Delray Beach, Florida
Without free prices and profits, you can never know when you succeed.This is why most charitable activities - especially government to government foreign aid - are a waste of time. And its why all government programs that are designed to raise the quality of human life - including Ben Bernanke's easy money policies -- ultimately lower it. Or, if they succeed at all, it is only by accident.
Let us say that you live in a country where half the people are hungry. In a civic-minded moment, you come up with a solution to the hunger problem. "Shoot the poor!" you propose. That would solve the problem. But would people really be better off?
Or, let us say you are a soft-hearted soul. You study the problem and you decide that there are too many people. You quickly put two and two together and realize that the simple solution is to keep one and one apart:
"From now on copulation is illegal," you announce. "Except for copulation between gays."
Hmmm.... that might solve the problem too. But would the sum of human happiness be higher? Who knows?
Unless you can know the mind of God, you can only know what is 'better' as a disguised form of "what you like." And what world improvers always like is...guess. Themselves! So, they always want to remake the rest of the world in their own image. If they are middle-class, right-thinking Americans, they think everyone should follow their codes and behavior. If they are Scientologists, they think everyone should be a Scientologist. If they are communists, they insist that everyone be a commie.
Most important...what they most want is to protect and enhance their own lives. After all, they are the template for the rest of the world!
So, what does the government do? It always does what the elite that control it want it to do. Sometimes they pretend that they are making the world better. Sometimes they just get what they want and don't care what people think. But always and everywhere, governments act on behalf of the people who control them. That is true of a dictatorship. It is true of an oligarchy. It is even true of a popular, representative democracy.
In a complex, modern social welfare state there are competing elites. And since they are democracies, the elites have to pretend to have the interests of the common voter at heart....
...So they buy as many votes as possible - with bread and circuses... "missions accomplished"...triumphal marches...food stamps, unemployment compensations, income redistributions...and so forth.
But when push comes to shove, the money goes wherever the elites want it to go....first and foremost, to themselves.
Which is why the Fed bailed out Wall Street. And why Fannie and Freddie continue to push money to the big banks.
Government is part bribe and part larceny. One group uses it to steal money. Another group accepts pay-offs in order to look the other way.
*** Business - at least in our experience of it - is much different from most people think. Businessmen are not cold and calculating. They are not trying to maximum profits at all costs. They are not necessarily rational. Not necessarily sensible. Often not very reasonable. And frequently driven more by vanity and sentimentality than the search for return on investment.
We were down in Nicaragua with a group of investors and businessmen. But they were not very businesslike at all. Our group included an Irish poet, pretending to be a tough talking entrepreneur, a charming Paladio manque disguised as a Jewish accountant, an Italian Jesuit trying to pass himself off as a Waspy Maryland lawyer and a delightful modern Democritus impersonating an investment banker.
At issue was what to do with an investment that had gone in a very different direction than we had planned:
"Look, we came down here because we thought we could make some money," said one of our partners. Hard on the outside, but a mushy dreamer inside, he was instrumental in laying out the original development and designing some of its most important features.
"Not just that, it looked like such a nice place. Admit it, we wanted to have fun building roads and restaurants...and riding stables. Now, we even have bulldozers and backhoes. It's as if we were kids...playing in a sandbox."
"Yes, but we're a business," said our numbers guy. "If we want to have fun, we should do it on our own...with our own money. It doesn't make sense to involve the business in this if we're not going to treat it in a businesslike way.
You want to build a clubhouse? Go ahead. Raise the money and build it. You want to build a hospital? Great. But don't pretend that you're doing it for business reasons.
"Of course...I know. I'm tight. And I want a good deal for the investors. And we're now millions in the hole. That's a lot of money. It's not right for us to now take the position that money doesn't matter."
"No, we're not saying that," said our lawyer. "All we're saying, or all I'm saying, is that this is more than just an investment. It's a community. We have legal obligations to the people in it, of course. And we have moral obligations. And we have an obligation to ourselves. This place will be here long after we are gone. We want to make it as nice as we can."
"Well, then...let's admit it's not an investment," countered the accountant. "We'll write off the money. Take the loss. And be done with it..."
"But we're not finished," countered the lawyer. "We can't walk away. And besides, we have our own houses here too...we need it to work."
"Well, we certainly can't continue investing money like this forever."
The men around the table scratched their heads. They studied the numbers. They looked at plans for a new conference center. A new inn. A new entryway.
"This is just crazy...now I see how this works," your editor interjected. "We buy land for $500 an acre. We sell it for $500,000 an acre. And we lose money over a 10-year period. Not just a few bucks. Millions.
"Who do we think we are? The US government? The Fed? It is fundamentally wrong to operate this way. Because it is phony. We're doing something that isn't economically sound. We're living a lie. It's like living at a level of luxury you can't really afford. We've got to find a way to make the community self-sustaining...so that we're happy with it...and so that it can stand on its own two feet."
"It can stand on its own two feet now," replied the accountant. "It's just that we keep investing to make it nicer."
"Well, that's got to stop...we have to be more hard-nosed about this...more like businessmen and investors..." we all agreed.
"Hey, let's go look at the woodshop..." said one partner
"We should build a machine shop too. I like fooling our in a machine shop, " said another.
"When are we going to put up that shopping area," asked a third.
"You know what we should do?" your editor began. "We should build a little square ...like a town square in a medieval European town. With a church. The church bell should sound every hour. And toll, of course, all day when one of us dies.
"You guys are hopeless," said the accountant.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.