Why Elections are Nothing More than Auctions

People vote for change. Hoping/praying/believing the next person will be better than the alternative.

In 2007, we (as in the nation, but not me personally) thought Kevin Rudd would be a breath of fresh air compared to stodgy old Johnnie. Well, we got the ‘air’ bit right; only it wasn’t so much ‘fresh’ as it was ‘hot’.

What a windbag he was. Remember fuel watch and grocery watch? Well, the only thing we got to watch was an overblown ego eroding the financial foundations of this nation. We’ve never recovered from the Rudd/Swan failed experiment of change.

Our nation’s finances are going from bad to worse. But will we vote to turn the red ink into black?

No chance. Which sector of society is going to vote to receive less, or pay more? ‘Someone should, just not me’ is most peoples’ thought bubble.

The good citizens of the US have voiced their anger at the establishment, but will things really change?

No. In fact, they’ll probably get worse. Trump is going to cut taxes (less revenue) and spend big (more deficit and debt) on infrastructure. Perhaps employment numbers will get a temporary boost…but globally-competitive wage pressures and automation are both massive depressants on employment and household income across Western economies.

These deflationary forces are not going away.

In his book The End of Normal, James Galbraith wrote:

There is no reason to believe that the democratic decision made by the living in the face of their present needs and desires will be the decision that would maximize the chance of long-term system survival. The unpleasant conclusion is that it is possible for a society to choose economic collapse.

Basically, we put our own short-term self-interest ahead of the nation’s long-term good. Which is why elections are nothing more than auctions. The majority vote tends to go to the highest bidder. What’s in it for me? Who promises to take less and give me more?

No one chooses to do it a bit tougher. Pay more taxes. Pay more for healthcare. Reduce entitlement payments. Contribute to education costs. Fat chance.

This is what Galbraith means when he talks about putting our present needs and desires above the system’s long-term survival.

Who cares if we drive this thing into the ground? That’ll be someone else’s (another generation’s) problem to worry about. Great attitude!

But attitude comes from leadership. And therein lies the problem. We do not have any real leadership. Canberra and Washington are swamps full of slippery critters. You cannot drain these swamps…they are the permanent breeding grounds for blood sucking, back-stabbing, jelly-backed creatures called politicians and the coterie of political staffers and senior bureaucrats that surround them.

But this is who we (as in, society) vote for. We don’t want someone who’ll tell it as it is — and the price each one of us needs to pay to leave this place in better shape for future generations.

The End of Normal looks at how we are sowing the seeds of our self-destruction.

Decades of political overpromise enabled by easy credit and debt-fuelled growth has given us a warped sense of what ‘normal’ is.

It is not normal for interest rates to be negative. It is not normal to punish savers and reward borrowers. It is not normal for more than 50% of the population to pay no taxes. It is not normal to retire at 65 and expect society to pay for your way for the next 30 years. It is not normal to expect free healthcare. It is not normal to expect free education. It is not normal for households to be financially better off from family assistance benefits than it is to go out and work.

The fact that all of this is accepted as ‘normal’ tells me how abnormal we, as a society, have become. Socialism works until it doesn’t. When everyone starts thinking ‘I’m going to get myself a share of this normal’, the parasite loses its host.

That’s where we are headed.

People think the ‘normal’ past is going to be our ‘normal’ future, so they keep voting for more of the same old socialist values — what’s yours is mine.

When everyone is thinking the same, it shows no one is thinking at all.

Who is planning for massive disruption in our future?

Certainly not financial planners. They’ll print out the most beautiful set of numbers showing you how your capital will last until well into your old age. But these beautiful numbers are based on performance from our abnormal past and what awaits us in our normal future.

What if everything we’ve been told about how an economy functions was based on a false premise?

What if the past 40 to 50 years of economic growth and financial market performance has been an aberration, and not the normal?

What if the next 40 to 50 years is completely unlike what we’ve experienced since the 1960s?

In my opinion, the dynamics that propelled Western economies to what 70 years ago would have been an unimaginable level of prosperity are no longer in play. That was yesterday.

The system we have today bears no resemblance to the world that emerged following the Second World War.

The strategies that produced the stellar (and, as we now know, artificial) growth of the 1970 to 2007 period are no longer applicable. In fact, they are toxic to the world we live in today.

In failing to recognise the altered conditions, and refusing to alter course, our esteemed policymakers are threatening to take the system beyond the brink of collapse.

After the Second World War, the Western world hit the perfect sweet spot. There was a confluence of events that created a clear economic division between the West and the Rest.

  • Access to cheap and abundant oil;
  • Industrialisation;
  • Population growth via the ‘baby boom’;
  • Improved healthcare — increasing life expectancies;
  • Military power — providing secure access to energy resources, and;
  • The opportunity to rebuild from the ashes created by two decades of financial and social upheaval.

 

The following graph tells the tale of the two worlds from 1950 onwards.


Source: Wikimedia Commons
[Click to enlarge]

A few decades of prosperity created a culture of growth in the West.

Growth has come to be expected. We’ve been indoctrinated to believe growth is normal and perpetual.

Year after year, every utterance from government officials, the IMF, or CEOs is all predicated on delivering growth. The message is that, without continual growth, we are doomed. Taking a breather is not an option.

The upshot of the perpetual growth myth is that each generation believes it’s entitled (earned or unearned) to a better standard of living than the one that preceded it.

Governments and their central banks were the self-appointed arbitrators on how much the perpetual growth machine needed to deliver to meet society’s expectations. Any interruption to growth — a recession — was cured by a dose of fiscal (modifications to government spending and taxation) and monetary policy (interest rate adjustments).

These were easy decisions to make — cut taxes and reduce interest rates to fuel another surge in debt-funded consumer spending.

The sheer level of debt and unfunded promises in the system means that the days of easy decisions are over. In addition to this, we have India and China competing aggressively to provide their societies with what we have long enjoyed.

Our policymakers (and society in general) have proven that accepting the new reality and taking hard decisions are also not a voluntary option.

Therefore, the system must return to normality via a collapse.

Sometimes, the drug addict or alcoholic has to hit rock bottom before any meaningful change in attitude and lifestyle is realised.

The same principle applies to our unrealistic expectations of what we consider to be normal.

Have you factored into your longer-term plans that everything you’ve come to believe as normal may in fact be based on a false premise?

What if decades of expected growth is now followed by decades of unexpected sub-par economic performance?

Basing your future plans on an abnormal past could be the most expensive decision of your life.

Regards,

Vern Gowdie,
For Markets and Money


Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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