Belmont Club

A conversation in the Sunset District

Three years before Marcos fell I was sitting in the San Francisco living room of Gaston Ortigas, who had been the dean of a business school in Manila, but was then on the run from the regime. He had fled to the United States by sneaking over the sea border to Malaysia. Since we were waiting for one of those conspiratorial meetings to start, he with his cigarette and I with Worm Ouroborous from the Green Apple bookstore by the bridge with in nothing particular to talk about before the meeting, I asked him about his reputed disinterest in finance. He answered, “I’ve always thought it was a little odd to have high-rise buildings full of grown men handing little pieces of paper to each other and calling it work.” Today Mark Steyn has a post in the National Review which returns to that very subject: how far can a virtual economic activity be disconnected from bricks, mortar and people? He observes that ultimately, things come from people doing stuff. If you run out of people or they no longer do stuff, sooner or later the music stops — even for the people shuffling the bits of paper.

In the current crisis, Japan, Germany, and Italy (plus Russia) are in net population decline that’s only going to accelerate in the years ahead. So, unlike the U.S., they can’t run up the national debt and stick it to their kids and grandkids, because they don’t have any kids and grandkids to stick it to. If New York is running out of rich people, Germany is running out of people, period. The Chinese and other buyers of Western debt know that. If you’re an investor and you’re not tracking GDP versus median age in the world’s major economies, you’re going to lose a lot of money. …

But Steyn argues that we pretend this connection doesn’t exist. We continue to act like we can ignore the fact that somewhere along the line there is a goose that lays the Golden Egg. In the past we simply assumed the fact of the Egg and concentrated on ways to make increasingly fancier omelets. And the fanciest omelet makers of all were in the financial sector. Steyn continues:

Let it be said that in recent years in America, the United Kingdom, and certain other countries the “financial sector” grew too big. In The Atlantic, Simon Johnson points out that, between 1973 and 1985, it was responsible for about 16 percent of U.S. corporate profits. By this decade, it was up to 41 percent. That’s higher than healthy, but it wouldn’t have gotten anywhere near that high if government didn’t annex so much of your wealth — through everything from income tax to small-business regulation — that it’s become increasingly difficult to improve your lot by working hard, making stuff, and selling it. Instead, in order to fund a more comfortable retirement and much else, large numbers of people became “investors” — albeit not as the term is traditionally understood: Instead, you work for some company and they put some money on your behalf in some sort of account that somebody on the 12th floor pools together with all the others and gives to somebody else in New York to disperse among various corporations hither and yon. You’ve no idea what you’re “investing” in, but it keeps going up, so why do you care?

When I read Steyn’s piece, Gasty Ortigas’ remark about skyscrapers full of men handing each other “little pieces of paper” returned to memory. I would have disagreed with Gasty at the time, arguing (from behind the Worm Ouroborous) that the financial sector — the men with little pieces of paper — added value to ‘people doing stuff’. But I would have had to admit, had he pressed me (and he was one of the smartest men I ever met) that at at the limit once everything became all people shuffling paper without anyone doing stuff, then it would all become sterile and eventually collapse.  It didn’t seem worth saying, because it was glaringly self-evident, that there had to be an optimal proportion between the two parts of the economy, dynamic perhaps in extent, but extant all the same. I think Mark Steyn is onto something when he argues that it is the collapse of this balance that is partly to blame for the meltdown. But bureaucrats act, or pretend to act, as if more rules and systems can fix things. Like every other form of life, bureaucracy acts like it wants its tribe to fill the earth, until there’s nothing left but forms, forms and forms.

A serious G20 summit would have seen France commit to the liberalization of its economy; Germany to serious natalist incentives; Britain to a reduction of the near-Soviet size of state spending in Scotland and Northern Ireland; and the United States to allowing its citizens to keep more of their hard-earned money and thus reduce both the dependency on ludicrous asset inflation as the only route to socio-economic improvement, and the risk of a Euro-style decline in birthrate caused by the unaffordability of kids. Instead, the great powers are erecting a global regulatory regime to export their worst mistakes to the entire planet.

But it can’t; and sooner or later the dream of bureaucrats will fall over of its own weight. Most of us will be buried beneath the gigatons of paper when it happens. But some will survive to pick it all up. Whether we will individually live to see it, no one can say. But the fact gives us hope; and whether in this crisis or in life in general, we don’t really need to live to see the dawn to know it will come.