The Stain of Democracy

The Bush Administration sees the citizens of Iraq as lost souls, who just need something to believe in…so they bestowed on them democracy – even if they don’t understand what it is they are voting for.

"If only I had been there with my army…I would have taught those Jews a lesson."

Clovis, King of the Franks, recently converted to Christianity…referring to the crucifixion of Christ…and perhaps missing the point.

Our beat, here at the Daily Reckoning, is money. But there was never a dollar made outside the great comedy of human life. For every seller there is a buyer…and for every one of them there is a vast web of sticky connections to everything else under heaven.

So we wander through the by-ways of the public spectacle as if working our way around the bar in a strip club…hoping to see things from a new and revealing angle.

Exporting Democracy: Bigger Is Not Better

What catches our eye today is the reports from the world’s newest and most celebrated democracy – Iraq. We have never been to Iraq and have no particular desire to go. We have heard that it is hard to get a good drink and few places to dance, like many places in Texas or Arkansas. But if you were to listen to columnists such as Thomas L. Friedman and David Brooks, both given space in the International Herald Tribune, you might believe that the world is a much better place today than it was last week. Progress has been made; the Iraqis have voted, they say. Hallelujah.

Maybe it is true. But when you move away from the real, discreet, visible, understandable things of private life…it’s hard to know. As things grow in size and complexity…ignorance and delusion increase by the square of the distance and the cube of the scale. A man may run a small machine shop and have a good idea of what it is worth. But put the company on the Big Board, and you will soon have shareholders 4,000 miles away without a clue. And as the company grows into a huge conglomerate, soon not even the CEO will know what it is worth. He’ll watch the share price along with everyone else.

Likewise, there must be a million frauds and misapprehensions separating the Christianity of the Nazarene from the Catholic Church of the medieval and renaissance eras. And between the democracy of ancient Greece or a New England town meeting and the democracy of modern America or Iraq lay a million scams and false impressions. In both cases, what is lost in substance is replaced with rituals of solemn deceit.

A family might very well take a vote on where to go on vacation. A nation might vote on which flag it will fly over the capitol. In either case, people will get what they want…peacefully, tolerably. Civilization will be undisturbed.

But in Iraq, another form of Evangelical democracy has been thrust upon the local bipeds. On Sunday, they stood in line to vote for people they didn’t know, who would do things they knew not what, and – eventually – put in place a government that, if it holds together, that they probably will not particularly like. What the majority most wants in Iraq, according to press reports, is for the United States to leave. The locals, the Bush Administration has made clear, will not make that decision, no matter how many ballots they cast. And if the government elected by the Iraqis turns out to be disagreeable, as far as we can tell, the Bush Administration reserves the right to make another regime change.

Exporting Democracy: Ignorance, Not Bliss

Voting is supposed to confer legitimacy on the tyranny of the majority. But as democracy moves from the town meeting to the national election, it gathers frauds to it like conmen to insurance claims. So remote is actual power and decision making that the voter no longer has any grasp of it. After a while, not even the majority gets what it wants. In America, for example, what majority wanted a government $55 trillion in the hole?

Like any public spectacle, democracy, is full of the usual humbug. And Iraq’s new democracy seems to have more than usual. It was a "scam," said an editorialist in the International Herald Tribune who seemed to know what he was talking about. One of the largest tribes – the Sunni — boycotted it altogether. And those people who did vote – according to press reports – often didn’t know what they were voting for. They thought they were electing a president (even though no one campaigned for president and most of the candidates on the ballot were completely unknown to voters.)

But so what? America has a faith-based currency. Now it has a faith-based foreign policy as well. We are in the modern age – the 21st century. Everything has changed. Politics have replaced religion. Baghdad has replaced Bethlehem. Humbug is all you can depend on.

When the Romans took Ctesphion, near modern Baghdad, the venture seemed a great success. Thousands of prisoners were taken, who were sold into slavery. The proceeds went back to Rome.

When the Christians took Jerusalem, again, the captives were sold into slavery. That, combined with stealing everything that could be carried off, seemed to make the venture – if not profitable, at least plausible.

America has found no similar way to profit from its Eastern campaign. A few defense contractors, and a handful of Texas oilmen, have made money on the deal. But for the United States as a whole, the project has been a colossal financial drain…with about price tag of about $4,000 per American family so far.

Exporting Democracy: The New Crusade

But it would be a mean-spirited Ebenezer who would count the cost of such an uplifting campaign. This is a Holy Crusade, after all. Fourteen hundred U.S. dead…thousands more Iraqis…$200 billion…is any price too high for the benefits of the ballot box? Our defenders of the faith – George II and Tony I – have launched a crusade of sanctimonious idolatry worthy of the Borgia popes. The Sodoms of anti-democratic infidelity along the Tigris and Euphrates have been attacked…and largely destroyed. "Insurgents," are regarded as a cross between cannibals and the devil himself. They are "evil," says Brooks in The New York Times, no less. Had he lived in an earlier era he might accuse them of sorcery.

Like any crusade, the War in Iraq, has its rituals, its saints, its sacraments, its relics, its holy writs and its holy martyrs.

Last Sunday, Iraqis stood in line to take the sacrament. Instead of marking their foreheads with ashes, as Christians will do next Wednesday, they dipped their fingers in blue ink – as proof that they had come to the holy place and been sanctified. Whatever sins they had committed in that benighted era before the U.S. invasion were cast out. Now they were democrats, solemnly marking their sacred ballots with the sign of the cross.

Thus, the Mesopotamian tribes have been delivered from evil…at least for now.

Elections are hardly new to the Middle East. There was one in Palestine in 1996. In 2000, Egyptians went to the polls. Iranians voted in 2001 and Pakistanis voted in 2002. As it was convenient, the American government recognized the victors…or ignored them. Of course, not too many years ago, it also supported its key men in the region – Saddam Hussein and Usama Bin Laden, neither of whose names appeared on the ballot on Sunday.

The nice thing about elections is that they represent a sort of imperfect progress. Political regimes are voted in and voted out. They are not necessarily any better than those chosen by other means – but at least the regime change is achieved without violence. That is the progress of politics of the last three centuries: force is replaced by fraud.

But in bringing democracy to Iraq at the point of a gun, the Bush Administration seems to have missed the point. Voting is merely the form of a civilized society, not the substance of it. Democracy may be a good thing – but only to the extent it actually compliments the charms of civilized life. It sits on a civilized society like a hat on a pretty girl. It may not be very elegant, but it is generally tolerable. But force the hat on the head of an Islamic fundamentalist …and the whole exercise seems pointless, costly and ridiculous.

But the big day seems to have turned out better than expected. A few people died horrible deaths – but even they were martyrs to the cause of democracy.

"Salim Yacoubi bent over to kiss the purple ink stain on his twin brother’s right index finger, gone cold with death," reports the International Herald Tribune.

"’You can see the finger with which he voted,’ a friend volunteered, as he cast his tearful gaze on the corpse, sprawled across a body washer’s concrete slab. ‘He’s a martyr now.’"

"The stain marked the day the man…exercised his right to a free vote, and the day he paid for that hard-won privilege, with his life."

A neighbor reflected on what Election Day had meant for Iraq:

"We were waiting impatiently for this day so we could finally rid ourselves of all our troubles."

We assume he exaggerated; even the Holy Eucharist promises less.

And now, the orthodoxy of modern democratic faith has been delivered to the Iraqis. The heathens have been converted. They may now save their souls any time they want – simply by dipping their fingers in blue ink and voting.

The holy sacraments have been given.

Saecula saeculorum.


Bill Bonner
The Daily Reckoning

February 04, 2005 — Paris, France

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).

America’s real estate bubble has hit home.

Our oldest son, living in Southern Florida, writes to tell us that he has made a killing.

"We’re going to sell that house for twice what we paid for it two years ago," he writes. This sounds like a profit of 50% per year. But it might have been far more than that. He might have bought the house on with an interest-only adjustable rate mortgage. If it had gone bad, he could have walked away with a small loss. Instead, he will walk away with a huge gain (assuming the property sells, as predicted.)

Like every other sentient being in the Milky Way he is going to leverage up, buying a much more expensive house so that he can make even more money.

Leveraging up is the name of the game in real estate. A man with a $100,000 hovel finds that it is worth $200,000. He then sells to someone who believes it will soon be worth $300,000. Meanwhile, the seller buys a house for $400,000, confident that it will be worth $600,000 in a year or two. Then, he will move up again. Soon, he has a million dollar house – and the same job, where he earns $75,000 per year!

In points North, South and in between, America’s real estate market has hotted up to the point where it is dangerous to touch it. The New York Times reports that buyers are lining up for the chance to clinch a condo deal in Brooklyn. Some bring sleeping bags and spend the night. Being the first in line has its advantages. In one recent development, for example, prices rose during the course of the day by nearly 10%. Now, the condo owners in New York are all millionaires – the average price is said to be $1.29 million!

"People have a belief that’s not true," opined a real estate pro interviewed by the Times, "that you can’t lose money in real estate."

Of course, you can lose money – even in New York. Prices in the Big Apple fell 45% between 1987 and 1995, says the Times. It wasn’t until the year 2000 that they recovered – 13 years after the peak.

But in today’s bubble hysteria memories have grown short. They cannot recall any bust ever in house prices. Yet busts do happen – just like busts in every other market. And some busts can take a very, very long time to reach their end. We keep citing the experience of inner city Baltimore. The primest of real estate at the end of the 19th century…and up until the ’20s…prices slumped in the depression and kept going down, in real terms, for the next 75 years! Only now do they seem to be finally on an upward trend. And inner city Rome, we don’t have detailed price information, but our guess is that prices hit a high during the Reign of Trajan in about 98AD and then slipped for the next 1500 or so years.

Could that happen in New York? Could it happen in Florida? Could it happen in California? Who knows.

But for now, buyers have lost their heads. In New York, they’re said to be bribing agents for a chance to buy into new projects. (We recall Barbara Streisand offering front row seats to brokers in order to get a shot at IPO shares when they went public at the height of the tech bubble in 1999.)

While New York goes gaga over condos, over on the other coast, homebuyers search out humble cottages with million dollar price tags. Sales of houses over $1 million surged 73% in the Bay Area last year, says the local paper. Down in Orange County, too, places over $1 million are the strongest part of the market.

How will it all end? How long can people who earn less money – and whose earnings prospects are dim (they face competition from three billion people who can make things cheaper…and another half a billion who can make them better) – continue to pay higher and higher prices for places to live?

We don’t know. But our advice to Son #1 is simple: Enjoy the party, but don’t stay out too late.

More news, from our team at The Rude Awakening:


Eric Fry, reporting from The World Money Show in Orlando…

"Boric’s impassioned argument failed to convert Denning. Instead, Dan feigned professional courtesy toward his small-cap colleague by conceding the possibility that small caps COULD deliver additional gains in 2005."

Bill Bonner, back in Paris…

*** What else is new? The price of gold has sunk below our buying target. It fell to $418.50. Commodities, generally, are sinking…which makes us think that our guess about the future may, by accident of course, turn out to be correct: America needs a slump. Nature, in her bounteous goodness, is likely to make sure she gets one.

Meanwhile, we buy gold. We don’t know what’s going to happen. But we doubt that it will be good. At least, we doubt it will be good for the owners of million dollar cottages and shares in Google. We could be wrong, of course. But we prefer to be wrong with the jingle of a few gold Napoleons in our pockets.

*** An old friend with a comment:

"Your comment about bribing everybody in Iraq $10,000 brought to mind an analysis somebody once did on the Vietnam War. It concluded that simply BUYING the country acre by acre, city by city, business by business, would have been immensely cheaper, not to mention faster and more humane."

Hmmm. Maybe we could merge the Defense Dept with the National Park Service and turn the whole Middle East into a resort. Worth a thought.

The Daily Reckoning