America and its Intellectual and Political Elite Are Too Busy to Stop and Think

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The news this morning tells us that markets are rising. Investors are bullish because China’s exports are recovering, says the new analysis.

Meanwhile, celebrated short-seller Jim Chanos says China is going to blow up. It’s going to be “Dubai times 1,000,” he says.

Our old friend Jim Rogers disagrees. He thinks Chanos hasn’t looked long enough or deeply enough into the China story. He thinks China is a buy.

And what do we think?

We don’t think. We listen:

“Something like 50% of Chinese economic growth – if you can believe the numbers – is based on capital investment,” said a dinner companion last week. “You can’t invest that kind of money without making some pretty major mistakes.”

If we were forced to bet on it…we’d bet that Chanos is right. We don’t know anything about China or the Chinese economy. But you don’t go from third-world communist hellhole to the world’s second major economy without some serious bust-ups…especially when the communists are still in control.

Barely had we touched down in the USA than we were invited to a dinner party in Georgetown. In keeping with the Chatham House Rules, we won’t mention any names, but we were in distinguished company. These were America’s elite of movers and shakers, ambassadors, lawyers, policymakers, people who reflect and shape the opinions – and actions – of the US empire.

We were invited to answer questions; instead, we asked them.

We began by mentioning the failure of the economics profession. Never had an unarmed group done more damage to the wealth of a society, we suggested. Economists helped create a huge bubble, ignored it until it blew up, and then gave the wrong advice about how to fix it. Bailouts and boondoggles were all they had to offer.

But wait a minute, said a fellow diner: ‘I’m an economist…we couldn’t let the whole banking system collapse.’

“Why not?” we asked.

‘Because unemployment would go up to 14% or more…’

“How do you know what the proper rate of employment should be?” we wanted to know.

‘But you can’t just ignore people when they are out of work…and you can’t ignore an economy when it goes into a depression, can you?’

“Why not?” we repeated our first question.

What we notice in our brush with America’s intellectual and political elite is that they are very smart, very well informed, but too busy to stop and think.

They are thinkers. They are always thinking about what to do. But they cannot afford to think radically…about why they should do anything at all. If they did, they would be as marginalized as we are… How much more fun it must be to be at the center of power…pulling the levers…turning the knobs…making the world a better place!

The presumption of all elites is that they can do a better job of running things than people who are less well educated, less informed, or less intelligent. In a sense, this is obviously true. In the administration of commonly held assets, for example – such as a municipal sewage-treatment plant…or an art collection – a person with taste, culture and education is likely to do a better job than a numbskull. (We admit that even this is a dubious assertion…but we will presume it is true for the sake of this argument…)

But the elites go a major step further…they claim to be able to do a better job of administering privately held assets too…things that belong to other people.

Take the Cash for Clunker program. Auto sales went down. But so what? How many cars SHOULD be bought and sold? Nobody knows. And it’s really not for anyone to say…other than the buyers and sellers themselves. But the elite think they know better.

The fellow with an old pick-up truck may have judged his truck good for another six months of service. But with the lure of a federal bribe before him, he junked the truck six months early. Any sensible person can see that this is a waste. A valuable asset has been lost – six months of truck service.

But the elite economist thinks he has saved the auto industry. Because the “demand for trucks has been stimulated.” Jobs have been saved. Detroit has been given a boost.

What kind of nonsense is this? Not only have useful resources been sent to the scrap heap prematurely, but the auto industry has been given a bum steer, too. Resources from all over the economy – steel, oil, labor, electronics – have been diverted to the auto industry, on the basis of ‘demand’ that only exists because of federal money. The laid- off autoworker is a victim too. He might have been considering turning to another trade…instead, called back to work by the Cash for Clunkers program, he shelves his plans for retraining and relocation. He thinks Detroit is making a comeback. How disappointed he will be when the phony demand disappears!

And where did the federal money come from? It had to come from somewhere. In the event, it was borrowed from lenders who would otherwise have lent it to someone else. We don’t know what the other borrower would have done with it, but no matter what it was, it could be expected to produce a net benefit, one way or another, to the economy.

Regards,

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. Bill, the paragraph beginning “We began by mentioning the failure of the economics profession….” is not really correct. Not all economists failed to see the bubble as seen by Keen in Australia and Ruobini in the US. Then there are the people who made money on the collapse etc…

    If you want to point a finger of blame how about pointing it at the media? Why is it that only one side of the story is put forward in main stream media? For instance, ‘Property set to soar’ but then no mention of the increasing debt burdens or costs of maintaining a property etc…

    Its as if main stream media also have lobbyists like the government and only certain people’s views are allowed to be broadcast, i.e. property bulls who all seem to have vested interests like Westpac economists or Chris Joye at Rismark

    So was it a failure of the economics profession or a failure of the media to present both sides of the story?

    Reply
  2. How about failure of people who voted for idiot politicians? Or people who believe what mainstream media shovels at them? Or a million other things..

    Look back far enough and its anyone and everyone’s fault.

    Unpopular Truth
    January 13, 2010
    Reply
  3. I think we’re playing the “blame somebody” game or in my mind, “I’m a poor blameless victim”. My opinion is everyone played as long as money was being made. When things were up and roaring, anyone with a contrarian point of view was laughed at. As far as I can tell, the predominate thought now is “how can we get it going again?”. In spite of record debt levels everywhere, the stock market booms, Christmas was respectable (meaning debt levels continue to climb), many states near the land of bankruptcy, hundreds of billions of off the balance sheet toxic assets and a host of other problems, Americans are plunging happily on without a clue. I live in a rural area but the people I talk with scarcely know what the word finance means. It simply is not a topic of discussion other than the bitching about whatever topic the nightly news (Fox) tells them to complain about. I did not think it could happen but I’m starting to think “we’re off again”.

    Reply
  4. It’s a lack of long term memory. When the economic pain has been forgotten, or a generation has passed, mistakes, or intentional obscene risk is taken. I am reading the book ” A world in debt” by Freeman Tilden. It may as well be written in 2013, but was written at the height of the depression and published in 1935.

    Becauseicare2
    January 15, 2010
    Reply

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