Or, How I Learned to Stop Worrying and Love the Warped Insanity of Guaranteed Returns On Investment
[originally posted June 28th]
Only in the bizarre cauldron of Reagan-era supply-side thinking, and the Bush cabal’s continuation of the same, could you see such an obscenity as guaranteed growth and guaranteed returns. Anyone familiar with even the most basic aspects of biology will of course know that things that grow without being constrained or affected in any way by their host environments are generally classed as cancers.
The “guaranteed return” mentality is on display everywhere in our society. You can see it in the people who buy the largest SUVs for personal protection, thinking that the sheer size of the vehicle will protect them from needing to care about where they’re going or how slippery the road is or how fast they should drive under the circumstances. You can see it in the people who leave their high beams on all the time, not caring that they’re blinding the drivers going the opposite way. You can see it in the fools who bought multiple “investment properties” thinking they’d magically appreciate and thus fund their personal dreams of extravagant retirement options. You can see it in the form of people leaving the AC on all summer long (even when it’s cooled down to the 60s outside) just to save themselves from the “trauma” (gosh) of having to worry about monitoring the outside temperatures. (Why, if they failed to notice a sudden spike in outdoor temps, they might find it warmer than wanted indoors. The horror! Can’t have that!)
As we see, the dangerous myth of guaranteed returns does whacky things to the risk/reward calculations of people. The fact that so many would seek such obviously flawed solutions is just more evidence of Jiminy Cricket thinking at play.
During the supply-side era, which has thankfully come to a shuddering sputtering halt, the economy was turned inside-out as the government created what can be loosely called “artificial prosperity” by taxing less and spending more, with the difference being borrowed from the future and showing up on the ledger as enormous and growing deficits. Thus the economy appeared to grow in numerical terms even as it was shrinking in real terms.
The illusion of growth is quite simple. It’s like living on the outside of a giant balloon and marking off your plot o’ land by marching 10 paces ahead, marking the corner, then taking a right turn and repeating the process three more times until you’ve marked off a place to call your own. As the balloon slowly fills with helium and stretches out, your yard appears to grow in size. First it’s 10×10, then it’s 12×12, then it’s 15×15, and the hapless home moaner is sitting there thinking how “rich” he’s gotten just by sitting there doing nothing on his “appreciating” asset.
Now that the balloon is deflating, these assets are slowly returning to their normal (uninflated) values. Had the growth been real all along, the balloon would have increased in size without any change of the interior pressure and without everyones’ asset values being artificially stretched as they were.
This “guaranteed returns” fallacy exists in the political world as well. Where previous generations may have shuddered at the thought of one nation wantonly invading another (under false pretenses, mind you) just to remove a government not sufficiently appreciated by the invaders and to impose a politcal system modeled on that of the invading nation (hint: we’ve gone to war with other nations for doing just that), ours jumped into it wholeheartedly, with the naysayers & doubters being shouted down and hustled out in the worst possible way.
It was as if we were fed a bad rumor that cockroaches had infested a neighborhood on the other side of the world and then we reacted by collectively deciding to send a fleet of bombers to pulverize not just the neighborhood but the surrounding area as well, “just so we could make sure this distant threat was contained.”
Feh. Not only was it none of our business, but we have no business enforcing our laws on those outside our nation’s borders.
This bizarre-o mentality continues to the present day in the form of the UPL justice department thinking in can charge OPEC member nations with violating UPL laws. As if Kuwait and Saudi Arabia stood next to us in grade school and did the pledge of allegiance too! Duh! One can only hope that OPEC responds to this nuisance by dumping the UPL dollar entirely for oil transactions. They should have long since switched to the Euro and the Yuan anyway. Who needs garbage currencies like those of Zimbabwe and the UPL anyway?
[Note from JR – I did not plan this, Nudge emailed this to me about 10 seconds after I posted the previous thing from Shiller, a gift from the Great Electron, I guess.]