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To the Class of 2014: You’re “Screwed”

By Bill Bonner, Chairman, Bonner & Partners on May 28, 2014

We’re still on our commencement day address, where our callow graduates find out that they’ve been set up. (You can catch up with parts I and II of our address here and here.)

Dear Class of ’14: Except in the sciences and engineering, a college education may do more harm than good. As I explained yesterday, to be taught, studied and learned, the arts and humanities must be reduced to a caricature. People are turned into stick figures.

Complex story lines become narratives so simple even a college student can understand them.

You’re young. And now you’re leaving school, you can begin to learn. It will take you many years to develop the deep suspicion and cynicism you need to understand what is really going on. But I’ll give you a little preview…

The Curious Case of Moses Triplett

America’s armed forces protect our freedom, right?

Memorial Day is set aside to honor them. The Department of Veterans Affairs provides them with material benefits. These are the “facts” taught to every schoolboy and schoolgirl and rehearsed every year by every newspaper in the nation.

On Memorial Day, our minister chose to tell the story of Moses Triplett, whose daughter is the last person from the Civil War era still receiving veterans’ benefits. Triplett was a soldier in the Confederate States Army. On the road to Gettysburg, he defected to the Union cause.

He survived the war. Married. His wife died. Late in life, Triplett remarried a woman 50 years his younger (and apparently retarded) and had a child, who is still alive.

But why should we honor a man who betrayed his people and his nation? Why does the VA support the traitors’ child, 150 years after the end of the war?

Memorial Day and higher education have a lot in common: You have to ignore the particulars to appreciate them. Take out the inconvenient details. Remove the embarrassing facts. Often what is left is sterile nonsense.

Every Memorial Day editorial tells us our veterans fought for “freedom.” Yet in not a single one of America’s wars was an enemy preparing to reduce our freedom.

The huns wanted Alsace, not Pennsylvania. The Philippines intended no subjugation of Indiana. And what about the Nicaraguans? Nobody even remembers the shackles they were meant to clamp onto American wrists. But after every victory, we know what happened next: The doughboys and grunts came home to higher taxes and more prohibitions.

Democracy or Dictatorship?

What you learn in college is the way things are “supposed” to work. But few things in real life are as simple as they’re “supposed” to be.

Our government is not run by the people for the people. Government is merely a way one group of people – the insiders – take advantage of other people – the outsiders.

You can call it democracy or dictatorship; it hardly matters. It can be gentle and broadly tolerable… or brutal and widely detested. What makes it a government is it has a monopoly on the use of violence; ultimately, the insiders use it to get what they want.

As for the economy, you have learned about our capitalist system. You have been told that it needs regulation by the SEC, the Fed, the Department of Justice, the FDA, the FTC and other agencies to keep the capitalists honest. You have been lied to.

It’s not a capitalist system; the feds took the capital out 40 years ago. Now, it depends on cronies and credit. It’s a corrupt system – the product of collusion between industry and the agencies meant to regulate them. Its real purpose is to transfer more wealth and power to the insiders.

Economist William Baumol understood.

He noticed that goods-producing businesses – such as an automaker or a maker of a widget – could achieve high productivity growth, thanks to labor-saving automation and supply-chain efficiencies. He also noticed that productivity stayed more or less static in service-sector jobs, such as nursing and teaching. (Basically, a nurse needed to spend just as much time with a sick patient… and a teacher needed to spend as much time with a student.)

Despite this, wage increases in service-sector industries – education, healthcare and government – tended to keep pace with wage increases in industries where rising wage growth was justified by growing productivity.

That’s part of the reason your TVs are cheap… but your health care has become so expensive. Not only is health care largely protected from competition and distorted by third parties who pay the bills, including the government and insurance companies, but also wages for health-care workers rise, even though productivity stays more or less static.

This also helps explain why a university education is eight times more costly than it was in 1978… even though you’re still getting more or less the same education. Also, as I explained on Friday, college was optional to a decent income in the 1970s. Now, it’s almost obligatory.

When everything is rigged, the riggers have the money and the power. Lobbyists, lawyers, accountants, administrators: Whether you want to take a business public… or just build a house… you come face to face with someone who can stop you, with paperwork, legal razzmatazz and nauseating administration. You need to play the game, too.

More to come tomorrow – including the Cantillon Effect… and “intertemporal discoordination.” You’ll find out what they mean… and how they affect you. (Hint: You’re “screwed.”)

Regards,

Bill

Further Reading: There is one way to “unscrew” yourself. It involves using the very strategies the “1% of the 1%” have used for centuries to grow and protect their wealth. To find out more, read on here.

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