I recently wrote an article that addresses the subject of sociopaths and how they insinuate themselves into society. Although the subject doesn't speak directly to what stock you should buy or sell to increase your wealth, I think it's critical to success in the markets. It goes a long way towards explaining what goes on in the heads of people like Bernie Madoff and therefore how you can avoid being hurt by them.
But there's a lot more to the story. At this point, it seems as if society at large has been captured by Madoff clones. If that's true, the consequences can't be good. So what I want to do here is probe a little deeper into the realm of abnormal psychology and see how it relates to economics and where the world is heading.
If I'm correct in my assessment, it would imply that the prospects are dim for conventional investments – most stocks, bonds and real estate. Those things tend to do well when society is growing in prosperity. And prosperity is fostered by peace, low taxes, minimal regulation and a sound currency. It's also fostered by a cultural atmosphere where sociopaths are precluded from positions of power and intellectual and moral ideas promoting free minds and free markets rule. Unfortunately, it seems that doesn't describe the trend that the world at large and the US in particular are embarked upon.
In essence, we're headed towards economic and financial bankruptcy. But that's mostly because society has been largely intellectually and morally bankrupt for some time. I don't believe a society can rise to real prosperity without a sound intellectual and moral foundation – that's why the US was so uniquely prosperous for so long, because it had such a foundation. And it's also why societies like Saudi Arabia will collapse as soon as the exogenous things that support them are pulled away. It's why the USSR collapsed. It's the reason why countries everywhere across time reach a peak (if they ever do), then stagnate and decline.
This isn't a matter of academic contemplation, for the same reason that it doesn't matter much if you're in a first-class cabin when the ship it's in is taking on water.
Economics and Evil
When I was a sophomore in college, I asked my father – a worldly wise man but one of few words – some cosmic question, as sophomores are famous for doing. His answer was, "It's all a matter of economics." Some months later I asked him another, similar question. His answer: "It's all a matter of psychology." They were unsatisfactory to me at the time, but those simple answers stuck in my mind. And I've since come to the conclusion that they comprehend most of what drives human action.
Let's look at the "matter of economics" only briefly, because it's covered at length elsewhere and because it's not nearly as significant as the "matter of psychology."
One definition of economics is: The study of who gets what, and how, in the material world. Unfortunately, it's been distorted over the years into the study of who determines who gets what, and how, in the material world. In other words, economic power has gradually been transferred from producers to political allocators. This has had predictably bad results, including not only the bankruptcy of the US government but of large segments of US society.
But what's happening today is much more serious than an economic bankruptcy; you can recover from financial woes by cultivating better habits. We're talking about psychological and spiritual bankruptcy. The word psychology comes from psyche, which is Greek for soul. When you look at the word's origin, it's clear that psychology is about much more than mental peculiarities. It's not just about what a person has or what he does. It's about what he is. The real essence of a man, his soul, is revealed by his philosophy and his beliefs.
In any event, it's rare that anyone goes bankrupt because of a single bad decision. It takes many missteps, and consistently bad decisions aren't accidents. Consistently bad decisions are the product of a flawed moral philosophy. Moral philosophy guides you as to what is right or wrong. The prevailing moral philosophy has so degenerated that Americans think it's OK to invade other countries that not only haven't attacked it but can't even credibly threaten to attack it. I'm not talking just about Afghanistan, Iraq or Libya – pitiful non-entities on the other side of the world. They were preceded by even weaker prey, closer to home, like Granada, Panama, Haiti and the Dominican Republic. Not only that, but they think coercion should be used to steal wealth from the people who produce it, and give it to those who've done absolutely nothing to deserve it.
It's hard to pick an exact time America's moral bankruptcy started; perhaps the draconian Alien and Sedition Acts of 1798 were the first real breach in the country's ethical armor – but they were quickly repealed and subsequently served as an example of what not to do for many years. There were real moral problems that arose because of the Mexican War, the War between the States and the Indian Wars. There were early attempts to create a central bank, but they fortunately failed. But I believe the real change in direction came with the Spanish-American War, which resulted in the accretion of an overseas empire, particularly in the Philippines where 200,000 locals were killed. As Randolph Bourne said, "War is the health of the state."
Then came the creation of both the Federal Reserve and the income tax in the very unlucky year of 1913, which made it possible to finance the country's completely pointless entry into World War 1. From there, with the New Deal, World War 2, Korea, the Great Society, Vietnam and so on, the US has gradually descended into becoming a very aggressive welfare/warfare state. It now has an overt government policy of inflating the currency, which constitutes a fraud, and running up the national debt, which is a swindle because it will never be repaid.
America is not the first to start with moral failure and move on to economic failure. In all the examples history provides, economic bankruptcy and political tyranny are invariably preceded by moral bankruptcy. It's bad enough that these things have happened. But it's even worse that they're celebrated and taught to students as triumphs. That guarantees that the trend will accelerate towards a real disaster. Most people accept what they're taught in school uncritically.
The pattern is no secret to historians. Machiavelli noted in his Florentine Histories (1532): "It may be observed that provinces, among the vicissitudes to which they are accustomed, pass from order to confusion, and afterwards pass again into a state of order. The way of the world doesn't allow things to continue on an even course; as soon as they arrive at their greatest perfection, they again start to decline. Likewise, having sunk to their utmost state of depression, unable to descend lower, they necessarily reascend. And so from good, they naturally decline to evil. Valor produces peace, and peace repose; repose, disorder; disorder, ruin. From ruin order again springs, and from order virtue, and from this glory, and good fortune."
This isn't the place to deconstruct Machiavelli, but he makes a couple of points that are worth pondering. Does "good ... naturally decline to evil"? In politics (which is his subject) it does, because politics necessarily attracts evil people, and evil necessarily brings ruin. Then order reasserts itself, because people despise chaos. And from order virtue arises, and from that good fortune. Machiavelli is right. Virtue does bring good fortune, and evil brings ruin. I believe it would be clear to Machiavelli that in the US virtue is vanishing and evil is on the rise. And Machiavelli would predict that things aren't going to get better at this point until they "sink to their utmost state of depression, unable to descend lower, they necessarily reascend."
In general, he's correct. But sometimes it takes quite a while for a society to reset. After the collapse of Rome, real civilization didn't return to the West until the Italian Renaissance, which was when Machiavelli lived. Interestingly, culture in Italy started a rapid decline in the 1490s, and the peninsula became a backwater – a quaint theme park at best – for hundreds of years. You can argue Italy is still headed downhill today. Perhaps it simply has to do with the nature of entropy: all complex systems eventually wind down, no flame can burn forever. But that's another subject. It would have been nice, though, to keep the flame of America burning for longer than turned out to be the case.
Moral and Intellectual Bankruptcy
One element of moral bankruptcy is intellectual bankruptcy, to wit, belief in the effectiveness of statism and collectivism. This is one reason why I counsel kids who are thinking of going to college (unless it's to acquire very specific knowledge in science, engineering, medicine or the like) to do something more intelligent with their time and money. The higher education system is totally controlled and populated by morally and intellectually bankrupt instructors who are believers in socialism.
It's said Obama is a socialist. I don't doubt he's sympathetic to socialism but, to be true to the meanings of words, he's a fascist.
Let's define these terms and two others with a little help from Karl Marx. His recommended solutions are part of the world's problems, but his analysis of conditions was often quite astute. As Marx pointed out, political systems are all about the ownership and control of goods, whether consumer goods (houses, cars, clothes, toothbrushes) or capital goods (farms, factories and other means of production). Although he didn't break it down this way, his analysis gives us four possible economic systems – communism, socialism, fascism and capitalism.
A communist advocates state ownership and control of all the means of production and all consumer goods. That's a practical impossibility, of course, even in the most primitive aboriginal bands. The idea is even more absurd and preposterous for an industrial society. But that doesn't keep professors and politicians from pretending that it's a good idea, even if just in theory.
A socialist advocates state ownership of society's means of production but accepts private ownership (with state control) of consumer goods. While it's a big improvement over communism, socialism is also completely impractical and always either collapses or evolves into fascism. North Korea and (now to a lesser degree) Cuba are the world's only socialist states.
A fascist advocates nominal private ownership of both the means of production and consumer goods – but with strong state control over both. In other words, you can own mines, farms, and factories – but the state reserves the right to tax, regulate or even expropriate them. Fascism has nothing to do with jackboots and black uniforms; you can have those in communist and socialist states as well. It has to do with a corporate state and a revolving door between business and government, with each protecting and enriching the other. Fascism can be maintained for a long time but necessarily entails all the problems we now face. Almost all the world's states are fascist today; they differ only in degree and detail.
A capitalist advocates the private ownership of everything. An extreme capitalist may be an anarchist, who believes that anything people need or want should be, and would be, provided by entrepreneurs at a profit.
No country provides a perfect example of any of these four arrangements. But every government promotes one or the other as a theoretical ideal. In most places, certainly including the US, the "mixed economy" is put forward as a good thing; the "mixed economy" is a polite way of describing fascism. Nobody wants to call fascism by its name today because of its strong association with Hitler's "National Socialists." In any event, look and analyze closely before you use these words and attach any of the four tags to any country.
In that light, it's funny how the Chinese are still referred to as communists, even though communism was tried only briefly, under Mao. In fact, up to the mid-'80s, China was a socialist state. Now it's a fascist state. China's Communist Party? It's just a scam enabling its members to live high off the hog.
Sweden is usually referred to as socialist, but it's always been a fascist country. All of its means of production – businesses, factories, farms, mines and so forth – have always been privately owned but heavily taxed and regulated. The presence of lots of "free" welfare benefits is incidental. People often conflate a welfare state with socialism, but they're two different things. Socialist states necessarily become too poor to provide any welfare. Fascist states can better afford it and usually offer some in order to help justify the government's costly and annoying depredations.
There is no truly capitalist state in the world today; perhaps Hong Kong comes closest (although not very close).The early US came quite close in some regards. In fact, the West as a whole was quite free in the century from the fall of Napoleon in 1815 to the start of World War 1 in 1914. Almost everywhere taxes were low and regulations few; there was no inflation because gold was currency everywhere; there were almost no serious wars and passports hardly existed, which enabled most anyone to travel almost anywhere without permission. It's no accident that, in percentage terms, the 19th century saw far greater and wider advances in prosperity than any time before or since. Capitalism is both natural and ideal – but, oddly, it doesn't exist anywhere. Why not? I'll explore that shortly.
One sign of intellectual bankruptcy in the US is the absence of serious discussion about capitalism (except in small, specialized forums). Nearly all political debate is about how to fine-tune a fascist system to best suit those who benefit from it – or who think they do. Almost everyone in the public eye is a political statist and an economic collectivist. Those who start attacking the heart of the matter, like Andrew Napolitano or even Pat Buchanan, are quickly evicted from their bully pulpits.
In reality, there's little philosophical difference between the Republicrats and the Demopublicans; they're really just two wings of the same party. The left wing of the party claims to believe in social freedom (but doesn't) and overtly disbelieves in economic freedom. The right wing says it believes in economic freedom (but doesn't) and overtly disbelieves in social freedom. The right wing uses more aggressive rhetoric to build the warfare state, and the left wing talks more about the welfare state. But the net difference between them is minuscule. That's because they share the same corrupt intellectual and moral views.
What made America unique was its foundation in a philosophy of freedom. That word, however, has become so corrupted that the younger Bush was able to use it two dozen times in some of his early speeches without being laughed off the stage or targeted with shoes and rotten vegetables. Perversely but predictably, Bush is today presented in the mainstream media as a free-marketeer, in order to pin blame for the current depression on the free market. This is as much of a hoax as calling Hoover a supporter of the free market. One is forced to acknowledge a bit of respect for Obama's intellectual honesty, in that he almost never speaks of "freedom" or "liberty."
But pointing out the sad state of the world today serves little purpose. It's rare that an intellectual argument changes anyone's mind. Opinions are mostly a matter of psychology. But it's almost impossible to change someone's psychology and the attitude with which he views the world, simply by presenting facts and arguments. A person's beliefs have much more to do with his character and spiritual essence than anything else.
You'll hear some of the candidates for the upcoming elections talk about "American exceptionalism." The phrase makes me wince because it's so anachronistic. In the first place, America was only incidentally a place, a piece of geography. In essence, America was an idea, and an excellent one, that was unique in world history. But now America has morphed into the US, which is essentially no different than the other 200 nation-states that cover the face of the planet like a skin disease.
It's funny, actually, to see how quickly and profoundly things have changed in the US. Back in the '50s and '60s, kids used to say, when one of us did something the others didn't approve of, "Hey, it's a free country." I'll bet you haven't heard that expression for many years. Back in the '70s, there used to be a joke: "America will never have concentration camps. We'll call them something else." Guantanamo, and the long rumored FEMA detention centers, are proof that it wasn't a joke after all.
It's all a matter of mass psychology, which is to say a moral acceptance of collectivism and statism. These systems actually aren't serious intellectual proposals, despite being doctrine at almost every university in the Western world. They're psychological or spiritual disorders on a grand scale.
It's important to gain an intellectual understanding of why freedom is good and collectivism is bad, why freedom works and government doesn't. It's important – but it doesn't strike at the root of the problem. The root of the problem is psychological, not intellectual. Do you think for a moment that if you could make Dick Cheney, Barack Obama, Hillary Clinton or any of the other sociopaths who control the state sit down and listen to intellectual arguments, it would change their attitudes? The chances of that are Slim and None. And Slim's anorexic.
Why am I so certain of that? It's not because these people have low IQs and can't understand the arguments. It's because most of the people at high levels of government are sociopaths. They're susceptible to reasoned argument against a police state to about the same degree that a cat can be convinced he shouldn't torment a mouse before killing it. People like Obama, Hillary or Cheney – which is to say most people with real power in Washington and every other government – do what they do because it's their nature. They're as cold, unemotional and predatory as reptiles, even though they look like people.
You may think I'm kidding or exaggerating for effect. I'm not. It's been said that power corrupts, and that's true. But it's more to the point to say that the corrupt seek power. A good case can be made that anyone who wants to be in a position of power should be precluded from it simply because he wants it. As a purely practical matter, the US would be far better off – assuming a Congress and a Senate are even needed – if their 525 members were randomly selected from a list of taxpayers. But that's impossible in today's poisonous environment because it would leave over half the population – those who only receive government largess and don't pay any income taxes – ineligible. This last fact is a further assurance that the situation in the US is now beyond the point of no return.
There are lots of ways to divide people into two classes: rich/poor, male/female, smart/dumb, etc. But from the perspective of political morality, I'd say the most useful dichotomy may be people who want to control the material world vs. those who want to control other people. The former are scientists, engineers and entrepreneurs; the latter are politicians, bureaucrats and assorted busybodies. Guess which group inevitably – necessarily – gravitate toward government? And I might also add, toward big corporations and the media. Big corporations are political arenas where the prize is economic power, and they're heavily populated by backslappers and backstabbers. The media specialize in a different type of power, manipulating opinion; one way they do that is by promoting an atmosphere of bad news, threats and general paranoia for which they imply government action is needed. Government, mega-corps and media – they are the triumvirate ruling today's world.
You may be thinking: Sure, I can see that Obama or Hillary or Cheney may be evil. But how about Bush or Vice President Biden or Prime Minister Cameron of the UK? It's sometimes hard to tell whether one is dealing with a knave or a fool. The fool does destructive things that may make him seem knavish. And the knave can do stupid things that make him seem like a fool. Isn't it a mistake to accuse someone of malevolence when Occam's Razor might indicate stupidity as a more likely answer? They seem more like fools than knaves. Pity the poor fools.
Stupidity certainly can account for many of the world's problems. As Einstein said, after hydrogen, stupidity is the most common thing in the universe. Unfortunately, the word "stupidity" is thrown about too carelessly, usually as a pejorative, and then often by stupid people. Let's define the word. It's important to be precise in the use of words, because if you're not, then how can you possibly say you know what you're talking about? A failure to define words properly invites sloppy thinking.
Most of the time people use "stupidity" to mean low intelligence. That's accurate, but it's a synonym, not an explanation. So it's not terribly helpful, because it doesn't really tell us anything we don't already know. Just look at how stupid the average person is (they're thick underfoot on Jay Leno's many "Jay Walking" segments) and then figure that, by definition, half of the electorate are lower than average.
It's helpful to use an example, and since we're talking about politics, let's pick a well-known political figure. George W. Bush was president recently enough that everyone can still remember him clearly. I've always said that the Baby Bush was stupid. Technically speaking, I believe he's actually a borderline moron. You may or may not know that a moron, an imbecile and an idiot are not at all the same thing – even though in common usage, the words are more or less interchangeable. In fact, these terms have clinical definitions.
Briefly, an idiot is so dim that he may have to be institutionalized. An imbecile functions at a higher level; he can get by in normal life, given some assistance. A moron does even better. He can conduct himself quite well in day-to-day society and even be liked and respected – a little bit like the character Chauncey Gardiner (who, as it turned out, was being groomed to become the president) in Peter Sellers' movie Being There.
A moron can carry on a conversation about the weather, the state of the roads, sports, TV sitcoms or even, with a bit of coaching – as Bush proved – the economy or a war. Bush seemed more or less normal, even though I suspect he only has an IQ of around 90. I'm not saying that just to be offensive to Bush fans. I believe I can back up that assertion, even if Bush could actually score above 100 on a standard test, by showing you some more practical definitions of stupidity.
Let me give you two of them. One is: an unwitting tendency to self-destruction. Another is: an inability to correlate cause and effect and thereby anticipate the consequences of an act. I would suggest to you that almost everything Bush has done, it seems his entire life, but absolutely while he was the president, would fit those definitions of stupidity precisely.
A moron can see the immediate and direct consequences of actions, even though the indirect and delayed consequences escape his understanding. At least to a cynic, that would seem to indicate that not only Bush but the average American voter is likely not just a moron but an imbecile. Such a deficit of intelligence almost guarantees that we'll see controls of all types – absolutely including foreign exchange controls – imposed as the Greater Depression unfolds. In fact, when the next 9/11-style incident, real or imagined, occurs, they're going to lock the US down like one of their numerous new federal prisons. It's going to be, as I've gotten in the habit of saying, worse than even I think it's going to be.
But stupidity is clearly only a partial explanation of Bush's character, just as it was only a partial explanation of Hitler's. Please don't misapprehend me on this. Bush wasn't in the same class as Hitler. Hitler was a criminal genius. But criminals, even so-called criminal geniuses, are basically stupid, according to our definitions – they show an unwitting tendency toward self-destruction. How stupid was it of Hitler to attack Russia, especially while he still had a front open with Britain? How stupid was it to declare war against the US shortly after the Japanese attacked Pearl Harbor? How stupid was it to murder six million innocents in concentration camps? How stupid was it to throw the Wehrmacht's Sixth Army into Stalingrad? It's a long list.
Stalin provides another example. How stupid was Stalin to murder several million of the most productive farmers when Russians already lacked enough to eat? How stupid was it to liquidate half of the Red Army's most experienced officers and higher NCOs just before WW2? Or Roosevelt. How stupid was it of him to pour milk into the gutter and slaughter livestock in order to drive up prices while millions were hungry? How stupid was it to burden the US, in the middle of the last depression, with huge taxes and a score of new regulatory agencies?
A catalog of stupidities of these and most other famous political leaders fills libraries. As Gibbon said, history is little more than a chronicle of the crimes, follies and misfortunes of mankind.
There are different types of intelligence – emotional, athletic, mathematical and literary intelligence, for instance. A person can be a genius in one and an idiot in the others. The same is true of stupidity; it comes in flavors. I think a case can be made that liberty cultivates intelligence, because it rewards seeing the distant and indirect consequences of actions.
Conversely, statism and collectivism, by restricting liberty, tend to reward stupidity. Remember that political leaders are oriented toward controlling other people; they're clever about it, but they're basically stupid about the rest of reality. Nonetheless, their animal shrewdness is enough for them to gain and keep power over others. The immediate and direct consequences of that political power are gratifying for those who have it; the indirect and delayed consequences, however, are disastrous for everyone.
But wait. It sounds like stupidity is related to evil. Which it is. Stupidity is a signpost of evil. It's why it often takes a while, when things are going badly, to determine whether you're dealing with a knave or just a fool.
In that regard, Robert S. McNamara offers something of a counterpoint to Bush. When you look at the disasters he caused throughout his life – almost destroying Ford, then almost destroying the US with the Vietnam war, then doing immense damage to the world at large with the World Bank – one might say he was stupid. In fact, he had an extremely high IQ. McNamara underlines the often fine distinction between stupidity and evil. He was clearly a sociopath, but he's held in high regard among the ruling class. Henry Kissinger is a similar case.
I would like to suggest that what really distinguishes political elites from normal people is not just a predilection for stupidity but a real capacity for evil. Evil might best be defined as the intentional and usually gratuitous commission of acts that are cruel or unjust. A person who commits many evil acts is a sociopath. The sociopaths who are naturally drawn to government eventually come to dominate it. They're very dangerous people. They reset the social mores of the country they control. After a certain point, a critical mass is reached, and it's GAME OVER. I suspect we're approaching that point.
The US – and many other countries – face severe problems. However, for the prepared contrarian investor, those problems mean great opportunities. There has never been a better time to become one of the prepared – but you must act today or tomorrow.