More in Theory Than in Fact

Dear reader,

I return to painting – if only to introduce my method. You’ve heard of ‘taking a broad brush’ to a subject? Well, today, I have gotten out a spray rig – with a wide nozzle. Using this heavy equipment I intend to put a thin gloss over 2000 years of Western history in less time than it would take a Republican congressman to sound out the word so-li-da-ri-ty.

The question on the floor – still lying on the carpet like a smear of cheese dip after last night’s party – is this: why has the idea of laissez-faire economics taken hold in Anglo-saxon countries, but not in the country of its birth?

Yesterday, I reported that French workers were entitled to 4 weeks of vacation. I was wrong.

In 1981, in the name of ‘solidarite,’ the Mitterand government decreed that, henceforth, every French worker would have the right to 5 weeks of paid vacation.

There is no word in English that conveys the sense of the French word ‘solidarite.” Socialists and agit-prop demonstrators occasionally try to use an anglicized version of it – solidarity – but the word has neither meaning nor emotional power in English.

“Solidarite means nothing in French either,” explained a very bourgeois dinner companion a few months ago. “But it is like the word ‘racism’ in English. It is used to shut people up. No politician in France wants to risk being ‘contre’ solidarite.”

What a wonderful world we live in, dear reader. So full of intricate, subtle meaning. So marvelously complex…and so entertaining.

There is no better place for an American to enjoy this fascinating world than in France. You don’t have to listen to people charging one another with being ‘racist’ – a pre- occupation of American politics. Instead, you listen to arguments about ‘solidarite’ – and you are amused.

The French still imagine that they are one people, with one language, inhabiting one distinct place. They may have competing ideas…but their interests are in harmony. What’s good for the truck drivers is good for all Frenchmen. When the drivers went on strike, blocking major highways and causing a 100-mile traffic jam, people were overwhelmingly sympathetic. They felt the need to stay in ‘solidarite’ with the drivers.

America is different. It is a collection of different peoples. We recognize that different groups not only have different ideas, but different interests that compete with one another. Many people might be sympathetic to truckers, but few would feel they had a right to snarl up the entire nation’s highway system. If they have a beef it is with their employers, not with the rest of us. Let them sort it out themselves. Laissez faire.

“Why has the ‘laissez faire’ concept been lost in France?” Mark Skousen asked his audience. “Perhaps it is a question of faith,” he wondered aloud. “Adam Smith’s idea was that things would work themselves out for the public good, guided by ‘an invisible hand.’ Smith was a moral philosopher. He saw the ‘invisible hand’ as the hand of God.”

America has more churchgoers than any other developed nation. It has always had higher levels of religious participation. Looking around the U.S., region by region, the higher the level of church attendance – the more likely the voters are to favor the ‘invisible hand’ of the free market over the iron fist of government. It is rural areas, and especially, the evangelical, super-church regions of the south and southwest that vote for the free-market. With little faith in the ‘invisible hand,’ the Chardonnay drinkers of Manhattan and latte swillers north of the Housatonic look for the hands of Hillary and Jeffords to set their vacation policies.

Before Ceasar, the Roman Republic was a bit like the American Republic before Roosevelt. People took their vacations according to tradition, consensus, the give-and- take of the market, family obligations and so forth. But when the Republic gave way to an empire, the operating principle changed too. Emperors began to determine the character of life by decree. Power shifted from the clans and families of Republican Rome to the tyrants of Imperial Rome.

Neither the Frankish kings, Richelieu nor Napoleon could resist the lure of Roman power. Once a Roman territory, France became a kingdom, a republic, an empire (Napoleon actually crowned himself Emperor in a moment of unparalleled absurdity), and then a republic again. Whatever it called itself, France has always continued in the tradition of Imperial Rome. Paris is the center of power, as was ancient Rome, from which laws and roads radiate outward.

All over France, mothers rock their infants to sleep hoping that their children will do well in school and make it into the few ‘grand ecoles’ in Paris and thence into a government ministry. Perhaps they will help set interest rates…or rig bids for Air France contracts…or determine vacation policies. However much they might retard progress,they will earn a good living and enjoy the feeling of superiority that you get from being ‘inside the beltway’ – at the center of power.

In America, things are not so different. But at least we all know the regulators are morons. And women do not wish a bureaucratic job upon their infants. Instead, they imagine them as respectable professionals – lawyers, doctors, or university professors – or, if they can’t make it into the professions, as successful businessmen.

Yet, in America, the idea of an ‘invisible hand’ is widely known and widely accepted. This is not because more people have read Adam Smith; it is because the intellectual traditions of the U.S. are different.

While Nero and Caligula were proclaiming holidays, persecuting enemies, murdering relatives and destroying the economy…providing bread and circuses to the Roman mobs…and otherwise acting like modern American democrats, the Saxon tribes on the north cost of Germany were already developing a system of evolved rules which would become know as “common law.”

Rather than relying upon a written legal code (such as the Roman law…which was the basis for the Napoleonic Code), common law was an attempt by judges and juries to find the essential principles that allowed people to go about their business without doing too much harm to one another. Once a principle was discovered, subsequent judges would continue to refine it and apply it until it was replaced by a better one. No decrees or edicts…no centers of power…no bureaucrats were necessary.

This common law tradition – in which people decide for themselves when to work and when to take a holiday, or how much to charge for a pound of potatoes, or how high short term interest rates should be – was exported to America, as well as to the other Anglo-Saxon colonies.

‘Tis a pity it exists in today’s America more in theory than in fact.

Your editor,

Bill Bonner
Paris, France
June 1, 2001

To remind you, this section of the Daily Reckoning is written by Eric Fry, editor of Eric has been the guest host on CNN-FN this week, 9:30 – 11 E.S.T. But Eric is becoming a celebrity.

He’ll be appearing on the FOX network’s “Cavuto on Business” show. It is a 1/2 hour roundtable show that appears three times over the weekend. Saturday at 10:30 AM, 6:30 PM and Sunday at 9:30 AM. I am told it appears in the same time slots in each time zone across the country.

*** The stock market correction has been “overdone,” Federal Reserve Bank of Dallas President, Robert McTeer, pronounced yesterday. And we are darn glad to know it. Unfortunately, McTeer provided no specific stock picks or model portfolio by which to profit from the anticipated rally.

*** As if in reaction to McTeer’s “call,” the stock market rallied a bit yesterday. The NASDAQ Composite gained 26 points, or 1.3%. Even after Thursday’s token bounce, the NASDAQ sits about 9% below the level it achieved last week. And lest we forget, the struggling index is still 58% below last year’s all-time high.

*** Lately, the news issuing from the technology sector has been so grim, that not even diehard bulls can ignore it. “Surprising” is the word appearing very often in the latest batch of earnings warnings and cautionary comments from Wall Street analysts.

*** In particular, Sun Microsystems “surprised” Wall Street earlier this week by warning that its earnings for the current quarter would be less than half what most folks had been expecting. But the most surprising thing about Sun Microsystems announcement was that it surprised anybody. Sun’s very own CEO, Scott McNealy, has been complaining for several weeks about the poor “earnings visibility” at his company. Investors simply ignored him.

*** As High Tech Strategist editor, Fred Hickey, wrote two months ago, “While most market strategists, chart technicians and analysts are proclaiming in unison that they see a ‘bottom,’ the CEOs’ most-used phrase today is ‘no visibility.’ The only bottom they see is the bottomless pit into which they are staring.”

*** The Dow gained 39 points yesterday to 10,912 – within hailing distance of the emotionally significant, but fundamentally irrelevant, 11,000-level.

*** McTeer’s comment about the stock market selloff being overdone typifies the new and improved Federal Reserve that has emerged during Chairman Greenspan’s reign. The Greenspan Fed is not as focused on the stability of the banking system or the strength of the currency as its predecessors have been. Rather, Greenspan’s gang devote themselves to micro-managing and cheerleading the economy.

*** And why not? The Fed did such a good job of protecting the value of the dollar – only down 95% since the Fed took up its mission – who is better qualified to manage the economy?

*** Would a national Chapter 11 filing be patriotic? McTeer’s hope for economic growth via debt-driven consumption sounds more idiotic than patriotic.

*** Mitchell Securities bank analyst, Charlie Peabody, points out that even though the Fed is “cutting rates,” not all interest rates are headed lower. Yields are rising for debt maturities that are longer than two years. This state of affairs affects different types of borrowers differently, and the news is not all good.

*** For example, people wishing to take out a new 30-year mortgage on their home will find that rates are higher now – not lower – than when Alan Greenspan begun cutting rates in January.

*** Furthermore, even when applying for mortgages that are tied to one-year rates (which are lower than they were 5 months ago), consumers usually must qualify for these kinds of mortgages based on what their monthly payments would be on a 30-year fixed rate mortgage.

*** Therefore, Peabody concludes, “For every notch that rates rise, some tier of consumer won’t qualify for access to credit, some tier of consumer will buckle under the weight of their rising debt service burdens, and the affordability of housing (as well as the ability to leverage against the value of this asset) will deteriorate. The bottom line is that the consumer’s ability to sustain this economic expansion is in the process of being cut out from underneath him.”

*** The hapless euro fell against the dollar again yesterday. So unrelenting is the euro’s decline that it is becoming monotonous. Financial commentators are running out of reasons to explain its weakness. By the end of the New York trading session the euro had reached a new low for the year of 84.5 cents.

*** BCA Research believes that the euro’s weakness stems directly from the fact that the investment capital flowing out of the euro-zone is much greater than that flowing in. I get it, people are buying the dollar and selling the euro. I guess that explains it…

*** We mentioned a couple days ago in the DR that, thanks to our unofficial recession, travel bargains abound. The reason for the deals is that folks aren’t traveling. To judge from recent stats compiled by Dennis Gartman’s eponymous Gartman Letter, most families will spend their summer vacation in their own backyard, running through the sprinklers and grilling hot dogs.

*** Gartman states that this spring, 17 of the top 25 travel markets in the US report “marked declines” in hotel occupancy rates compared to last year. In New York, occupancy fell to 73.3%, from 84.2% one year ago. San Francisco Bay is even worse – last year’s 85.2% occupancy rates fell sharply to 70.8% this year.

*** Not even the “Happiest Place on Earth” could buck the trend. DisneyWorld occupancy rate fell to 77.8% from 84.5% last year.

*** Greg Weldon, editor of Weldon’s Money Monitor, who brought the Gartman data to our attention, also provided a firsthand report from DisneyWorld. “I can say in no uncertain terms, that while I was there last week, hotels in Orlando were very aggressively advertising discounted rates for the Memorial Day weekend space – with neon signs, billboard ads and repeated radio ads.”

*** Tellingly, Dennis Gartman notes one bright spot: “budget” hotel occupancy rates rose 1.3 percent compared to a 3.5% decline in “luxury” hotel occupancy. Consumer, where art thou?

*** How about this for a darned cheap stock? Tenneco Automotive – maker of name-brand auto parts – has $3.5 billion in revenues… but 73 million in losses… for the 12 months ending March 31st. At the current share price, you could buy the whole company for $110 million. The problem is that the company owes $1.6 billion and is in danger of going bankrupt. It is a “turnaround situation,” says the CEO. Of course, if he succeeds, buyers at today’s prices will do quite well. If he fails, well, forget I mentioned it.

Eric Fry

The Daily Reckoning