Friday, October 11, 2013

Attention All Investors

Attention all investors: the United States is not where you want to make long-term investments. The reason is obvious. You cannot know from one week to the next whether there will be a functioning government. And this is a situation created by the government itself. Therefore the only kind of American investment that you might wish to consider is something extremely short term, where you can make a quick killing and get out.

Evolution has fashioned the life histories of organisms, which is largely the stories of their investments. How long do they live? How sturdy are their bodies? How many offspring do they produce? These are all investment questions. And oak trees answer these questions differently than cottonwood trees do. Oaks invest in strong wood and produce relatively few seeds over the course of centuries because they live in stable environments. Cottonwoods invest in cheap wood and produce many seeds during their short lives (by tree standards) in unstable, flood-prone, riverside environments.

Investing in the American economy today requires a cottonwood mentality. It is no place for you to trust your life’s savings, unless you do not plan to live very long. Of course, most of us have little choice; this is where we live, and it is very inconvenient for us to invest in, say, Japan or South Korea or Singapore. My own, admittedly imperfect, solution is to put most of my money in bank accounts and retirement funds, the purpose of which funds is to sit around and do very little, slowly accumulating value; in my health, so that I will not need to spend money on health care; in my house, since I actually live there; and in my daughter, who is my future. I will not consider putting my money into the floodplains of the general economy, where it will end up as flotsam and jetsam amidst the corpses of fish.

I think the American economy is even more tumultuous than the environment of cottonwoods. It is more of a bacterial economy. As soon as an animal dies, the bacteria begin to rot it. The bacteria have a wild population explosion. Then they die once they have finished decomposing the animal.

Another image that might serve for our American economy is the Permian extinction. Ecological communities around the world were collapsing 250 million years ago. One of the pieces of evidence for this is that the fossil record for that time period has a sudden spike of mold spores, which indicates that the world was rotting. We are in the economic equivalent of the Permian extinction. The world eventually recovered from that period of death; but it took about a hundred million years to recover its biodiversity! Right now (as of 11:00 central time) the Dow is high, which sounds like economic health—but remember that the Permian extinction was also a period of high and fast living, for fungi.

Congress passes laws that authorize, even require, certain expenditures, then they refuse to fund them. Congress forbids us to do what they require us to do. This is either so stupid as to be the product of pre-human cognition or else it is deliberate.

It really doesn’t matter if or when Congress resolves the budget impasse or whether the government defaults. America has already shot its credibility. America now has no more credibility for long-term investment (I’m talking to you, China) than does a shack built out of cottonwood or the brief pungent decomposition of a corpse.

Have a nice day.

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