Maria’s Note: Maria Bonaventura here, managing editor of the Diary. Our offices are closed for Martin Luther King, Jr. Day. So today, we share an essay Bill penned back in December – when he first stepped foot back on American soil after a long stint in Europe…
Homer: Moe, this is Astrid, my dealer, and these are my fans: Gunter, Kyoto, and Cecil Hampstead on Cecil Cecil.
Moe: So, uh, you guys are Eurotrash, huh? How’s that, uh, workin’ out for ya?
Gunter: Eh, to be honest, we are adrift in a sea of decadent luxury and meaningless sex.
Moe: Uh-huh… so, uh, where might this sea be located?
– Dialog from The Simpsons
NEW YORK, NEW YORK – We arrived at Kennedy International Airport yesterday; it was a rude return.
Getting into a cab in New York is grim, like being arrested in Europe. You are ushered into the back seat, with a thick pane of plastic separating you from the driver, who doesn’t speak English.
But we eventually got to our hotel, and all was well. We’ve come back for Thanksgiving… Christmas… weddings… funerals… grandchildren – the stuff of ordinary life.
Of course, our lives would be more ordinary if we simply stayed in one place; we’d gain time… stability… and convenience. But we’d lose something too.
There are advantages to getting out and seeing more of the world. Our mission is to connect the dots. With a little distance, the patterns are clearer.
We all know, for example, that Europe is stodgy… lethargic… overtaxed… and overregulated. Its workers take too many vacations, and its businesses lack the dynamic spirit that makes U.S. enterprises so successful. Heck, as George W. Bush reminded us, the French don’t even have a word for “entrepreneur.”
Compared to our hard-charging American dealmakers, Europe just can’t keep up, right?
That’s why we decorate our homes with the latest Tallahassee Moderne furniture… we wear the latest Arkansas fashions… we order our luxury cars directly from the factories in Detroit and splash on a dash of Eau de Des Moines before driving down the road… we use precision microscopes made in West Texas… and we enjoy those delicious cheeses imported from Alabama.
Greatest Economy Ever
Okay… well… maybe we don’t dominate the high end. And China, Vietnam, and others can have the low end. Still, as The Donald says, the U.S. has the greatest economy ever. We should have the lowest rates, he told Federal Reserve Chairman Powell, because “we are the U.S.”
When you live in Europe, though, you begin to wonder. The Huns, Polacks, bog-trotters, and frogs seem to be doing fairly well. Trucks roll on the highways. Shops are full. Consumers consume. Diners dine. You see less hard poverty and degenerate misery in Europe than in the U.S. People live longer, and often better.
Ireland, for example, is flourishing. There are still many tiny row houses left over from the grim years of the last century or before. But even they are clean and well-kempt. And GDP per capita in Ireland is now about $78,000. In the U.S., it is only $63,000.
And over the last 20 years, guess which economy grew fastest – the U.S. or the EU? America or Europe?
Not to keep you in suspense, the answer is Europe. GDP per capita rose 35% in the U.S. in the 20 years from 1997 to 2017. In the EU, it grew 37%.
What we figure is that our hypothesis is broadly correct. We believe the U.S. topped out near the end of the last century. Since then, of the world’s three major economies – America, Europe, and China – the U.S. is the laggard.
Most telling to us is how the value of its leading industries has fallen in real-money terms.
A guy could buy the flower of American industry – the 30 Dow stocks – in 1999; it would cost him as much as 40 ounces of gold… or $1,400 in pre-1971 dollars (when they were fixed to gold at $35 per ounce).
But if he’d left his money in gold, today, he’d be able to buy the Dow twice – two times as much for his money – with the same 40 ounces of gold. (These figures ignore dividends… which can be substantial over time. We’re just looking at capital values.)
What this is telling us, we think, is that there’s something wrong with American capitalism. And a professor at New York University explains what it is:
First, US markets have become less competitive: concentration is high in many industries, leaders are entrenched, and their profit rates are excessive. Second, this lack of competition has hurt US consumers and workers: it has led to higher prices, lower investment and lower productivity growth. Third, and contrary to common wisdom, the main explanation is political, not technological: I have traced the decrease in competition to increasing barriers to entry and weak antitrust enforcement, sustained by heavy lobbying and campaign contributions.
Thomas Philippon is the author’s name. His book, The Great Reversal: How America Gave Up on Free Markets, explains how the U.S. abandoned the core values that made it great. In short, it turned away from markets and towards politics.
Markets are how people get wealthy. Politics is how their wealth is redistributed and squandered.
Paying the Price
In his book The State, German physician and sociologist Franz Oppenheimer put it like this:
There are two fundamentally opposed means whereby man, requiring sustenance, is impelled to obtain the necessary means for satisfying his desires. These are work and robbery, one’s own labor and the forcible appropriation of the labor of others.
But why would politics be more pernicious in the U.S. than in Europe? The simple answer is that Europe has less of it.
Europeans speak different languages. They have different histories. Different flags. Different cultures. They mistrust each other… and all mistrust their central government. While Americans lavish power and money on Washington’s swamp critters, Europeans begrudge every penny they send to Brussels.
Crony capitalists connive with the government in both Europe and America, but only about half as much is spent lobbying Brussels as Washington. As for campaign contributions, candidates in the U.S. get 50 times as much as European politicians.
There are only two choices: politics or markets. In the last half of the 20th century, America gradually swung towards politics.
Now it pays the price.
Maria’s Note: If you’ve been keeping up with the Diary, you know Bill believes two other things cemented the U.S.’ path to destruction: the War on Terror that kicked off in 2001… and the perpetual fake-money inflation that kicked off in 2008.
If you missed those recent essays from Bill, catch up here: