Had it not been for economists, we'd all be poor

Jul 29, 2015

- By Bill Bonner

Bill Bonner
Vancouver, Canada

Dear Diary,

Hillary is taking the bull by the horns...and putting knife between her teeth. She is a 'take charge' candidate and aims to let us know.

Yes, last week she promised to improve capitalism. This week, it's the climate of planet earth that has her attention; she's going to make it better by decreasing carbon emissions - by force, of course. Next week, presumably, she will vanquish death itself.

But let us turn to the markets. Last night, as the sun set, things were looking up. Bloomberg:

    U.S. stocks rose, ending their longest losing streak since January, amid better-than-forecast earnings and as Chinese equities pulled back from a selloff.

    The Standard & Poor's 500 Index increased 1.2 percent to 2,093.25 at 4 p.m. in New York, as the gauge climbed the most in two weeks to hit its average price during the past 100 days. The Dow Jones Industrial Average added 189.68 points, or 1.1 percent, to 17,630.27 after Monday reaching its lowest level since February. The Nasdaq Composite Index rose 1 percent.

    "China slowed the big selloff it saw yesterday, and that's lifting the U.S. market," said Terry Morris, a senior equity manager who helps oversee about $2.8 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co. "Reported earnings have been OK so far, and we'll get a lot more reports to digest as the week goes along."

Whether the 'rebound' continues...or collapses altogether...we wait to find out. Unlike Ms. Clinton, we are a slave to God and to markets, we are not their master.

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Hillary never mentioned that the problem of "short-termism" in the stock market was largely caused by meddlers like herself. In a free economy, people choose stock holding periods according to what suits them. Some are investing for generations. Others are retiring soon. Some opportunities are fully realized within 18 months. Some take decades. But economist Knut Wicksell explained 100 years ago that when you push interest rates below their 'natural rate' you get distortions. People eschew the hard work of building capital and learning new businesses in order to take advantage of the EZ money. Long term capital formation and long term projects give way to cheap credit and short-termism.

Nor did Ms. Clinton mention the supposed damage that she and her fellow meddlers have done to poor planet earth. This only comes up because we were talking to a nice woman at the Sprott-Stansberry Conference here yesterday. The subject was technology - information technology, to be precise.

"In your book, you suggest that the internet really hasn't contributed much to the economy," she said, setting us up. "In fact, it seems to have changed everything. As Elon Musk says, it has given the world a kind of nervous system, allowing for an instant exchange of information all over the planet."

"That may be," we replied. "But the context we were talking about was economic growth. The kind of growth you need to pay back your loans. And the internet seems to have suppressed economic growth, not boosted it."

"But you don't think that economic growth is all there is, do you?"

"No...I don't. In fact, I think the whole thing is a fraud."

We went on to explain that economists can only measure quantity, not quality. So quantity is all they care about. Naturally, they want more of it.

That is, they only know how much stuff the economy produces and sells. If the GDP numbers appear to sag, the economists who run the Fed urge immediate rate cuts in order to get the assembly lines and checkout counters busy again. More...more ....more!

Normally, the amount of stuff you can buy is limited by how much money you earn. But when you make EZ credit available, the amount of stuff you can afford goes way up.

And each additional increment of stuff produces more CO2, which is what has given environmentalists - such as Hillary herself - the heebie jeebies. We don't know whether carbon dioxide is killing the planet or not. But if so, Hillary Clinton has no one to blame but herself. She and her cronies created a corrupt and insatiable economy, pumped up high on cheap credit.

The phony dollar (not limited by gold) allows for an almost unlimited amount of credit...which allows for an almost unlimited amount of stuff. Factories in China run hot trying to keep up with US consumer demand.

If credit had been kept to the ratio of GDP which prevailed before the 'funny money' system began - that is, before 1971 - China would have fewer smokestacks. And the US economy would be an $8 trillion economy today, not an $18 trillion economy. Our back of the envelope calculation tells us that $10 trillion worth of stuff would never have been made, shipped, or used, this year alone. And since the '70s, that represents the equivalent of about 9 trillion gallons of gasoline that never would have been burned.

But wouldn't that mean that we'd all be poorer?

Only according to economists. Economists measure stuff. Less stuff to them means less wealth. They can't measure the quality of the stuff...or the quality of our experiences...or the quality of our lives.

The internet doesn't seem to do much for stuff...but it does increase quality. We can now easily find out how to do things. We can check our restaurants and hotels before we go to them. We can learn things...read things...see things that we couldn't before. The internet spares our most precious resource - time. You can use it to get where you want - by the shortest, most economical route. You can use it to find information that would have otherwise required a trip to the public library. You can order STUFF too - saving the trouble and expense of a trip to the mall.

Most of these activities are probably time wasters. But, they are energy savers. And, for those who wish to spend their time watching porn or kittens - or fighting imaginary battles with people on the other side of the planet - it must be a lifestyle improvement.

GDP growth goes down. But quality may go up.

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

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