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A Major Prediction Voters have already lost interest in the next presidential election -- and it is still 10 months away. They are bored with the candidates and tired of the whole numbskull process of electing them. Columnists cite all kinds of reasons -- the quality of the candidates, the need for election reform, too much media coverage. But the real reason is that the appeal of politics itself is waning. "Elections," said Ambrose Beirce, "are advance auctions of stolen goods." But voters have caught on. The voters have come to realize that much of the election booty is stolen from themselves. The rich are already pretty well soaked. The blood has already been squeezed out of the turnips. The geese have been plucked. Choose your own metaphor -- voters who want to vote themselves other peoples' property have run into the limits described by Arthur Laffer so eloquently on a restaurant napkin: "The more they try to take, the less they get. Raise tax rates -- and people dodge, move, or loaf." Stalin would have had them shot. But even that didn't work. Force works in football, but not in economics. The voters are on to that too -- they've spent the last 50 years watching the failure of politics to deliver the goods. Even the dimmest bulb on the national front porch has lit up to the fact that the more politics a nation allows itself, the poorer its people become. Look at North Korea. Albania. The Soviet Union, R.I.P. Those countries have, or had, more politics per person than any place in history. They claim(ed) nearly 100% of the resources -- both human and material -- within their franchise territory. But who would want to live there? Smelly, dirty, poor, trashy, ugly -- all you have to do is visit these places and you know you want no part of them. On a flight to Minsk a few years ago I was seated next to an attractive young woman holding a toilet set in her lap. I asked what it was for. "Stupid question," she answered. "Everyone knows what toilet seats are for." So, I tried another approach with my literal-minded companion. "Why are you carrying a toilet seat on a flight from Moscow to Minsk," I asked directly. "Oh," she replied cheerfully, "they're out of toilet seats in Minsk." And guess what? The airfares were so mispriced that the 3-hour flight cost her less than the toilet seat. "Hey, aren't you going to put on your seat belt," I asked as the plane took off. "Nah, look," she said as she showed me that hers wasn't attached to anything anyway. As the appeal of politics wanes, the appeal of the market increases. The market can at least produce a toilet seat. Washington can't deliver the loot, so people turn to Wall Street. What the mob can't get by theft, in other words, it hopes to get by fraud. Fraud may be too strong a word. This is a fraud in which everyone seems to believe -- especially the perpetrators. Perhaps delusion would be a better word. In any case, it is a collective bamboozle -- in which the bamboozled and the bamboozlers are working to the same end... buying and selling dubious stocks from each other in the belief that they will all get rich. The idea of good investing is -- to return once again to George Soro's words (because they seem to describe so well what I try to do in these letters) "is to identify the trend whose premise is false." The premise of 20th century politics was false. The world was not made a better place by the Third Reich, the Bolshevik Revolution or the Great Society. It is made a better place by the hard work and common decency of ordinary people. Now, we face the premise of the Rocket Chips -- and of American capitalist triumphalism. The premise is that there is a New Era... born and nurtured in America, because of its flexible, dynamic economy... and that the world will now be a better place because of it. I have tried to show you, in many different ways, that that premise is false too. The productivity and economic growth that the New Era supposes has not materialized. It is like a chimera in the desert -- always receding as you approach it. The Internet itself, the focal point of the new technology, has proven itself to be a valuable communications tool, but not an easy medium in which to make money. And the American economy, supposedly the main creator and principal beneficiary of the New Era, still looks a lot like an ordinary economy -- with one major difference -- one heck of a lot of credit. When the US economy was compared to Japan and Germany by the Economist, for example, it looked anything but extraordinary. Measured in GDP per capita, from '89 to '98, the US performed about as well as Japan and both did worse than Germany. And compared to it's own recent past the US economy has been far from spectacular. GDP increased by 5.5% in 1992. The figure is only 4.7% in '99. What's more, as Dr. Kurt Richebacher has shown, 78.5% of that GDP figure for this year is computers. Uh... do you think computer sales really account for 78.5% of economic growth? Not a chance. The whole thing is a fiction, if not a fraud. The computer figures are enhanced -- because the statisticians adjust the numbers for computing power. What they're really figuring is not economic activity in dollars and cents -- but in gigabytes per second. If they did the arithmetic the way they did in 1992, computers wouldn't make up 78.5% of economic growth, but only 2.3%. "Putting it straight," writes Dr. Richebacher in his December issue, "the exploding computer power... has accounted entirely for the US economic 'miracle' since 1996..." But it doesn't stop there. Not only do the statisticians compute misleading figures for the computer industry... they then use the figures to distort the inflation adjustment. Here's how it works: The nominal GDP is deflated by an adjustment to take into account inflation. This deflator was 2.8% in '92. But it was only 1.5% in '99. So, after adjustment, including the trumped up computer figures, '99 looks like a better year. But the deflator itself is "weighted by the changes in the composition of the GDP growth," according to Dr. Richebacher. So since computers make up a fictional 78.5% of GDP growth... they are given extra weight when figuring out the inflation adjustment. And, of course, computers have gone way down in price per gigabyte. You can get about 5 times as much for your money. So the statisticians adjust inflation downward accordingly. To make a long story short, investors are bamboozled twice on the same set of numbers. Once when we're told GDP is growing at a decent rate. And again when we're told that inflation is declining. These are the falsehoods and lies that undergird the whole New Era. The real story is that the average person earned the equivalent of $315 a week in 1973. He now earns $272. He may think he is getting richer -- on paper -- because his house and his stocks have gone up. But they only stay up as long as the premise of the New Era has not yet been discredited. But sooner or later, it will happen. The average investor will realize that the frauds and falsehoods of Wall Street won't make him any richer, any faster, than the lies and brute force of Washington. My second major prediction (which, of course, you already know): the premise of the New Era will be discredited. The Rocket Chips will fall to earth. Watch your head. Bill Bonner P.S. Another major prediction -- tomorrow. * * * * * *
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