Deep State in Control

BALTIMORE – What is going on in the markets? Well, nothing much. The U.S. stock and bond markets have been as dull as a teetotaler’s funeral. No dancing. But no teary breakdowns, either.

 

1-spx-and-tltS&P 500 Index and the long term (20 yr. +) bond ETF TLT – both have weakened recently, but not dramatically (at least not yet) – click to enlarge.

 

Investors seem to be awaiting the results of the upcoming elections as if they were waiting for him to die. They look at their watches. They check their cell phones. Pollsters tell us it is a “done deal.” But you never know; the old boy might surprise us.

So, while we’re waiting, let us continue – rounding on our subject, trying to understand it, trying to see how the dots connect.  Today, we step back to get a better view.

We have been looking at the way the feds’ post-1971 fake money changed our whole society: our economy, our government, and our home life, too. Gone is the wealth-producing economy; now we have one that adds debt and subtracts real wealth.

As we noted, if you calculated “real” (inflation-adjusted) GDP growth according to the methodology used during the Reagan era, you would see that the nation has been getting poorer since 1989.

 

deep-stateEverything is gone – all that is left is the Deep State

Illustration via humansarefree.com

 

Gone is the Old Republic, too, with its bleeding-heart liberals and foot-dragging, tightwad conservatives. Now we have only the Deep State Party – firmly in control of Congress, Wall Street, defense, health care, academia, and the mainstream press.

Gone, too, are the home-cooked meals… the Father Knows Best households… the one-car families… the breadwinners… and the homemakers. Today, the problems that used to afflict the inner city – drug addiction, broken homes – have spread to the suburbs and rural areas.

 

Godawful Mess

How did all this happen?    There are only two ways to get what you want in a community: Give and take. Or just take. Either you work, add value, negotiate, and trade for what you want; or you pull out a pistol. It’s either markets or politics, in other words.

But politics is more than just running for office. It is not fixed and well-contained. Instead, it’s a dangerous and volatile fluid – a noxious enzyme that comes out of man’s most primitive urges and leaks into the economy and society.

People are all, to some degree, as capable of “politics” just as they are capable of murder. Some are prone to it. And sometimes, a whole society gets taken over by it.

 

the-state-oppenheimerAs Franz Oppenheimer noted in his analysis of the State (full title: The State – Its History and Development Viewed Sociologically), there are two ways of obtaining wealth and income: by economic means or by political means. The latter means essentially forcibly  taking wealth under the color of law from those who have obtained it by economic means.

 

First, the vapors make people giddy thinking about the possibilities. With the government and its phony money behind them, it’s hard to imagine a good thing they cannot do.

Then they go a little mad, waving their pistols and pesos, proclaiming rights and rigmarole, and undertaking projects that ought to be left alone – all while mismanaging those few things they should do well.

Finally, they end up with a godawful mess and give everyone a terrible headache.

Today, if you run a business in the medical field – insurance, ambulances, hospitals, drugs, private practice, medical devices and tests – you are in a partnership, of sorts, with the feds. Like it or not.

They can tell you what you can do and what you can’t. They approve your drugs. In many cases, they determine how much you can charge. They can put you out of business, or make you rich. The entire industry has been politicized. If you want to enter the field, the first thing you should probably do is hire a lawyer and a lobbyist, not a doctor.

 

branches-of-governmentThe three main branches of government

 

When a business falls under the spell of politics, the interests of the customer or of the owner are no longer paramount. Instead, satisfying the customer gives way to lobbying, bullying, pressuring, menacing, backstabbing, and seducing. And the business turns inward. Its primary mission now: to reward the insiders.

In a free market, politics is self-limiting. Anything that takes your eyes off providing better products and better services puts you at a disadvantage to your competitors. Politics will ruin your business. But when the feds gain control of the economy, politics runs wild.

Then, as economic growth stalls, the relative payoff from politics increases. We don’t know which is the chicken and which is the egg. Does growth slow down first, leaving politics as the best way to get ahead? Or does politics slow down growth? We don’t know. Maybe both.

 

The Triumph of Politics

In the case of medical care, for example, the share of the U.S. GDP that went into the healthcare industry increased from less than 7% in 1970 to over 17% today. How did that happen? Politics. Since 1970, the number of doctors has barely doubled. But the number of “administrative employees” has gone up 3,000%.

The same is true in education. Teachers provide real value for the money; administrators play politics. Since 1970, the number of teachers has risen about 60%. The number of non-teaching administrators has gone up more than twice as much.

 

2-la-me-g-adv-uc-spendingAn example of the shift: administrative vs. faculty personnel at the University of California.

 

You can see the same trend in the military, too. The military is pure politics, in a sense. It is intended to use violence. And yet, even the military can be undermined and diverted from its real mission – by politics.

The ideal fighting force is “lean and mean.” Fighting men need to be young and vigorous. So, as they aged, the Pentagon used to say it was “up or out.” Old soldiers were dead wood, unless they were destined for the top. And dead wood at the top was fatal. They slowed down decision-making. They wanted to “fight the last war.” They got in the way.

There was only one officer for every 10 enlisted men when the U.S. won World War II. Now there are twice as many officers and four times as many generals –  and we haven’t won a war since.

As President Reagan’s chief budget advisor David Stockman foresaw 30 years ago: we are seeing the final “triumph of politics.” The elections are just a sideshow.

 

Charts by: StockCharts, LA Times

 

Chart and image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 


 

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