We are sitting here this morning, in our office, looking at a fat woman — stark naked — sleeping on a couch.
Of course, how rich people spend their money has always been a source of interest and entertainment. That an apparently sane and sensible man like Roman Abramovich spent $33,641,000 for the painting of the "Benefits Supervisor Sleeping," must also be a comfort to the poor. At least, they don’t have to look at it.
But the world of money is a world of wonder…today, as everyday. We could begin today’s reckoning wondering why the rich are so eager to part with their money, for example…or why the poor are so eager to have it; they can see that it clearly impairs one’s judgment and degrades one’s tastes.
Instead, we will wonder why those who constantly praise the virtues of capitalism seem to have so little faith in it.
What brings this wonder to mind is the latest legislation to clear the Senate Finance Committee. Congress is preparing to improve the way capitalism functions, by authorizing the Federal Housing Administration (itself an improvement of an earlier Congress) to insure $300 billion worth of home mortgages. Up until now, federal housing agencies could work all sorts of mischief; you could argue that without the implicit guarantees of Fannie Mae and Freddie Mac, or the explicit efforts of these quasi-public companies to create a huge market for derivatives based on mortgage finance, the whole housing bubble would never have occurred in the first place. Now — if this legislation becomes law, that is — new mischief is about to appear on the scene. The FHA will be empowered to help patch up America’s housing bubble.
The goal, said Senator Chris Dodd, is to keep people in their homes. He did not mention that these are the same homes whose owners demonstrably cannot afford them. Nor was he especially concerned that his meddling with the corrective machinery of capitalism was likely to throw a monkey wrench into the gears. Instead, like God on the 6th day of creation, he looked upon his handiwork and thought it was pretty good.
Everyone is perfectly happy to let capitalism do its stuff — as long as they like the results. But cometh a correction and all of a sudden the press is full of whining pundits and meddling politicians. Every correction brings forth new improvements until there are so many of them the system collapses under the weight. That why we have revolutions and bankruptcies, after all, to blow away the accumulated impediments.
And that is why the emerging markets have such an advantage. In many ways, people swing their arms and their hammers more freely in, say, Russia or China than they do in the United States of America or Britain — simply because there is nothing to stop them. These countries have already had their moments of violent desperation…their bankruptcies…and their revolutions. Both tossed out their entire economic systems in the late ’80s and early ’90s. They’ve been rebuilding — fast — ever since. The leeches haven’t had a chance to get their suckers attached.
America’s war against Iraq had its roots in many improving impulses. According to John McCain and Alan Greenspan, however, the taproot sank into Iraq’s oil fields; America wanted to secure its access to cheap oil, they say.
Unfortunately, this program — like all government meddling — backfired. The price of oil was only $25 a barrel when the war began in September of 2003. Yesterday, it hit $130 a barrel. And the war itself is expected to cost the nation $1 trillion or more. For all its efforts, the United States secured the most expensive energy in world history. (And then pushed food prices up to their highest levels in modern times too — keep reading…)
China, meanwhile, decided to take the capitalist road. Instead, of using military force to get oil, it simply bought it on the open market. It has sent its agents to secure, peacefully and honestly, long-term contracts for oil and the other natural resources it needs to feed its ravenous economy. Its buying is driving up prices for everything. But what would you expect?
Meanwhile, having completely failed in the Mideast, America’s improvers turned to the Midwest. Yes, dear reader, if we can’t get oil from the sands of the Gulf and Mesopotamia, we will squeeze it out of our own farmland. At least, that was the promise of the program to subsidize the production of ethanol. Capitalism could not be relied upon to fill America’s energy needs, said the kibitzers.
Capitalism had already pronounced its verdict on corn-based fuel: it was a bad idea. Later, environmentalists came to the same conclusion; it actually caused more damage than petroleum. But the U.S. Congress, in its majestic wisdom, saw something in ethanol that capitalists and environmentalists had missed — campaign contributions and votes!
And so it came to be that a large portion of the U.S. corn crop is diverted into fuel tanks. And so it comes to be that a large number of the world’s people — including Americans themselves — find their food much more expensive than it used to be.
u2022 In Haiti, people are eating mud.
We’re not making this up. There’s a photo of a miserable woman making mud cakes in Port-au-Prince, in yesterday’s Daily Telegraph newspaper.
For the benefit of readers who wish to cut their food budgets, the Telegraph gives us the recipe: you simply mix clay with salt and vegetable fat and lay it out in the sun to cook — like mud pies. Then, you call them "biscuits."
Last time we looked, mud was not one of the main food groups recommended by dieticians. But all over the world, poor people have to make do with what they can find. Rice is the staple food in Haiti, and it’s trebled in price in the last year, says the Telegraph. Other grains are not far behind. Since January of 2007, wheat has gone up 200% and corn 150%.
Desperate poor have already rioted in 34 countries this year. The ghost of Thomas Malthus, if he bothers to read the paper, must be saying, "I told you so." Malthus predicted that population would grow faster than food supplies. Millions of people would starve, he predicted. Now, it looks like he might have been too optimistic. He died in 1834. Since then, a series of happy events and technological developments greatly increased the supply of food…while war and family planning reduced the number of mouths to be fed. Now, it appears that the gains from mechanization, bioengineering, chemistry and land clearing may have reached their limits. We may soon reach "Peak Food"…the point at which the world can produce no more food. But the human population — especially the part of it that doesn’t eat at the Tour d’Argent in Paris — keeps growing. Experts predict that the world’s population will grow by 3 billion people over the next 40 years — a 50% increase. Where will the world get 50% more food? At what price? Who knows…but one thing is sure: there will be plenty of opportunities for the world-improvers to make things worse.
u2022 Proving us right before we even made our argument, last week, the U.S. Senate approved the latest farm bill by the largest margin since 1973. The bill got widespread, bi-partisan collusion for the very reason that dooms the U.S. economy — it stifles capitalism. There is something in the farm bill for almost every scoundrel and bounder in the country. Poor people get more free food. Rich people get more subsidies. There was talk of restricting the payouts to people with incomes of $200,000 or less…but in the end, the legislation allows people with incomes up to $1.25 million to feed at the public trough. The total cost of the bill is $307 billion over five years — with free money to grain farmers, dairymen, fruit growers, school lunch programs, food stamps, land conservation, rural development, and every other special interest whose lobbyists could suborn and pervert the lawmaking process. There are said to be twice as many lobbyists in Washington than there were 5 years ago; the trough has been extended proportionately.
Did anyone…anywhere…mention that capitalism could be relied upon to sort out the agricultural sector? Did anyone recall that a free market — with prices set by willing producers and consumers — works more efficiently than one that is rigged by lawmakers? Did anyone even notice that the farming industry has been corrupted by government money…or ask where the money would come from to corrupt it even more? Apparently not. Apparently, Americans don’t think they can trust free enterprise to feed them. They think every bid needs to be checked with a bureaucrat and every ask should be cleared by a Senate committee.
But that’s where we are, dear reader, circa 2008…in the greatest show on earth. At every interval the clowns rush in.
Which takes us back to where we began — looking at the naked fat lady on the couch.
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).