Solvency: Gone With the Wind

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Hardly
anyone ever admits it, but in Hollywood’s Gone
With the Wind
, there are no winners. That message is what
the book’s title conveys, yet Americans are so fascinated with the
characters that they never draw the obvious conclusion: from start
to finish, there are no winners in the movie version.

My
theory — undocumented — is that most Americans identify
with one or another of the characters. They are so fascinated with
the people on the South’s Express that they don’t see the train
wreck coming. Yet the movie’s introductory on-screen lines from
the book make it clear that the train wreck was coming from the
day that the South marched off to war against a better armed foe
that had more men, more factories, and more lines of credit.

The
crucial scene in the movie takes place in the parlor, when the assembled
gentlemen ask Rhett Butler what he thinks of going to war. He tells
them that the North has all the armaments factories. The South has
none. This cuts no ice with his listeners. They ignored Christ’s
warning: count the cost.

For which
of you, intending to build a tower, sitteth not down first, and
counteth the cost, whether he have sufficient to finish it? Lest
haply, after he hath laid the foundation, and is not able to finish
it, all that behold it begin to mock him, Saying, This man began
to build, and was not able to finish. Or what king, going to make
war against another king, sitteth not down first, and consulteth
whether he be able with ten thousand to meet him that cometh against
him with twenty thousand? Or else, while the other is yet a great
way off, he sendeth an ambassage [ambassador], and desireth conditions
of peace (Luke 14:28—32).

There
is something inspiring about men who dearly believe that good intentions
and courage will always save the day. Most of Gone With the Wind
is about the consequences of such inspirational action: bad.

The
South could have won the war if it had fought the way that the American
revolutionaries fought their war: as guerrillas and militia members,
never letting the enemy get any peace, and never risking an event
like Pickett’s charge. But there is little glory for guerrillas.
They are not inspirational.

When
it comes to investing your money and especially your time, you had
better be a guerilla.

WINNERS
AND LOSERS

Scarlett
was ruthless during Reconstruction. But she did not get what she
really wanted, except what she already had: Tara.

Ashley
was a beaten man mentally: in love and war and peace. He rolled
with the punches, but he was always getting punched.

Rhett
saw his opportunities and took them.

The
typical American worker/taxpayer today is most like Prissy. He don’t
know nothin’ about birthin’ and not much about anything else outside
his job. He assumes that someone — the government, his employer,
or the experts — is in charge and will keep the economy running
smoothly. He is as confident in the wisdom of experts as Scarlett’s
father was about Confederate bonds in 1865. But Scarlett’s father
had an excuse. He was nuts.

The economists
are the trusted experts. They think that the free market will keep
everything running smoothly, with help from the Federal Reserve’s
FOMC: Federal Open Market Committee, which is neither federal nor
an open market. But it is surely a committee. We all know what they
say about a committee: "A camel is a horse designed by a committee."

Economist
Ludwig von Mises did not literally say this, but taught that "a
recession is prosperity designed by a central bank’s committee."

When
you live in an economy that is stabilized by the FOMC, don’t be
Gerald O’Hara.

COUNT
THE COST OF INACTION

The
typical American worker is addicted to low-quality leisure. He watches
prime time TV. He does not read. He does not subscribe to economic
newsletters or spend time on financial websites. He does not think
about the distant future, which he defines as anything beyond this
month’s paycheck.

This
is not you.

But
anyone who takes no action in terms of what he knows is likely to
happen is in pretty much the same condition as the typical American
worker.

A
driver who hears a siren and refuses to pull over is not fundamentally
different from a deaf driver who doesn’t hear the siren and also
doesn’t pull over.

It’s
unpleasant to hear someone say, "I told you so."

It’s
worse when that person is you.

Today,
workers in Europe, North America, and Japan have heard about the
looming fiscal crisis of the government-funded retirement programs
and old age health care programs. What was dismissed as nonsense
two decades ago is accepted as statistically inevitable by economists
and politicians today. But they shrug their shoulders and say, "It
won’t happen for years." This is Scarlett O’Hara syndrome:
"Well, fiddle-dee-dee. I’ll think about it tomorrow."

Actually,
Scarlett was a cunning, ruthless person who was determined to avoid
bad times. Bad times might happen to other people, but not her.
"I’ll never be hungry again." She was smart enough not
to spend time worrying about the things she knew she could not control.

The
people around Scarlett really didn’t think too much about tomorrow,
which is why Scarlett got rich and they didn’t. They were focused
on today. She was focused on those aspects of tomorrow that she
believed she could control.

Who
was wiser?

Mammy.
She instinctively did the right thing and worried only about the
people she loved, not about money. She nagged people, but only for
their own good. She rolled with the punches, but she did her best
to help those around her to avoid getting punched.

You
and I have no control over the FOMC, the Federal Reserve Board,
or Congress. We see the U.S. government’s deficit rising at $300+
billion a year — before Katrina. We see the balance of payments
deficit rising at $700 billion a year. We can do nothing about any
of this. We are watching a train wreck in slow motion. Our task
is to get out of the way.

READING
A MAP

I
always return to the career of Doc Holliday’s father. He was a field-grade
Confederate officer in the first year of the Civil War. He was wounded
early and returned home.

He
sat down with a map. He concluded that the North would attack Atlanta
by way of captured rail lines from Tennessee.

His
wife owned land in the region between Atlanta and the ocean. He
told her to sell her property. She did. Then he moved as far south
as he could and still stay in Georgia: Valdosta. Why? The town was
so far away from anything of military value that he figured that
Northern troops would not get there during the war.

It
all came true. His wife’s property was in the pathway of Sherman’s
march to the Atlantic. Northern troops did not arrive in Valdosta
until after the war. The Holliday family kept its capital intact
in the form of a nice house in a safe place.

He
could read a map. He could draw conclusions. Most people did not
have ready access to a map in 1862. Few could have read a map. Most
people could not have drawn accurate conclusions from what they
saw.

So,
most people in Atlanta just sat there. Most people in the West today
are just sitting there. Most people in Atlanta hoped for the best.
Most people in the West today are hoping for the best.

We
have seen what just sitting there did in New Orleans. Most people
got out. Most people took the warnings seriously. Those who failed
to leave got trapped.

When
no one can get out because everyone is trying to get out at the
same time on the handful of exit routes, the only ones who do get
out are the ones who got onto the highway early.

TOO
MANY MAPS

There
are a lot of maps out there. Too many of them are treasure maps.

You
don’t need a treasure map. You need an escape route.

You
can’t read all the maps. You have to decide which maps make sense
and which maps you can understand. Then you have to decide to take
action in terms of what the maps seem to indicate.

Some
maps are clear. The map governing the fiscal reality of Social Security/Medicare
is crystal clear. The financial well will start running dry in 2011,
when the post-World War II baby boomers start retiring by the millions.
That is six years away. Social Security will still produce a surplus
until 2017, but Medicare won’t. The two programs are linked at the
hip politically.

The
Federal government’s red ink is already flowing. It will get steadily
worse six years from now. Then it will become a flood.

The
financial Katrina has been spotted. It is a category-5 hurricane.
It is moving straight for the coast.

How
many feet below sea level do you live? The more dependent you expect
to be on Federal money, the lower your location.

Six
years: the time it takes between the birth of a child and his first
day in school. For new parents, this seems like a long time. For
grandparents, it doesn’t.

It
has been five years since the stock market peaked. The NASDAQ is
down 60%. The S&P 500 is down 40%. Yet the financial media are
oblivious to this. All the way down and then back up (part way),
the media said, "Now is the time to buy."

The
retirement fund managers are buyers on behalf of the investors.
So are the index fund managers.

The
boom is on in real estate. But the problem with real estate is the
same as the problem in equities: it takes economic growth after
price inflation and taxes to sustain any market boom, and there
is no growth after price inflation and taxes. There was, slightly,
but Katrina has killed this.

So,
which maps should you believe? I read the
"maps" published by the Federal Reserve Bank of St. Louis
.

I
realize that not many readers who started this report have actually
come this far. Of those who have, only a few will click through.
Then hardly anyone will check back at least once a month.

Then
this handful of people must interpret the maps.

This
procedure is not intuitive.

The
point is, the maps are out there, and you must pick the right ones
to read. Then you must interpret them.

Being
as prescient as Doc Holliday’s father isn’t easy. But at least we
can all give it a try.

Watching
the next installment of "Survivor" is no substitute for
map reading.

CONCLUSION

The
maps that count most are the maps that estimate the future of Social
Security/Medicare. One map is demographic. The people are here.
One map is political: the political promises have been made. The
taxes have been imposed. The domestic economic growth rate is mythical
after price inflation and taxes. The
main social security maps are here.

You
even get commentary that will help you interpret them.

The
general economic maps are here.

It
is clear what the maps say: economic growth cannot possibly sustain
the political promises made. We are therefore watching a slow-motion
train wreck.

When
you think "Social Security/Medicare," think "Confederate
bonds in 1866."

If
you sit there, hoping for the best, your personal solvency will
be gone with the wind.

September
17, 2005

Gary
North [send him mail] is the
author of Mises
on Money
. Visit http://www.garynorth.com.
He is also the author of a free 17-volume series, An
Economic Commentary on the Bible
.

Gary
North Archives

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