Investing in a Socialist Country - the United States

As magazines like Newsweek have recently said, the U.S. is already a socialist economy — so how to make money from it?  An intelligent comment from “bearfund” at Seeking Alpha…

Blah blah blah. Here’s what economics starts with: someone grows food and has more than he needs. You don’t grow food. What can you offer him? Think carefully; if he doesn’t like your answer, you will die.

Our farmer doesn’t know or care about the banking system or the relative merits of “socialism” and “capitalism”. He knows how much of his labour went into producing that food, and he knows that it will keep for a long time if no one offers a price he likes. Your choices are to kill him and take it, or make, buy, dig up, or cut down something he wants. That’s pretty much all there is to it. If the standard procedure is to kill him and take it, there won’t be very many farmers next year. This is why every socialist endeavour has foundered when it finally got around to agriculture: at the very bottom of the economy, people with nothing to lose and no need to gain (they are the only truly unleveraged participants) simply won’t accept getting nothing for their labour. Slaves run away, serfs rebel, and Soviets trade on the black market. Stalin had to learn it. Mao had to learn it. Obama will have to learn it. You can’t kill him, you can’t give him nothing, and you can’t give him worthless paper. You’ve gotta be honest enough to make serious payment or you’re going to run out of food and die. No way around it.

Most “mainstream” conversation today looks like a debate between the debasers and the nationalisers. In other words, between those who would pay in worthless paper and those who would prefer to take by brute force. Both strategies are certain to fail.

There is only one solution here: the investors lose their money, and keep losing it until a new equilibrium is established between supply and demand. There is always support for GDP at the level at which nearly everyone is a subsistence farmer or farm worker. If we break through all other support levels, that one will surely hold. And we were there less than 200 years ago. Clearly it is better to rebuild from nothing than to spend ever more of our resources trying to prop up a dead, decaying wreck. I don’t seriously think we’ll end up there anyway: there are plenty of long-lived productive assets out there to buy, and plenty of gold to buy them with if their prices come down far enough. But first we have to get past the era of paper money and do-gooder governments. We need fewer people, and we need them to understand that their standard of living has to reflect the value of their contributions, not the amount of debt the central bankers have decided we need today. Sadly, I think this crushing phase is likely to take a lot longer than it took to build the world’s largest and strongest economy from a million subsistence farmers and a few seafarers and fishermen. While it happens, never forget that every economy, however large or complex, begins with a man kneeling in a field, pulling out weeds in the hot summer sun. What’s it worth to you not to be that man?

…the bottom most level is clearly food.  We probably won’t get that far before everything is said and done with this depression we seem to be in, but it is good to be mindful of the boundary conditions economies function under.