»The Daily Reckoning by Bill Borner

How did the Industrial Age flourish?
13 OCTOBER 2015

- By Bill Bonner

Bill Bonner
Paris, France

Dear Diary,

Not much action in world markets yesterday. The Dow was up 30 points. Almost everything else ended in the red.

We visited Athens, briefly on Monday, and then headed back to Paris, joining an Oxford Club group for dinner at the Jules Verne restaurant at the Eiffel Tower, one of the best restaurants in Paris.

Our Mediterranean cruise last week, aboard the Crystal Serenity, took us to gawk at the great monuments of classical Greek civilization - the Acropolis in Athens, Ephesus in Turkey, the Valley of the Temples in Sicily. At each spot, we craned our necks, in awe and wonder. 'How did they do that,' we asked ourselves, marveling at the engineering prowess and aesthetic refinement of people so long ago.

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But the Eiffel Tower took our breath away too. Here was a monument to a different people, a different technology and a different civilization - put up 2,400 years later. You look down from the second level - where the restaurant is located - and you wonder: how did they do that?

Still, this is the technology we are familiar with. It is what built the Brooklyn Bridge and formed the Manhattan skyline. It is something we understand. Assembly lines and mass production... smoke, wheels and cranes... men with tools in their hands. It has its heroes and its geniuses too - Ford, Carnegie, Vanderbilt, Sloan...

No technology gets better and better forever and ever. The industrial age probably peaked out in America in the 1970. But it was what built our world. It put automobiles on the roads and bombers in the air. With its tractors and trucks, it saved as many as 3 billion from poverty...perhaps even from starvation...and with its tanks and machine guns, it wiped out as many as 200 million in the mechanized wars of the 20th century.

The Eiffel Tower just showed the world what was possible.

And now a new technology - of electrons, 3-D printing, and drones -- promises great progress. We wait to see what it really produces.

But the Industrial Age - with its high rates of growth and prosperity - flourished in more or less free market economies. Now, we have economies that are controlled, manipulated and regulated by the authorities. Is it this central planning - and not technology itself - that has slowed growth rates? We don't know. But the Fed and other central banks broke the market system. Now, they own it.

Last week, investors were cheered by bad news and baloney. The bad news showed the world economy slowing down even more than expected...to the lowest levels since 2009, which led the IMF chief, Christine Lagarde, to urge central banks to hold off on any rate increases. This was like asking an obese person to put off dieting; the plea met no resistance.

From every direction, central bankers are being urged to do even more absurd and reckless things. In Greece, to which we just bade farewell, the feds are considering tighter controls on cash. According to the report at the newspaper 'To Vima,' people who get money from the government will be restricted to taking just 600 euros per month of their money in cash. The rest will have to be spent via debit or credit card. If implemented, it will affect 2.65 million retirees and 600,000 government employees. Then, it can be rolled out to the entire country.

The measure is discussed as a way to crack down on tax evasion and the black market. More broadly, it is a way for the government to further control the economy and the people in it.

Back in the US, but writing in the Financial Times in London, economist Ken Rogoff has lost his mind. He begins by noting that the world economy is indeed slowing - a 'hangover not a coma' - caused by what he calls "the later stages of a debt 'super cycle.'" So far, so good. Debt expanded over the last 66 years. It's time for it to contract. That is bound to be deflationary...causing a slowdown. But then, poor Ken imagines two absurdities at once: first, that government spending on 'infrastructure' will successfully counteract the debt super-cycle...and second, that an elite corps of government employees can figure out how to spend the money wisely (presumably getting a higher rate of return than the private sector):

    President Barack Obama once proposed creating an infrastructure bank, which would employ technocrats to provide objective analysis. It was a very good idea.

If advanced economies are to continue expanding the size of government expenditures (now 57 per cent of output in France), it is imperative to find better ways to make choices and decisions. Policy action is needed, but of the right kind - and in response to the right diagnosis.

If government spending on infrastructure - financed with money that never existed - could help make people wealthy, the world would have a lot more wealthy people already. And if bureaucrats could make better decisions about what to do with the world's resources than the people who created them, the Soviet Union would still be in business.

More to come...

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