Another good day for US stocks… and a rare decent day for gold.
But the big economic news yesterday was that Larry Summers has withdrawn from the race to be the next Fed chief.
If only Janet Yellen, Don Kohn and Alan Blinder would do the same!
Then who would be left in front of us in line for the post? Only about 50,000 economists – every one of whom is smarter, better educated, better connected, with better social skills and a better haircut…
From the start, our campaign to become the next Fed chief has faced long odds.
First, we’re completely unqualified to play the game.
Second, we’re totally unwilling to play the game.
Third, we believe the game is rigged… corrupt… and foolish.
Fourth, almost everyone thinks we’re wrong about almost everything.
A dear reader writes…
“Uh, Bill,” he begins (or words to that effect), “John Mauldin and Gary Shilling [not to mention our own colleague Justice Litle] have solid arguments as to why this will be a good decade for America and US equities. Don’t you think you should reconsider your position?”
Evidence is mounting, say our critics, that the US dollar is and will remain the world’s most reliable currency… that the US economy will beat all others in the years ahead… and that the US capital structure is not only sound, but also getting sounder.
More Babies… More Oil
We can sum up the argument as follows:
In the years ahead, the US will have more babies and more barrels of oil than its rivals.
The US fertility rate is near the top of the charts for developed countries. But although this adds more people… and probably more output (GDP)… it doesn’t do a thing for what really counts: real per-capita wealth.
If it were otherwise, countries with high birth rates, such Niger and Afghanistan, would be the richest countries on Earth. But having more babies is not enough.
As to oil, it is supposed to be a gooey magic elixir. Has your old get up and go got up and left? Try some oil. Your industries will have a competitive advantage… your consumers will pay less for energy… and your current account will come nicely into surplus.
If that were so, what went wrong in China, Russia, Saudi Arabia and Iran? It turns out that four of the world’s top six oil producers are not rich countries. They’re poor countries. Which tells us that there’s more to the energy story. A lot more.
What counts is not how much energy you produce, but what you do with it. As stable societies mature, they tend to use their energy less efficiently. Energy is wasted by complying with regulations… paying for lobbyists… filling out tax forms, dodging taxes… and supporting zombies.
Yes, zombies proliferate. As reported in The Week, 7 out of 10 people in America now receive more from the federal government than they pay in taxes. They get food stamps. They get defense contracts. They get student loans… and don’t pay them back.
But these figures only scratch the surface. Zombies are everywhere.
Monday’s Wall Street Journal included an article about how “Protectionists Pick Your Pocket Again.” The story tells how plywood companies were able to keep out Chinese-made plywood.
Why? To keep prices… and their own profits… high. Plywood makers are productive, honest, God-fearing Americans, we imagine. But their lobbyists have turned them into rank zombies – using the police power of the government to transfer money from consumers to themselves.
Entire industries are corrupted. Education, health, defense and finance – none produces a net gain for the US society.
Each additional dollar “invested” in any of these industries yields less than $1 of real benefits. But these are the industries with the big teams of lobbyists. These are the industries that get the money. These are the areas where the additional energy resources will go.
Just look at what is happening in the stock market. Stocks are going up on the promise of investing even more resources in a deadhead program. From Bloomberg:
US stocks rose, with the Dow Jones Industrial Average capping its best week since January, as disappointing economic data fueled bets that any Federal Reserve stimulus cuts this month would be moderate.
“The view is that we’re recovering and continue to do it in a slow pace,” Channing Smith, who helps oversee about $1.2 billion at Capital Advisors Inc. in Tulsa, Oklahoma, said in a phone interview. “The Fed will begin to taper but will be on a magnitude of $10 billion, which shouldn’t have an impact.”
In effect, the Fed has turned investors into zombies too. It prints up money ex nihilo. And this money lifts asset prices, making the rich richer.
So where will these new energy resources go? Into the real economy? Or into the fast-growing zombie economy?
Instead of getting ready for a new era of oil-driven prosperity, start preparing for the Zombie Apocalypse…