It's Zombies who are killing U.S. economy - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 9 July 2014
It's Zombies who are killing U.S. economy A  A  A

Paris, France

Dear Diary,

We write with a Zombie Update.

As you know, growth rates have fallen rather unsteadily, ever since the end of WWII. Around 5% in the '50s and '60s...we're now lucky to get 2%. And to get that we have to pump in trillions in new liquidity...and bludgeon the numbers too.

After the disastrous first quarter, which saw a drop in output of 2.9%, it will be very hard to back to decent figures for this year. JP Morgan, for example, just cut its guess for GDP growth this year to 1.4%.

This slowdown in growth has happened as technology has raced ahead. You'd think that an economy with more technology would grow faster...not slower. But there you have the puzzle. Why the lower growth rates?

We offer a simple explanation: zombies.

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The Wall Street Journal celebrated its 125th anniversary yesterday. To honor the occasion, it asked a few thinkers to tell us how to get growth rates up again. Mr. John Cochrane responded with sensible thoughts.

    "To blame gridlock, partisanship or obstructionism for political immobility is as pointless as blaming greed for economic problems.

    Washington is stuck because that serves its interests. Long and vague regulations amount to arbitrary power. The administration uses this power to buy off allies and to silence opponents. Big businesses, public -employee unions and the well-connected get subsidies and protection in return for political support."
Meanwhile, on another page of the same WSJ, a plea was made to increase funding for a zombie agency.

"Let's not shortchange the SEC," says Mr. Robert Greifeld, CEO of Nasdaq OMX Group, a company regulated by the aforementioned agency. Mr. Greifeld makes the remarkable claim that "America is falling behind regulators in other countries." The race to regulate may be one that we would do better losing than winning, but Mr. Greifeld is rooting for the SEC. He says it needs more funding so it can tell his business what to insure that it and others "treat investors fairly and honestly."

Why doesn't Mr. Greifeld regulate his own business? Why doesn't he treat investors fairly and honestly himself?

Oh, Dear Diary, you can be so silly sometimes.

As time goes by a stable economy attracts more and more zombies. These are people who find ways to gain wealth, power and status without competing for it fairly. They provide neither service nor product that people will willingly pay for. Instead, they use the government - and to a lesser extent, private bureaucracies - to get what they want. Welfare benefits. Special parking places. Billion-dollar contracts. Rich and poor, zombies take advantage of us.

You can find zombies almost everywhere. But the highest concentration of them is around Washington, D.C. In the city itself are the poor zombies - taking advantage of food stamps, disability support, tort law settlements and other low-life hustles. In the eastern suburbs of Prince Georges and Montgomery counties in Maryland you find the middle-class zombies - on the government payroll. Many of these people are not really zombies at all. Firemen, teachers, road and sanitation workers - they often provide real value for money! But as you get higher up the GS ratings, to the directors of this agency and the policy coordinators of enter into serious zombiedom. Salaries go up. Identifiable, positive output goes down.

But the real money is found across the Potomac, in the Virginia suburbs, where private sector companies with public sector contracts make their headquarters. They make planes and tanks, and conspire with retired zombie generals to sell them to the Pentagon. They make drugs, and connive with the FDA to put them on doctors' desks all over the country.

Charles Hugh Smith comments:
    Why have Education & Healthcare soared despite the deep recession? Simply put, Education & Healthcare are functional monopolies that can add costs with impunity. In economics jargon, these sectors are largely untradable, meaning they are not exposed to much competition from overseas providers of Education & Health.

    They also benefit from immense lobbying of government to protect their fiefdoms from transparency and competition.
Meanwhile, on yet another page of the same WSJ, Paul and Joseph Rubin, pere et fils, make the "Case for Crony Capitalism." The gist of their argument is that the system is infested with zombies. You can't get rid of them. So sometimes it pays to set one group of zombies against another. You hire an expensive tax lawyer, for example. He helps you avoid the zombies at the IRS. Faced with one costly and inefficient bureaucracy, you set up another to help businesses deal with it.

They are right, of course. The world is full of zombies. They crowd the streets. They fill the saloons. They threaten our incomes and our way of life.

Soon, we'll be out of options...on the rooftop...with a rifle, but running out of ammunition. We'll pop off the zombie leaders...and save the last bullets for ourselves.

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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