Solvency: Gone With the Wind

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.

Copyright © 2005 LewRockwell.com

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