- By Bill Bonner
Again, nothing particular to write home about in the financial markets. The Dow was off 80 points yesterday. Gold lost $6.
We closed out last week wondering what had gone wrong. How come the 21st century has turned out to be such a dud?
Where are the jaw dropping new inventions? Where are the rising incomes? Where is the dynamic, sizzling economy we expected?
Back in about 1963, we recall trying to picture ourselves in the 21st century. The rate of progress then was so fantastic that we had to stretch to imagine it. Every year, Chevrolet, Ford and Chrysler put out a new and better automobile. In 50 more years, surely cars would fly through the air! In 1966, the first pocket calculator appeared. Half a century later, imagine the condensed knowledge and computing power were would be able to carry around. Then, in July 1969, Neil Armstrong actually walked on the moon. It was just a matter of time before we had a colony on the moon...from which we could explore the whole solar system.
The only one of those things that realized its apparent potential was the increase in computing power. That has changed life on planet earth. Now, instead of talking to your neighbors in the elevator, you can keep your head down, focused on your handheld. We've seen couples in restaurants who never talked to each other - each tiddled with his cellphone throughout a whole meal. Is that progress, or what?
Most disappointing though is the failure of income growth. In the 1960s personal incomes grew by 50% from the start of the decade to its end, to over $10,000 per person. You can do the math yourself. If incomes had continued to grow at that pace the typical worker would be earning more than $50,000 a year - in 1970s money. That is about $300,000 in today's terms. (Of course, there was some inflation built into the '60s' income increases too...but relatively little compared to what was to come.)
Since the 21st century began the typical household has lost income. Bummer.
Why? One answer we proposed was that the three leading economic zones - the US, Europe and Japan - have come to be dominated by old people. But that explains only a part of it...and probably not the major part.
Government is always reactionary. It protects existing voters against those who have been born yet, existing wealth businesses against entrepreneurs, and the past, generally, against the future.
Much of the blame for this flop of a century can be put on government and its cronies in the private sector. At this suggestion, apologists for big government typically point out that government spending, as a percentage of GDP, is scarcely more now than it was in the 20th century. But today much more of the private sector has been cronyized.
Since 1960, the number of rules, regulations and taxes has soared. As we showed last week, far fewer new businesses are started now than in the '60s. This is partly because existing businesses are protected by a high wall of regulation, designed to keep out competitors.
The 'security' industry is obviously a government affair, dominated by large, entrenched cronies. But so are businesses in finance, health, housing and education. They are not exactly married to the feds, but they are so close, they spend almost every night in each others' arms.
When you buy a house, for example, it is considered a private sector transaction. Neither Fannie Mae, Ginnie Mae nor Freddie Mac mortgages show up as government spending. But all are owned and operated by the US government and are responsible for about 95% of mortgages issued in the last 3 years. Banking, medicine, and schooling - even at the university level - are so dependent on government rules and government money, and so chock-a-block with cronies, that they might as well be government itself.
And take a company like GE. It is supposed to be in the business of producing airplane engines and other major industrial components. But prior to the crisis of '08 it worked fiddle and bow with the feds to play the government's distorted yield curve...and then, when that gig was up....it was saved by more direct federal bailouts. You can read the whole sordid story at David Stockman's excellent website: ContraCorner.
In short, after 1960, the economy came to be more controlled by people who were more interested in protecting current wealth than producing more of it. Central planning led to a decline in growth rates throughout the rest of the 20th century. Real incomes peaked in the 1970. The rate of innovation slowed. What we are seeing in the 21st century is proof of our dictum: the real role of government is to look into the future and prevent it from happening.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.