Tripartite World

Mundus est omnis divisa in partes tres.

One part is the best part to live in. Another is the best place to make money. And the third is the best place to lose it.

One part is this Old World where we have our — Europe. It is like a museum, friends say. It is rigid, say economists. It is politically and militarily irrelevant, say the neo-conservatives. It refuses to change, the world-improvers complain. But that is what we like about it; Europe has few of the virtues we detest and many of the vices we esteem. "The French are cynical scofflaws," say critics. "The French are cynical scofflaws," we agree, admiringly. The Old World is the best part of the world to live in. The food is good. There are few policemen. You can still smoke. You can drive fast. Avoiding taxes is not a crime. Women are pretty. The towns are charming. The scenery is attractive. And you don’t have to take your shoes off in order to get on an airplane.

There’s a time and a place for everything. The best place to lose money is the New World. Stocks still trade at historical high multiples of earnings. Whenever they are so expensive, there is little likelihood that investors will make money… and a high likelihood that they will lose it. Houses are expensive, too. There is a real estate bubble on both coasts. In California, applications for real estate licenses rose 200% in the last two years. In Washington, housing is rising twice as fast as the national average… and the real estate speculators are so young that they have no idea what they are doing; they were still in high school when tech stocks blew up. Even Alan Greenspan says he is concerned about "froth" in the housing market.

The best place to make money, on the other hand, is in the Far East. While America’s empire is probably peaking out… the next one is rising quickly. Shanghai is putting up the world’s tallest buildings, the world’s biggest airport, and the fastest monorail (268 mph). The economy is growing at 13% annually — nearly four times as fast as America. And it’s real growth — not merely an increase in consumption. Shanghai is enjoying a real estate bubble too, according to a report from Bloomberg. Prices are soaring, up 19% in the first quarter alone. The Chinese property market is likely to blow up — just as America’s will.

But there’s a difference. Shanghai has a population of 17 million already — with millions more moving in from the countryside. It is like New York during its great growth spurt at the end of the 19th century. And, in some ways, China is not unlike America… when the country was young and robust… when people still built factories… before it assumed the burdens, delusions and conceits of empire. In China, people still think they need to work, save and invest to get rich.

A property bust in China is likely to be followed by another boom. In America, a property bust may be followed by a long period of stagnation or decline. American wages are not increasing significantly; we see no reason why they should. In China, by contrast — wages are going up about 10% per year, with plenty of room left to rise.

• The euro declined again on Friday — in anticipation that the French will vote "non" on this weekend’s referendum on the European Constitution.

"You’d have to be crazy to vote for it," says a friend. "It is incomprehensible. One page contradicts another. Do you know they even have a provision allowing bureaucrats to buy cars without paying the sales tax? It’s in the Constitution!"

But the French may still vote "oui." "What else can we do?" asks another friend. "It is either forward or backward."

The euro is down to $1.25. If you’re feeling lucky… you may want to buy it now.

If you’re not feeling lucky, buy gold. It is down to $417.

• "France is a mess," said a friend at the annual school fair. "Nobody works. Well, few people work. And did you know, we now have the record for the most holidays? Thirty-six, I think they reported yesterday. Add in weekends; that’s about seven weeks of holiday."

"Yes, it is very different from America," we explained. "We feel lucky to get two weeks off. Americans now work more than anyone. But they don’t get anything done. It’s a consumer-led economy. People can spend their money day or night. So, sales clerks work long hours, and fast-food restaurants are open almost around-the-clock… and health salons… and so forth. None of this generates any real wealth. Per hour worked, the French are actually more productive."

"It is funny. I work for a large company with a big presence in the United States. The Americans will attack a problem with a huge force of workers… as if they were landing at Normandy. They like to have big meetings. And big projects. But when we studied what actually happened, we found that a small team of French workers got the same amount done in less time."

• The fair was at Henry’s school, in the 16th arrondissement, not far from our apartment. It is a very conservative, very Catholic establishment, attended by students whose parents worry excessively about their children’s education. Ask any one of them how the family is doing and you will hear a lament:

"Oh… it’s been a hard year for Thomas. He’s 5th in math, which is not bad [everyone knows his child’s exact rank in each subject], but he’s dropped badly in English. We got an extra tutor for him, but he complained about it so bitterly, we had to stick with just one hour a day. Honestly, he doesn’t seem motivated enough. I don’t know what will happen to him. He takes his u2018Bac’ [the big exam that largely determines where you go on to school after high school] next year. He’d better get on the ball."

School, grades, studies — the parents can’t seem to imagine that anything else matters. Napoleon created a centralized meritocracy. If you do well in high school, and get a good score on your "Bac," then you get into the French equivalent of the Ivy League. Then, you can get a good job in the government… or a large business. The road to mainstream success is well marked. There is little room for improvisation.

"Michel can’t continue where he is," began a particularly lugubrious comment. "He doesn’t have the grades. His rank has slipped to the bottom of the class. I have spent the last two weeks in interviews [schools typically want to interview both parents before excepting a child]… and it looks almost hopeless. I will have to send him to public school. But I don’t think he will pass the u2018Bac.’ He will have to get some technical degree. Of course, he hates it. He suffers in school. He is just not cut out for it. But he’s been suffering for the last 10 years. He might at least suffer through the last year. What else can we do?"

"Let him drop out," was our advice. "Get a job on an oil rig… or sheep farm."

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.