More Capital, Less Wealth, Then Terror

Monday, 1/25/2021 09:01

Happy thoughts on the new White House...

TODAY we drift downriver, writes Bill Bonner in his Diary of a Rogue Economist.

It is the same stream we were on yesterday...leading from the crystal source, way up at the top of America's imperial glory at the end of the 20th century...and then down to a muddy, bitter, confusing puddle in the 21st.

There are only two important things a President has to do: He has to protect the American people...and their property.

Like two banks of a river, they can never be entirely separated.

We've been exploring the financial side...looking at the ways the feds have failed to protect Americans' wealth.

According to J.P.Morgan Chase CEO Jamie Dimon's calculation, normal, pre-fake-money growth rates would have produced twice as much additional GDP in the last decade, an extra $10 trillion to divvy up over the last 10 years.

So most people are deprived of both wealth and income as a result of the feds' fake economy.

Even more egregious, the Federal Reserve gave some $7 trillion of fake money to the richest people in the nation. Relatively, everyone else is poorer.

But today, we're going to cross over to the other bank of the river. We will take a look at how America's Presidents have protected our freedom...or not.

On neither side of the river is the US blazing any new trails. This process of government-led impoverishment is nothing new. Or strange. Or mysterious.

The Soviets and the Chinese took nearly full control of both sides of the river – their citizens...and their wealth. The results were stark and obvious – famines...empty shelves...shoddy products...bad food...and so forth.

But as we cast off, let's take a look at this important island in the stream...connecting the two sides. Economists call it "capital formation." It refers to the thing that separates free, rich societies from poor, slave economies.

"Net real investment" is the amount of savings put to use training people, building new plants, and buying new "capital" equipment. That is, it's the part of what we earn that is not consumed...but used to create more wealth.

It's why wages are higher in the US than in Mexico, for example; because America has more accumulated "capital."

Free people, once they get the taste for it, build capital. They save their money. They start new businesses. They create goods and services that add to the wealth of the whole group.

Unfree people don't. They are not allowed to. Or sometimes, they fear their new wealth might be taken away from them, so why bother?

Or they are faked out by fake money, false interest rates, regulations, subsidies, bailouts, stimmy checks...and other abominations.

And here, we will make it even simpler for the new President to understand what he is supposed to do.

Time and resources can either be used to create more wealth (capital formation)...or they can be consumed.

Government, with some small exceptions, is a consumer of wealth. The private sector creates it. So the smaller and less intrusive the government, relative to the private sector, the richer and freer the society.

There's only so much time and space available. The more of it that is taken up by gun-toting, bossy-pants politicos, the less is left for the free, win-win, private sector.

How hard can it be to remember that?

Small government = good. Big government = bad.

But there is no point putting this on Joe Biden's desk. It is the last thing he will want to read. The governing elite gain power and wealth by forgetting that kind of logic.

That is, after all, the aim of all politics – to hold onto power at any price...and use it to reward your friends and supporters.

Which is why America's founders aimed to keep the feds from getting too big for their britches...

...by balancing the power of the executive with the power of the legislation...and restraining both with the power of the judicial branch...

...by having two houses of Congress. One was supposed to represent the people – carefully studying new laws to make sure they served the interests of their constituents. The other was meant to represent the states – which were sovereign members of the union...and able to walk away whenever it no longer served them...

...by making sure that the House of Representatives had the "power of the purse"...recognizing that everything the feds did – whether passing out $2000 stimmy checks or $2 billion defense contracts – came at the expense of the people. Leaving all spending bills to the discretion of the House guaranteed that no expense would be undertaken without the prior consent of the voters (through their representatives)...

...by insisting that only Congress (not the President) had the ability to declare war and the responsibility to raise the troops and the money to pay for it...

...by enacting a Bill of Rights to lay out clearly what the federales couldn't do, no matter how good an idea they thought it would be at the time...

...and by limiting the Republic's money to "gold and silver"...so the feds couldn't just print up paper money and use it for any foolish thing they wanted.

But all of those things seem quaint and out of date today.

Congress never declares war...or raises money to cover the costs.

Congressmen don't even read the laws they pass.

The power of the purse is meaningless; there is no money in the purse...Our money is fake.

The states now look to the federal government for support. They are no longer sovereign and cannot leave the union or just say "no" to the feds' rules and regulations.

The Bill of Rights is still there...but there is hardly a single part of it that has not been eroded away. All the feds have to do is declare an emergency – terrorism...plague...you name it – and they can get away with murder.

Americans' freedom has been taken away...one pettifogging regulation, one fake Dollar, one lie...at a time.

And now, the whole system seems to be coming apart. Nothing is too extreme. Or too absurd.

Some 100 Democratic members of Congress have proposed a law expelling Republicans who challenged the election results. According to the charges, the Republicans are guilty of "insurrection."

Said Representative Sheila Jackson Lee (D-TX), expelling the duly elected representatives was a way of "healing" the nation.

Representative Ilhan Omar, meanwhile, said that those who disputed the election results had "blood on their hands."

While these were clearly over-the-top rhetorical excesses, they revealed a sad trend. Even the new President himself proposed to treat those who broke into the Capitol Building as "domestic terrorists."

The Wall Street Journal reports that one of his first priorities is to pass a law against "domestic terrorism."

And now, the War on Terror comes home. Here's General Stanley McChrystal – for years head of Joint Special Operations Command in Iraq and the commander of the war in Afghanistan:

"...a whole generation of angry Arab youth with very poor prospects followed a powerful leader who promised to take them back in time to a better place, and he led them to embrace an ideology that justified their violence. This is now happening in America. [...] I think we're much further along in this radicalization process, and facing a much deeper problem as a country, than most Americans realize."

Get ready, Guantanamo! Order some more yellow jumpsuits...