of evolving over time – so much so that one day, no one can remember what the original was like. Bill Bonner examines America’s journey from modest republic – to delusional empire…

Recently, we traveled by train from Poitiers and Paris and found ourselves seated next to Robert Hue, head of the French communist party and a senator representing Val d’Oise. He sat down and pulled out a travel magazine, just as any other traveler would. Aside from one Bolshevik manqué who stopped by to say hello, no one paid any attention. A friend reports that he was on the same train a few months ago with the Prime Minister, Pierre Raffarin, who was accompanied by only a single aide.

Many years ago, when the country was still a modest republic, American presidents were available to almost anyone who wanted to shoot them. Thomas Jefferson went for a walk down Pennsylvania Avenue, alone, and spoke to anyone who came up to him. John Adams used to swim naked in the Potomac. A woman reporter got him to talk to her by sitting on his clothes and refusing to budge.

Empire: Imperial Trappings

But now anyone who wants to see the president must pass have his background checked and pass through a metal detector. The White House staff must approve a reporter before he is allowed into press conferences. And when he travels, America’s head of state does so in imperial style; that is, he moves around protected by hundreds of praetorian guards, sharpshooters on rooftops, and thousands of local centurions. When President Clinton went to China in 1998, he took with him his family, plus "5 Cabinet secretaries, 6 members of Congress, 86 senior aides, 150 civilian staff (doctors, lawyers, secretaries, valets, hairdressers, and so on), 150 military staff (drivers, baggage handlers, snipers, and so on), 150 security personnel, several bomb-sniffing dogs, and many tons of equipment, including 10 armored limousines and the ‘blue goose,’ Clinton’s bulletproof lectern.

"To get the presidential entourage and its vast array of equipment to China and back, the Air Force few 36 airlift missions using Boeing 747, C-141, and C-5 (the largest transport, with a capacity of 145 tons of cargo) aircraft. The cost to DOD of the China trip was $14 million. Indeed, operating Air Force One alone costs over $34,000 an hour.

"While traveling, the President is able to conduct all the functions of the office aboard several specially-built Boeing 747s, which take the call sign Air Force One when the President is aboard. The President travels around Washington in an armored Cadillac limousine, equipped with bullet-proof windows and tires and a self-contained ventilation system in the event of a biological or chemical attack.

"The Secret Service has over 5,000 employees: 2,100 special agents, 1,200 Uniformed Division employees, and 1,700 technical and administrative employees…Everywhere Bush travels, his security is handled with the usual American overkill-thousands of guards and aides, walled-off compounds, tightly scripted movements from one bubble to another. Security was so tight during the visit [Ottawa, Canada in 2004] that some Members of Parliament were refused entry into the building for lack of a special one-time security pass, an act which actually is against the laws of Canada. Americans never hear of the grotesque measures taken when Bush travels abroad. After Bush’s stay at Buckingham Palace in London, the Queen was horrified by the damage done to the Palace grounds. They were left looking like the parking lot at a Walmart two-for-one sale.

President Bush’s trip to London caused considerable wrangling, after the Bush team demanded the right to "shoot to kill" while maintaining diplomatic Immunity to prosecution under British law. The Brits refused.

"The Americans had also wanted to travel with a piece of military hardware called a ‘mini-gun’," reported Martin Bright in the Observer, "which usually forms part of the mobile armoury in the presidential cavalcade. It is fired from a tank and can kill dozens of people. One manufacturer’s description reads: ‘Due to the small caliber of the round, the mini-gun can be used practically anywhere. This is especially helpful during peacekeeping deployments.’"

The mini-gun was not rolled up. Instead, "sterile zones" were created around Whitehall to make sure no one with a grudge got close enough to the president to force a succession issue.

Empire: Institutions Evolve; Ideas Stay Fixed

Institutions have a way of evolving over time. After a few years they no longer resemble the originals. In early 21st century, America is no more like the America of 1776 than the Vatican under the Borgia popes was like Christianity at the time of the Last Supper…or Microsoft in 2005 is like the company Bill Gates started in his garage.

Still, while the institutions evolve, the ideas and theories people have about them tend to remain fixed; it is as if they hadn’t noticed. In America, all the old restraints, inhibitions and modesties of the Old Republic have been blown away by the prevailing winds of empire. In their place has emerged a vainglorious system of conceit, deceit and delusion.

The U.S. Constitution is almost exactly the same document with exactly the same words it had at the beginning. But the words that used to bind and chaff have been turned into soft elastic. The government that couldn’t tax, couldn’t spend and couldn’t regulate can now do anything it wants. The executive has all the power he needs to do practically anything. Congress goes along, like a simpleminded stooge, insisting only that the spoils be spread around. The whole process works so well that a member of Congress has to be found in bed "with a live boy or a dead girl" before he loses public office.

American businesses are still "capitalistic." They operate, as everyone knows, in the most dynamic, most free, and most open economy in the world. But in today’s press comes an article explaining that General Motors will never be able to compete unless it ditches its crushing health care costs. Why does it not just cut the costs? It seems to lack either the nerve or the right. But the author has a solution: nationalize health care! Meanwhile, CEO pay has soared…to the point where the average chief executive in 2000 earned compensation equal to 500 times the average hourly wage. Stockholders, whose money was being squandered, barely said a word. They were still under the illusion that the company was working for them! They had not noticed that the whole institution had been trussed up with so many chains, wires, red tape and complications, it no longer functioned as the freewheeling, moneymaking corporations of the 19th century. Meanwhile, corporations in China – a communist country – had their hands and feet free to eat our lunches and kick our butts.

The whole homeland economy now depends on the savings of poor people on the periphery, or it will fall apart. Americans consume more than they earn. The difference is made up by the kindness of strangers – thrifty Asians whose savings "glut" is recycled into granite counter tops and flat screen TVs all over the U.S.

But these ironies, contradictions and paradoxes hardly disturb the sleep of the imperial race. They have come to be hollow dummies, believing so many absurd things, they can no longer tell the difference. In the fall of 2001, people in Des Moines and Duluth were buying duct tape to protect themselves from terrorist "sleeper cells;" they were ready to believe anything. The Chinese are "manipulating" their currency – by pegging it to the dollar! Real estate never goes down! You can get rich by spending! Savings don’t matter. Deficits don’t matter. Let them sweat, we’ll think!

Empire: The Corruption of Rome

We can’t help but wonder how it will turn out. So we turn to the history of the West’s greatest empire – Rome – for clues. There too, the institutions evolved – and degraded – faster than people’s ideas about them. Romans remembered their Old Republic too…with its rules, institutions, and customs. They still thought that was the way the system was supposed to work; even long after a new system of "consuetudo fraudium" – habitual cheating – had taken hold.

Rome’s system of imperial finance was far more solid than America’s. Rome made its empire pay, by exacting a tribute of about 10% of output from its vassal states. There were few illusions about how the system worked. Rome brought the benefits of pax romana. Subject peoples were expected to pay for it. Most paid without much prompting. In fact, the cost of running the empire was greatly reduced by the cooperation of citizens and subjects. Local notables, who benefited from imperial rule, but who were not directly on the emperor’s pay roles, performed many of the functions that would have been costly. Many functions were "privatized," says Ramsay MacMullen in his "Decline of Rome and the Corruption of Power."

He means that in a variety of ways. Many officials, and even the soldiers stationed in periphery areas used their positions to extort money out of the locals. In this way, the cost of administration and protection was pushed more directly onto the private sector. "Commoda," was the word given to this practice, which apparently became more and more widespread as the empire aged.

MacMullen recalls a typical event:

"From Milan, a certain Palladius, tribune and notary, lest for Carthage in 367. He was charged with investigating accusations of criminal negligence – ‘if you don’t pay me, I won’t help you’ – brought against Romanus, military commandant in Africa. Because of Romanus’s inaction, the area around Tripoli, had suffered attacks by local tribes, without defense from the empire. But the accused was ready for the inquisitor, and when Palladius arrived unexpectedly at military headquarters in the African capital – carrying the officiers’ pay – he was offered…under the table…a considerable bribe. Palladius…accepted it. But he continued his investigations, accompanied by two of the local notables whose complaints had launched the inquiry. He prepared his report to the emperor, telling him that the charges against Romanus were confirmed. But the later threatened to reveal the bribes he had accepted. So Palladius reported to the emperor that the accusations were pure inventions. Romanus was safe. The emperor ordered that the two accusers’ tongues be torn out."

As time went on, the empire came to resemble less and less the Old Republic that had given it birth. The old virtues were replaced with new old vices. Gradually, the troops on the frontier had to depend more and more on their own devices for their support. They had to take up farming! "The effectiveness of the troops was diminished as they became part-time farmers," says MacMullen.

Gradually, the empire had fewer and fewer good troops. In Trajan’s time, the emperor could count on hundreds of thousand of soldiers for his campaigns in Dacia. But by the 4th century, battles were fought with only a few thousand. By the 5th century, these few troops could no longer hold off the barbarians.

The corruption of the empire was complete.

Bill Bonner
The Daily Reckoning

June 10, 2005 — London, England

Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

"Globalization is broken," writes Clyde Prestowitz in the Boston Globe.

"As currently structured, it is undermining U.S. productive capability and becoming unsustainable," he continues. Foreign countries – Asian countries in particular – "follow from policies specifically aimed at accumulating large trade and dollar surpluses as a matter both of stimulating growth from exports and of assuring national economic sovereignty by avoiding dependence on foreign lenders. …"

America’s emphasis is entirely on consumption-led growth. Banks aggressively offer credit cards to students with only part-time jobs. Home equity loans with tax-deductible interest payments are used to pay for vacation trips. Not only does the White House call for tax cuts in wartime, but also tells consumers it’s their patriotic duty to buy more.

Americans at all levels really do believe that debt and deficits don’t matter. "The confluence of America’s consumerism with the strategic, export-led growth policies of many other countries has produced a world with one net consumer, the United States, which now consumes about $700 billion a year more than it produces. All other major economies are net sellers, depending directly or indirectly on U.S.-bound exports for much or all of their growth. Because America consumes more than it makes, it must borrow from abroad to finance its excess consumption. In a kind of vendor finance program, a few foreign central banks provide the financing by buying U.S. Treasury bills and other U.S. assets.

"Thus, globalization has evolved into a kind of pyramid scheme. To maintain global growth, the United States must consume and borrow ever more while foreign banks buy ever more U.S. Treasuries so their producers can export ever more."

Prestowitz goes on to explain why the system is unsustainable, citing all the reasons with which you, dear reader, are all too familiar. Then, he reaches for a solution and falls on his face. "The only way to avoid [a crisis] is to insist that the globalization game be played the same way by all its players. Sure, China needs to revalue, but without other big changes, globalization as we know it will be on life support."

The U.S. empire has matured. As it has grown older, the empire finds itself unable to move as fast as it used to. In the 100-yard dash for profits, U.S. industry limps along, dragging the costs of bread and circuses in the homeland and wars around the periphery. Younger, thinner and more agile Asians sprint ahead. As reported here earlier this week, GM’s announcement – that it will cut 25,000 jobs – came the very same day it was reported that Chinese carmaker Chery Automotive is planning to import 250,000 cars to the U.S. Today, an economist from Michigan noted that each job at GM supported seven other jobs in various sectors throughout the economy. All of those jobs seem to be headed to the Far East.

Mr. Prestowitz seems to imply that the U.S. government – or the states – should give industries incentives to produce export goods. What sort of incentives does he think it would take to match $2 per hour labor rates in China? Or, is he suggesting that Asians be forced to consume as much as Americans? Mr. Prestowitz has noticed the drift of things; but he’s missed the point. Globalization is not broken. The problem is that it is working all too well – it is evening out labor rates between rich countries and poor ones. Real wages in America rose a little more than 10% in the quarter century ending in 2005. In China, they rise that much every year.

Globalization is a huge success. And it is working better all the time. U.S. economists can fiddle with ‘incentives’ all they want; the only way they will stop the effects of globalization is by stopping globalization itself – with trade barriers, taxes, disincentives, and wars. This is the logical next phase of America’s absurd system of imperial finance. Who wants to think so? No one. They prefer to think that there are some policy decisions that could be forced onto Asians, or laws passed by Congress, that would stop the world’s progress.

Alas, almost all thinking in the empire has been distorted by conceit and imperial hallucinations. By the early 21st century, American economists had become the "hollow dummies," Orwell warned against. More below…

More news, from our team at The Rude Awakening:

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Eric Fry, reporting from Manhattan…

"From a podium at the Tony St. Regis hotel in Manhattan yesterday afternoon, corporate insiders from North America’s largest railway companies testified to the booming global demand for commodities and industrial products."

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Bill Bonner, with more views:

*** Ever curious what it’s like at The Daily Reckoning HQ in Baltimore? There was a nice description of the office in the recent New York Times article that we mentioned the other day…although it might ruin our glamorous image…

"The Daily Reckoning is a freewheeling Web site for libertarians, gold bugs and doom enthusiasts of every stripe. Its editorial director is Addison Wiggin, and before we met, I pictured an ‘Addison Wiggin’ as an ancient gold-hoarding Yankee, and the offices of The Daily Reckoning as a cinder-block bunker patrolled by Minutemen. I was wrong on both counts. Wiggin is a sober, black-clad 37-year-old who is active in libertarian circles.

"The Daily Reckoning, meanwhile, is nestled in the lovely Mt. Vernon section of Baltimore, and its interior could pass for any 1990’s dot-com, with a glass-enclosed conference room, exposed brick walls and a couple of nerdy 20-somethings in sneakers and T-shirts."

*** We have been using the figure of $600 billion for the U.S.’s annual trade deficit. We hereby revise the figure to $700 billion, just to stay up with the times.

*** Gold at $426 is tempting. Our buying target was $425. Gold slipped below $425 and stayed there for a week or two. We told you to buy. If you didn’t, don’t come whining to us.

*** "Greenspan faces rough waters," says a Reuters’ piece. We suggest the maestro get a life preserver. But we have little sympathy for the man. The rough waters are largely those that he stirred up himself. He took a deflating tech bubble and recession and turned them into the biggest ECONOMIC bubble America has ever seen. Half the nation seems to count on an impossibility – eternally increasing real estate prices – just to continue spending at the level to which they’ve become accustomed. The Fed’s emergency-level rates misled an entire generation…and even turned Playboy bunnies into real estate speculators. We imagine that there will be no joy in Mudville when the real estate bubble finally pops. If Mr. Greenspan is still around, people are likely to come looking for him – with a warrant or a rope.

*** The children are getting out of school and wondering what to do with themselves. We found a small job for Jules, 17, clerking in a publishing company run by a friend. Maria, 19, still has a few weeks in school. When she gets out she will take a vacation in Turkey…and then join her brother Henry, 14, on the painting crew at home. We have dozens of rusty metal shutters that need to be scraped and painted. Sophia, 22, is looking for something new and different, and is desperate to avoid the painting brigade. After three years in college, she is beginning to think that she would prefer decorative arts or furniture restoration. She’s found a place way up in Dundee, Scotland where she can take a short course. Then, a man in Paris has promised to show her how to do "faux" finishes.

We had always hoped that one of the children might take up plumbing; it would be nice having someone in the family we could call. So far, no takers.