Americans Used Their Economic Freedom to Ruin Themselves

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A good flim flam needs a good mountebank and a good mark. Two weeks ago, we pointed out that Wall Street was full of bright cads and dull sharks. Then, last week, we showed that conceited humbuggers run the central banks. Today, it is the politicians we come, not to bury, but to praise. They did their work well; they set up the marks.

The two great political figures of the last thirty years were Mrs. Thatcher and Mr. Reagan. These titans from the two sides of the Atlantic led the way to a new idea of how the world should work. Thenceforth, capitalism was king. But it was a new kind of capitalism they had crowned, one with a strange, unnatural face. It was not the old free enterprise, king of the jungle, red in tooth and claw. This new capitalism was more like the owner of a pet shop, where all the animals were cute and cuddly – and didn’t eat the customers.

Mrs. Thatcher and Mr. Reagan and their followers had seen how centrally planned economies worked; the Chinese and Russians showed what happened when bureaucrats ran an economy. The free market seemed like the best alternative. But the trouble was, these new ‘conservatives’ had no real respect for it. Instead of quaking before it in genuine fear and awe, like Moses before the burning bush, they began to believe that they could be its master. Then, they developed a whole host of fantasies about what this tamed beast could do for them.

Not only could the free market solve the problem of poverty, it could solve almost every other problem too. It was a social panacea. Just look at the wealthy countries, they said. Switzerland is clean and prosperous. By contrast, communist China is a dump. People are healthier and happier in capitalist countries, where they have better automobiles and lower birthrates. Science, supported by the free market, would find cures to diseases too…and even help people live longer. The logic was simple enough: free enterprise made people rich. And with their money, they could do wonders – cleaning up the factories, building hospitals and clinics, organizing public day care and Pilates classes…even getting rid of smoking!

Nothing was too absurd or contradictory for the True Believers. Gradually, they began to confuse the fruit with the tree…and then mistake the tree for a lamppost. Financial incentives were thought to be the key to everything. If an executive failed to maximize shareholder value, it was because his bonus was not large enough. If students showed poor test results, it was because teachers were paid by the job, not by the outcome. And if terrorists attacked a building in New York, it was because they lacked financial opportunities in Cairo. (Later, people were dumbfounded when doctors who had worked for the National Health Service tried to blow up cars in Glasgow and London.)

The ideas were slippery but they greased the skids. Soon, the marks were ready to go along with anything. Shareholders consented to hundreds of millions in bonuses and stock options for key executives. Investors signed up for hedge funds, willingly giving managers “2% and 20%” for putting quarters in the slot machine for them. Taxpayers allowed huge tax cuts – widely believed to be aiding the wealthy – because they looked forward to the day when they would be wealthy too. And almost everyone, everywhere eagerly went on a spending spree, in the belief that this new, kindler, gentler capitalism would add wealth faster than they could get rid of it. And if they overspent, hyper-capitalism would soon catch up.

In public finance, this delusion led to Dick Cheney’s famous quip: “Deficits don’t matter.” This, in turn, led to the greatest explosion of government red ink the planet had ever seen. During the first seven years of the George W. Bush administration, about $20 trillion was added to the U.S. ‘financing gap’ – more than under all America’s other presidents put together.

What was good for the top was good for the bottom. Private households, too, ran deficits of their own. Savings rates fell close to zero while U.S. household debt rose from less than $2 trillion in the first year of the Reagan administration to nearly $13 trillion in the 6th year of the present administration.

In Britain the story is about the same. Before the Thatcher revolution, household debt was about 65% of household income. By 1988, it had reached 100%. And by 2007, it was more than 150%.

When a consumer spends a dollar he earned, it is taken in as income to the businesses that receive it. But it offset by a cost too – a wage expense. But if the consumer spends a borrowed dollar, it comes to business like manna from heaven, with no balancing wage cost. Higher profits, greater leverage, more debt – it was all catnip to Wall Street. Financial assets were only 4.5 times GDP in 1980. Now they are 10 times as large. But that is nothing compared to the sugary confections of the credit industry. Credit default swaps, alone, are said to be worth $45 trillion.

The earnings of the financial sector equaled only 10% of total corporate earnings in 1980. By 2007, they made up 40% of the total, even though they still only employed 5% of the workforce.

But, “that game is now up,” says the Economist . The “new” capitalism was a fraud. It didn’t make people rich. It only allowed them to get rich – or poor – depending on what they did with it. Americans used their economic freedom to ruin themselves. But that’s just the way capitalism really works. You don’t get what you expect…or what you want; you get what you deserve.

Bill Bonner
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.
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27 Comments on "Americans Used Their Economic Freedom to Ruin Themselves"

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Wingnut
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Hi Ahh, capitalism propa-ghandi Bill Bonner is at it again, I see. Let’s shoot a few thousand holes in his stuff, yet again. ALL capitalism is fraud, Bill! Capitalism… is actually a division of AmWay (American Way) called “The Free Marketeers” and its pyramid scheme symbol is easily seen on the back of the USA one dollar bill. It got the exclusive (legal tender) on the TYPE of survival coupons (money) allowed/accepted in all supply depots (stores)… and because of this “economy” of AmWay coupons, and because of the rat-racing over the coupons and the ownershipism empowerments, we now have… Read more »
John
Guest

I love when clueless people who claim to care about “stuff that ain’t right” try to argue against the system that does a far better job of fixing the “stuff that ain’t right” than any tried-and-failed solutions they repeatedly keep proposing due to their lack of education. Just please, PLEASE, don’t let these people vote.

Jono
Guest

Thats a rant to be proud of Wingnut, you’ll definitely convert millions of people to support your system of anti-capitalism with such eloquence.

Hey Wingnut, I’ll give you a plain and useful definition of capitalism so you can learn a thing or two.

Capitalism is the process of free trade between 2 consenting parties. The only assumption that underpins a functioning capitalist system are that it requires property rights to be well protected by the state.

The individual is entitled to their property, and thus to do with it as they please.

christina
Guest
The masses all love capitalism while they think it is making them rich while they sit on their bums and tease people who save and be careful with their money- ha ha ha! they say you’re getting rich slowly, and we’ll all be milliomaires by next Tuesday. Hahaha! But as soon as the truth comes out, and the system turns against them, they all suddenly turn “anti capatalism” How handy. Meanwhile the capatilists in the world are: 1) buying houses for them to rent so they can live in them and whinge that they hate rich people ( they whinge… Read more »
Wingnut
Guest
John, Jono, and Christina… I think you had better let Buffalo’ing Bill Bonner defend his own capitalism cheerleading campaign, as none of you are doing his house of cards any good at all. Christina at least tried, even though her entire attempt had “Yay USA” underpinnings thruout… so I assume she’s American. Either folks see the extortion within capitalism, or they don’t. I’ve said my piece, and I’m not seeing anyone counter the highlighted points of extortion within it. I don’t see anything but scared little children running for the hayloft. Probably a good idea, cuz us socialists are going… Read more »
Pete
Guest
Christina: Nice rant there…and you do make some interesting points, however I felt a rather strange sense of ‘what the..?’ when reading it. I think your idea of ‘capitalism’ is just talking about rich people…which may or may not be rich due to capitalism itself, it also depends where you are. In regards to your points: 1) If no homes were investment homes (only live-in homes), how much do you think the home would cost to buy outright? More or less than now? I doubt I will ever love a landlord as much as you suggest… 2) I don’t think… Read more »
Jono
Guest
Wingnut, its not a system of servitude. Its a system of just desserts, where the fools get what they deserve for borrowing and living beyond their means. For the life of me, I’m not sure why you insist on referring to extortion when you refer to people who get what they deserve and have to deal with reality. Capitalism is free exchange, and the word extortion has nothing to do with it. I’m much more frightened of other nasty words that actually have a specific meaning and do harm my freedom and steal from my property.. those words are “socialism”,… Read more »
Wingnut
Guest
Jono, thanks for the reply. kKeep in mind that TRUE socialism/commune-ism is NOT an “economy”, it is a strife that REMOVES economy and ownershipism. No state ownership, no gov ownership, no private ownership, no team ownership, the whole concept of ownershipism… is abolished. There are ONLY custodians of the Earth materials repositories. We repository EVERYTHING and share it equally, JUST LIKE MILITARY RECREATIONAL SERVICES and their general supply system. EVERYONE shares the Learjet, everyone gets equal wellbeing… and NO economy. No ownership. NO TRADE, only supply requisitioning and giving. Everyone is on the same team… and takes care of each… Read more »
John
Guest
Pete, Consumption doesn’t drive an economy, production does. See: Say’s Law. Throw out those Kaynesian textbooks. Wingnut, The military can afford to have the system you speak of because they don’t produce anything, they get all their consumption subsidized by the rest of the country (defense budget); it is not a closed economic system. In a closed system, for every unit of consumption you have to produce that unit, which means your people have to work. You either give them an incentive to work or you force them. Since you can’t give them an incentive in a true communist system,… Read more »
Wingnut
Guest
Hi again! Here, lets put a little icing on the cake… http://images.google.com/images?hl=en&q=%22pyramid+of+capitalist%22&btnG=Search+Images&gbv=2 (Google IMAGE search for “pyramid of capitalist”). Can we see the servitude? Do you think folks who want nothing to do with pyramid schemes… such as myself… get any “just dessert”, Jono? Do you think folks who can’t compete, and can only instead cooperate… by the laws of their intestinal fortitude and personal principles… are getting what they “deserve”? I say this… seeing you’re into the parental cock’n’bull terms/phrases like earning, deserving, pulling your weight, make a living, and supporting yourself, you know… capitalism railroading terms. Oh yeah,… Read more »
Wingnut
Guest
Hi John… and yes, you are absolutely right. The military’s fair and equal supply system… has supply and demand… just like all supply systems. Team Mankind lovers will monitor World Needs TV and volunteer (of course) to try to take care of ANY forseen shortages of both necessities and luxuries. Necessities first. Team Food, Team Roof, Team Health, all high-priorities and will be heavily covered by World Needs TV, and volunteers destined to work on those shortages, will travel in style, will be national heroes, and will be followed heavily by media cameras and mentor-seeking children. Workplaces/worksites won’t be quite… Read more »
John
Guest

“I’ve never seen a deer carry a wallet”

No, instead they fight each other brutally for mates, risk starvation every winter, watch over their shoulder 24/7 for predators, never know if they’ll live to see tomorrow, susceptible to hundreds of diseases and dangers, etc…

Yes, let’s live that life. Clearly better. Yes.

Diggin it!
Guest
Hmmm Wow,i have been reading all your comments/oppinions and i feel that what is missing is the understanding of HUMAN NATURE and all it`s variables, you as a group show some of those variables! When man can understand human nature then we can answer the When? ,How? and why?. The world we live in now is a result of the progress we have made based on human nature and as you can see we have a long way to go.All over the world different models are being used, which is the best? How doe`s a whole planet want to live?… Read more »
Wingnut
Guest
Hi again, and hi Diggin’ it, welcome to the trench. :) First, I want to say to Bill Bonner, that I pick on him arbitrarily, and I mean him no distress. I think he probably writes about the goings-on inside the pyramid… quite well. His readers seem to like it, anyway. I’d like to see Bill step back from the system and see it as a whole thing, and write about THAT with me/us. All in all, Bill, don’t worry about some Jesus freak hassling you forever… I just see your name showing up on the same capitalism sites that… Read more »
Diggin it!
Guest
Hi again, i brought up human nature to make a simple point, each of us will have an opinion of how life should be lived which is based on our nature and information supplied. For every single opinion there may be 100 others, so therefor there cannot be one answer to a debate other than, we agree to disagree! Think about that as you express your life choices, which part is your nature and why you accept the information supplied that is crafting your current opinion, then consider that when reading some one else`s. Maybe if the whole world could… Read more »
John
Guest
Wingnut, Capitalism is based on freedom. Your system is based on slavery. You’re the one that has to enslave people into working, either by brainwashing them during childhood or by extorting them some other way. But the idea that at some point people wouldn’t “have to” work is ridiculous because somebody has to produce all the things people consume, even if it’s just the basic essentials like food and shelter. Let me rephrase it another way: You said you would make it illegal to own private property. That’s the problem. See, you have the freedom right now to go live… Read more »
Wingnut
Guest
Go read the first post again John, as I showed you all the ways capitalism is forcing things. Is anyone being forced out of their homes, these days? I happen to want to live in a tourbus/large RV, but the caps have such things blocked with pyramid coupon pricetags… about a million worth with insurance. Think I would have to join the free marketeers to even have a CHANCE at getting that tour bus? Yep. And I don’t want to own it, just use it. Join, or get no opportunities, because all the opportunities are block by free marketeer coupon… Read more »
Wingnut
Guest
Hi again, and Diggin it, let me tell you about the evil evil evil “agree to disagree”. You’ll never see a police-grade investigator… “agree to disagree” with the criminal thing being investigated and scrutinized. “Agree to disagree” (heretofore ATD)… is perfectly namby-pamby, coddling and nuturing junky-satisfying, shruggers-festival-from-hell… way-of getting absolutely no decision-making done, and absolutely no changes made. In the world of weighing/choosing human and Earth survival systems, I and others WILL investigate, scrutinize, and fully fold, spindle, and mutilate things, until the TRUTH comes out. Things are weighed, and weighed, and discussed some more, and measured, and weighed some… Read more »
John
Guest
Wingnut, not every piece of land on earth is owned. Go live in the rainforest in the middle of South America and believe me, no one will bother you for a looooong time. But you don’t like that. You want to take away things from others, otherwise it defeats the point, doesn’t it? You feel that you’re somehow entitled to that RV, but you don’t want to put in the work the build the RV. Well someone has to build it in order for you to live in it. They’re not going to build it out of the goodness of… Read more »
Wingnut
Guest
That’s right, John. If society thinks I should be allowed to use an RV, they do… whether I’m an AmWay joiner or not. I should be allowed freedom of choice as far as joining or not, and still have a chance at having my dream come true. Now, there would be NO OWNERSHIP. Should I say it even LOUDER? NO OWNERSHIP!!! So it is NOT “your” house, it belongs to Team Earth (if you MUST have ownershipism or you’ll feel naked), or, in effect, it belongs to God. Its made of Earth material, so its owned by “the thing” who… Read more »
John
Guest

I’m done with this discussion. Your fantasy police-state fascism is frightning.

justin
Guest

Hey Wingnut, you should hook up with Melanie over on ‘The Problem With Artificially Low Interest Rates’. I think you two would get long just fine.

John
Guest

Ah justin, we would finally find out for sure if two wrongs make a right.

Wingnut
Guest
Hi gang. John, Justin, I didn’t invent socialism, communes, public libraries, and/or non-pyramid survival/supply systems like that used in the USA miltary! So, take your childlike tissy-fit of personal bashing, and cram it up your butt sideways. The thing that you apparently worship… is a federal crime. I guess you’ll need to cope and deal with that, won’t you? You don’t have a choice. So, pout, bash, have fun, but its not my fault if you worship a felony. Its not my fault that communes work better, and are more moral and efficient than the “yay America” pyramid system. It… Read more »
Zac in VA
Guest
Public libraries are paid for with taxes. So are roads. The vast majority of the end users do almost nothing to maintain these infrastructures directly, but they do share their labor indirectly, through currency paid as taxes. Money is no joke: it’s a stand-in for labor, for trade goods, for pretty much anything. It’s not evil, either: do we want a barter system? Wingnut: how are communes more efficient than technological infrastructure? A combine harvesting tractor is much more efficient than a mule, for plowing a field. In turn, that means you can have a much bigger field, and fewer… Read more »
Wingnut
Guest
Hi Zac, welcome to the discussion, and thanks for your wise comments over on BestCyrano. I’m far from being a good writer… sorry. And, I don’t feel very well today, but I wanted to try to address your comments. Yes, you are correct about libraries and roads needing to be “paid for” when “economies” are used. In communes, there is no such thing as “paid for”. Those who do voluntary building of libraries, do it, for no wages, in a commune. There are no pricetags on ANYTHING, just repositories, and World Needs TV monitoring the supply levels in those repositories,… Read more »
Gordon
Guest
“It only allowed them to get rich – or poor – depending on what they did with it. Americans used their economic freedom to ruin themselves.” That is exactly the reason. Capitalism is the natural way to go, easy borrowed money to be spent on junk has always been a doom to any society. Still, raising taxes is not the way to go. Cutting easy credits would be. Raising taxes force ‘ordinary’ people to borrow more to keep their living standard. But it doesn’t take long and many taxpayers go broke. Then, we have high taxes, no motivation to create… Read more »
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