Why the Last 37 Years Were an Economic Illusion
Jul 28th, 2008 | By Bill Bonner | Category: Politics & EconomicsBill Bonner says the last 37 years have been one big economic illusion. People felt richer. But it was a misleading sensation. What they really did was spend more money than they had by loading up on debt. And the Fed encouraged it. Now we are finding out about the real world…
Maybe James Kunstler is right; maybe the whole “cartoon” period is over. Kunstler argues that the suburbs produced houses that were only parodies of the real thing. The porches were only meant to look like porches – from a distance. There were picture windows, but no pictures worth looking at – just another cartoon house across the road. And the shutters were not real shutters – but mock shutters you couldn’t close.
What occurs to us is that his critique of modern suburban architecture applies to the whole economic period, beginning in the early 70s…and lasting right up until the present. The GDP grew, but it was mock growth, not the real thing. People spent money they didn’t have buying things they didn’t need. People felt richer, but it was ersatz wealth – a misleading sensation caused by inflation of their house prices, credit cards, cheap products at Wal-Mart (NYSE:WMT) and home equity lines.
The whole economic model was a scam. You can’t really get rich by spending more money. It’s saving money…and investing it in productive enterprises…that makes you rich. Yet, for the last 30 years, the feds have been encouraging consumer spending as a way to boost the economy. Wall Street turned over trillions of dollars – pretending to “add value” by better allocating capital and credit. What it really did was to pay itself huge fees for loading down the whole society with debt.
And even the wealth supposedly created in the stock market turned out to be phony. Compared to increases in the price of gasoline, the Dow went nowhere for the last 40 years.
Source: Lovable, Moronic Capitalists
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning and three best-selling books, Financial Reckoning Day: Surviving The Soft Depression of the 21st Century, Empire of Debt: The Rise of an Epic Financial Crisis and Mobs, Messiahs and Markets..
Being a 35 yr old man I am sick of paying for the mistakes of others. I read recently taking inflation that a man my age is making on average $5000 less than their fathers were at the same age. I grew up under the current monetary policies.
Your article points out the major issue. How do we save for the future? Banks don’t pay enough interest to keep up with inflation. Sticking it in a mattress has the same issue. Investing in Stocks? when “Wall Street turned over trillions of dollars – pretending to “add value” by better allocating capital and credit. What it really did was to pay itself huge fees for loading down the whole society with debt.” Real Estate? 30 and 40 year mortgages in over priced homes that have increased beyond the reach of most. If you doubt that statement then explain the foreclosure situation.
I agree that some personal discretion is necessary. But as your title suggest if your living in a system that is broke.
How do we plan for the future? When it is being squandered away?
Well said. Add in massive over borrowing against fake equity in those fake houses and the whole thing is one grand illusion. What a hangover we’re in the midst of .
Have any data to back this up? This is a pretty big claim.
Mr. Bonner,
Thanks for your research and information posted online – it is definitely a read worth having.
I have a question for you about ‘productive’ enterprises — I work in the tech industry and specifically building web-applications online – some of them ’social applications’ — they have very little value beyond entertainment – and potentially advertising outlets…they are very complex bits of software and take a fair amount of money to produce…
but where is the productive value out of this?
This is what the economy has left much of my generation…building seemingly endlessly towards non-products….sometimes it keeps me up at night…were being asked to seek out value – where this is no real tangible value to squeeze many times…were asked to invent it…and at times I dont see where we can.
Am I generating productive enterprise? or is the economic world i was born into – leading me down an endless maze of economic doom!?
The frustration in my job ( and peers ) is very real – I have very high level of technical and creative skill – yet I always find myself trying to defend the real costs of making these seemingly vaporous products that just deal in information transfer…no one wants to pay….but everyone wants our work…it doesnt make sense…we work harder for less and less every day.
I wonder if i would have been better off learning how to dig for potatoes….which is easier to connect to productive output.
sincerely,
tee
No, Kunstler is an idiot. He’s tapping into an idea, but his reasoning about the underlying causes of the situation are all wrong.
And, Kunstler is a Baby Boomer–the cranky, aging people who are on their way out. So everything looks bleak to him.