Learning Machine

BALTIMORE – The Dow, the S&P 500, and the Nasdaq remain near record highs and are up about 10% since Election Day. Fed officials say they could raise interest rates “fairly soon.” Blah… blah… blah…


One of these days… sooner rather than later… as soon as the data permit…

Cartoon by Bob Rich


The economy is a learning machine. So is a person. We’re not talking about the kind of faux “learning” you do in school. Much of that is negative – ideas, information, and skills that destroy or delay real learning. In fact, some people stay in school to avoid learning.

Learning can be painful, humbling, and hard. And only win-win deals teach you  anything useful. Economist Adam Smith described the process more than 250 years ago. Willing buyers and sellers discover what things are worth (what someone is willing to pay).

This information directs – like an “invisible hand” – investors, producers, and consumers. Result? More wealth (or, in other words, satisfaction). This learning metaphor is more useful than we thought: How do you learn? By trying. When do you try? When you have to.


Adam Smith’s famous tome…


Why does extreme poverty persist in Baltimore and other places? Because the feds pay people not to try – and not to learn. Why do rich kids often get nowhere in life? Because their parents give them money; they don’t have to figure things out for themselves. They spend; they don’t learn.

Why does the U.S. economy stagnate? Because fewer people are learning. The zombies don’t have to learn. The cronies learn the worst lesson of all: that crime pays.


Win-Lose Deals

Today, smart mommas want their babies to grow up to be Washington lawyers or Wall Street bankers or crony hacks. That’s where the stolen money is – and they know it. But that is not how an economy learns.

Those are win-lose deals forced onto people by regulations, legislation, and the fake-money system. Some people win; most people lose. Those who aren’t in on the larceny get stuck in lower-paying, lower-learning jobs.

They’re at the checkout counter at Sheetz gas stations in Virginia. Or clearing away trees from the power lines in Ohio. Or they have no work at all. Economist Nicholas Eberstadt at the American Enterprise Institute think tank:


Between 2000 and 2015, according to [government statistics office the Bureau of Economic Analysis], total paid hours of work in America increased by just 4% (as against a 35% increase for 1985-2000, the 15-year period immediately preceding this one). Over the 2000-2015 period, however, the adult civilian population rose by almost 18% – meaning that paid hours of work per adult civilian have plummeted by a shocking 12% thus far in our new American century.


What do you learn when they have no work to do? Not much. According to one study, unemployed adult Americans dedicate 2,000 hours to TV and the internet a year. You learn by satisfying demanding customers and impatient bosses; you learn nothing from watching TV or surfing the web.


Growth in hours of paid work may have slowed, but there’s evidently nothing wrong with hours of TV watched…  and look at this, they do actually learn something!


Drugged Stupor

But it could be worse. And it probably is. Our brother-in-law, a retired preacher, enlightened us.

“I couldn’t believe it. I’ve been telling everybody that we live way down here in the rural Virginia mountains and how nice everyone is. It’s just like The Andy Griffith Show. But then the police showed up and arrested everyone in the house down the road. They were running a drug business. They had more than $100,000 in cash. Imagine, here in Nelson County.”

According to the DEA, in 2015, more Americans died from drug overdoses than from traffic accidents or guns. Washington spends trillions of taxpayer dollars to stop terrorists. But that year, Americans were 3,096 times more likely to kill themselves by drug overdose or suicide than to die in a terrorist attack.


The modern breakfast that will keep you in a proper trance for most of the day – cube morphine, a handful of happy pills… best washed down with Bogg’s Tawny Cocaine Port, the well-known cure for drunks – to keep you from nodding off completely.  If you don’t work, you’ll have way too much time to think, but there are ways to ensure you’ll remain only semi-conscious. The colorful little helpers on the right are even paid for by Papa State (not to forget, the government promised to create new businesses, and apparently it is succeeding in this particular field, see below).


The president’s Council of Economic Advisers tells us that about half of all working-age Americans without jobs are on some form of drug – either prescription or illegal. Where do they get all these drugs? From the feds, of course. Eberstadt continues:


Of the entire un-working prime-age male Anglo population in 2013, nearly three-fifths (57%) were reportedly collecting disability benefits from one or more government disability program in 2013… As [Sam Quinones’ book] Dreamland explains:

[The Medicaid card] pays for medicine – whatever pills a doctor deems that the insured patient needs. Among those who receive Medicaid cards are people on state welfare or on a federal disability program known as SSI [Supplemental Security Income]. If you could get a prescription from a willing doctor, Medicaid health-insurance cards paid for that prescription every month. For a three-dollar Medicaid co-pay, therefore, addicts got pills priced at thousands of dollars, with the difference paid for by U.S. and state taxpayers. A user could turn around and sell those pills, obtained for that three-dollar co-pay, for as much as ten thousand dollars on the street.


How much can you learn when you’re in a drugged stupor? Probably not much.


Zombie Effect

Another place you can’t learn much is prison. The U.S. has about 5% of the world’s population. But according to the International Centre for Prison Studies, it has about 22% of the world’s prison population. America has more people behind bars than any other nation – about 2.3 million souls.


Worrisome statistics – US prisons are brimfull, both in absolute and relative terms – click to enlarge.


Shuffling around their cells, following orders… what do they learn? Fake money produces much the same prison-like zombie effect on the economy. It dulls the senses. It cushions the pain of failure. It lulls people into not trying.

Where’s the real learning done in an economy? In new businesses. Those are the ones with the new ideas, new models, and new products. Each one is an experiment. If successful, they grow and hire people.

But the rate of new business formation in America has collapsed. It is now only about half of what it was in 1978. A recent World Bank study puts the US in 51st place for the ease of starting a business. That’s behind the Ivory Coast, Afghanistan, Ukraine… even France. By comparison, Canada ranks No. 2.

But there’s more to business than just starting one. The World Bank study also shows that the U.S. is still near the top in at least one category – “Getting Credit.”

Yes, when it comes to making fake money available to people who can’t afford to pay it back, the U.S. is still among the best.


An interesting batch of crony-indicators: the number of new jobs created by new businesses and the distribution of existing employment between large and small business establishments – click to enlarge.


But wait – the fake money flows to the big boys, not the start-ups. They use it to keep out entrepreneurs. And their revolving-door contacts in the regulatory agencies also help prevent competition. Learning is stifled.


Charts by: Prison Policy Initiative, Sentencing Project, BLS


Chart and image captions by PT


The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.




Emigrate While You Can... Learn More




Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • US Stock Market: Conspicuous Similarities with 1929, 1987 and Japan in 1990
      Stretched to the Limit There are good reasons to suspect that the bull market in US equities has been stretched to the limit. These include inter alia: high fundamental valuation levels, as e.g. illustrated by the Shiller P/E ratio (a.k.a. “CAPE”/ cyclically adjusted P/E); rising interest rates; and the maturity of the advance.   The end of an era - a little review of the mother of modern crash patterns, the 1929 debacle. In hindsight it is both a bit scary and sad, in...
  • A Giant Ouija Board - Precious Metals Supply and Demand Report
      Object of Speculation The prices of the metals fell last week, $22 and $0.24 respectively. It’s an odd thing, isn’t it? Each group of traders knows how gold “should” react to a particular type of news. But they all want the same thing — they want gold to go up. And when it doesn’t, many hesitate to buy. Or even sell. This is why speculation cannot set a stable price (I’m talking to you, bitcoiners).   Everybody wants gold to grow wings. Unfortunately it's rather...
  • How to Blow $12.2 Billion in No Time Flat
      Fake Responses  One month ago we asked: What kind of stock market purge is this?  Over the last 30 days the stock market’s offered plenty of fake responses.  Yet we’re still waiting for a clear answer.   As the party continues, the dance moves of the revelers are becoming ever more ominous. Are they still right in the head? Perhaps a little trepanation is called for to relieve those brain tensions a bit?  [PT]   The stock market, like the President,...
  • Purchasing Power Parity or Nominal Exchange Rates?
      Extracting Meaning from PPP   “An alternative exchange rate - the purchasing power parity (PPP) conversion factor - is preferred because it reflects differences in price levels for both tradable and non-tradable goods and services and therefore provides a more meaningful comparison of real output.” – the World Bank   Headquarters of the World Bank in Washington. We have it on good authority that the business of ending poverty is quite lucrative for its practitioners...
  • Broken Promises
      Demanding More Debt Consumer debt, corporate debt, and government debt are all going up.  But that’s not all.  Margin debt – debt that investors borrow against their portfolio to buy more stocks – has hit a record of $642.8 billion.  What in the world are people thinking?   A blow-off in margin debt mirroring the blow-off in stock prices. Since February of 2016 alone it has soared by ~$170 billion - this is an entirely new level insanity. The current total of 643...
  • Stock and Bond Markets - The Augustine of Hippo Plea
      Lord, Grant us Chastity and Temperance... Just Not Yet! Most fund managers are in an unenviable situation nowadays (particularly if they have a long only mandate). On the one hand, they would love to get an opportunity to buy assets at reasonable prices. On the other hand, should asset prices actually return to levels that could be remotely termed “reasonable”, they would be saddled with staggering losses from their existing exposure. Or more precisely: their investors would be saddled...
  • Despondency in Silver-Land
      Speculators Throw the Towel Over the past several years we have seen a few amazing moves in futures positioning in a number of commodities, such as e.g. in crude oil, where the by far largest speculative long positions in history have been amassed. Over the past year it was silver's turn. In April 2017, large speculators had built up a record net long position of more than 103,000 contracts in silver futures with the metal trading at $18.30. At the end of February of this year, they held...
  • From Bling to Plonk – An Update on the Debt Mountain
      Serenely Grows the Debtberg We mentioned in a recent post that we would soon return to the topic of credit spreads and exotic structured products. One reason for doing so are the many surprises investors faced in the 2008 crisis. Readers may e.g. remember auction rate securities. These bonds were often listed as “cash equivalents” on the balance sheets of assorted companies investing in them, but it turned out they were anything but. Shareholders of many small and mid-sized companies...
  • US Equities – Mixed Signals Battling it Out
      A Warning Signal from Market Internals Readers may recall that we looked at various market internals after the sudden sell-offs in August 2015 and January 2016 in order to find out if any of them had provided clear  advance warning. One that did so was the SPX new highs/new lows percent index (HLP). Below is the latest update of this indicator.   HLP (uppermost panel) provided advance warning prior to the sell-offs of August 2015 and January 2016 by dipping noticeably below the...
  • Return of the Market Criers - Precious Metals Supply and Demand
      Ballistically Yours One nearly-famous gold salesman blasted subscribers this week with, “Gold Is Going to Go Ballistic!” A numerologist shouted out the number $10,000. At the county fair this weekend, we ran out of pocket change, so we did not have a chance to see the Tarot Card reader to get a confirmation. The market criers are back in gold town [PT]   Even if you think that the price of gold is going to go a lot higher (which we do, by the way—but to lean on...
  • Good Riddance Lloyd Blankfein!
      One and the Same   “God gave me my money.” – John D. Rockefeller   Today we step away from the economy and markets and endeavor down the path less traveled.  For fun and for free, we wade out into a smelly peat bog.  There we scratch away the surface muck in search of what lies below.   One should actually be careful about quotes like the one attributed to Rockefeller above, even if it of course sounds good and is very suitable for the topic at...

Support Acting Man

Item Guides


Austrian Theory and Investment



THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts


Gold in USD:

[Most Recent Quotes from www.kitco.com]



Gold in EUR:

[Most Recent Quotes from www.kitco.com]



Silver in USD:

[Most Recent Quotes from www.kitco.com]



Platinum in USD:

[Most Recent Quotes from www.kitco.com]



USD - Index:

[Most Recent USD from www.kitco.com]


Buy Silver Now!
Buy Gold Now!


Diary of a Rogue Economist