Why the Lower Economic Growth Rates?

man imitating zombie
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We write with a Zombie Update.

As you know, annual GDP growth rates in the US have been trending lower since the end of World War II. Frequently touching on 10% in the 1950s and 1960s…we’re now lucky to get 2%.

And to get that we have to pump in trillions of dollars in new liquidity into the financial system…take on staggering amounts of new debt…and bludgeon the statistics, too.

After the disastrous first quarter, which saw an annualized drop in output of 2.9%, it will be hard to get back to decent figures for this year. JP Morgan Chase, for example, just cut its guess for GDP growth this year to 1.4%.

This slowdown has happened as technology has raced ahead. You’d think an economy with better technology would grow faster, not slower. But there you have the puzzle: Why the lower growth rates?

We offer a simple explanation: zombies.

Why are we stuck?

The Wall Street Journal celebrated its 125th anniversary yesterday. To honour the occasion, it asked a few thinkers to tell us how to get US economic growth rates up again.

John Cochrane, a professor of finance at the University of Chicago Booth School of Business, responded with some sensible thoughts:

Why are we so stuck? To blame "gridlock," "partisanship" or "obstructionism" for political immobility is as pointless as blaming "greed" for economic problems.

Washington is stuck because that serves its interests. Long laws and vague regulations amount to arbitrary power. The administration uses this power to buy off allies and to silence opponents. Big businesses, public-employee unions and the well-connected get subsidies and protection, in return for political support.

Meanwhile, in the same edition of the Journal, a plea to increase funding for a zombie agency:

‘”Let’s not shortchange the SEC, says Mr Robert Greifeld, CEO of Nasdaq OMX Group, a company regulated by the aforementioned agency. Mr Greifeld makes the remarkable claim that "America is falling behind regulators in other countries.

The race to regulate may be one that we would do better losing than winning, but Mr Greifeld is rooting for the SEC. He says it needs more funding so it can tell his business what to do…to insure that it and others "treat investors fairly and honestly.”’

Why doesn’t Mr Greifeld regulate his own business? Why doesn’t he voluntarily treat investors fairly and honestly?

Zombie central



Oh, Dear Diary, you can be so silly sometimes.

As time goes by, a stable economy attracts more and more zombies. These are people who find ways to gain wealth, power and status without competing for it fairly.

They provide neither services nor products that people will willingly pay for. Instead, they use the government — and, to a lesser extent, private bureaucracies — to get what they want. Welfare benefits. Special parking places. Billion-dollar contracts. Rich and poor — zombies take advantage of us.

You can find zombies almost everywhere. But the highest concentration of them is in and around Washington, DC.

In the city are the poor zombies — taking advantage of food stamps, disability support, tort-law settlements and other lowlife hustles.

In the eastern suburbs of Prince George’s County and Montgomery Country in Maryland you find the middle-class zombies on the government payroll.

Many of these people are not really zombies at all. Firemen, teachers, road and sanitation workers — they often provide real value for money.

But as you get higher up the pay-scale ratings within the civil service, to the directors of this agency and the policy coordinators of another, you enter into serious zombiedom. Salaries go up. Identifiable, positive output goes down.

But the real money is found across the Potomac, in the Virginia suburbs, where private-sector companies with public-sector contracts make their headquarters.

They make planes and tanks…and conspire with retired zombie generals to sell them to the Pentagon. They make drugs…and connive with the FDA to put them on doctors’ desks all over the country.

Untradeable Monopolies

Charles Hugh Smith of the blog OfTwoMinds.com provides us with the fascinating chart below. It shows the only three job sectors that have expanded since 2000: Professional & Business Services, Leisure & Hospitality, and Education & Healthcare.


http://www.bonnerandpartners.com/wp-content/uploads/2014/07/20140709-DRE-ISSUE.png




Source: www.mdbriefing.com


Hugh Smith asks:

Why have Education & Healthcare soared despite the deep recession? Simply put, Education & Healthcare are functional monopolies that can add costs with impunity. In economics jargon, these sectors are largely untradable, meaning they are not exposed to much competition from overseas providers of Education & Health.


They also benefit from immense lobbying of government to protect their fiefdoms from transparency and competition.’

Meanwhile, on yet another page of the same edition of the Journal, Paul Rubin, an economics professor at Emory University, and his son, Joseph Rubin, a DC attorney, make ‘The Case for Crony Capitalism’.

The gist of their argument is the system is infested with zombies. You can’t get rid of them. So, sometimes it pays to set one group of zombies against another.

You hire an expensive tax lawyer, for example. He helps you avoid the zombies at the IRS. Faced with one costly and inefficient bureaucracy, you set up another to help businesses deal with it.

They are right, of course. The world is full of zombies. They crowd the streets. They fill the saloons. They threaten our incomes and our way of life.

Soon, we’ll be out of options…on the rooftop with a rifle…but running out of ammunition. We’ll pick off the zombie leaders…and save the last bullets for ourselves.

Regards,

Bill Bonner
for The Daily Reckoning Australia

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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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