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July 29, 2004

You're Trapped in a Box Canyon Stupid!
by Wayne Krautkramer

A recent article by a financial writer asked the question, "When will Atlas Shrug?" The writer appears to be assuming that Atlas Shrugging means an immediate total collapse. That is not the way a socialist industrial system fails. Socialist industrial systems fail incrementally. Each subsystem fails, and a temporary patch is applied. First, the roads and bridges deteriorate; then the power, the water, and finally, the food distribution systems malfunction. The usual next step is the establishment of a Blue Ribbon Committee to study the problem There can be no solution, for that would require a focus and investment that a socialist system cannot generate. The never ending claims for increased social spending, and the continuing appeasement of all real and imagined inequities, preclude the option of addressing a major industrial system's malfunction. Machinery and infrastructure have no votes. Politicians only serve the voters, for reelection is their only priority. This continual decline is marked by the increasing calls for tolerance, and a lethargic acceptance of the new reality. After all, the good old days are gone, aren't they?

The last 40 years in the US has been an interesting study in group suicide. The late 1950's to the early 1960's was the climax of large scale capital investment in the public sector. The interstate highway system was completed. The policies of the New Deal had confiscated too much energy (resources) from the private sector. The economy was slowing down. Harold Geneen, the CEO of I.T.T., created the multinational corporation. His rationale was simple. He saw no way that the modern socialist systems of the West could solve the coming crisis. Harold Geneen was correct. He knew that their socialist policies were the cause of the problem; therefore, they would be incapable of solving the problem. The mid 1960's revealed the creation of the Vietnam conflict, as the US government became more desperate to hide its continuing failures. Lyndon Johnson announced the Great Society in 1964. On January 8, 1965, LBJ declared that the "unconditional" War On Poverty had begun. LBJ then proceeded to create the Medicare/ Medicaid programs on July 30, 1965. LBJ's grand finale occurred on January 13.1966 with the creation of the US Department of Housing and Urban Development Act. This became the umbrella for Fannie Mae, Ginnie Mae, Freddie Mac, Sallie Mae, and the FHA. August 15, 1971 was the day that Richard Nixon repudiated the last US dollar link to gold, and 1972 brought us Nixon stating that "We are all Keynesians now". Nineteen seventy-four ushered in the Employee Retirement Income Security Act. This extension of government power occurred under the "conservative" Richard Nixon. The capstone of the socialist onslaught occurred in 1978, a gift from Jimmy Carter. This was the passage of the Humphrey-Hawkins Full Employment Act. America's most underrated economist, Peter Ferdinand Drucker, had predicted all of this in his prescient book, The End of Economic Man (The Rise of Totalitarianism). This brilliant insight into the future of the West was written in 1939.

We should view this progression as nothing more than a continuation of the tax and spend strategies of FDR. Roosevelt was a master of dissembling. Students of political science hold FDR in awe. All employed politicians religiously follow the blueprint that FDR created. Bill Clinton recently stated that he considered FDR to be the greatest American of the last century. No politician leaves the formula. Why should they? The voters have continuously rewarded the socialist agenda by returning these politicians to office. The public worshiped FDR even as he ordered them slaughtered on foreign soil. FDR was (and still is) heralded as the American savior even though unemployment continued to climb through most of his presidencies It was only when we started selling arms to the warring parties in Europe (1938-1939) that the economy showed any signs of recovery. LBJ knew what Americans will tolerate. Ronald Reagan created more government offices, a new executive agency, and ran the US from the largest creditor nation in the world into the largest debtor in the world. He is still hailed as a tough conservative, and the man who held government back. The formula worked again. Ronald Reagan just packaged it differently. Everybody is a marketing manager in the modern socialist countries. Substance is now a historical curiosity.

We now witnessed 40 years of the Great Society, so an audit would not be unreasonable. The "unconditional" War On Poverty has turned into one of the greatest frauds of all time. Poverty has not been eradicated, but billions of dollars have been funneled into the friends and families of the bureaucrats. Food stamps are the unofficial currency of Puerto Rico, and WIC stores are now springing up everywhere in the US. Fannie Mae, Ginnie Mae, and the FHA are a total disaster. The Federal Reserve is totally committed to pumping up the equity markets to avoid the possibility of a bailout of the pension system. Alan Greenspan recently testified that he has real problems with the liabilities of the GSE's. Government Sponsored Enterprises include Fannie Mae, Ginnie Mae, Sallie Mae, etc. The government has implemented the Full Employment Act, and has turned the US into a service worker paradise. The premise that the government can create jobs is true. The problem is that the government cannot create productive jobs. What would Congress and it's entourage of lobbyists know about productive work? We no longer produce goods. It is an economic fact that the production of goods creates wealth through operating leverage. Service industries are inherently inflationary, because there is an equal amount of labor required for every incremental unit of service provided. There are no wealthy service economies. The big problem is tax revenue. How can low paying service jobs generate the taxes required to pay for all the social services they use? We witness the absurd spectacle of service workers receiving social services from government workers who are paid three to five times more than the services workers are paid! Will somebody please explain this logically? Government workers produce nothing except more government workers! We are trapped in a circle with no exit.

The Social Security pyramid scheme has hit the wall. The pyramid is disappearing. There will soon be more people collecting benefits than there are people working. The Social Security Fund never existed. The trust fund fiction was created by FDR to defeat the program's critics. The one variable that might give the system more time, is the fact that you have no legal right to Social Security. Keynesian economics, and socialist central planning, have trapped the Western economies into a slow death. The true US government debt has been estimated to be 82 trillion dollars. Should this socialist delusion continue, we will have to start computing the National Debt in googols. Googols represent very large numbers. Naturally, the government will announce the conversion to googols as a major cost saving measure. All those very big numbers will be reduced to a few googols. The government will save on forms, and computer data storage space. Once the politicians find out that less trees are being cut down as a result of the conversion to googols, the new numbers base will be heralded as a brilliant environmental decision. We are talking about Nobel prizes, and KBE's from the Queen of England! This could warrant the establishment of a new government agency! The government will claim that the new agency will actually be free because it will be funded with the savings from the conversion to googols. It may run a little over budget, but no plan is perfect. Of course, how would one know if they were over budget using googols?

The obvious question is where do we go from here? Dick Stoken, a veteran commodity trader and a very astute observer of the markets and the economy, made an interesting argument in his first book, Cycles (1978). Stoken said that all modern societies have washed away their debts with inflation (debasement of the currency). This would seem like the obvious move for the socialist governments at this time. As Shakespeare said, "Ay, there's the rub". We have to deal with the probability that the past will extrapolate in a linear way into the future. We may be confronted with a discontinuous event, which defines a major change in trend. We are witnessing the largest inter generational wealth transfer scheme in history. We are trying to shift our financial obligations onto the next group of workers. Do we really believe that these new workers are this stupid? Why should they be impoverished by paying their elder's bills?The most bizarre part is the fact that the most of elders will dead when these younger workers get the bill for this lunacy! Will they support a government that has enslaved them financially? Would you? Should you wish to revert to legalisms about their duties, The Declaration of Independence will help you to understand their inalienable rights.

When will Atlas Shrug? Atlas has not only shrugged, he has sold his real estate at the top, and is now ensconced in Thailand, China, India, the Baltic States, and anywhere else that has economic freedom. Corporations are fleeing the US as if there were vampires here. Corporations are aware of the differences in the value systems of different countries, and are acting rationally by leaving the US for environments that are more" producer friendly". We should remember that the American value system was once very producer friendly. Calvin Coolidge was the President from 1923 till 1929. Coolidge said, "After all, the chief business of the American people is business". There is a very serious disease in the US. It is highly contagious, usually fatal, and requires extreme measures to stop its spread. It is the ultimate biological weapon. It slowly destroys entire societies. All of the nation's creative energies are utilized in working the system, whether it be for handicapped privileges, or for increases in the particular entitlement they are currently receiving. Slowly, the economy has changed from production to parasitism. Collectivism makes Ebola look like a Christmas present.

Free Markets For Free Men!

Wayne N. Krautkramer
http://onlypill.blogdrive.com/

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