Who Stole the American Dream?

The nice thing about abstractions, I explained to Elizabeth last night, is that they are elastic. You can stretch them in any direction to hide almost any crime.

Big, abstract ideas provide leverage for the worst crimes of all – allowing deceit, murder, theft, and pomposity on a monumental scale. The common thief steals a little or a lot…but then he goes on his way. If only he had a Big Idea behind him – he could steal from you everyday…and feel morally superior to you all the while.

What brings this to mind is a book on taxes, “The Great American Tax Dodge,” by Donald L. Barlett and James B. Steele.

I first picked up the book at the Dulles Airport bookshop. Imagine my surprise when I found my own name, right there on page 76, described as a “tall, lanky Marylander” with a “flair for bombast.”

I am further described in the book as “‘the brains behind’ the Oxford Club, living in a 19-bedroom chateau three hours south of Paris.”

On all points, the description is false, misleading or irrelevant…I’ve never met the authors in my life. How they know I am ‘tall and lanky,’ I haven’t a clue. But I am hardly the brains behind the Oxford Club. I have very little contact with it. And where did all those bedrooms come from? The authors are off by 50%. And it is not really ‘south of Paris’ any more than, say, New York or Istanbul are ‘south of Paris.’ It is at a lower latitude – but to the west of the city.

“Who are these clowns,” I wondered to myself.

The book jacket tells me: “In ‘The Great American Tax Dodge,’ a book that should infuriate and galvanize citizens everywhere, the best-selling authors of ‘America: What Went Wrong?’ expose the millions of Americans who are dodging their income taxes at every honest taxpayer’s expense. With the clarity, insight and readability that earned them two Pulitzer Prizes, Donald Bartlett and James Steele explain how Americans are cheating like never before and why most are getting away with it.”

The authors’ beef is not really with me. Instead of taking advantage of possible “tax dodges” I file and pay taxes in both the U.S. and France (one of the highest tax countries in the world). I’ll bet I pay more in taxes…and at a higher rate…than they do. Yes, I could probably find ways to cut my tax burden…but money is not everything. I want to live in France and am willing to pay a price to do so.

But that doesn’t mean I don’t notice that I’m being ripped off by two governments on two different continents. I pay a lot of money in taxes, and as far as I can see, I get nothing for it. I don’t take advantage of every tax dodge I meet…but, like beautiful women, I’ve never met one that I didn’t want to. Nor have I ever heard of a tax cheat I didn’t secretly regard as a minor hero.

What bothers Bartlett and Steele is that the Oxford Club tells members how to reduce their taxes. Only a fool would pay more in taxes than he is legally obliged to. (Most Italians and Frenchmen would say that only a fool would pay as much as the law requires.) But – in Bartlett and Steele’s addled book – anyone who tries to protect himself from the taxmen is “a tax cheat.”

Bartlett and Steele’s position is so imbecilic I decided to get a copy of their earlier book, “America: Who Stole the Dream?” to see if a grander look at their oeuvre would help make sense of it.

What I found was more of the same. The earlier book is a “sweeping indictment of the people who run the federal government,” they tell us. What’s the charge? A familiar one: the rich get rich while the poor get (relatively) poorer. There are also the corollary bugaboos – jobs are moving to lower-cost countries, women don’t earn as much as men, and lobbyists influence federal policies.

Did these guys ever have a single thought that wasn’t completely conventional? Did they ever look at the taxes they personally pay and ask where the money went? And if they wanted to give away a third of their incomes to worthwhile causes – did it ever occur to them that they could decide for themselves whom to corrupt with the loot? Instead, their cliches are worn so smooth you could use them as ball bearings.

That is probably the secret of winning Pulitzers – make sure you appeal to the leprous, group-think prejudices of the awards committee…and avoid any real thinking at all costs.

Everybody knows that most government spending is wasted. The War on Poverty…the War on Drugs…the War on this and that – every engagement seems to end in a rout, a stalemate, or a negotiated settlement. “The last successful government program,” said New York mayoral candidate, Jimmy Breslin, “was WWII.” I’m not even sure about that one.

But Bartlett and Steele don’t worry about what actually happens to the stolen money. Like great con men and hack politicians, they cloak their envy and larceny in the accommodating tissue of a Big Idea. In the acknowledgements, Bartlett and Steele thank “all public-spirited individuals who believe, as we do, that in a democracy all citizens should be treated the same.” Fairness is the real issue, they maintain.

One example offered in “Who Stole the Dream?” is that of poor Darlene Speer. She was earning $9 an hour in the sewing department of Harwood Industries of Marion, VA. But the company decided to relocate to Honduras where they could find someone willing to do the work for 48 cents a hour.

We are, of course, meant to feel sorry for Ms. Speer. Her bosses earned a lot and she earned a little. An open and shut case of unfairness, right? But what about the poor woman in Honduras? Fairness, unlike illegal drugs, seems to stop at the Rio Grande.

The author’s second book is concerned that all people don’t pay their fair share of taxes.

But nowhere do they even mention the fundamental unfairness of the progressive tax system: people do not pay the same amounts. Not only do rich people pay more in taxes – they pay tax at higher rates. One man pays $1,000. Another pays $1,000,000.

“Upper-income Americans are exploited like 19th century slaves,” writes Paul Craig Roberts. “The uncapped Medicare tax places the top federal income tax rate at 41.5 percent. Adding in Social Security, excise, state income and sales taxes, and property taxes produces a tax burden in excess of 50 percent.

“The combined tax rate exceeds the burden borne by a medieval serf,” he continues, “the United States has become a tyranny, and it has happened on our watch.”

But that is the nice thing about the banner of Big Ideas – you can stretch the fabric as much as you need to. Fairness can mean anything you want it to mean.

So, who stole the American dream?

Your over-taxed, over-worked and over here correspondent,

Bill Bonner
Paris, France
April 27, 2001

*** The Dow managed to rise 67 points yesterday. The Nasdaq fell 24.

*** But the interesting story may be developing in the gold market. The HUI (a measure of the companies that only mine gold) rose 7%. The XAU – a broader index – rose a similar amount…up 3.11 points to 55.20.

*** Homestake was up 34 cents yesterday – to $6.42, almost twice its price 6 months ago.

*** Gold itself rose $1.90.

*** No, gold is not in a runaway bull market. But the bear has mauled gold for so many years, he might have finally lost interest. The stock market offers so many, much plumper, targets. Maybe gold will be able to crawl away, quietly, while no one is noticing.

*** Is it just a coincidence that gold has been rallying ever since the Fed cut rates? Other curious straws are in the wind: Comex gold supplies dropped for the second straight day, as reported by Weldon’s Metal Monitor. Further, Mr. Weldon notes that the cost of borrowing physical gold for one month jumped from 2.75 percent to 3.5 percent in just one day. Somebody’s buying this stuff.

*** Says veteran gold stockbroker, Michael Martin of R. F. Lafferty, “It wouldn’t surprise me to see gold jump out of here, up $15 to $20 in a single day.” Maybe GATA’s on to something after all. The Business Wire reported “The Gold Antitrust Action Committee (GATA) will reveal proof of the suppression of the gold price by the U.S. and German governments and bullion banks at the GATA African gold summit on May 10 2001, in Durban, South Africa.” If GATA turned out to be correct, the conspiring governments may find themselves in Durban Deep doo-doo.

*** Successful international investor and former Barron’s roundtable member, George Noble, offered several astute observations in a recent issue of Welling@Weeden. Says George, “This is a different sort of downturn than we’ve had in 50 years, one that is destined to destroy the cult of the Fed. The whole new economy is getting a giant margin call…Cutting interest rates and hoping that is going to stimulate PC demand or cellular handset demand or demand for routers or whatever, is like sitting in Japan in 1992 and hoping that if we cut interest rates we can get the price of a Japanese golf club membership back to $1 million. I mean, you’re trying to re-create the bubble.”

*** Noble offers a prediction: “It’s very hard to make money as an investor here…but you want to avoid the new economy like the plague. Usually when you get bubbles bursting, not only do they go back to their lift-off point and to fair value, but you get the excess wiped out and then some. And we aren’t even close.”

*** A chart in Investors Business Daily shows MZM (money of zero maturity…or ‘cash’) rising at a 28% annual, compound rate. Newsletter writer Adrian Van Eck calculates that Greenspan has added $3.25 trillion to the nation’s money supply since he’s been the Fed chief. “Never in the history of America has so much money been created so fast,” writes Van Eck (via Richard Russell), “The result was predictable: A new boom with inflation!”

*** Investors’ Business Daily: “The Fed is pumping more money into the economy than it did during the 1998 Asian meltdown. And why not? Alan Greenspan has to protect his glowing reputation as the best damn Fed chief ever (just ask Bob Woodward). The threat of a Fed-induced recession and the worst bear market in a generation just might take the sheen off. All that money has to go somewhere. In the past, a good chunk went straight into the stock market.

“The upshot is this. Since January 3, the Fed has been cutting interest rates furiously in an effort to get the economy going. These rate cuts are now showing up as an exploding money supply. In the past, a surge in money has meant a lot more economic activity – and sometimes more inflation. Buckle up for the ride.”

*** “Fortunately,” writes James Grant in Forbes, “a risk-averse investor is in the enviable position of not having to guess how fast [the dollar will lose value]…A handful of dividend-paying gold stocks also offers protection against the risk that Alan Greenspan does, in fact, put on his trousers one leg at a time…You might consider, for example, Anglogold common (with an indicated yield of 5.4%) or the original Freeport McMoran gold-denominated preferred (indicated yield, 12.4%). Cheap insurance.”

*** “Four months and 200 federal funds basis points later, signs of the second-half recovery are few and far between,” adds Thomas Lepri of TheStreet.com. “But the Nasdaq’s sharp pickup of recent weeks suggests that investors continue to buy the rebound thesis. That rosy view could set tech stocks up for another sharp fall as evidence continues to mount to the contrary.”

*** The techs are not acting as if they expected a quick recovery. Lucent is laying off 16,000 workers. Motorola 22,000, Nortel 20,000, Ericsson 15,000, Verizon 10,000, Cisco 8,000 and JDS Uniphase another 5…

*** JDS Uniphase added ominously that “it planned to increase automation, particularly at facilities in China.” (How long will it be before the Far East dominates the Info Tech industry?)

*** Old economy companies are also sending employees home. Daimler Chrysler is getting rid of 26,000 workers. Proctor & Gamble is laying off 9,000. Whirlpool 6,000. And J.C. Penny – 5,000.

*** All these layoffs are showing up in the unemployment numbers. Jobless claims for last week totaled 408,000 – well above expectations and the highest level since ’92.

*** But “U.S. Home Sales Surge Despite Slowing Economy,” reports the NY Times. And cars continue to sell reasonably well too…with 17.1 million units moved off the lots in the first quarter. Opines the Dismal Scientist: given the level of layoffs and rising long-term rates, “the current pace is unsustainable.”

*** John Myers…”in the 1930s, when the economy was mired in the Depression – interest rates were barely above zero. Borrowers refused to sign up new credit. Only after World War II and the passing of the Lend-Lease Act did the economy pick up and kick off an era of newfound confidence among borrowers.

“What the economy requires is not just that interest rates be lowered – but that confidence be raised. And that means a continued recovery in stock prices and fewer job layoffs.” Neither look likely any time soon.

*** My apologies to John, I mentioned his website the day before yesterday and provided you with an incorrect link. Try this one:

*** The apartment building on rue Davioud was a little calmer last night. Sophia was in good spirits – and Maria’s tryout for the Chanel ad seemed to have gone well. So Elizabeth and I slipped out and had a little romantic dinner at the Trocadero.

I explained my new philosophy of Essentialism to her…and how it focuses on the problems and opportunities you might actually be able to do something about – that is, those closest to home.

“But how do you know what is essential?” she asked.

“Ah…there’s the rub…”

The Daily Reckoning