Difference between spending and building wealth - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 29 June 2012
Difference between spending and building wealth A  A  A

Paris, France

"The US seems to have gotten the worst of it," said a French friend this morning. We were taken aback. Everyone knows Europe is in a state of permanent crisis. The US seems solid by comparison, no?

"Now that the Supreme Court has approved Obamacare, you have the same problems we have in European, social welfare spending with no limits...plus you have your colossal military spending. You have both 'bread and circuses,' just like the ancient Romans. You are doomed."

Yes, dear reader, we came to the fork in the road after the 9/11 attack. And it took it!

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And now the feds can fork over whoever and whatever they want. No kidding. They just have to think of it as a tax. Here's the AP's report on yesterday's decision:
Health care law survives _ with Roberts' help

WASHINGTON (AP) - America's historic health care overhaul, certain now to touch virtually every citizen's life, narrowly survived an election-year battle at the Supreme Court Thursday with the improbable help of conservative Chief Justice John Roberts.

But the ruling, by a 5-4 vote, also gave Republicans unexpected ammunition to energize supporters for the fall campaign against President Barack Obama, the bill's champion _ and for next year's vigorous efforts to repeal the law as a new federal tax

Roberts' vote, along with those of the court's four liberal justices, preserved the largest expansion of the nation's social safety net in more than 45 years, including the hotly debated core requirement that nearly everyone have health insurance or pay a penalty. The aim is to extend coverage to more than 30 million people who now are uninsuredLet

The question on the table was whether or not the feds could force people to buy health insurance. The supremes decided that 'yes they could.' It was just like a tax, they said. And the constitution gives the legislators the right to impose taxes, as they see fit.

Let's see...how about forcing all blue-eyed people to go outside, take off all their clothes, and give them to homeless people? That would be a tax too. Guess it's okay.

While the social-welfare state is expanding, so is the police state. Another measure being discussed in Congress would declare the US itself a battlefield or a war zone. This would give the military the right to do what it does without going overseas...and it would give the president the power to direct his kill list towards his domestic enemies.

Then, drones can fly over Kansas or Ohio...and whack whomever the feds want.

But who are they gonna take out? No one...or almost no one...opposes the military agenda in the US. There are no serious terrorists...and no serious challenge to the spending machine. The two candidates for president agree on the essentials - keep the money flowing to the zombie industries...military...education...health...and finance. Oh yes, and occasionally toss a few bucks at an industrial business - like GM - if it has enough unionized employees.

Wait...the US has no serious enemies overseas either. And that doesn't make the racket any less effective. On the contrary, it helps. With no serious enemies to worry about the military industry can spend its money on any damned thing it wants. Lots of boondoggles. Wide profit margins. Low casualties. What's not to like?

But where were we?

We were talking about economists. Specifically, we left off yesterday describing how GDP figures are almost completely worthless. They tell you something; but do they tell you anything important? Apparently not.

You cut our lawn. We pay you. We cut your lawn. You pay us. We both have jobs. And we each pay a portion of our earnings to the government. The GDP goes up. Government revenues increase. And economists tell us we are 'growing.'

Earlier this week, Paul Krugman cited the experience of the US economy in the early '40s. A burst of federal spending between '40 and '42 produced a 20% big lift in output, he says, approvingly. More jobs...more GDP...according to the economists' measures, things were getting better and better.

Were they really? Of course not. Government was spending money on the military. An economist can't tell the difference between a Tiger tank and a BMW. But a passenger can. It doesn't take him long to realize that a tank is no way to travel.

There are times you need to build tanks. But those are not times when you are building wealth and prosperity. Instead, you're spending wealth in order to protect yourself (theoretically, in practice most wars are rackets...for both sides). That's what the US was doing in the early '40s - spending wealth, not building it.

Which just illustrates our point:

If even Nobel prize winning economists cannot tell the difference between building wealth and spending it, what hope is there for the whole profession?

More to come...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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4 Responses to "Difference between spending and building wealth"


Jul 1, 2012

As long as the US dollar enjoys the international reserve currency status America and its citizens will never face problems. MR.Bonner has been writing about the sad state of American economy for years now but he has to understand that there is unlimited appetite for US dollar throughout the world. American economy is sinking but the Dollar is becoming stronger. How come?



Jul 1, 2012

Americans are happy as along they can spend freely. They believe that more they can spend better will be economy though most of consumer durables including automobiles and non durables are produced at rock bottom prices elsewhere for them to outsource. Therefore,"a good economy means ability to spend as much or beyond their capacity". Americans believe in self created plastic money.


prasad madhav

Jun 30, 2012

Respected Sir,

Good informative article. The present situation of US is because Federal Bank is a private bank, owned by outsiders, printing on money continuously and the Americans do not have saving culture. The American culture has remained limited to certain Hollywood actors and actresses and pop stars. They are showing their naked bodies and conducting sexual activities openly shamelessly. That's American culture. Top of all, they are spreading this culture to other countries like our India and people here especially rich people are spreading their culture here in India. I feel pity for the same.

As far as US economy is concerned, they followed consumer economy heavily then producers economy. Which was useless concept.

Hope, you are not unhappy with my views.

Thanks and regards,


R S Das

Jun 29, 2012

thought provoking

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