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In these perilous economic times, we see a lot of financial advice flying by. People tell us to buy gold, or sell gold, or speculate in oil futures, or put money into this or that sure-fire investment.
What they don't realize is that investing in stocks is for penny-ante punters. If you want real profits, you don't buy stocks, you buy politicians.
Human beings, and thus government, have been around for a long time. The Chinese are said to have invented bureaucracy around 5,000 years ago and the Egyptians needed a pretty capable bureaucracy when building the pyramids. Some 2,500 years ago, Confucius pointed out that given enough time, bureaucrats would push up government spending to the point that society would collapse.
His prediction is playing out in America. Ever since the Great Society, government spending has been growing faster than the economy except for a few years when Pres. Reagan managed to slow government growth a bit. It's hard to whack back a bureaucracy - government expenditure tends to grow in good times as well as in bad times.
Confucius is the first writer we know to have documented the fact that government growth eventually makes everything collapse; we've called this the Confucian Cycle.
We recently came across another of Confucius' wise sayings - "When prosperity comes, don't spend all of it." Governments ignore that rule just as they ignore his rules about the dangers of excessive bureaucracy.
During the period of prosperity which ended in the recent financial crash, state income tax revenue went up because personal income went up. What did the state governments do with their bounty?
They not only spent it all, they spent more than all of it. For every extra dollar they received, the State of California spent $1.40. Now that the party's over, they're having a hard time cutting back.
Whenever government agencies start a new program, a great deal of the money goes to pay bureaucrats to manage whatever the program is supposed to do. Most state employees are unionized; new employees must join the union as a condition of employment. Thus, for every new body government takes on, the union gets more dues money.
It's in the union's interest to have government take on more and more employees regardless of what if anything those employees do. Each one is worth so much per month in dues paid to the union.
It's not news that companies have been buying politicians by giving kickbacks in the form of campaign contributions. Labor unions have always contributed to political campaigns and encouraged their members to volunteer for "get out the vote" drives. What's beginning to make the news is how unions are buying politicians wholesale.
Labor unions contributed hundreds of millions of dollars to Mr. Obama's presidential campaign. He paid them back by giving billions to GM and Chrysler and by prostituting the bankruptcy process so that the union was treated far better than creditors who had stronger rights than they did. The UAW got a magnificent return on its investment.
We see the same sort of influence-buying being played out at the state level. The New York Times has reported that New York State is in pretty bad shape - it's facing a $3 billion deficit this year and a $10 billion deficit next year. You'd think that the politicians would be working with the governor to balance the budget, but you'd be wrong.
The Times reports that Sen. Kruger is fighting the very idea of spending cuts.
Mr. Kruger, a Brooklyn Democrat who is the chairman of the Senate Finance Committee, has amassed a campaign war chest of $2.1 million, in part because of generous contributions from his labor union allies. [emphasis added]
Despite a deficit of more than $3 billion, Mr. Kruger has threatened to block any significant cuts to health care and education, the biggest spending areas in the budget. He has presented his own budget plan, which has startled even Albany veterans for its reliance on one-time maneuvers and financial gimmickry.
New York spends about twice as much on health care and on education as other states average, but these taxpayer-funded agencies employ a lot of union members. In addition to giving money to Sen. Kruger, the union recently sent 2,000 members to Albany to rally against cuts. One wonders how much taxpayer money was spent paying them for their time?
The governor had proposed cutting several hundred million dollars from each of these spending categories. If the unions' payments to Sen. Kruger avoid the cuts and keep the money flowing to their members, they will have received a huge return on their investment.
Don't buy stocks, buy politicians!
Unfortunately, when investing in politicians pays better than investing in the real economy, the smartest people will go into politics rather than going into business. Since government doesn't produce anything, diverting people from the productive part of the economy into the value-destroying part brings us that much closer to the Confucian Collapse.