Two questions on productivity

A couple of quick ones:

1. Turn on, tune in, drop out

Robin Hanson says we are living in a "dream time", when survival instincts have been dulled by wealth so that Nature has (temporarily) let us get away with acting stupidly. I recall the old saying, "From clogs to clogs is only three generations" (i.e. the middle generation spends it all).

In this context, it's also interesting to note how at a time when we're drugging children and old people to stop them being a nuisance, libertarians are calling for young adults to have the right to zombiefy themselves with "harmless" mind-altering substances. Yes, they will still be able to work, some of them, for some time; I guess the same argument goes for functioning alcoholics. Dream on... until, as the Germans say, "Aus der traum, lieber Freund."

I've known black people who maintain that drugs liberalisation (and the associated laissez-faire approach to law enforcement) is a plot to keep their children in subjection. I tend to put it down to middle-class selfishness, instead; but I can see why they might think that.

2. Think big, think small

As higher taxation looms, some are already trying to draw a distinction between "productive" and "unproductive" workers. Well, effectively, practically everybody (including the poor) pays 40% tax already, when you look at the combination of income tax, National Insurance and sales taxes; though I do agree that a proposed 50% higher-rate income tax rate is likely to generate various avoidance strategies that will mostly wipe out the hope-for extra revenue.

But if Mish's friend "BC" is right, we are entering a "Schumpeterian Depression", during which big biz uses its access to finance to crush small enterprise; and so it may be a decade before young entrepreneurs develop the muscle to get out from under and start to succeed.

Besides, how much big business is founded on destroying small businesses and the self-employed? What, for example, if we looked at it closely, would be the real, total net benefit of the giant supermarkets? Weigh up the cheaper prices against the exploitation of their suppliers and the ruination of small shopkeepers - and the smashing of one of the ladders by which the aspirant working class - and their children - could rise and become self-supporting.

Where to turn, for financial security?

Richard Bookstaber (whom we've met before, here) looks at asset allocation and makes a point he's made before: in a crisis, everyone wants out, and the relative merits of different assets are ignored in the dash for cash. Provided cash (at bank) hasn't itself become risky - and after last year, that's not a given. Even outside the bank, there's inflation, devaluation and also, potentially, the fate of the Confederate dollar.

Leo Kolivakis comments, "I happen to believe that diversification is still important, but loses its power as huge inflows are going into all sorts of public and alternative asset classes."

That's the problem: we no longer know where to turn. As Kunstler comments, "the most perplexing part is that there hardly seems any safe place to preserve one's savings."

How about the smart, nimble operators? Investment guru Marc Faber spends his time looking at liquidity flows, trying to predict the next sudden tide and get in beforehand - not a game for the type of clients I have usually advised. And even he appears to be readying himself for the worst, "a total disaster, with a collapse of our capitalistic system as we know it today."

Recently, I seem to have been reading more commentators tending to the view that we are heading for that Mises "crack-up boom" - outlined here nine years ago, for example. And worse:

"And 'mid this tumult Kubla heard from far
Ancestral voices prophesying war!"

The great pleasure gardens of China's Emperor took some 40 years to build, in the first half of the eighteenth century. Vast, complex and exquisite, they were testimony to the wealth and power of the Middle Kingdom, only to be methodically destroyed in an act of punitive vandalism by the French and English in 1860. Premier Zhou Enlai decreed that the ruins should remain unaltered, a monumental lesson for the Chinese about the Western powers.

Of all the curses on humankind, long and vengeful memory may be the worst.

Inflation and the money supply

Interesting graph from Eric Janszen - he ignores the velocity of money (which can change quickly) and concentrates on money supply. He sees our situation as akin to that in 1981; I'm still thinking we're in the mid-70s, because round about 1982 was when we started to see real (post-inflation) returns on investments.

Poverty is OK

Robin Hanson looks forward to being poor. But I fear the path there won't take us to the anonymous semi-contentment of the Dark Ages, because it passes through population crash first.

Duty

Update: the media are focusing on rumours of Brown's taking painkillers, allegedly related to his eye problems, which the PM denies. I thought they wanted a regime change? If so, they'd be keen to keep him on, as the Tories must be, and so wouldn't probe him like this. But maybe they're also keen not to be shown up by the blogosphere, which maintains that the news media are colluding to avoid raising a more serious health issue - this one is doing the rounds.

He's not the only one suffering from dark whispers. There was that mysterious 2004 family crisis of Blair's, which some suspected really had to do with his own supposed nervous debilitation; and Leo Abse's book on Blair attempted to unravel the man's psychology. I myself was asking friends within a year or two of 1997 whether they thought he was mad; at that point, they looked at me as though they thought I was, instead.

Squaring the circle, packing your bags

In Britain, there are 28.89 million employed - 72.5% of the "people of working age"; median earnings approach £25,000.

In China, the average urban wage in 2006 was 1750 yuan per month, or (at today's exchange rate) slightly less than £2,000 per year.

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In Britain, there are 3 million homes where no-one works, with an average household benefit payment level of over £4,000 p.a. This doesn't factor in the cost of other benefits provided by the State, such as health and education. For example, State schooling costs something like £6,000 yearly per child.

In China, the official urban unemployment rate at the end of 2008 was 4.2%, or nearly 9 million people. This statistic does not include unemployed not eligible for benefits, or migrant workers - about 20 million out of 130 million migrants have no job. In industrialized Guangdong Province, for those who qualify, unemployment benefit for the first 24 months is 688 yuan per month, or £757 per year.

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In Britain, the 27.5% of the "people of working age" that might be employed but are not, number approximately 10.96 million.

In China, estimates Eric Janszen of iTulip, there are 20 million officially unemployed and the real tally should be 40 - 50 million.

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China has over 1 billion people and is desperate for land, and natural resources such as wood, water and arable soil. Despite restrictions on family size, her population continues to increase, largely because her people are getting to live longer (and will one day incur the high additional costs of growing old). She has industrialized at high speed and has built a massive skill base. She is continuing to acquire technological and scientific know-how, and is sucking in the world's steel and a panoply of key African and Australian minerals and rare earths. She sits on vast reserves of coal. The ruling Communist elite have not spent a long lifetime climbing the exceptionally dangerous slippery pole in their country, to see their beloved nation sink into chaos and their equalitarian beliefs defeated.

You are a British (or American) politician. You know all the above - or your handlers will tell you just before you go on "Question Time" or some other grill-the-pol show. (1) What will you say to your voters? (2) What private plans will you make for yourself, your family and your friends?

Trusting soul

So we're to lose a quarter of our sub-borne nuclear deterrent. Mexican standoff unilaterally defused by putting your gun down first, eh? On the other hand, remember what Churchill observed about the Hun.

Cut the cr-- and send 'em down

My wife (the smart one in this partnership) thinks Judge Judy should present the Jeremy Kyle Show, too. Now if only JJ, with her brisk, trenchant, from-the-shoulder, don't-pull-one-on-me style, could try all the soigné , sock-suspendered financial twisters that have jeopardised our collective wealth; five minutes in court and 20 years each in the hoosegow.

I had a dream last night
What a lovely dream it was
I dreamed we all were alright
Happy in a land of Oz...

- John Sebastian

A glimpse of the past

Out with my wife's relations on Saturday in the Black Country (the old coal-fired industrial area). One elder recalled that when they were poor, his mother would put the kettle on the stove on a Sunday, so the windows would steam up and the neighbours would think that they were cooking lunch.

Up with bonds, down with equities, out with with-profits

After the stockmarket ructions, pension funds are getting more cagey and thinking about weighting more towards bonds (htp: Pension Pulse). (A seminar I went to maybe 10 years ago predicted this trend.) Bill Gross of Pimco is also thinking that way; at the same moment when others reckon the recession's over, or nearly so.

My concern is that the market is now so volatile that only active traders will be interested. The smoothing approach of British with-profits funds has been undermined by downswings so sharp that more than once recently, they have had to apply penalties to investors seeking to exit early; which in turn will make those investors less inclined to reinvest in with-profits, and indeed quite possibly put them off investment generally.

That, plus the need to take more income as the population ages, plus a poorer next generation that will work longer, be taxed more and have less in State and other pension provision, plus the burgeoning of the world population, the gradual equalization of world average income (and it's a very low average), plus increasing ecological limits to fast-buck-type growth, all tend to make me more a bear than a bull for as far as I can see, whatever may happen in the short term as a result of desperate overstimulation with fiat cash.

Yes, there'll be opportunities for the agile financial player; but for the mom-and-pop saver?