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Beware the Dumb US Deficit Deniers

Finally, a break to the upside! The Dow up 207 yesterday. Gold up $19.

Our guess is that investors are getting comfortable with the fiscal cliff. They figure Congress will muddle through…that it won’t be so bad, after all. Now that the election is over, Republicans are warming to the idea of a tax hike. Democrats are more ready to compromise too…with a few largely symbolic cuts in social programmes coming.

We doubt that any of this is important…so let’s turn to other matters: we’re turning into a race of morons!

We left off yesterday with an alarming theory from Professor Gerald Crabtree. He thinks we humans are becoming dumber.

‘Professor Gerald Crabtree, who heads a genetics laboratory at Stanford University in California, has put forward the iconoclastic idea that rather than getting cleverer, human intelligence peaked several thousand years ago and from then on there has been a slow decline in our intellectual and emotional abilities.

‘Although we are now surrounded by the technological and medical benefits of a scientific revolution, these have masked an underlying decline in brain power which is set to continue into the future leading to the ultimate dumbing-down of the human species, Professor Crabtree said.

‘His argument is based on the fact that for more than 99 per cent of human evolutionary history, we have lived as hunter-gatherer communities surviving on our wits, leading to big-brained humans. Since the invention of agriculture and cities, however, natural selection on our intellect has effectively stopped and mutations have accumulated in the critical ‘intelligence’ genes.

‘”I would wager that if an average citizen from Athens of 1000BC were to appear suddenly among us, he or she would be among the brightest and most intellectually alive of our colleagues and companions, with a good memory, a broad range of ideas and a clear-sighted view of important issues,’ Professor Crabtree says in a provocative paper published in the journal Trends in Genetics.

‘”Furthermore, I would guess that he or she would be among the most emotionally stable of our friends and colleagues. I would also make this wager for the ancient inhabitants of Africa, Asia, India or the Americas, of perhaps 2,000 to 6,000 years ago,’ Professor Crabtree says.’

Two little words prove that he is right: Thomas Friedman.

But you don’t need to read the New York Times columnist to find evidence of growing imbecility. Even a casual reading of the newspapers brings more examples.

And here is Anatole Kaletsky. There are dumb US deficit deniers. And there are smart US deficit deniers. Kaletsky is one of the smart ones. But even the smart ones make us wonder.

Do deficits really matter? Dick Cheney said they didn’t. Apparently, Ronald Reagan didn’t think they mattered. Today’s big federal debt got its first big growth spurt during Reagan’s first term.

And here comes Kaletsky with a prediction. When the Republicans realise that the only way they can cut the US deficit is by raising taxes, they won’t think deficits matter either.

Kaletsky says that today’s deficits are really nothing to worry about. They’re not that big. And with interest rates so low, they are easily handled.

‘Why are sophisticated investors unmoved by the deficit panic? Because they know that governments, at least outside the eurozone, are nowhere near bankruptcy. In fact, debt levels are not dangerously high. The US government net debt is expected to stabilise at 89 percent of gross domestic product from 2014 to 2017, according to the International Monetary Fund, even if all the Bush tax cuts were extended and without any of the spending cuts assumed in the fiscal cliff.

‘Similar stable debt levels are projected for Germany, France, Italy, Britain and even Spain. Assuming debt levels do stabilise in the range of 85 percent to 100 percent of GDP, these won’t be worryingly high. US national debt peaked at 110 percent of GDP in the late 1940s, and Britain’s was even higher. But nobody worried much about national bankruptcy after World War II – and the confidence proved justified. For the US and Britain both enjoyed their strongest economic performance in the two decades after their deficits peaked at more than 100 percent of GDP.’

Nobody worried about the debt after the war was over for two reasons: first, because the war was over… and second, because public officials meant to pay it off!

Today, the social and security spending goes on and on…and gets bigger. There’s no end in sight. And public officials – urged by people like Kaletsky – have no intention of paying down the debt. Instead, they intend to add to it… and are ready to print money to keep the lights on.

Kaletsky continues:

‘Conservative politicians, opposed in principle to all government, exploited deficits to demand cuts in government spending, while denying that higher taxes could play any role in reducing deficits.

‘But now the tables are turned. After the 6 November US election, deficit phobia no longer implies drastic cutbacks in public spending. Instead, it is becoming the main argument for higher taxes – especially on the rich.

‘Once this becomes obvious, I expect to welcome many Tea Partiers and tax lobbyist to the ranks of deficit deniers.’

He may be right about that. Republicans have been deficit deniers when it suited them. They will be again. Just like Democrats, in other words.

But that doesn’t mean deficits don’t exist… or that they won’t cause a lot of hardship in the future. Kaletsky cleverly notes that governments could reduce their debt substantially just by cancelling what they owe to their own central banks. Good thinking!

The central banks print up money. They use it to buy bonds from the government. Thus does the government ‘borrow’ money that didn’t theretofore exist.

If something seems fishy about that transaction to you, you are already on your way to suspecting that the human race is indeed getting stupider. One hundred years ago, central bankers wouldn’t have stood for it. Neither would the governments and publics they served.

But now we take for granted what we used to take for absurd, stupid and criminal. Central banks print money and pass it off as the real thing. Central governments run deficits of 10% or more of their nation’s GDP and cover it with printing press money. And the man chosen to defend the Bill of Rights tells the New York Times how he personally directs a programme of pre-meditated murder!

How smart is that?

Regards,

Bill Bonner
for The Daily Reckoning Australia

From the Archives…

Why Australia’s Economy is No Economic Wonder
16-11-2012 – Greg Canavan

The Ills of Fractional Reserve Banking
15-11-2012 – Nick Hubble

Avoid the Slaughter: Watch This Key Stock Market Pointer
14-10-2012 – Murray Dawes

Molto Moderato
13-10-2012 – Dan Denning

Vote for an Honest Election: Democracy on eBay
12-10-2012 – Bill Bonner

4 Comments

  1. Janice says:

    Maybe we’re not becoming stupider, just manifesting a preference for burying our heads in the sand – like the ostrich who doesn’t want to trouble itself with problems it cannot solve.

  2. truth and integrity says:

    Crabtree has found this dumbing down through research.
    I have seen this for 10 years now as it became obvious. See previous article comment.
    We have never been in a world where government and finance consist of approximately 60% of workers! Why would producers keep paying exhorbitant amounts to usurer’s. Seen the violence on tv lately? Can this be surpassed? There is war going on between every faction in society around the world.
    Should health or education be funded more? What about defense when riots escalate? Education is dumbing down. My father studied calculus in intermediate 80 years ago! I had 63 students in first year high school 50 years ago and all attended university when only 10% did to become doctors, engineers, professionals, researchers.
    Janice; you bet almost no one can solve problems anymore because they simply can not and have not the ability!.
    I would say .001% are true problem solvers.
    Shall we bury our heads in the sand and die!
    Let us put our priorities in order. Check our spiritual relationship with God and pray for what he wants us to do. Secondly develop a clear mind minimizing contradictions created by mankind. Thirdly make sure we are physically healthy and not obese. Then look after your family, friends and community by work and play.
    How are we traveling?

  3. Janice says:

    Dear Truth & Integrity
    It sounds like you are from my era – way back in “the good old days” when life was more honest and straightforward. By all means let’s do our best – that’s what God would want us to do – but I rather suspect it’s too late now for Him to supervene in human affairs.

  4. Lachlan says:

    God is truth and the truth eventually always stands on its own. Everything else will fail in time.
    ” pray for what he wants us to do.”
    T&I … might add having the courage to then do it also. Many (myself inc of course) have got to the point of knowing but fail to act. In my analyses I have found this is the crunch point but when one crosses over the other side expect amazing times and daily revelations. Life will never be the same.
    In this life there would be no problem if all were personally responsible because nobody would trump their neighbour for fear of poisoning their own happiness. That how you serve the God who resides in your temple. That reminds me of what is so profound about Jesus dying on the cross and maybe why it affects those who look upon it. He became personally responsible. He loved us and told no lie…so we killed him. And he just let it happen. He had fear and emotion but resisted it since he new which side his bread was buttered on. I don’t expect men will ever all emulate that. It just is what it is. A testimony to the truth of our human plight.
    I think Bills world of zombies and liars will continue until it does not anymore… and the those that were meant to will triumph over it when and where they do. I don’t really understand why what or how in the greater scheme. I just know I know. And I know others can and do also. And we must follow the truth to win and know we are forgiven when we sometimes fail.

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