Dumber and Dumber

Dumber and Dumber

Founder Bill BonnerFinally, a break to the upside! The Dow rose 207 yesterday. Gold gained $19/oz.

Our guess is investors are getting comfortable with the "fiscal cliff." They figure Congress will muddle through... that it won't be so bad after all.

Now that the election is over, Republicans are warming to the idea of a tax hike. Democrats are more ready to compromise too... with a few largely symbolic cuts in social programs coming.

We doubt any of this is important. So let's turn to other matters: We're turning into a race of morons!

An Iconoclastic Theory

We left off on Monday with an alarming theory from Professor Gerald Crabtree. He thinks we humans are becoming dumber. From Britain's Independent newspaper:

Professor Gerald Crabtree, who heads a genetics laboratory at Stanford University in California, has put forward the iconoclastic idea that rather than getting cleverer, human intelligence peaked several thousand years ago and from then on there has been a slow decline in our intellectual and emotional abilities.

Although we are now surrounded by the technological and medical benefits of a scientific revolution, these have masked an underlying decline in brain power which is set to continue into the future leading to the ultimate dumbing-down of the human species, Professor Crabtree said.

His argument is based on the fact that for more than 99% of human evolutionary history, we have lived as hunter-gatherer communities surviving on our wits, leading to big-brained humans. Since the invention of agriculture and cities, however, natural selection on our intellect has effectively stopped and mutations have accumulated in the critical "intelligence" genes.

"I would wager that if an average citizen from Athens of 1000BC were to appear suddenly among us, he or she would be among the brightest and most intellectually alive of our colleagues and companions, with a good memory, a broad range of ideas and a clear-sighted view of important issues," Professor Crabtree says in a provocative paper published in the journal Trends in Genetics.

"Furthermore, I would guess that he or she would be among the most emotionally stable of our friends and colleagues. I would also make this wager for the ancient inhabitants of Africa, Asia, India or the Americas, of perhaps 2,000 to 6,000 years ago," Professor Crabtree says.

Two little words prove that he is right: Thomas Friedman.

But you don't need to read the New York Times columnist to find evidence of growing imbecility. Even a casual reading of the newspapers brings more examples.

Do Deficits Matter?

Then there is British economist and journalist Anatole Kaletsky. There are dumb deficit deniers. And there are smart deficit deniers. Kaletsky is one of the smart ones. But even the smart ones make us wonder.

Do deficits really matter? Dick Cheney said they didn't. Apparently, Ronald Reagan didn't think they mattered. Today's big federal debt got its first big growth spurt during Reagan's first term.

And here comes Kaletsky with a prediction. When the Republicans realize that the only way they can cut the deficit is by raising taxes, they won't think deficits matter either.

Kaletsky says that today's deficits are really nothing to worry about. They're not that big. And with interest rates so low, they are easily handled. From Reuters:

Why are sophisticated investors unmoved by the deficit panic? Because they know that governments, at least outside the eurozone, are nowhere near bankruptcy.

In fact, debt levels are not dangerously high. The U.S. government net debt is expected to stabilize at 89% of gross domestic product from 2014 to 2017, according to the International Monetary Fund, even if all the Bush tax cuts were extended and without any of the spending cuts assumed in the fiscal cliff. Similar stable debt levels are projected for Germany, France, Italy, Britain and even Spain.

Assuming debt levels do stabilize in the rage of 85% to 100% of GDP, these won't be worryingly high. U.S. national debt peaked at 110% of GDP in the late 1940s, and Britain's was even higher.

But nobody worried much about national bankruptcy after World War II - and the confidence proved justified. For the U.S. and Britain both enjoyed their strongest economic performance in the two decades after their deficits peaked at more than 100 percent of GDP.

Nobody worried about the debt after the war was over for two reasons: first, because the war was over... and second, because public officials meant to pay it off!

Today, the social and security spending goes on and on... and gets bigger. There's no end in sight. And public officials - urged by people like Kaletsky - have no intention of paying down the debt. Instead, they intend to add to it... and are ready to print money to keep the lights on.

Kaletsky continues:

Conservative politicians, opposed in principle to all government, exploited deficits to demand cuts in government spending, while denying that higher taxes could play any role in reducing deficits.

But now the tables are turned. After the November 6 U.S. election, deficit phobia no longer implies drastic cutbacks in public spending. Instead, it is becoming the main argument for higher taxes - especially on the rich.

Once this becomes obvious, I expect to welcome many Tea Partiers and tax lobbyist to the ranks of deficit deniers.

He may be right about that. Republicans have been deficit deniers when it suited them. They will be again. Just like Democrats, in other words.

Absurd, Stupid and Criminal

But that doesn't mean deficits don't exist... or that they won't cause a lot of hardship in the future. Kaletsky notes that governments could reduce their debt substantially just by canceling what they owe to their own central banks. Good thinking!

The central banks print up money. They use it to buy (mainly) sovereign bonds from the money center banks, which, in turn, have bought them from the government. Thus does the government "borrow" money that didn't theretofore exist.

If something seems fishy about that transaction to you, you are already on your way to suspecting that the human race is indeed getting stupider. One hundred years ago, central bankers wouldn't have stood for it. Neither would the governments and publics they served.

But now we take for granted what we used to take for absurd, stupid and criminal. Central banks print money and pass it off as the real thing. Central governments run deficits of 10% or more of their nation's GDP and cover it with printing press money.

And the man chosen to defend the Bill of Rights tells The New York Times how he personally directs a program of premeditated murder!

How smart is that?

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