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Thoughts from the Frontline


August 31, 2014

“It's said that power corrupts, but actually it's more true that power attracts the corruptible. The sane are usually attracted by other things than power.”

– David Brin in The Postman

“For every good idea, ten thousand idiotic ones must first be posed, sifted, sniffed, tried, and discarded. A mind that's afraid to toy with the ridiculous will never come up with the brilliantly original."

– David Brin, Orbit interview

As I begin my 15th year of writing Thoughts from the Frontline – some 700-odd newsletters plus 400–500 editions of Outside the Box, 6 books, and scores of special reports – I decided to take a random walk back through some of my writings (and your comments!). With some glaring and notable exceptions that I would like to take off the internet (but won’t because to do so seems somewhat intellectually dishonest), the body…

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Today, 6:30 a.m.

Considering various models, compare the whole country to a large business. All businesses have productive departments and overhead departments. For a country, the private sector is the productive part. Government is clearly overhead; it takes from the private sector to pursue its primary functions of providing security and infrastructure. The USA’s biggest growth years occurred when government was limited to these functions. Further, my belief is that growth comes when people are free to innovate and profit from their efforts. A country overburdened with regulations will have less innovation as we see here today. I refer anyone to “Knowledge and Power” by George Gilder for a cogent defense of this idea.

paul fyke

Today, 6:08 a.m.

I think this debate on economic growth is best approached from an analysis of the historical performance of various economies/political systems, not through econometric models or arguments over short periods of time.  100 years ago, there were many countries on a par with the United States based on per capita GDP.  Why did the US thrive while other countries declined?

The combination of (i) the basic foundations of democracy put in place by the Founding Fathers, including, inter alia, the rule of law, property rights, the checks and balances in our Constitution, etc. and (ii) the incomparable ability of the free market capitalist system to allocate capital more efficiently than government has historically kept the US economy growing at a faster pace than any other country. 

When you see the disasters of centralized capital allocation in the Soviet Union and China over the past century and you consider the halfway houses like France, Spain, Italy, Greece, Argentina, and Brazil who continue to insist upon more government control of an economy under Keynesian style leftist politics, it is indisputable that it simply doesn’t work. As Margaret Thatcher adroitly observed, “The problem with Socialism is that you eventually run out of other peoples money.”  Isn’t that about where we are in France, Argentina, Greece, et al?  Aren’t they desperately seeking German/EU money so they can keep retiring at 60 and sipping Champagne on the Champs?

The refusal to undertake structural reform of the union work rules, high taxation, government bloat, and the large percentage of GDP spent by the government are a deadly combination 100% of the time.  They all combine to strangle economic growth over time, every time, whether it is 50% or 100%.  Perhaps this is why Warren Buffett suggested in 2012 that government spending should be no more than 21% of GDP and that taxation should be no more than 18.5%.  He is right of course.  Buffett’s remarkable success can be attributed to his incredible ability to allocate capital more effectively than other investors.  There is similarly no question that properly regulated free market capitalism does it better than leftist centralized political policies.  No one has ever come up with a better system, certainly not Keynes. Perfect? No, but better than anything else. 

I highly recommend the Economist Survey from 2013 on the Nordic countries retreat from these type of policies (  Also quite amusing is the Bloomberg Businessweek article Krugmenistan vs. Estonia ( in which the entire country takes on Paul Krugman over his economic castigation of Estonia.  Estonia is winning.

Yesterday, 6:24 p.m.

“No college, no course or seminar, could provide me with the wide range of materials I’ve studied.”


Nor should of any course or seminar. Due to our age we were lucky to have had the old style of university education where you learned the tools to educate yourself rather than were spoon fed the current thinking.

Things change and the old knowledge changes in relevance. Some old economic models lose their relevance and others gain new strength and yet new ways of examining the data appear. We EVOLVE!

Yesterday, 4:36 p.m.

John, I think you are correct about income being a main driver of growth.  It is the collective spendable wealth (mainly income) of any group that determines the groups imprint on the economy.  Our capitalistic production system responds to collective wealth, not population numbers.

Please stop blaming the “government bureaucracy”.
Blaming the government bureaucracy for regulations is like blaming a cop for a speed limit sign.  Speed limits are not determined by a vote of officers at the local precinct.  Hate the IRS?  IRS employees don’t close the doors between Christmas and New Year’s Day to secretly vote on your tax rate.  Pick any organization in the executive branch of government and you will find that they enforce rather than create laws.  Yes, there is some agency “wiggle room” in interpreting congressional law, but most of the “wiggle room” has to do with the technical details of actually enforcing congressional will, rather than modifying broad congressional policy.  Stop blaming government bureaucracy for government regulations!

Instead fix the blame for government regulations squarely where it belongs – on the shoulders of congressional law makers who all-to-often sell out the middle class to court favor with the rich cronies who fund congressional campaigns or give retiring law makers high salary jobs or lavishly funded “speaking tours” and “book deals”.

Craig Cheatum

Yesterday, 9:35 a.m.

I am firmly in the camp that the government debt is only a small part of our economic problems. Of the nonfinancial debt, government is 25%, households are 50%, and corporations are 25%.  Looking at the total including the financial sector, government debt becomes very small compared to liabilities in the financial sector.  For example, there are some $700 trillion in global derivatives versus $70 trillion in global GDP.

There are big problems with our government.  But focusing on just the government is miss-leading when there are much bigger issues to actively address.

We had the opportunity to address these debt issues in 2008-2009 by nationalizing the private sector debt, but didn’t do it.  It seems to me that there is enough capital available in the economy to finance any growth in GDP, new innovations, and any reasonable new enterprise.  The probable is that more than half is locked up in non-productive assets held by the top 10%.  This is an opportunity to use those assets to more fully develop existing technologies, finance new technologies, build modern infrastructure, improve education and other improvements that were slowed down during the recession.

Craig Cheatum

Yesterday, 6:36 a.m.

The problem isn’t government.  It’s that our laws and policies have a wealth bias because the rich “influence” law makers.  Homeless and low-income people are never elected to Congress.  There are few middle “middle class”.  New, marginally funded entrepreneurs don’t have a chance against cronies.

Daniel Kennedy 94695649

Yesterday, 4:41 a.m.

Absolutely OUTSTANDING rant!!! Thank You.

See WSJ Article “The Feds Stall Self-Driving Cars”

One major problem with government is incentives. While the private sector is rewarded for efficiently satisfying customers, the public sector is rewarded by loyalty to superiors, and amassing and centralizing power. Every page, every sentence, every word of legislation and regulation is fertilizer that enables public sector bureaucrats to grow the bureaucracy and the power of the state. Public sector bureaucrats are in fact punished for efficiency and problem solving - they lose funding and therefore status and power.


Craig Rodby

Yesterday, 4:30 a.m.

This was a very good article, but it said very little in support of Supply Side Economics.

What I read was that debt was the main problem, and Keynesian’s support debt.

When during the Reagan years we had Supply Side “growth” with MASSIVE increases in debt. And if things worked out, as I understand it, the growth would have easily paid back the borrowed money, and that never happened.

We had a balanced budget at the end of 2000 because we simply raised taxes, and we had a massive bubble in the stock market, which with the higher capital gains taxes from short term capital gains gave us the revenue to balance the budget.

But Supply Side Economics is worse than Keynesian, it seems to me, because while it does the same thing in practice as Keynes (more debt), it is logically silly: if lowering taxes gives us so much more tax revenue, we ought to lower them to zero.

Vincent Roach

Yesterday, 2:24 a.m.

John you touch on the key question in all these debates, and that is “what is it that you want to accomplish?”. Too often there is an assumed answer but the assumptions of the various debaters are not the same. If they are the same, then the debate is whether some proposed model or policy will achieve the objective, or achieve it better than some competing idea. In that case it is important to dissect the proposal to be sure it is in line with the goal, that it in fact will work. 

However, the real argument is usually one of objectives even when not obviously so.  Several years ago I was asked to speak to a graduate business class at Boston College, about executive leadership. One of the students asked me if I thought Carly Fiorina (then recently resigned from HP with a $47M parachute) had been successful. I said yes, and the whole class booed.  But I pointed out that if her goal had been to make a lot of money working at HP she had been wildly successful, in that she had grabbed $47M for not a lot of time on the job.  But shouldn’t her goal have been to get HP back on its feet? They asked.  I said, in my world of ethics, the answer should be yes, but that is just my world, and it is not the real world. You always have to ask what goal people say they are pursuing, and what goal the are really pursuing.  Then you can decide whether a debate about strategies and tactics even makes any sense.

If someone wants “social justice” in the material sense, then they can easily promote a consumption-based approach, because it will, for a while, provide more people with more things as time goes along, which is one definition of “growth”.  Of course to make that possible one might have to inflate the currency over time so that people can pay off the debts they incurred to buy all that stuff.  Eventually there comes a day of reckoning, and in a well-designed plan the “rich” get reckoned with. If you agree with the goal, then your only debate will be how much growth one approach provides over the other, how long it can go on before the reckoning, and how likely it is that the rich will pay the price.

One side note here is that if one pursues this kind of goal, innovation is not stifled, but continues to be rewarded.  However, the reward comes from innovating in areas where consumption directs, so that a new weight control drug is produced while a new antibiotic is not.  Correcting such imbalances is partly the role of taxes and regulation, and to limit either of those carries with it one of the dangers of going outside the limits of the model, in this case by assuming the model is comprehensive and not just limited to what is viewed by the masses as a desirable consumable.

Unfortunately most of the serious arguments are really about goals, but they are not advertised as such, so you have people with different goals arguing about how well their theories work to achieve their own goal while assuming that goal is the same as the other side’s.

Even though the real world is incredibly complex, models can be created that are useful. I used to build and exercise models of computer systems and networks, to predict performance and capacity requirements.  The models were very complex but of course not nearly as complex as the reality. As long as I was careful to limit their use to things within the scope of their limits, a lot of useful work got done.  But to try to make the models extend beyond those limits was not just useless, but misleading and dangerous.  The art was in having an accurate feeling about where those boundaries were.

I don’t think it is too difficult to believe that using debt to fund current consumption is going to increase (grow?) current consumption, or that it cannot go on forever, and that when it ends the cost can be unequally shared and the process restarted again.  If that is your goal, then you only need to argue about how to tune up the model and how to use it to direct reality, with sufficient protection against exceeding the limits of its validity. (Leading to unintended consequences)

So what are “we” and “they” trying to accomplish here?  That is the base question, and one not easily answered, because in trying to achieve one’s goals, one often has to disguise or at least hide what those goals are from others, and those who are better at disguise have an edge going in. Food for future thought

william morris 96292593

Aug. 31, 9:14 p.m.

Wow. You hit a home run with me.  At 75.  I have seen regulations and government interference at every level.  Local,state and federal help retard my nation…stupid stuff.  Adding costs for no reason except to feather the pockets of the wasteland of bureaucrats…  Local level.  Police and fire. Pensions.  Are so out of control..and if you disagree.  They want to shame us into paying more…the average fireman WORKS. 10 hours of a straight 40 hour.  Shift.  And can retire at 46.  At 75% a year pension dollars….Schools.  Bogged down in discussing handed down crap from federal to state to local confusions.  Hiring people over last 30 years. Most are math zeros.  No concept of addition or subtraction….and the worst.  President JOHNSONS GREAT SOCIETY. Program.    A sad joke on all of us…,with Zero results.  The book the Fourth Turning is worth reading.  Very long but insightful…and the END is near…..bill