The Real Secret of Government

Like a slumbering dog on a sunny porch, we crack open an eyelid to see what is going on.

John Dienner:

Large layoffs are again in the news. General Motors is to lay off 3,300 workers in its EV and battery departments as a result of slack EV sales. Paramount has begun laying off 2,000 positions. Target is to lay off 1,800 corporate jobs, UPS is to eliminate 48,000 jobs. Amazon plans to eliminate 30,000 positions, and accounting firm PwC has abandoned plans to increase its staff by 100,000 hires. More jobs will be cut by Molson Coors, Rivian, and Booz Allen. These layoffs prove that corporations are desperately seeking to rein in their costs. Reducing headcount is the quickest way to do so.

Ray Dalio sees more trouble coming too:

The worsened condition is due to years of excesses, like overeating fatty foods and smoking over a lifetime. The cumulative effects have brought about the current conditions… and the great excesses that are now projected will likely cause a debt-induced heart attack in the relatively near future – I’d say three years, give or take a year or two.

Qz.com:

Auto-loan delinquencies are now higher than both credit-card and mortgage delinquencies, with one in five borrowers paying more than $1,000 a month for a car. The median age of a first-time homebuyer has surged to 40, the highest on record, as prices and rates lock younger Americans out of ownership entirely. Even travel has lost altitude — Las Vegas visitor traffic is down 9% this year, the steepest drop since 2008.

None of this is ‘good news.’ But what is? Our destination today is not just the deteriorating US economy. It’s about how policy makers never know what they are talking about.

Good economy? Bad economy? They don’t know the difference.

The reason for this was best described by Friedrich Hayek in his ‘Fatal Conceit.’ The feds just don’t have the detailed knowledge necessary to make intelligent decisions. And the more they try to run things, the more damage they do.

There is not much real dispute about this: when it comes to government, the real secret is ‘pas trop gouverner.’ [Don’t do too much of it.]

Probably the most ambitious attempts to control economies were made by the Soviet Union, 1917 to 1991, Cambodia in the 1970s and North Korea today. Every detail of where people lived, worked, how they dressed and how they addressed each other was managed by the feds. Factories were nationalized, farms were collectivized, and families were forced to live, work, and even love, as dictated by the government.

The Khmer Rouge took control of Cambodia in 1975. Forced marriages were used to extend rulers’ power into the most intimate recesses of private life.

But that was probably the least harmful thing the leaders did. The Khmer Rouge exterminated anyone they regarded as an intellectual. Wearing glasses, for example, was practically a death sentence. They exalted the peasantry. The cities were cleared out…with forced marches into the countryside, where former accountants and drug store clerks were required to labor in the fields from sunup to sunset.

So exhausting was the work…and so brutal was regime (including widespread torture)…that a quarter of the entire population died — the equivalent of about 80 million Americans today.

The murders got the world’s attention. Hardly noticed was the economy…because, after the communist takeover, it disappeared. You could not say ‘the economy declined.’ There was no economy. PressXpress:

On May 20, 1975, Pol Pot addressed a gathering in Phnom Penh, where he formally declared the Khmer Rouge’s economic vision. He stated, “Stop using money and eliminate markets. If there are markets and bartering, there will be the oppressed and the oppressor. Therefore, the people must stop using money. If they use money, it is very hard for us to control. Money creates bribery. We should turn cooperatives into special cooperatives. A small bag of belongings is enough even for a district chief.”

Unlike the Soviet Union or China, which maintained centrally planned economies but continued to use money, the Khmer Rouge attempted to function without a currency. This radical experiment proved disastrous.

Pol Pot:

“No sale, no exchange, no gain, no theft, no robbery, no personal ownership.”

No one reading this is worried about being sent on a forced march to Oklahoma to hoe tomato plants. No one expects a leader as looney as Pol Pot who will simply abolish the market economy.

Nor have US stocks ‘priced in’ the danger of a murderous regime that will wipe out millions of college graduates.

Our challenges are different. And our guess is that markets have not priced them in either.

To be continued…