“Only in Congress do people adjust to economic adversity and growing deficits by spending more and more money.” – Thomas Sowell

Howdy, gang! It’s that time of the week again and it looks like you’re stuck with me for as long as it takes you to power-read this blog! I want to thank you (all of you) for your emerging passion of economics as well as your patience as I attempt to discuss the basic ideals of macroeconomics in an effort to pave our way to a more current analysis of ongoing developments.

Last week, I re-introduced the wildly foreign concept of capitalism (pause for laughter) and insinuated that there is a level of irony attached to it. I framed it that way because of the social trends we’re all seeing in America, which are extremely ironic given that we are the richest nation on earth primarily because of our economic model…as well as the fine people who operate within that model. Capitalism has indeed worked well for us. Not ALL of us, but “us” as a collective whole…as a nation. That is not to say that it has made every one of us rich and wealthy because it hasn’t. Poverty occurs automatically. It is wealth that must be produced and must be explained. If you compare people who are in poverty in the United States with people who are in poverty in other countries around the world then I think you’ll start seeing the benefits of capitalism…and the irony of current trends.

With the election results of 2016 still freshly haunting at least half of the American electorate it would be silly not to associate the results of the election with an increased level of populism. It’s not a horrible thing, but it does insinuate a bit of identity politics. Populism is essentially the act or desire to help the “ordinary” citizen…sometimes referred to as the “forgotten man.” When a large enough portion of the population begins to identify with populism then it’s usually safe to say that said portion of the population will get what they want. For years, politicians have been barking about the poor and the wealthy all while assuming that things were satisfactory for the folks in the middle. Now, along with populism comes a few ideas/policies that may seem a little bit nontraditional, but they sell because they sound good. Take “protectionism”, for example. In 2017, the idea of protectionism doesn’t make a ton of sense given the way modern economics and a global marketplace work. During the campaign of 2016, the idea of protectionism was wrapped around domestic economic policy ideas and it took root. Intellectually it took root, but I doubt we’ll see anything actually implemented as protectionist because of the predictable results that would follow.

Protectionism is the practice of protecting the domestic market against foreign competition by imposing quotas and tariffs on incoming goods. This is usually done to ensure a positive balance of payments, where imports of foreign goods threaten to outweigh exports of locally produced goods. It may also be done to protect a nascent industry, such as car manufacturing in Japan in the 1930’s and 1940’s.

Many countries have imposed (and still practice) a certain level of protectionism for obvious reasons. No one wants to see an entire industry leveled to the ground because of foreign competition, but it definitely happens. Just take a look at our domestic manufacturing sector! Protectionism sounds nice and reads well…on paper. In reality, it’s not been a successful economic policy (unless it is only meant to last for a brief period of time) because it establishes artificial prices that are usually much higher than market demand. Equilibrium is rarely achieved when championing a protectionist agenda unless it revolves around a natural resource that is relatively scarce. To live in a capitalistic society and reap the benefits of unlimited potential while championing the cause of protectionism is pretty ironic. Those two ideas (capitalism and protectionism) aren’t related to each other. They’re not even in the same orchard, let alone the same family tree!

Since the industrial revolution, America has seen a tremendous increase in collective and individual wealth. With relatively low barriers of entry and access to capital from lending institutions eager to increase the bottom line it became somewhat easy to start and grow a business. Things have obviously changed along the way. Since there weren’t laws or regulations to prevent possible market saturation, it became paramount for businesses to set themselves apart by increasing quality and establishing a competitive advantage. Bottom line, America was on her way towards big time wealth.

With wealth comes power and influence…and with that comes an increase in corruption. It wasn’t too long until a type of kleptocracy was being established in state capitals across the country as well as the federal government. A kleptocracy is a government in which corruption is endemic; taxes, government funds, and access to power brokers are used for the personal profit of officials, at the expense of the wider populace. The most famous case is the Philippine’s government under Marcos, when the country’s treasury was used virtually as a personal bank account. The main element needed for an emerging kleptocracy is “access” and we all know that it’s extremely valuable for industry leaders to have access to political leaders. Just ask the owners of Uranium One or Solyndra. How many former governors of Illinois are in prison again? I wonder if Halliburton did well (as a company) between 2001 and 2009? I think you get an idea of what I’m talking about. A kleptocrat is someone who uses the government to become rich, powerful, and influential.

America isn’t nearly as big of a kleptocracy as some of the countries you’re probably thinking of, but it would be foolish to claim that we’re the polar opposite. We have seen an extraordinarily high level of corruption flow through our nation’s capital over the past century. Just take a look at how many vacations our leaders go on while serving as President and ask yourself who is getting stuck with the bill? Why do we have to pay for a vacation to Hawaii for the family and extended family of our Commander in Chief? After all, doesn’t our President bring in an annual salary of nearly half a million dollars? Have you ever noticed that once a person is elected to federal office they essentially become millionaires? Why is that, I wonder? In a capitalistic society, it is extremely ironic to see the rise of a pseudo-kleptocracy…but even more ironic to see how many citizens just shrug it off and accept is as a mere nuisance rather than as a cancer needing to be surgically removed. We may never end up being nearly as overt as the Philippines under Marcos, but it would be a folly to assume that there isn’t a certain level of “entitlement” embedded into the minds of career politicians, judicial servants (who are sometimes appointed to their positions for life), and executive branch leaders. The truly ironic thing about this is that capitalism cannot survive if the rules are different for the ruling class and the working class.

There are many other things about the recent trends in American society that raise the alarm bell (rather loudly) as ironic. Socialism, for example, is the quintessential polar opposite of capitalism and has led to death and misery throughout the world and throughout history, but it’s on the rise (in regards to popularity and acceptance) from coast to coast…across the fruited plain! Socialism isn’t entirely evil, by the way. The central ideals of socialism are quite altruistic, but the problem that humanity has been unable to solve (regarding socialism) is the human factor. As long as human beings are involved then socialism will always be a perfect mistake.

It is unbelievably ironic to see so many rich folks (compared to citizens of other nations) champion the demise of the economic system that’s led to their high level of comfort. It’s the same kind of mind numbing irony as when we’re lectured about global warming from Hollywood slactivists, but we never see them change their own behavior to reflect their concerns. We never hear solutions, but we definitely get preached at about the perceived problems. So much irony out there! I think Alanis Morresette may have been on to something with her hit song in the 90’s!
How will trading and investing be affected once we throw away the principles of capitalism? How about our current standard of living? Until more people (populism) start speaking against the evils of socialism (in all forms) then we will continue to see an uptick in its popularity. At some point, the levee will break and we’ll be stuck. I hope I won’t have to explain those types of floodwaters to my children, but the die may already be cast. As the Boy Scouts like to say, “Be prepared”.

Until next week, my friends! Keep working hard and having fun because life’s too short to do only what’s necessary to get by.

Be good. Do good. Know good.
Kleiny (@KnowGoodThings)
Columbus, Indiana