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Fantastic Vision

To see what's coming, you can only look back on what's come before...

IN 1900, a survey was done, writes Bill Bonner in his Diary of a Rogue Economist, sharing an extract from his foreword to James Dale Davison's forthcoming book, The Breaking Point.

"What do you see coming?" asked the pollsters.

All of those people questioned forecast better times ahead. Machines were just making their debut, but already people saw their potential.

You can see some of that optimism on display today in the Paris Metro.

In the Montparnasse station is an illustration from the late 1800s of what the artist imagined for the next century. It is a fantastic vision – of flying vehicles...elevated sidewalks...incredible mechanical devices, all elaborated from the Machine Age technology as it was understood at the time.

There is no sign of hydraulics, jet engines, or electrical devices, for example, just gears and pulleys...and flying machines that flapped their wings like a bird.

But when asked what lay ahead, the most remarkable opinion, at least from our point of view, was that the government would decline in size and power.

Almost everyone thought so. We wouldn't need so much government, they said. People will all be rich. Wealthy people may engage in fraud and finagling. But they don't wait in dark allies to bop people over the head and steal their wallets.

They don't need government pensions or government health care either. Nor do they attack their neighbors.

In 1909, British politician Norman Angell published a best-selling book, The Great Illusion, in which he explained why.

Wealth is no longer based on land, Angell argued. Instead, it depended on factories, finance, and delicate relationships between suppliers, manufacturers, and consumers. And as this capitalism made people better off, he said, they wouldn't want to do anything to interfere with it. It would only make them poorer.

One of his most important readers was Viscount Esher of Britain's Committee of Imperial Defense. Set up in 1904, its task was to research and coordinate military strategy for the empire. Esher told listeners that "new economic factors clearly prove the inanity of aggressive wars."

One of the most important components of the wealth of the late 19th century was international commerce. Capitalism flourishes in times of peace, sound money, respect for property rights, and free trade. It was clear that everyone benefitted. Who would want to upset that apple cart?

"War must soon be a thing of the past," Escher concluded.

He was wrong. In August 1914, the cart fell over anyway.

The Great War began five years after Angell's book hit the best-seller lists. On the first day of the Battle of the Somme – 100 years ago – there were more than 70,000 casualties.

By the time Americans arrived in 1917, the average soldier at the frontlines had a life expectancy of only 21 days. And by the time of Armistice Day – on the 11th day of the 11th month at 11 a.m. of 1918 – the war had killed 17 million people, wounded another 20 million and knocked off the major ruling families of continental Europe – the Hohenzollerns, the Hapsburgs, and the Romanoffs (the Bourbons and Bonapartes were already gone from France).

After the Great War came a 30-year spell of trouble.

In keeping with the metaphor of the Machine Age, the disintegration of pre-war institutions broke the tie rods that connected civilized economies to their governments.

Reparations imposed on the Weimar Republic after the war sparked hyperinflation in Germany. America, meanwhile, enjoyed a "Roaring 20s," as Europeans paid their debts – in gold – to US lenders.

But that joyride came to an end in 1929. Then the Feds flooded the carburetor, in their disastrously maladroit efforts to get the motor started again – including the Smoot-Hawley Act, which restricted cross-border trade.

The "isms" – fascism, communism, syndicalism, socialism, anarchism – issued forth, like carbon monoxide.

They offered solutions!

Finally, the brittle rubber of communism (aided by modern democratic capitalism) met the mean streets of fascism, in another six-year bout of government-led violence, World War II.

By the end of this period, the West had had enough. Europe settled down with bourgeois governments of various social-democrat forms.

America went back to business, with order books filled and its factories still intact.

The "isms" held firm in the Soviet Union and moved to the Orient – with further wear and tear on the machinery of warfare in Korea...and later Vietnam.

Finally, in 1979, Chinese leader Deng Xiaoping announced that, although the ruling Communist Party would stay in control, the country would abandon its Marxist-Leninist-Maoist creed.

China joined the world economy with its own version of state-guided capitalism. Then, 10 years later, the Soviet Union gave up even more completely...rejecting both the Communist Party and communism itself.

This was the event hailed in a silly essay by American political scientist Francis Fukuyama, "The End of History?"

Finally, the long battle was won. It was, wrote Fukuyama, the "endpoint of mankind's ideological evolution and the universalization of western liberal democracy as the final form of human government."

When Francis Fukuyama wrote his landmark essay "The End of History?" in 1989, the battles of the 20th century seemed to be over.

We had reached the "endpoint of mankind's ideological evolution and the universalization of western liberal democracy as the final form of human government," he wrote.

With the Cold War over, modern democratic capitalism could now be perfected. US companies could hustle their products to 1.5 billion more consumers, recently come out from behind the former Iron Curtain. And the US wouldn't need to spend so much on defense.

That was the most obvious and immediate benefit to the US – a "peace dividend." Billions of Dollars could now be liberated from the defense budget and put to better use elsewhere.

Things were looking up. As China and the Soviet Union went, so went the rest of the world.

Soon, everyone was trying to learn the latest buzz words from globalized business schools...setting up factories to make things for people who really couldn't afford them...gambling on Third World debt (with a guarantee from the Feds in their back pocket) stocks of companies that used to belong to the government...and aiming to get their sons and daughters into Stanford so they would be first in line for a job at Goldman Sachs.

Things got even better when, in the late 1990s, it looked as though the Information Age had freed us from the constraints of the Machine Age.

Forget axles and drive trains. Forget oil wells. Two things held back growth rates, or so it was said at the time: ignorance and resources. You needed educated scientists and trained engineers to design and build a railroad. You also needed material inputs. Iron ore, copper, steel, and so on...and most important: energy.

Education took time and money. And Stanford could only handle a few thousand students. Most people – especially those in Africa, Asia, and Oklahoma – had no easy access to the information they needed to get ahead.

The Internet changed that.

You want to build a nuclear reactor?

Google it!

You want to know how Say's Law works? Or Boyle's Law? Or the Law of Unintended Consequences?

It's all there. With enough imagination you can almost see an Okee in a trailer in Muskogee, studying metallurgy online. You can almost see him driving up to Koch Industries in Wichita with a plan for a new way to process tungsten.

And if you drink enough and squint hard, you can almost bring into focus a whole world of people, studying...comparing...inventing...innovating...

...which leads – at the speed of an electron bouncing around a hard drive – to a whole, fabulous universe of hyper-progress.

MIT has only 11,319 students. But with the internet, millions of people all over the world now have access to more or less the same information.

There are even free universities that package learning, making it easy to study and follow along.

Now, there is an almost unlimited number of scientists and engineers – not to mention the shrinks, bone crackers, and social scientists ready to put on their thinking caps to make a better world. Surely, we will see an explosion of new patents, new ideas, and new inventions.

As for resources, the lid had been taken off that pot, too. In the new Information Age, you shouldn't need so much steel or so much energy. It only takes a few electrons to become a billionaire.

After all, how much rolled steel did Bill Gates make? How much dirt did Larry Ellison move?

The capital that really matters is intellectual capital, not physical resources. Or so they said. If you used your brain you could disrupt traditional businesses, disintermediate the middlemen, and reduce the need for energy and resources. The new economy was light, fast-moving, and infinitely enriching. There were no known limits on how fast this new economy could grow!

Those were the gassy ideas in the air in the late-1990s. Investors were intoxicated. They drove up the prices of dot-com companies to dizzy levels.

And then, of course, the Nasdaq crashed.

One by one, the illusions, scams, and conceits of the late 20th century – like pieces of bleak puzzle – came together:

No "peace dividend"...The military and its crony suppliers increased their budgets.

No "End of History"...that was all-too-obvious on Sept. 9, 2011.

No "hyper-progress" "Great Moderation" "Goldilocks" economy – all of that came to an end Sept. 15, 2008, when Lehman Bros. declared bankruptcy.

And as far as producing real, measurable wealth – the Internet, too, was a dud. By 2015, the World Wide Web had already been around for two decades. And economic growth rates were averaging only half those of a half-century before.

As the new century matured into a sullen teenager, the ground was littered with scales, fallen from the eyes of millions of parents.

The entire 21st century was a flop. People hadn't gotten richer at all. Instead, they had gotten poorer. Depending on how you measured it, the typical white man had lost as much as 40% of his real earnings since the century began.

People rubbed their eyes and looked harder; the picture came into sharper and more ghastly focus. Now, they saw that the promise of material progress and political freedom was a sham.

In the US, economic growth rates fell in every decade since the 1970s. Real wage growth slowed, too...and even reversed. And so twisted had the financial system become that the least productive sector – government – was the only one with easy access to capital.

Government now was more powerful, more intrusive, and more over-bearing than ever...and able to borrow at the lowest rates in history.

There were signs of a deeper breakdown, too.

Soldiers returning from the Mideast were killing themselves in record numbers.

The fellow in the trailer in Muskogee was likely to be a minimum-wage meth addict watching porn on the internet rather than studying metallurgy.

Debt had reached a record high – at 355% of GDP. Real peace seemed as remote as real prosperity.

And June of 2016...the Republican Party chose New York real estate developer (and former Democrat) Donald Trump as their presidential nominee – the most unlikely standard bearer for a major political party in US history.

For most Republicans, Mr.Trump had only one qualification of importance: He was not Hillary Clinton.

Ms.Clinton, perhaps more than any other politician, was the face of The Establishment. She had her fingerprints on every piece of the dark puzzle – the decline in wages and GDP...the rise of Wall Street and "The One Percent"...the wars...the debt...and the Deep State itself.

How these things came to be, and where they lead, is the subject of much speculation. And it is the subject of James Dale Davidson's The Breaking Point.

The delight of the book is that it approaches these issues in an original and interesting way. Thomas Piketty (the rich get richer), Robert Gordon (the important innovations are already behind us), Joseph Tainter (it's too complicated) – all have theories about why the 21st century is such a disappointment.

Davidson connects the dots, too...but more dots...and more unexpected dots...than perhaps anyone.

In the end, writes Davidson, "the long run meets the present [where] systems that no longer pay their way exhaust their credit and go broke. The Breaking Point is a nonlinear departure on the road to nowhere. It occurs when collateral collapses, burying the public's faith in fiat money and the institutions that create and regulate it."

That is why Donald Trump stood confidently before the American people in the summer of 2016 promising to "make America great again."

His listeners knew something was deeply wrong. And they wanted desperately to believe that Mr.Trump could fix it.

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

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