Society, to its own peril, is missing t he Big Picture — Part one

Tuesday, 4 April 2023 — Gold Coast

[9 min read]

Dear Reader,

Life is a multitude of cycles — personal, professional, political — within one big cycle.

From birth to death, our lives are subject to the constant force of change.

The Success Principles, written by Dr Jack Canfield, provided a formula to explain why some people cope better with change than others…E+R=O.

To quote from the book:

‘You can’t change the events that take place in life but you can change your response to the events to create the outcome that you desire.’

Events + Response = Outcome

Some events are beyond our individual control.

Like whether the RBA will or will not raise or lower rates.

Or whether the economically challenged Greens will hold the balance of power.

Or if US bank executives will act prudently or not.

Or the Saudis will exert influence over the price of oil.

While these events might be beyond your control, in some circumstances, you can pre-empt the change that’s coming and respond in advance to create an outcome that’s more favourable to you.

This week and next, we’ll try to divine how some big cycles are interlocking to impact your lifecycle.

The political cycle

In the early 1980s, conservative luminaries Margaret Thatcher and Ronald Reagan were swept into power.

Their homespun logic resonated with the voting public:

‘The problem with socialism is that you eventually run out of other people’s money.’

British PM Margaret Thatcher

‘The nine most terrifying words in the English language are “I’m from the government and I’m here to help.”’

US President Ronald Reagan

Oh, how the world has changed.

The political cycle has rotated 180 degrees.

Today, people want — no, make that demand — the government help with other people’s money…and the more of it, the better.

Any thoughts of where the money comes from or how long it can be paid for aren’t entertained. If you’re a politician who wants the reins of power, you’d better keep it coming.

In response to the recent election outcome in NSW — which turned mainland Australia red — former Minister for Foreign Affairs Alexander Downer wrote this Opinion piece for the Financial Review:

Alexander Downer offered this observation on why conservative politics is currently out of favour with the broader electorate:

‘A combination of hysteria about climate change and Covid-19 has successfully pushed the public — especially the young — into abandoning concepts such as sound money, individual liberty and responsibility, and competitive markets…The state knows best and it doesn’t matter how much it spends. That’s the prevailing zeitgeist.’

Downer’s opinion is a reasonable assessment of the situation.

A generation ago, my conservative views on family life, living within your means, there are only two genders, Christian values providing a solid foundation for a civilised society, taking personal responsibility, and welfare being for those less fortunate in life, would not have raised an eyebrow. Not these days.

Have I moved further right or has society (in general) moved further left?

In failing to respond in a progressive manner to society’s new ‘values’, I have to accept the outcome…getting pigeon-holed as a privileged white guy who’s a far-right bigot/nutter.
Downer says, ‘the political cycle will turn’.

This is true. Cycles always turn.

But the $64 question is ‘when’?
Unfortunately, I don’t see this rotation happening for at least a decade and, most likely, longer.

It would be good to see it in my lifetime, but I won’t hold my breath.

Why?

The welfare cycle

In recent weeks, the US, Europe, and China have all raised red flags over the financial viability of funding indexed age pensions to a society that’s living longer:

‘Concerns are rising over the future of [US] Social Security as lawmakers on both sides discuss potential changes to extend the lifetime of the program, which risks running a shortfall in funds sooner than one might expect.

‘A report released by the [US] Congressional Budget Office (CBO) warned the Social Security trust fund could run out of money by 2032 — a year earlier than previously thought — if Congress doesn’t make changes to bring in more revenue or reduce benefit payouts.’

The Hill, 19 February 2023

‘Police in Paris have clashed with protesters after the French government decided to force through pension reforms without a vote in parliament.

‘Crowds converged on Place de la Concorde in response to raising the retirement age from 62 to 64.

‘The plans had sparked two months of heated political debate and strikes.’

BBC News, 16 March 2023

‘China is planning to raise its retirement age gradually and in phases to cope with the country's rapidly aging population, the state-backed Global Times said on Tuesday, citing a senior expert from China's Ministry of Human Resources.’

Reuters,14 March 2023

Communist, Socialist, and so-called Capitalist States are all facing the reality of Margaret Thatcher’s rational thinking. You cannot live forever on the never, ever. Something has to give.

But what’s been given is not easy to take away.

As mentioned in my Daily Reckoning Australia article last week, Social Security is now an entrenched right within society.

To quote from the article:

‘When originally introduced a century ago, to help the aged and most disadvantaged in society, social spending in Western economies represented a few percent of GDP.

‘Since then, governments of all stripes, have widened the “thin edge” to include all manner of welfare programs.

‘What was once considered a “handout to help the most needy” is now seen as an entitlement.’

Any hint of change to what people now consider to be their right is met with spirited opposition.

Promises were made (and expanded upon) when the demographic and life expectancy cycles were vastly different to today.

Irrespective of the damning evidence of numbers — more people living longer, lower birth rates, and budgets awash in red ink from the rising cost of healthcare and welfare — society is in no mood to listen to reason.

Promised entitlements must be honoured.

If not, we’ll bring ‘baseball bats’ to the street and ballot boxes.

In an effort to pre-empt what’s coming with social spending and how it’s funded, we can draw on the real-life experience of Japanese society.

According to the European Parliament Think Tank:

‘Japan is aging fast. Its “super-aged” society is the oldest in the world: 28.7 % of the population are 65 or older, with women forming the majority. The country is also home to a record 80 000 centenarians. By 2036, people aged 65 and over will represent a third of the population.’

Paying aged pensions to one-third of the population, for possibly three or four decades, was NEVER part of the original plan.

Common sense tells us, if something cannot continue, then it won’t.

However, life has taught me the time frame between reality and the dawning of it, can take an awfully long time.

But, be under no illusion, today’s age pension and the eligibility criteria to access it, are destined to change…and not for the better.

This is an event that is coming.

Fortunately, you have time to formulate your response.

And, in my opinion, your response should be to create a level of financial independence, so you do not need to rely on other people’s money or ask the government for help.

I appreciate this response runs counter to prevailing ‘wisdom’, but, if your life cycle is long enough, you’ll find old-fashioned values have a habit of being recycled into ‘new age’ thinking.

The market cycle

Next week’s issue will focus on where we might be at in the market cycle.

But, as a teaser, those who are relying on the traditional balanced fund to deliver the prize of financial independence may want to take note of what’s happening in US state and private pensions.

In January 2023, the bi-partisan US policy institute, Equable, published this report:

Why are the retirement systems in such a fragile condition?

To quote from the report:

‘Asset allocations have shifted away from relatively safe fixed income investments into riskier categories in a search for stronger investment returns.’

That same shift in asset allocations has happened in Australia, the UK, Europe, and other developed world retirement funds.

Why?

E + R = O

Event — lower rates.

Response — go in search of higher risk/higher return investments.

Outcome — a system that’s on the verge of collapsing under the weight of all that reaching for return.

Until next week!

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia

Dear Reader,

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Cheers,

James Woodburn,
Publisher, The Daily Reckoning Australia

Dear Reader,

‘Birds do it, bees do it
‘Even educated fleas do it
‘Let’s do it, let’s fall in love’

Cole Porter

Caution: The following may contain non-graphic sexual content. Just like everything else, parental guidance is advised, as always.

In the news last week was a smallish note, in which US Secretary of State Antony Blinken asserted that ‘peace [in Ukraine] could be a cynical trap’.

Really? Killing people is better than not killing them? To stop killing would be ‘cynical’? Whence cometh such a strange idea; and how could you explain it to the widows?

The answer came to us as we awoke this morning: Doing it!

Like all our ideas, this one was surely rehearsed by a thoughtful Greek more than 2,000 years ago. But we never met the Greek. We see no copyright. And so, it’s ours.

Useful? You decide.

Need versus want

Humans have two major impulses. Need and want. Everything else can be derived from them.

We need to eat…or we will die. This is a purely practical matter. It leads us to practical actions…and material progress. We develop better hunting techniques (including cooperation)…and then we learn to plant tomatoes and cabbages…and finally, we’re able to harness fossil fuels to power our tractors, factories, and homes.

Solving the need issue led to Pythagoras, pi, science, maths, and engineering. Adding two plus two. Identifying plants. Figuring out how to string a bow or throw a boomerang…then to the agricultural revolution and the Industrial Revolution. Calculators, foot warmers, atom colliders, double-entry bookkeeping, coat racks, and chainsaws — all are derived from our practical, needs-based thinking.

But there is a second impulse — desire. After we get enough food to survive, our main want (speaking socio-biologically, not necessarily from personal experience) is to reproduce. Were it not so, our species would have disappeared long ago.
Desire is an entirely different thing from need. It’s sex…and the world is full of it.

Trojan TikTok

Fantasy, fallacy, and fiction. The ‘big man’ in the tribe brings back a young deer. He shares it with his friends and relatives…and gets the best piece for himself. Mating is infinitely complex, nuanced, and fanciful. It is pouty lips and an enhanced penis…a successful novel or a souped-up Chevy. It is full of lies and myths…deception and contraception…political slogans and great power competition…exaggerations on Facebook…breast augmentation and a third world war. It is hours in the gym and botox...‘Gone with the Wind’ and the Madonna della Pieta.

We began thinking about this when we were reading the headlines. One urged us to beware of TikTok because the Chinese might be using it to gather ‘intelligence’. Another told us that the Chinese were ‘getting ahead of us’ because they were subsidising their technology companies. Still, another urged us to support a bigger Pentagon budget lest the ‘Chinese dominate the South China Sea’.

Probably the dumbest of this genre came from TIME, the once-half-intelligent popular magazine:

‘These 5 Facts Explain Why China Is Pulling Ahead of the West

‘1. It has the world’s most powerful leader.’

Really? Stalin was powerful. Hitler was powerful. Did they ‘pull ahead’? Generally, the more powerful the leader, the weaker the nation.

‘2. It reaps global benefits from a state-controlled economy’

Huh? Since when is a ‘State-controlled economy’ a benefit? It is always a disaster.

‘3. It keeps the population in line with state-created jobs…’

This is absurd. People enter the workforce at 18 or later. Do the geniuses in Beijing know how many workers the country will need 20 years down the pike?

‘4. …and by leveraging advances in technology’

Leveraging? China’s entrepreneurs leverage. Its central planners misallocate, misconstrue, and mislead…just like central planners everywhere.

‘5. Others are following in its footsteps’

How does that help China ‘pull ahead’? China only pulls ahead by innovating and growing faster than the US. The number of nations trailing behind is completely irrelevant.

But most puzzling is that TIME thinks we should care if China ‘pulls ahead’. Why?

Win-win versus win-lose

Why do we care if China dominates the South China Sea? So what if it has a stronger economy…more people…more technology…or whatever? Logically — drawing on that part of the brain that concerns itself with ‘need’ — the stronger, richer, and more advanced China becomes…the better off we all are. Americans like TikTok; let China give us more of them.

But the ‘want’ category is another way to look at it. Americans don’t only desire to live better…have more to eat…and be richer. They also want to live better, have more to eat, and be richer than their neighbours. That is, they want to be Number Uno. The lead dog. The hegemon.

We want our team to win the Super Bowl. Whether our team wins or not is no reflection on us personally; we had nothing to do with it. But in the hall of mirrors of the ‘want’ mind, all we see is ourselves. There is no joy in Mudville if the home team loses. For then, we are all losers.

The ‘need’ part of the brain is rational, expansive, and generous. It is the optimistic, win-win part that recognises that more for anyone is more for everyone. But the ‘want’ part is jealous and fearful; in order to win, someone else must lose. Ergo, making someone else lose is the way to win.

It makes perfect sense. The wealth of the world is unlimited. Tractors and chemicals have increased farm output by five times since 1910 and the ratio of farmer-to-consumer has dropped from one farmer for every 13 consumers to one to 159.

But the ‘desire ratio’ of girl to boy is still the same — about one-to-one. So, if you’re going to get the girl…or the boy…or the trans or undecided person…you’re gonna have competition. Supplies are limited. You can only ‘win’ by making someone else ‘lose’. It’s always been that way…and always will be. Need is absolute. Desire is relative.

You can build as many skyscrapers as you want. But if the home team is going to win, it must defeat the visitors.

What does this mean for US foreign policy…for the future of the dollar and your investments? Give us a day to think about it…

…and stay tuned.

Regards,

Bill Bonner,
For The Daily Reckoning Australia