Outside the Box

American Gridlock, Part 2

John Mauldin

February 7, 2012

Today we dive into Part 2 of Woody Brock’s notes from his new book, American Gridlock (www.amazon.com/gridlock). He looks at what we can do in the future to prevent another crisis like we had in 2008, why we need to change, how we bargain with China (will be very controversial, in China at least!), what capitalism really is, and then he addresses the thorny issue of what it means to distribute wealth fairly. What can be said to those concerned with the top 1% of the population owning a grossly disproportionate share of the nation’s wealth?

You can learn more about Woody and his economic services at www.SEDinc.com, as well as see some of his previous essays. You can also follow him on Twitter and Facebook (Twitter: @HwoodyBrock; Facebook: American Gridlock [http://tinyurl.com/7ch7vld]) . (Note: Woody is attempting a social media strategy to help deliver his message, and I am just curious as to how many people will follow him on Twitter.)

I had a long dinner with Woody last week and was on a panel with him the next evening. He is one of the more fascinating minds and interesting people I have met in my travels, and he tells the best historical stories (where else can you learn about who went down on the Titanic and why, and the foundations that were set up in their names that changed the US?).

I am off to South Africa tomorrow night and back Saturday, spending three of the next four nights in airplanes, experiencing the glamour side of travel. Not sure when or where I will write the letter for this week, but it will get done. And thanks to those of you who sent kind words and thoughts regarding my daughter Melissa, who I mentioned in last week’s letter. You are very kind, and it is appreciated. Have a great week!

Your getting 60 hours to read and write offline analyst,

John Mauldin, Editor
Outside the Box

Like Outside the Box?

Then you'll love John's premium publication, Over My Shoulder. Each week, after sorting through vast amounts of economic, political, and investing news, John sends Over My Shoulder subscribers his pick of the week's most important commentary and data.

It's your opportunity to get the news John thinks matters most to your finances.

Learn More About Over My Shoulder

American Gridlock

Why The “Left” And The “Right” Are Both Wrong

Commonsense 101 Solutions to the Economic Crises

Part 2

Dr. Woody Brock

In this sequel to my essay on American Gridlock that appeared last week, I confront four final policy dilemmas confronting the US: (1) How can we prevent future Financial Perfect Storms of the kind that brought the world down in 2008? (2) How can we avoid bargaining with China as we…

Discuss This

6 comments

We welcome your comments. Please comply with our Community Rules.

Comments

Bob Shapiro

Feb. 10, 2012, 2:15 p.m.

Dr. Brock does not deliver what he said he’d deliver.

1. It is straight socialism, not philosophically neutral.

2. He sets up straw men, knocks them down, and says only his alternative is viable.

3. He misunderstands basic economics and motives (in politics as well as in the Economy).


Simply put, at any instant, the PIE is a set size. If one player takes more, another player loses. So, if government takes more, it crowds out the private, productive economy, where jobs and quality of life innovations occur.

It is only through the private, productive economy that the pie can grow larger at the second (and subsequent) instants. Government is nothing more than overhead, detracting from economic improvements. When government removes property from those who have earned it through their own efforts, it necessarily removes incentives and penalizes economic progress.

Government investment is an oxymoron. While some government activities may give some return for dollar invested (many government activities give negative returns), because they displace dollars available to the private, productive economy, they give suboptimal returns. More often, government spending is either a pork barrel for favored friends/contributors (Goldman et. al. bailouts), or it is a solution for a non-existent problem (global warming alarmism).

Redistribution, far from being a panacea, is a subversion of the basic workings of free markets. Hard work and innovation necessarily will provide opportunities for the “disadvantaged” and will raise their standards of living. Today, poor people have affordable access to goods and services which were unavailable 100 years ago, and were luxury items only 50 years ago. This is NOT redistribution! This is the normal working of free markets, without the do-gooders’ interference. And, this is occurring even despite the massively growing headwind of big government.

Far from Dr. Brock’s criticism of gridlock in DC, I see it as the beginnings of sanity. Before you can undo all the bad stuff coming out of Washington, you have to stop adding more bad stuff.

I appreciate Dr. Brock’s work being made available, if only to alert me, so that I may discount future work from this anti-cpitalist.

Duncan Hume

Feb. 8, 2012, 1:55 a.m.

Dr. Brock’s analysis of the current state of America is refreshing but contains nothing new. Sadly the reason that these ideas have not been adopted (or probably even considered) by the American leadership probably comes down to his comment: “the only other explanation is that successive administrations were stupid, incompetent, and oblivious to the most elementary realities…”

How did it get that way? that is where the devil lies.

Joseph Moffa

Feb. 7, 2012, 5:19 p.m.

Joseph Moffa · 66 years old

“True capitalism properly understood represents one of the great institutional innovations and success of history.” That is quite a mouth full. I’m currious to know what institution established capitalism? Capitalism was a natural phenomenon.
“When it comes to economics, we know that a market economy with a significant government role is the only proven model of success.” First of all who is “we?” What universe have you been living knowing the government has been progressively involved in the market since 1913 and we can see the results. Try a different model or get a better grip on history.
This last quote is so funny I can hardly type. “...unencumbered market forces often lead to disaster, as 1929 and 2008 made clear.” When has the market in the USA been unencumbered? Do you seriously believe that government was not involved and supplied the means for the housing bubble and the like. A strong suggestion, go back and read history and understand what really happened. Don’t try to come up with a theory based on flawed assumptions.
I am also suprised that Thomas Sowell would be associated with Stanford ouUniversity if this is the Socialist diatribe that is being spewed.
If you really want to learn economics and capitalism I suggest you pick up Human Action by Mises and Man, Economy and State, by Rothbard. For the fun of it also Henry Hazlitt and Thomas Sowell.

Dan Ross

Feb. 7, 2012, 1:46 p.m.

Part 2 was more intriguing than Part 1 and has tweaked my interest enough to read the book.  It touches on some areas that have disturbed me about the whole current political/economic discourse.

The Chap 4 summary seemed to boil down to control of leverage, which doesn’t seem a big revelation unless the net result would be less government encroachment on the “mechanics” of the economy.  More of setting boundary conditions regs.  Glass Steagallish?

If the rest of the world is playing from the Res Politica playbook and we are on the Res Economica one, then we are at a disadvantage.

Will give it a read.

Gordon Enyeart

Feb. 7, 2012, 11:56 a.m.

Don’t confuse me with details.  It seems perfectly clear to me that the prime requirement for a perfect storm that we just experienced can be reduced to a given, not a variable (C=greed).  i.e. that placing the whole housing market in the position, without real effective regulation, that the whole ponzi scheme was based upon the the inflated price of the asset.  The realator, the appraiser, the mortgage broker, the title insurance co., the original lendor, the packager of these mortgages, the seller of these packages, and probably a few more coconspiritors that I can’t think of, OH of course the homeowner who expected the bubble of to last forever.

Greg Webbink

Feb. 7, 2012, 9:35 a.m.

Stimulating.  Does this mean when Res Politica steps in front of Res Economica, we begin another iteration of gaming the Game Theory developing new Endogenous Risks? 

. . . and one recommendation to Woody in his next exposition - given the recent track record of the Nobel Prize Committee, drop all of the “Nobel-prize winning” references.

© 2013 Mauldin Economics. All Rights Reserved.

Outside the Box is a free weekly economic e-letter by best-selling author and renowned financial expert, John Mauldin. You can learn more and get your free subscription by visiting www.MauldinEconomics.com.

Please write to subscribers@mauldineconomics.com to inform us of any reproductions, including when and where copy will be reproduced. You must keep the letter intact, from introduction to disclaimers. If you would like to quote brief portions only, please reference www.MauldinEconomics.com.

To subscribe to John Mauldin's e-letter, please click here: http://www.mauldineconomics.com/subscribe

To change your email address, please click here: http://www.mauldineconomics.com/change-address

Outside the Box and MauldinEconomics.com is not an offering for any investment. It represents only the opinions of John Mauldin and those that he interviews. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with, Mauldin's other firms. John Mauldin is the Chairman of Mauldin Economics, LLC. He also is the President of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered with multiple states, President and registered representative of Millennium Wave Securities, LLC, (MWS) member FINRA, SIPC. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB) and NFA Member. Millennium Wave Investments is a dba of MWA LLC and MWS LLC. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article. Mauldin companies may have a marketing relationship with products and services mentioned in this letter for a fee.

Note: Joining The Mauldin Circle is not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for investors who have registered with Millennium Wave Investments and its partners at www.MauldinCircle.com (formerly AccreditedInvestor.ws) or directly related websites. The Mauldin Circle may send out material that is provided on a confidential basis, and subscribers to the Mauldin Circle are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private and non-private investment offerings with other independent firms such as Altegris Investments; Capital Management Group; Absolute Return Partners, LLP; Fynn Capital; Nicola Wealth Management; and Plexus Asset Management. Investment offerings recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor's services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor’s interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs may or may not have investments in any funds cited above as well as economic interest. John Mauldin can be reached at 800-829-7273.