Consider your origin; you were not born to live like brutes, but to follow virtue and knowledge.” – Dante Alighieri Italian poet 1265 – 1321AD
This week we thought we would have a little drama. We thought we would test our powers of allegory by spinning a parable of a boxing champion.
Like any good morality tale, this one starts with a young Champion full of raw talent, his rise to power and stardom, the rejection of what got him there and the inevitable fall.
We warn you that there is a piece missing to this story. It’s the final part of the tale; the redemption. This is the part of the story we all hope for, but in this case it’s the part of the story that has not yet been played out.
The Tale of the Champ
Classical Economics (Smith, Ricardo, et al.) says the foundations of economic strength are land, labor and capital. The Champ (US Economy) at the dawn of the industrial age had all of these in abundance.
In 1860, an energetic population of 31 million populated the continental United States. Abundant natural resources: coal, oil, timber, and most importantly water, were available for enterprising citizens to take advantage of. The New York Stock Exchange was founded years earlier in 1817 to foster the formation of capital and the subsequent production of capital goods.
The Champ’s dominant business (and social) values during this time were frugality, self reliance, a natural predisposition against foreign entanglements and a healthy distaste for debt. These values were instilled in him by his Founding Fathers. “A penny saved is a penny earned”….“Rather go to bed supperless, than run in debt for a Breakfast”, they cautioned.
The Champ was highly disciplined and his own trainer. He was extraordinarily hard on himself. He forced himself to live up to every shortcoming and face every failure head on. The Champ periodically cleansed the weaknesses from his body with recessions.
By 1920 the US had grown from a mainly agricultural nation to the world’s largest industrial power. The Champ was in his prime, strong, good looking and the envy of the world.
Then the Great Depression hit and the young star, in moment of great crisis, shunned the values that his greatness was founded on. Rather than let his system cleanse itself from the bad night of drinking (excess speculation) he had embarked on during the 1920’s, he let others convince him that his methods were all wrong.
“All that free market and self reliance stuff is killing you son!”, they yelled at him. “You need to keep up with the times.” “Jeez, look at the Former Champ (Europe), he seems to be doing mighty well with those socialism ideas!”
The Champ was convinced that he could not go on as before and he adopted new values and accepted a Trainer (the Government). A crash training program of government spending, reliance on social programs and over regulation was hastily embarked upon during the 1930s.
The new programs did not work very well, but soon the boxing competition was suspended as the Champ was called into service for WWII. This papered over his growing weaknesses and structural deficiencies as all eyes were on the battlefield.
The decades after WWII were to see our Champ increasingly weighed down by his new values and ideology. Indeed more and more “trainers” the EPA, OSHA, FHA, HUD were called in to “help” him, regulate his training regimen and ensure he grew in ways that were “acceptable.”
Sure from time to time the Champ would have flashes of his old self (1950s) but the accumulated weight of the various training regimens would inevitably throw him into another funk (late 1960’s and 1970’s). The trainers ordered the Champ to fight “Wars Against Poverty” and committed the Champ to defending more and more people in faraway lands.
In later years (1980s), after being frustrated that their new values did not produce the desired results, the trainers began to prescribe steroids. “A good shot of low interest rates and easy debt are what you need” cried the trainers. It worked initially, but the medicine would wear off from time to time (early 1990s) and each time the trainers injected ever larger doses.
At some point during this period, certain doctors (economists) were brought in and told the Champ, “We figured out a way for you to get stronger without exercising!” The Champ looked glumly at them in confusion. The doctors continued, “You see this Chinese guy here, well he’s going to pump all the iron (manufacture everything) and you will get the benefit of getting stronger.” “All you have to do is pay him for this service (trade deficit)”.
The Champ agreed uneasily and the doctors departed back to their ivy covered campuses while slapping each other’s backs and exclaiming, “Aren’t we brilliant!’ The Champ would soon go from being the largest creditor nation to the largest debtor nation as a result of the massive trade deficits that would follow.
Today the Champ is fat, bloated and sick. The latest steroid injection is wearing off (housing bubble) and his body is ravaged from eating junk food (consumer spending).
He looks weary eyed at the Trainer who is preparing a mega dose of steroids, (the current bailouts, spending and money printing) a dose larger than he has ever taken before. The Champ wonders, and even deep down the Trainers wonder, if this dose will kill him.
We stand at an inflection point; should the Champ take the mega dose? Besides the fact that it may kill him, it also may generate some severe side effects no one has thought of. Even the trainers are not really sure what it will do.
He looks down over his body and sees that although sick, he is still tall and square shouldered. Under the accumulated fat of generations of mismanagement, his muscles are still large.
His original gifts of land, labor and capital are still with him, although tightly rationed by the trainers. The Champ looks over at the Chinese guy performing his exercises for him and for the first time, the Champ notices how large and strong this guy has become.
The Champ hazily reflects back on the advice of his fathers, on the values of so long ago. Frugality, distaste for debt, self reliance……Is it time to make the comeback, the long awaited chance for redemption?
We stand today at the cliffhanger moment in the story, the Trainer is approaching the Champ with the needle filled with the mega dose and the audience is screaming, “No…Don’t take it! Don’t take it!”
Have a great weekend,
Michael Bechara, CPA
Managing Director
Granite Consulting Group Inc.
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