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Growth We Can Believe In

Yegads! As if one weren't enough, the world needs more Richard Bransons...

MAYBE THE WORLD needs more Richard Bransons, writes Dan Denning for his Daily Reckoning Australia.

"Fortunes are made out of recessions," Branson said in a recent interview. "A lot of entrepreneurs get going in the economic depths because the barriers to entry are lower.

"There are a lot of Richard Bransons that will come out of the next three or four years."

Ignoring the fact that Branson's Australian outfit Virgin Blue has the worst-performing share in the Asia Pacific airline sector in 2009, the bearded knight still has great point. If the downside of Creative Destruction is the unplanned obsolescence of companies like GM and AIG – now over-supplying motor cars and credit insurance respectively – the upside is that something new replaces the something old (or at least the something that is no longer fit for purpose).

A real recovery in the economy will be led by new production, not phoney consumption. Phoney consumption has been the problem all along. Goosing the money supply leads to artificial growth. It creates false demand and the appearance of economic activity. But it's simply growth for growth's sake because, frankly, that's what gets politicians elected.

Sustainable and healthy economic growth is driven by changes in consumer preferences over time and in new products and services. Those products and services come from entrepreneurs and innovators. It makes sense when you look at just a few historical examples.

For example, Henry Ford didn't get into business because he wanted to see America's GDP grow at 3.4% per year. He had an idea for a real product that people could use. And people did use it. It was affordable. And his idea changed the economy in unimaginable ways.

That's the trouble with organic growth, at least from the policy-maker's perspective. It isn't predictable. You have to rely on a basic assumption that given freedom from onerous taxation and regulation, entrepreneurs will innovate, putting capital to productive use to create jobs and produce wealth. That's growth you can believe in. Whereas shuffling a few billion dollars around the economy via a stimulus package...that's not growth. That's just binge deficit spending, akin to binging on Big Mac's as a kind of comfort food to deal with your malnutrition.

Here in Australia, just like everywhere else, prime minister Kevin Rudd – along with many other critics of the market – continues to say that if government does nothing, nothing will get done. This is odd, given that the thrust of central banking efforts is to preserve asset values at their credit boom levels rather than letting them fall where they may.

In a weird way, it's kind of narcissistic for this generation of corporate and political leaders to preserve the world in the way that's familiar and comfortable them. It's also fairly arrogant to think that's even possible.

In the event, whether real change is on offer or not, the world's savings are probably going to keep pouring into the bond markets. Taxes will have to rise in the future to pay the interest on all the public sector debt being sold. You couldn't think of a better way to prevent future real growth, or to turn this severe recession into an even greater depression.

Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

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