History Proves It—You Can’t Drain the Swamp
By Bill Bonner, chairman, Bonner & Partners
We now have a great treasure trove of historical research proving that…
…you can’t drain the Swamp!
It’s almost impossible.
The process is well documented. The rich get richer. And richer. And richer. The Swamp gets deeper. And deeper. And deeper.
Then, suddenly, a “leveling” comes along—plague, war, revolution… or the collapse of government.
Then, people are much more equal in income… but usually, much more dead, too.
But let’s back up…
Why do the rich get so rich?
Partly because they are smart, disciplined, and hard-working (the traditional Republican Party view)…
…partly because they use their capital to gain more capital (they “make money when they sleep,” as socialist French president François Mitterrand put it)…
…but largely because the government colludes to rig the system on their behalf.
We have nothing against wealth “inequality” ourselves; it doesn’t bother us that we are much richer than the typical Pakistani peasant or much poorer than President Trump and his crony friends.
But many people don’t like it. They bellyache that it portends disaster or portrays unfairness.
President Obama once said that he thought the problem of wealth inequality was the “defining challenge of our time.”
Instead, it seems to be a natural process… and not a bad one.
Clever, ambitious people always want to get ahead. Periods of stability give the honest ones a chance to multiply their wealth by doing more win-win deals. Society ends up with more capital, making everyone better off.
The trouble is that the scoundrels, rascals, and vermin benefit, too. They burrow into the rotten wood of government and build their nests in its nooks and crannies.
Gradually, the cronies and the parasites collude. New rules are written. New regulations are imposed. The number of win-win deals goes down; then, there are fewer people contributing to growth and prosperity.
Profiteers and Swindlers
We see that real wealth is produced only by win-win deals—private, voluntary trades where each party has to satisfy his customer.
But then, after wealth is created, it is available to be taxed and redistributed by the feds.
As a society ages, surplus wealth increases… and so do win-lose deals.
The profiteers and swindlers grow bolder—getting disability, bridges, wars, research studies, sinecures, contracts, monopolies, subsidies, pills, and protections. Everybody else gets regulations, rules, taxes, and debt.
Growth rates slow. Over time, the insiders gain more power. Win-lose deals dominate. The Swamp gets deeper.
This is why, after a war, it is frequently the losers who end up the winners. Their governments have been destroyed (often, their factories and fields, too).
In the winning camp, the insiders get more and more of a hold on old industries and corrupt, geriatric governments.
In the losing camp, the old government has been dismantled… and the cronies and zombies have been chased away or killed; new wealth can be created from the rubble.
After World War II, for example, which were the world’s most successful economies?
The U.S. was on top of the world after World War II. Its industries and political systems were intact. But the Republic was 175 years old; as Eisenhower warned in his farewell address, the rough beasts were already slouching towards the District of Columbia.
Winter Is Coming
Many are the economists—especially in the pages of The Wall Street Journal—who claim that the recent tax cut will help everyone by “stimulating” the economy.
But the U.S. economy has been so stimulated with cheap money already, it practically has the shakes.
Someone has to pay for the resources the feds use. So, unless there is a spending cut—which there ain’t—the tax cut is better understood as a payoff to the rich than a boon to the economy.
It shifts the burden of the government from today’s rich political campaign contributors onto future generations, unknown bondholders, and unaware consumers.
Who will ultimately pay?
We don’t know… but it won’t go unsettled forever.
Meantime, the rich get most of the benefits… which is what you’d expect after such a long period of stability.
The fix is in, just like “The Donald” said. The rich get richer.
How long can this go on? What happens?
Well… according to Walter Scheidel’s book, The Great Leveler, it can go on for a long time… until it can’t go on anymore.
Rarely, if ever, has a society managed to reduce the share of wealth that goes to its elite without violence. Just as inequality lives by the sword, so, too, does it die by the sword.
It is violence (win-lose deals) that helps the rich get richer. And it is extreme violence—war, revolution, government collapse, or severe epidemics—that brings down their power and their fortunes.
Once entrenched and in control of the government, the insiders don’t roll over. You can’t drain the Swamp, in other words; the whole system has to blow up first.
When that happens, debts will be erased. Assets will be wiped out. And the rich will hide their wealth… or lose it.