Wealth, Poverty, and Blithering Idiots

Among the sea of those who are saying the government dropped the ball (in a big way) in the aftermath of Katrina – there is one man who points out that we put way too much faith in American politicians. Read on, and see what the ultimate contrarian has to say…

Politicians and bureaucrats are being wrongly blamed for the New Orleans debacle.

"When government fails," is also the headline of The Economist’s latest piece on the subject. So great was the failure of government, according to The Economist, that it has resulted in, "The shaming of America."

French citizens thought their government should have mounted its own rescue operation – pulling U.S. citizens out by helicopter as it had airlifted out French nationals during recent insurrections and civil wars in Africa.

British papers are appalled; they thought America was a civilized place.

Cuba offered disaster relief. So did Iran, and Honduras, the poorest country in Latin America.

The head of FEMA – a Bush appointee – was described by Maureen Dowd, who ought to know one when she sees one, as a ‘blithering idiot.’ The Economist suggests -attributing it to ‘Bush supporters’ – that New Orleans Mayor Nagin, who is black, " proved more adept at berating the federal government than at implementing the city’s pre-prepared emergency plan." And of course, Bush himself has been portrayed as lackadaisical, incompetent, uncaring and stupid. The debate is about which officials – federal, state or local – are the most incompetent.

Here, uncharacteristically and quixotically, we rush to defend our public officials as we would rush to the aid of drunk trying to find his car keys.

Responding to Hurricane Katrina: A List of Admissions

First, we begin our defense with a long list of admissions. We do not dispute the basic facts. Yes, all of the named – and many more never mentioned -officials are numbskulls. We wouldn’t trust any of them to drain our bathtubs, let alone rescue a city from floodwaters.

Also, we admit that they could have made a better show of it.

In today’s International Herald Tribune, Simon Winchester compared the response of today’s politicians to those 100 years ago.

On April 18, 1906, 400,000 people were in San Francisco – including one of the world’s greatest opera stars – Enrico Caruso – and one of its greatest actors – John Barrymore. At 5:12 AM an earthquake struck the city. Buildings crumbled. Gas lines broke. Electric lines fell. In moments, not only was the city in ruins…it was ablaze.

But it took only moments, too, for the people of San Francisco and the nation to get themselves in gear. Just 153 minutes after the quakes began, soldiers arrived in the city, with bayonets fixed, and presented themselves to the mayor, ready for duty.

"The mayor, who had previously been little more than a puppet of the city’s political machine, ordered the troops to shoot any looters, demanded military dynamite and sappers to clear firebreaks, and requisitioned boats to the Oakland telegraphs office to put the word out over the wires: ‘San Francisco in ruins…our city needs help.’"

"America read those wires and dropped everything…

"By 4AM on April 19th, William Taft, President Theodore Roosevelt’s secretary of war, ordered rescue trains to begin pounding toward the Rockies; one of them, assembled in Virginia, was the longest hospital train every assembled.

"Millions of rations were sped in to the city from Oregon and the Dakotas; within a week virtually every military tent in the Army quartermaster general’s stock was pitched in San Francisco; and within three weeks some 10 percent of America’s standing army was on hand to help the police and firefighters…"

The comparison is damning, we admit it. The New Orleans rescue operation could have been handled by the Three Stooges; it would have been smoother.

Still, "without a theory, the facts are silent," as Friedrich Hayek used to say. And the theory that holds that our Moes, Larrys and Curlys in public office are responsible for the debacle on the bayous is misleading.

Responding to Hurricane Katrina: Thomas Friedman’s Absurd Opinion

And here we would like to call our star witness, the media darling Thomas L. Friedman, not so much because he helps us make our case, but simply because we would like to make fun of him.

We had counted on him for an absurd opinion; he does not disappoint us. In today’s column, Friedman blames our old friend Grover Norquist for the whole mess. Grover likes to say that the conservative agenda ought to be to reduce the size of government to the point where, "we can drown it in the bathtub." Humph! And ah ha! says Friedman, as if he had found the murder weapon with fingerprints on it. Now we see the consequences of George W. Bush’s conservative philosophy: Big government was not there to help people when they really needed it. Typically, Friedman has found the theme that most appeals to the lunkhead masses.

The failure, columnists and foreign governments complain, is not merely that officials bungled the job; of course, they bungled the job. The criticism is deeper than that. It is that America not only fails to protect its poor people, it also fails to lift them up out of poverty so they can protect themselves.

Here too, we concede the basic points of the argument. In fact, we have made this argument many times ourselves. The supply-side revolution was a fraud. Hourly wages have gone nowhere since 1971. The average man earns less per hour today than he did in the Nixon administration. The number of people living, officially, in poverty has increased.

It is also true that American society has congealed between the San Francisco earthquake and the New Orleans flood. Now, there are sub-communities of poor, shiftless, almost helpless people at the bottom in major cities throughout the country. It is harder for these people to leave one class and move up to another than it used to be. According to a recent study, America and Britain have the two most socially static economies in the developed world.

When you go into the houses of these poor people you don’t find proper dinner settings or books with the words of Aristotle underlined. What you find are people with disordered lives and lifestyles more similar to those of Kinshasa or Port au Prince than the Cincinnati suburbs. Their babies are much more likely to die as infants than are mainstream American children; their young men are more likely to die in violence (statistically, it is still safer for a young black man to serve in Iraq than to live in Washington D.C.) and their old people are likely to need public assistance.

All of that is true.

It is also true that politicians and bureaucrats have not only failed to do anything about it, they have actually made the situation worse by targeting tax cuts to the rich, failing to put in place adequate public health and educational systems, and so forth. We not only concede that point, we embellish it, adding that even their efforts to alleviate poverty have increased it.

Friedman, Brooks and other critics maintain that something must be done. But here is where we part company and make our stand against them. What would they ask be done? More of what has been done for the last half century? Who do they expect to do it? The same incompetents who failed to deliver New Orleans from its ordeal, and who have failed to lift the poor out of misery – federal, state, and local officials?

The government needs to do more, they say. Or, as James Galbraith put it, the government, "must be big, demanding, ambitious, and expensive."

Responding to Hurricane Katrina: Big, Expensive and Ambitious

Here, we object.

All governments of the United States – from the beginning of the imperial period during the reign of Theodore Roosevelt to that of George W. Bush – have been big, demanding, ambitious and expensive…some more than others, of course. The federal government has gotten bigger and more ambitious almost every year. In fact, it grew bigger, faster under the ‘conservative’ George W. Bush than it did under the ‘liberal’ William J. Clinton.

It’s not that local officials especially incompetent or corrupt in 2005; officials have always been corrupt and incompetent, especially in Louisiana, where voters appreciate it.

American society is not particularly evil or uncaring, as the European press alleges. The U.S. government announced an imperial War on Poverty nearly 40 years ago. It engaged the enemy in close fighting from Watts to Anacostia. It lost fair and square. If there were a lot of poor people in New Orleans, it wasn’t for lack of spending or effort. It is because there are a lot of people who like being poor; it is easier and more agreeable to many than a disciplined work life.

In other words, it was not for lack of a big, expensive and ambitious government that New Orleans sank. Government is far bigger and far more expensive under the second Bush than it was under the first Roosevelt. Yet, government responded in an exemplary manner to the San Francisco earthquake and in an inept way to the New Orleans flood.

No, dear reader, it is not right to blame the politicians and bureaucrats. But thank God there weren’t more of them.

Bill Bonner
The Daily Reckoning

September 09 , 2005

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).

We read through this morning’s papers and checked the usual websites. If anything important happened yesterday, we can’t find it.

The International Herald Tribune gamely tries to interest readers in the politics of the Ukraine and Germany. We don’t know why we should care. But, oh yes, we are the imperial race; we have to care about everyone’s politics. No sparrow can fall anywhere on the planet without it triggering some sort of alarm in the Pentagon and high-minded humbug in the national press.

In today’s paper alone, we are given "what we should do about it" opinions concerning Egypt, Britain, Asia and the United Nations and New Orleans. On this last problem area, David Brooks has a particularly buffoonish proposal. "Katrina has given the United States an amazing chance to do something serious about urban poverty," he writes. Well, what is it? Brooks suggests we now have a chance to" rebuild a city that wasn’t working.’

Great. Rebuild a city. Get right on it. How? Brooks cites something along the lines of the Clinton administration’s Moving to Opportunity program which would, "Break up zones of concentrated poverty…" He goes on to say, "In the post-Katrina world…we ought to give people who don’t want to move back to New Orleans the means to disperse into middle-class areas nationwide." Right, buy them all houses in the suburbs of Chicago, San Diego and New York. By God, he’s right…that will solve the New Orleans problem!

Who will pay for it? Even if it would improve the lives of those moved, what would it do to the lives from whom the loot to pay for it was stolen? Mr. Brooks is silent.
The British papers, meanwhile, have thrown off their purple burden. They can get down to essential business without having to worry about improving the world.

On the front page of the Daily Express, for example, we find out about "The Baby with two mothers." Having printed the entire headline in large capitals, the poor hacks at the Express had no way to emphasize the word ‘two’ for their dimwitted readers, so they printed it in red!

And over on the cover of the Daily Mirror, the most important thing the editors could find for the front page is a photo of a group of slouching young people. "Cheers… To Our 5 Dead Friends ," is the headline. The poignant story behind the photo is this: Five young people were killed in a car crash. Their friends, dressed in T-shirts and jeans with bellies bulging, bid adieu to their companions by pouring a can of beer out near the scene of the accident.


The only story of much interest is the continuing saga from down below sea level. "If you wanted to kill someone here," said a Louisiana state trooper, "now is the time to do it."

We thought about it for a moment, but we are unable to think of anyone in New Orleans at the moment that we would like to murder. We will have to let the opportunity pass.

In addition to the flood victims, the police are finding people who have been killed by other people. Amid the slosh of bodies, confusion and humbug, it seems as if you could get away with anything.

Soldiers are going door-to-door telling people to get out of town, according to the IHT report. Other stories say that people are being allowed back in the city. But every report we’ve seen agrees on one thing: the flood in New Orleans revealed the incompetence of American officials.

First, more financial news from our friends at The Rude Awakening


Eric Fry, reporting from Wall Street…

"Yesterday afternoon, we dispatched an email to various colleagues, acquaintances and investment gurus to solicit their favorite "Katrina plays." We asked…They answered…"


Bill Bonner, back in London:

*** A note from Dan Denning, reporting from Sin City…

"While I was delighted to be the keynote speaker [at the Gold Conference in Las Vegas] on Wednesday, I have to admit I always look forward to hearing Jim Grant. Jim was Thursday’s keynote, and spoke about ‘Gold: The Quietest Bull Market.’

"’Here we are in the city of dreams at a hotel called the Mirage talking about gold. The Mirage is just the place for a convention of central bankers,’ Grant began.

"’The real gold story is the dollar story. And the entire dollar system is still with us. This is the system by which we Americans spend dollars on goods from Asia. Those dollars never leave the country because our friends in Asia pour them right back into our stocks and bonds, keeping interest rates low and asset prices high."

"’It is,’ said Grant, ‘the sweetest road to leisure since the invention of the weekend. And it’s all going to end. In 1986.’

"Grant was poking fun of himself for having been rather early on calling the demise of the dollar. But can you ever be too early in calling the end of a global currency system? As in investor, I’d rather by early and get out of the dollar while I can than be late and lose everything.

"’In 1906 the San Francisco earthquake became the costliest and deadliest financial disaster in American history,’ Grant told us. ‘It may, in fact, have caused the financial panic of 1907, which led to the clamour for a more ‘elastic’ currency. We have that currency today, and in no small measure due to the creation of the Federal Reserve in 1913.’

"’What will America’s creditors think of us post-Katrina?’ Grant wondered

*** What country has a positive trade balance with China? Germany.

"This is the time to buy Germany," says Sven Lorenz and a growing group of analysts. Prices are low. Profits are rising. The German economy is bottoming out and the country seems on the verge of a major shift towards free-market reform, whether or not the ‘German Maggie Thatcher,’ Angela Merkel, is elected on September 18th.

One of the most appealing ways to invest in Germany is to buy property. While the rest of the world’s property markets have been suffering booms and bubbles, Germany’s houses and business real estate have been going down in price, relative to rents and incomes. According to MoneyWeek magazine, you can get a yield of 8% to 10% on German property.

Berlin is the best city to look for property:a city increasingly favored by artists and entrepreneurs.

*** "Hold on," said a German friend over dinner a few nights ago. "Angela Merkel is no Maggie Thatcher. She is a nice lady, but she doesn’t really know anything. She doesn’t know the difference, for example, between a business’s gross and net.

"And Germany has problems that will not go away readily. Do you know why real estate is cheap? It’s largely because the population is falling. Thirty-five percent of German women now have no children. The average woman has only 1.3 children. That is far below the replacement level, which is 2.1. Even minority groups – the Turks, for example – have birthrates that are not much higher.

"Bismarck began the welfare state in Prussia during the last century. But it was a very modest form of welfare. He started a system of old-age pensions, but you didn’t get any benefits until you were 70 years old. And at the time, the average person only lived to be 47. If we had the same system today, adjusted to today’s life expectancies, you’d have to wait until you were over 100 to get a pension. We could afford that. We can’t afford the system we have now…it’s killing Germany."

*** "I found a house for us to live in," Elizabeth announced yesterday. "It is nothing fancy…just three bedrooms…not far from the school. It’s perfect, except for the rent. But I couldn’t find anything cheaper that was big enough for the family."

"How much?"

"Well, sit down…it’s 1,500 pounds per week…"

"That’s about $10,000 a month…"

"Well, you won’t find anything cheaper…not in that area…"


How do people afford to live in London?

The Daily Reckoning