A Political System That Knows Nothing


Clive Palmer will be our local MP by the time you read this. He won by 53 votes and it took one of the longest recounts in recent political history to find that out. We’re leaving the Sunshine Coast for Melbourne on Monday.

There’s nothing worse than a businessman turned politician. Palmer already has to pay tax. Now he’s giving the political system his time as well. What a waste of valuable resources.

Dan Denning reckons you’re best off ignoring the political system as much as you can without getting into trouble. But the political system tends to get the economy into trouble.

The blog Buzzfeed put together a nice little example of this; the British housing market. A bunch of politicians decided they didn’t like urban sprawl, so here’s what happened.

In 1947, the Attlee government introduced the Town and Country Planning Act, which made it illegal to build anything without planning permission.’

Margaret Thatcher’s government stopped councils from building new houses themselves and she made it easier for people to get mortgages. But she didn’t make it much easier for private developers to build new houses on green fields. So all of the new borrowed money just pushed prices up and up.

The same planning laws which stop us from building new houses on fields also stop us building taller buildings in central London.

Put all this together and you get a terrible result. Today, the British housing market is a shambles. Home ownership is at a 25 year low, houses are still ridiculously expensive despite a drop, and mortgage debt is out of control. Instead of solving a problem, politicians simply indebted their entire nation to banks or landlords – take your pick.

In China, the government has pulled off the opposite problem, reports Forbes:

Over the last two years of traveling constantly in China, I can say that I have not seen a single city, town, or hamlet without massive empty housing stock. A colleague, on two trips crossing about 1,500 kilometers overland, said that he was not out of sight of empty buildings even once.‘ 

In short, government involvement in the economy makes a complete mess of things. You end up with oversupply or undersupply.

The same applies to all goods and services. But houses in the UK and China have a special bearing for you. Australia is facing both problems at once. First of all, our property market is ridiculously expensive for the same reasons as in the UK. Supply is restricted:

chart of Australian dwelling construction rate
click to enlarge

Worse still, it’s our resources that went into building all those empty houses in China. At some point, the Chinese will figure out they don’t need more empty buildings. And then who’ll buy Rio and BHP’s dirt?

If the housing bubble pops and China’s construction boom slows, Australia could be in for a serious economic crisis

At least Clive Palmer’s entry into parliament will be amusing. He might ask some awkward questions. There’s plenty to wonder about, after all. Joe Hockey reckons the ‘age of entitlement is over‘. Has a treasurer ever resigned so soon after being elected?

You know a system is in trouble when its leaders point to their own ignorance as an excuse for the failure of their policies. Yesterday we mentioned the NSA phone-tapping the Pope-mobile and German Chancellor Merkel. Half of Europe thinks one is evil and the other half thinks the other is evil. The Americans got confused and tapped both their phones for ‘financial system safety‘ reasons, according to Reuters. Obama denies knowing about it, while his minions claim to have briefed him.

But there are a long list of scandals that government officials around the world claim to know nothing about. They range from failed economic policy, failed military policy, failed law enforcement policy, failed immigration policy, and lots more. The RBA’s Securrency bribes are a local example.

A scathing audit of America’s TARP bailout program is the latest scandal to come from the US. It pointed out that the idea that the government made profits on its various bailout programs is rubbish. The first bailout was simply bailed out by another bailout later on.

Each time another scandal breaks, whoever is in charge goes into Sergeant Schultz mode:’I know nothing. Nothing!’

Sergeant Schultz is a TV character from the show Hogan’s Heroes. He is the guard at a German POW camp which is run by the POWs. Not that Commandant Klink knows it is.

Schultz regularly discovers the POW’s ruses. But is then fooled into thinking he should’ve discovered them so long ago that it is no longer in his interest to discover them as it would expose his previous incompetence. And so he says ‘I know nothing‘ and trundles away exasperated with his failings.

The problem with this mentality is that the ruse continues on. The amount of crashed British airmen, deserting German generals and sexy uncovered French spies that used the camp Luft-Stalag 13 to hide, sabotage and escape would’ve won the Allies the war themselves if they had been real.

For political leaders, Sergeant Schultz’s style of incompetence is costing them the war too. At the moment, the NSA has the headlines. But the failed central planning of the Sergeant Schultzes at the Federal Reserve is going to end badly too. And that means bad news for your investments.

So what is it the economists at the Fed have done? They’ve painted themselves into a corner. Instead of curing the patient, money printing has left him addicted. QE turned out to be heroin instead of a pain killer. Without it, financial markets behave like a drug addict without drugs. With it, they only experience a temporary high and the dosage keeps having to increase. They’re heading for an overdose.

When it happens, politicians will claim they had nothing to do with it. They will say ‘I know nothing’. And so, one by one, everybody in a position of power will realise they really do know nothing.


Nick Hubble+
for The Daily Reckoning Australia

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

Leave a Reply

4 Comments on "A Political System That Knows Nothing"

Notify of

Sort by:   newest | oldest | most voted
slewie the pi-rat
slewie the pi-rat
2 years 11 months ago

Sgt. Hans Schultz | John Banner | TV Land

John Banner was born in Vienna on January 28, 1910. Ironically, because of his accent, this Austrian-Jewish actor spent much of his Hollywood career playing Nazis …

2 years 11 months ago

What do you mean when you say the Hogan’s Hero’s documentary was not real?

2 years 11 months ago

“There’s nothing worse than a businessman turned politician. Palmer already has to pay tax. Now he’s giving the political system his time as well. What a waste of valuable resources.”

Untrue, he is a politician turned businessman (i.e. a Crony). A miner that has never mined, a businessman that has never done any real business. A parasite on society.

2 years 11 months ago

Yere, Thats right, cos there not capable of creating any new wealth.

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au