International Man Of Finance And Adventure
Here at Porter & Co., we take the holidays seriously. We’ll be celebrating the “12 Days of Christmas” (plus a few extra!) from December 23 through January 6. During the holiday season, we won’t be sending our regularly scheduled research and insight.
Instead, we’ve asked members of the Porter & Co. team – editorial staff, analysts, marketers, and others – to select a favorite (generally investment-related) essay, article, speech, book excerpt, or other text, and to share their reflections on how it inspired them. Expect each one daily at our usual publication time: 4 pm ET. We hope they’ll help you get to know the family at Porter & Co. a little better – and perhaps offer some fresh perspective from voices you don’t usually hear.
In today’s 12 Days of Christmas, editorial director Kim Iskyan shares excerpts from Jim Rogers’ book Investment Biker, which helped inspire Kim to explore the world and see what it has to offer… which he has.
We wish you a warm and happy holiday season, from all of us here at Porter & Co… and we’ll be back with our usual program on January 6.
After I (Kim Iskyan) read Investment Biker, by Jim Rogers – whose nickname is the “Indiana Jones of finance” – any lingering doubt about how I wanted to spend my life evaporated.
Rogers grew up in the 1940s in a small town in Alabama, but escaped to go to Yale, and then Oxford. He happened into Wall Street – and in the early 1970s, co-founded the Quantum Fund, one of the world’s most successful hedge funds, with George Soros. After generating returns of 4,200% over 10 years, Rogers quit full-time investing in 1980, at the age of 37.
That is when his life began. Rogers went on to – literally – drive around the world, two separate times (once on a motorcycle, and once in a souped-up Mercedes), and write several excellent books that blend travelogue, investment insight, and political commentary – most notably, Investment Biker and Adventure Capitalist. Today, Jim is viewed as one of the originators of the dirt-under-your-fingernails approach to investing in emerging and frontier markets around the world.
I first read Investment Biker in early 1996… and was inspired.
At the time I was living in the Central Asian country of Kyrgyzstan, where I was helping build a stock market in what was one of the poorest of the former Soviet republics. From there, I went on to live in Moscow for nine years… and then lived in half a dozen other countries for much of my adult life. All told, I’ve visited upwards of 80 countries, from Iran to Australia to Venezuela – writing about many of them (and investing in a few of them, too).
When I was living in Singapore from 2015 to 2020, Jim Rogers was too (he’s still there). I was able to meet with him a number of times, to interview him for reports for the investment-research firm I’d founded there. I discovered Jim to be as engaging and entertaining and opinionated in person as he is on paper (Investment Biker is the rare book about investing that the non-investment professional will find difficult to put down.)
Jim Rogers, through Investment Biker, helped open my eyes to what the wide world has to offer… and since then, I’ve explored a lot of it (though I’ve hardly scratched the surface!).
The first section of these excerpts are from Jim’s time in Moscow – which had changed a lot by the time I moved there in 1997, and was completely unrecognizable by 2008, when I left for the last time. The second section is from the “Afterword” of Investment Biker, in which he highlights some of the biggest challenges and problems he sees in the U.S. and elsewhere in the world. Frighteningly, the issues he describes have only gotten worse – and worse, and worse – in the three decades since then.
Excerpted from Investment Biker: Around The World With Jim Rogers (Random House)
Chapter 17. Moscow
At long last, we were on the M-5, the main road into Moscow. Not only was there more traffic, but here it was faster and more reckless. Our excitement, too, was rising at nearing the capital.
Now the traffic-guard stations were all manned. Also, there were many more cars than trucks, whereas out in Siberia it was by far the other way around. Despite this traffic, the vast, empty spaces we’d been across made it hard to believe that the Soviet Union was the world’s fifth-largest producer of cars, turning out 1.3 million a year. Under the thirteenth five-year plan, the one for the nineties, car production was supposed to double, but I had every doubt that this would happen.
Back in the States there was a diversity of vehicles on the road: campers, big trucks, little trucks, motorcycles, station wagons; Euro- pean, Japanese, and American cars. But here there was only one kind o: car and one kind of truck. Oddly enough, the cars looked like small Italian boxcars, with no refinements, no padding, and no real dashboards- just tiny stripped-down boxes. For twenty years the Russians had made the same car in the same factories, changing them very little. Our motor cycles had more horsepower, more cubic centimeters to their engines, than did these cars.
The reason, of course, was that when the Russians said, “We gotta have a car factory,” they went around to see who was going to build them a factory and show them how to build cars. The Italians won the bid partly because at that time the Italian Communist party was the largest in Europe. Fiat came over and built the car factory for them. In fact, the Russians renamed the town Tolyatti, after the leader of the Italian Communist Party. So to this day the Russians turn out only sixties- style Fiats, but with the brand name Lada.
The closer we came to Moscow, the more ordered and clean became our surroundings.
We stopped at a collective farm. Factory workers from Moscow were there harvesting what was supposed to be a bumper crop, their wages paid by their factory. There was an excellent chance, however, that despite the good harvest, half the grain and vegetables wouldn’t reach the consumer because of tractors, combines, and trucks that sat idle for lack of spare parts and gas. The factory and office workers who were working the fields told us they thought their coming here was a stupid policy. One engineer said it was a waste of his talents for him to be pulling up carrots.
The farm’s manager said this year they would again have to import wheat from the United States. He felt private farms and adequate machinery would solve Russia’s food problems even though, yes, this would make some people rich. Poor Lenin! He had led the revolution and made himself into the father of the new world order for the peasants, and now they thought it was all a mistake. Every farm worker had productive private plots, while the state farms never met their potential.
As we pressed on, more and more gas stations were out of gas or limited us to ten liters each. Because I listened to the BBC shortwave news broadcast nightly, I knew that the Gulf crisis over Iraq’s invasion of Kuwait had raised the world price of oil. I was certain the USSR was sell- ing its petroleum products overseas at top dollar to get hard currency, but the Russians assumed it was only another mysterious shortage. Naturally, they didn’t know that for years their oil production had been the world’s largest.
Whenever there’s a national problem and the government explains things to its citizens, don’t believe the explanation. Figure out where the money trail goes, and you’ll almost always know what’s going on in the real world.
The hundred and fifty miles from Ryazan to Moscow were all four-lane.
Despite the crowded roads with their aggressive drivers, we felt wonderful. When we had landed in Siberia two-and-a-half months before, Moscow had been only a dot on the map, Siberia a vast expanse of paper. . Every day I’d draw a new line on the map, showing what we’d done- and here we were, we’d made it!
Both of us were exhilarated. And now we were about to see Moscow itself, the capital of the largest contiguous empire the world had ever known, one larger than that of the Chinese, the Romans, and the Span- ish. As someone who had studied history and politics, I could not conceive that anyone would ever again conquer so many square miles, and here we were charging into its capital on 1,000-cc steeds.
Had you ridden into Xi’an and Rome and Samarkand at their heights, you would have found rich people and unparalleled luxury. Moscow should have been the richest city in the world, but it was a place where you couldn’t buy a carton of cigarettes without a riot. You couldn’t get a bottle of vodka. You couldn’t get soap. You couldn’t get toilet seats. You couldn’t get anything. Even though Moscow dominated this gigantic empire of hundreds of millions of people, what we were driving into was a large, poor city, a city of the Third World. It was huge, there were big buildings and wide roads the way you’d expect at the seat of a powerful empire, but there was no vibrancy, no texture, no depth. This was a bland, dismal city, a gray monument to a dying faith, a city without a soul.
Odder still was the fact that since the days of the czars, Moscow has never had much. Moscow was the richest city in the Soviet empire, yet Birmingham, Alabama, had more. Harlem had more of the everyday necessities of life, available to anyone who simply walked into a store. African cities often had more to offer in terms of luxury goods-even regular stuff like toothpaste, shoes, beer, a shirt, a pair of socks. Here, even if you had money, little was available at any price.
Tabitha was from the Upper West Side of Manhattan, and she lives about four blocks from where she grew up.
She loves cities. After two-and-a-half months of Siberian wilder- ness she was ready for a city, a big city. Back in New York she loved to walk and observe street life, the souvlakia man and the different shops and the West Africans selling fake designer watches on Broadway and the incredible variety of people, everything that makes New York’s streets vital. When we came into a wonderful city she always made time to take long walks. She would plan strolling tours along the city’s most famous streets, viewing them as urbanologist W. H. Whyte did, as rivers to be swum and played in. The first time she was in London she had walked eight or nine hours and had been exhilarated by her tramp.
So on two different days she went walking in Moscow, every minute expecting it to become interesting. If you started walking in Paris at the far end of the Champs-Élysées it might be boring, but the closer you got to the Arc de Triomphe, the more interesting street life would become. As she walked along Moscow’s streets — ulitsa Gertsena, Pushkinskaya ulitsa, Kuybisheva ulitsa — she kept thinking, Any minute now it’s gonna start happening.
She tramped about Moscow for four or five hours at a stretch and it never became interesting. The city’s continual gray sameness was oppressive. On the street there was no life, no vitality. Nothing seemed to be going on. Along Broadway back in New York there were always deliveries being made. She told me that night that she couldn’t remember seeing even one. There were few shops, maybe two every three or four blocks, one of which was likely to be a bakery. By the end of Tabitha’s Moscow walks she was exhausted, not exhilarated; downtrodden, not stimulated.
We had heard of Suzdal, the legendary town outside the capital that a thousand years before had been larger than Moscow, but nothing pre- pared us for its score of ancient churches.
If Tamerlane’s mosques in Samarkand and the Emperor Qin’s terra- cotta armies will provide Uzbekistan and Xi’an with tourist dollars for decades to come, so Suzdal and environs will bring visitors by the tens of millions to Russia.
Over our entire journey of seven thousand miles across the Soviet Union we had not seen more than a dozen architecturally significant buildings. Out in the hinterlands the ancient churches were crumbling from disuse. Many had been destroyed or converted for other uses. Often the glorious onion domes had been dismantled and replaced by flat roofs. Here in the Suzdal area, a few miles from Moscow, were dozens of ancient monasteries, museums, convents, and churches, many lovingly preserved on a green country plain.
Set in what was originally a fertile wheat-growing area, Suzdal became a center for monasteries after it came under Moscow’s rule in 1392. Later, in the seventeenth and eighteenth centuries, rich Moscow merchants had displayed their Russian Orthodox spirituality by putting up little churches in Suzdal — sometimes one for summer and one for winter-each merchant striving to outdo the last in pious splendor.
I was amazed that the Communists hadn’t razed them all. Maybe because the town was small, nobody had ever thought of turning these religious gems into apartment houses for state workers. Maybe the churches had never been torn down to make way for industrial progress because the Moscow-Nizhni Novgorod railroad passed by twenty miles to the south. Anyway, luckily for the world, to this day the area has kept its glorious religious buildings and its rural charm, forgoing air pollution, big-city noise, and ugly modern buildings.
The most magnificent church was called, oddly enough, the Kremlin, or “fort.” Building was started in the twelfth century and completed in the eighteenth. An enormous onion dome, cobalt-blue with gold stars and topped by a cross, was surrounded by four miniature replicas of itself, all five towering over scalloped gables and whitewashed stone.
The Nativity Chapel was filled with brightly lit gold panels of late- seventeenth-century icons. Many were painted in a combination of Byzantine and Russian Orthodox styles.
Suzdal didn’t only have magnificence, however. The wooden church of St. Nicholas, brought here from the village of Glotovo, held no more than twenty worshipers but brought home the importance of religion to eighteenth-century Russian villagers.
The churches might have been built by rich merchants in a vain dis- play of spiritual worthiness, but the quiet buildings, the long arched walkways, and the faultless skies had a calming effect on us. Nothing we’d seen so far in the Soviet Union had been as remarkable.
To our amazement, one of the churches had a plaque that said it belonged to the Russian Orthodox Synod in New York.
I was stunned. The New York Synod had been founded by White Russians, czarists fleeing the Bolshevik Revolution. In Red Square, I thought, Lenin must be whirling in his glass coffin over the fact that a local church had pledged allegiance to his worst enemy.
Inquiring how this could be, we met Father Valentin, the church’s spiritual leader. Several months back, he said, he had been asked by the KGB and the bishop of Moscow to spy on foreign visitors. He had refused and was transferred to another church, one out in the boon- docks. His parishioners made such a fuss over his departure, however, that he was brought back. Yet a proviso was added to his return-that the renegade church couldn’t be part of the local synod-punishing its parishioners and Father Valentin alike.
He wrote New York and asked permission to join the synod outside of Russia, which was granted, which is how the synod on Ninety-third Street in Manhattan has a branch in Suzdal.
In Moscow we visited Maxim Kruglova, a young doctor who had been not only the first in his class, but number one in the country-wide medical competitions. While he was passionate about medicine, he was forced to work for a trading company because there was no money in medicine at that time in Russia.
At Moscow Medical School, the Soviet Union’s chief medical school, he said there was a small specialty in preserving Lenin’s body. Every five or six years the school turned out a graduate; it didn’t need too many. The chosen few were selected to go down to Red Square and work on Lenin’s remains.
Maxim said that because an ear once fell off Lenin’s head, visitors weren’t allowed to talk or make a sound while viewing the remains. Visitors also weren’t allowed to put their hands in their pockets, as they might be saboteurs.
Today people will periodically stand up in the Russian parliament and ask, “Why don’t we bury this guy? This is absurd, he’s not even our hero anymore.” But his tomb was a big tourist attraction back then, so they couldn’t afford to bury him.
Actually, Maxim said, Lenin had wanted to be buried. He’d left specific instructions to be buried in his mother’s church cemetery or some such place. Then Stalin had come along and said, “No, we have to build him up as the hero of the revolution, so put him out there in the Square.” He had known that the people needed an icon, and he’d had nothing else. Stalin had wanted to be displayed there, too, as if to show that he was another hero of the glorious revolution.
Originally he had been placed in Lenin’s tomb, but one night Khrushchev had moved him out under cover of darkness.
Maxim wanted to come to the United States to practice medicine. While there was nothing wrong with Soviet medicine as it was taught, doctors were forced to work the way local mechanics worked on cars: They made do. You might be a superb doctor, bursting with the knowledge of your specialty, but without CAT scans, penicillin, scalpels, and vaccines, how could you do your job?
Moscow. The extremely inexpensive subways were nicer than New York’s, each station with magnificent chandeliers and designed by a different architect. Stalin had built them, one of the few things he had done right, but we found little else over which to marvel.
We still couldn’t find Moscow’s heart, its hub, nor any glitz or glam- our. Even Red Square, the putative center of Moscow, was not bustling with Muscovites. The city was as dull, lackluster, and lifeless as a day- old pot of oatmeal.
The huge government department store, called GUM, had few goods. Long queues were everywhere, the people in them as stolid, somber, and grim-faced as mourners at the funeral of a distant relative. We supposed they didn’t have anything to smile about, or that they didn’t want to be caught in public smiling, afraid somebody might ask, “Why are you happy? What’s going on?” In private people laughed and giggled with us, but in public they were always grim.
In Tokyo, New York, and Buenos Aires you constantly run into a corner restaurant, a bistro, or an antique shop in which it’s fun to poke around. There was none of that here. It didn’t exist. In Moscow, you didn’t stumble into some unique little shop, because it wasn’t there. In the Soviet Union the idea of a pet store was incomprehensible. In all of Moscow’s vastness there were maybe three cafes in which you could sit down and order a cup of coffee. The meanest café in many African or South American cities had a better menu than the best of these.
In a Moscow kindergarten we visited a former dissident, Tatiana, a trim, attractive woman who had been four years in a labor camp and another four in internal exile.
“Our people are finally waking up,” she said. “For seventy years we’ve been like these children here, waiting to be told by our parent, the Party, what to do. We took no initiative, the way five-year-olds expect their parents to do for them. It’s hard to break out of that old mind-set, but now we’re all seeing we have to fend for ourselves. Hunger, scarcity, that’s what’s doing it. The Communist Party is dead.”
At a huge outdoor flea market near Moscow, German military uniforms, equipment, and medals from World War II were on sale, items abandoned by the defeated Nazi battalions hastily retreating to the father- land. The Russians’ former enemies were coming back from Berlin and Munich as tourists and buying at outrageous prices the equipment their fathers and grandfathers had abandoned fifty years earlier.
We cranked up and left Moscow. We stopped at Borodino, the great battlefield. As it happened, we were there on the same day the battle had begun, August 26. Poor Napoleon. He had won the battle here in 1812 but lost so many soldiers that his ultimate chances at victory had been doomed.
As I read Napoleon’s speech to his soldiers, in the wind I heard the strains of the “1812 Overture.”
“This is going to be a great battle,” Napoleon told his men. “Someday you’ll tell everybody with great pride you were present at the Battle of Borodino. Let’s win this battle and race to Moscow so we’ll all have warm apartments for the winter.”
Winter started here in September. Even this early we felt a sharp drop in the daytime temperatures from a few weeks before in July. I felt it on my neck; the air had a real chill to it, cool in the morning and cool in the afternoon.
Those soldiers must have felt that chill, too, and said to themselves, “Oh, Christ Almighty, we don’t want to be in this place for winter, we’d rather be back in Paris.”
But Napoleon said, “Don’t worry, guys, we’re all going to Moscow and get apartments.”
What he didn’t know was that Moscow was going to burn the whole place down. “Okay,” the Russians said, “you want it, take it, but we just burned everything in sight. Take the whole city.” So Napoleon lost the war. Would it really matter three hundred years later who had won?
I was certain that those scores of thousands of dead twenty-year- olds on both sides would have preferred living out their lives rather than dying here in the “great” battle few now remembered and even fewer cared about. Some might say this particular battle had changed history. Does anybody really believe that France would have still con- trolled Russia nearly two hundred years later even if Napoleon had won this war?
Tabitha and I were glad to be getting out because winter was roaring in, the one I had worried so much about earlier back in China and Siberia.
Finally we reached Brest, our last city in the USSR.
Properly speaking, Brest was Polish. But Stalin had wanted it and made it his after the Second World War, another example of a border drawn by a victorious army. People cry out these days for stable borders, but if this one is left unchanged, it will only endorse Stalin’s madness in setting borders and his lust for more territory.
We’d been almost three months in the Soviet Union on this leg, June through August. I was ecstatic at having made it and depressed at leaving. Ecstatic at knowing that most of our road problems could be easily solved in Europe, where we would find good roads, tires, spare parts, medicines, and money. I would be able to communicate with the world we’d left behind. I might even be able to get a real newspaper, which I hadn’t seen since Tokyo. But I was depressed that this once-in-a-lifetime trip was over. This had been special, the panorama of a giant country in transition. The Soviet Union was coming out of a decades-old winter into a spring whose nature would be cruel.
At the border we found a gigantic queue. The Poles had already freed up their prices and their currency. Their money was fully convertible, and they had legitimate pricing. Of course the Russian Communists hadn’t yet. So while there wasn’t much to buy in Russia, all the Poles and Hungarians were piling in to buy whatever they could at absurdly low prices. In Poland gas was two dollars a gallon; in Russia, twelve cents. With everything else-cars, sheets, pots, pans, refrigerators, TVs-there was the same discrepancy. The Poles would take these low-priced goods back to their country and make a killing, selling Russian products for twenty to a hundred times what they’d paid for them.
Naturally, having made the same mistakes for seventy years, the Russians didn’t just fix their currency or their prices. Instead, they put on export controls. The border guards had long lists of what you couldn’t take out of the country. One guy had a bunch of sheets taken from him. We had souvenirs and Russian medals we were anxious about, but the guards didn’t seem to think we could take out many refrigerators and sheets on our bikes and so they gave us only a cursory exam.
Afterword
In December I gave Tabitha the gold necklace I’d bought in Buenos Aires, and she was surprised and delighted.
After a rest, we hit the road again, this time to Alaska, bringing our trip total to 65,067 miles.
When we got there, we realized how different people in the Yukon and Alaska are from those in Ottawa and Washington, D.C. As in so many places we passed through around the world, these people aren’t the joiners and backslappers of the capitals, they are loners and mavericks, a hardier breed produced by the rugged nature of their habitat. Thousands of miles and several time zones from Washington, Alaska has only a half- million people in a space a sixth the size of the lower forty-eight states.
How can Alaskans allow Washington to run their lives? What do the moles of the Beltway know of their lovely, stark country? Alaskans have only a single congressman and two senators in Washington, which means the capital largely ignores the wishes of its inhabitants.
In fact, Alaskans have more in common with their neighbors in the Yukon and in Siberia than they have with bureaucrats in Washington, Ottawa, or Moscow. If the three of them, fabulously rich in mineral resources, aligned themselves into an independent frontier nation, they could attract enormous development capital.
Her eyes opened to several things by her nearly two years of traveling, Tabitha’s off to graduate school now, studying international relations, although she might be better equipped to teach it than someone who’s only read about it in books.
To show you how fast the world changes, I have traded in several additional countries outside the United States, including Austria, Italy, Turkey, and Ireland, countries that when we passed through them didn’t seem like good buys. Not only did the market in Turkey drop 85 percent, but the government took many steps to make the environment better for investment, providing me with an excellent opportunity. As the African National Congress became more moderate, at least for negotiating and electoral purposes, I invested in the South African stock market for a while. I’ve even started putting small amounts of money into other African countries, as the continent has evolved as I expected it would.
There’s a warrant out for Judd’s arrest, but the police tell me that even though he admitted forging my signature several times, it’s not worth their while to extradite him. It’s a sad state of affairs when the criminal- justice system is too busy with other crimes to chase down an admitted felon.
I fulfilled my dream. I now know the world in the way I’d hoped to, and it has not only helped me understand investing better, it has given me a better sense of who we are as a species. We’re certainly a lot more robust than statist politicians, seeking to solve every problem conceivable-real and imagined-would have us believe.
Now that I’m back, having seen a good part of the world close to the ground, people ask how the United States looks to me. I hate to say it, because this is my home, but I see America as an obvious short sale.
It’s painful to see how hopelessly provincial and isolated we still are in this country. It’s frightening that neither political party has been or is willing to address our economic problems.
Around the world we saw firsthand what statist shackles had done to so very many countries, and I can see clearly that here in the States it will have to become far worse before it gets better.
I am convinced that Clinton will be the last president of his party. In 1918, Lloyd George, head of the Liberal Party, was Prime Minister of England. To the Brits, he and his party won World War I. He was as popular as any post-war hero in history.
However, the British economy, the system, the society, the currency- you name it-was a mess underneath, just as ours is today. Even though Lloyd George was a world-renowned leader of his party, which had dominated U.K. politics for decades, there has never been a prime minister from his party since because of that mess, just as Clinton will be the last leader his party ever elects. The Democrats controlled both the executive and the legislative branches of government during the pivotal 1992-1994 period, so they will get a lot of the blame. The Democrats also have serious demographic problems. Their strength for decades has been (1) converts during the Depression who are now decreasing in numbers, (2) unions that continue to lose power, (3) white Southerners who are abandoning the party in droves, and (4) blacks from whom they cannot hope for more than the 80% support they get now. The Democrats will not just disappear any more than did the British Liberal Party. In fact, the Liberal Party still exists as a rump all these decades later. No, the Democrats will just wither away.
Don’t get me wrong, the Republicans deserve a lot of the blame; their split and/or demise will come later if they do not do something quickly about the problems we face. I worry when I hear Republicans saying they want to balance the budget by 2002. That says to me they do not understand the problem. Our situation is so severe that it needs to be corrected now. By 2002 it will be too late. Even assuming that the current politicians actually mean it, we have heard the same solemn resolve half a dozen times since 1979. We have even had laws passed requiring balanced budgets. If they ever report a “balanced budget” we should all insist on an independent audit to flush out the smoke and mirrors of Belt- way accounting.
Republican talk, regulations, and requirements may be better than Democratic ones, but we need a lot more fast.
Let’s look at the big picture again if this seems shocking. Seemingly permanent political structures around the world are fracturing. Who could have conceived of a non-Liberal Democrat running Japan-much less a Socialist? The parties that dominated Italy since World War II have all been supplanted and/or disappeared. Look at what’s happening in Canada, Belgium, Sweden, and Mexico. During the Cold War, voters around the world accepted a lot of nonsense as they were afraid to ask too many questions. Serious changes in the status quo could lead to who knew where.
The Cold War is over so people worldwide feel free to question old assumptions.
Our system is so rotten, so corrupted and bloated with debt, obvious and disguised, that no matter what any politician does, it will become the focus of an immense crisis before the decade is over.
Our politicians, both Democrats and Republicans, have followed a policy of debasing and devaluing the dollar for years. It took the Romans four hundred years, the Spanish two hundred years, and the British seventy-five years to debase their currencies as much as we are debasing ours in a couple of decades. The people running the government don’t care, and the Federal Reserve would rather save the politicians than save the currency. I don’t see much hope for the dollar. Given what we’d seen as the consequences of weak currencies around the world, I expect a continued deterioration of our situation. We are going to hear the term “currency crisis” a lot more. The world won’t end; after all Britain is still around, as is Spain, but they are now only shadows of their former selves. Britain was the richest, most powerful country in the world in 1920, but coined the term “brain drain” as early as the 1950s, when people began leaving.
We’re now the largest debtor nation in the world. That would be okay if we were investing the money in productive assets, as we did in the nineteenth century, but it’s all going into entitlements, welfare, agricultural subsidies for such crops as mohair and sugar, interest payments, tanks, and intercontinental missiles, none of which builds future productivity. Our troops still occupy Europe and Japan, over fifty years after the end of the Second World War, at a cost of $150 billion a year. Despite massive publicity about the foolishness of it, we still pay huge subsidies to our farmers when we should fly them to Siberia or Zaire instead. They’d all get rich!
Why, thirty years after the Pentagon has told Congress it doesn’t want any more mohair, are we still spending $50 million a year on the stuff?
There are five thousand sugar growers in the United States. We spend approximately $5 billion annually to support sugar prices, which works out to roughly $1 million per sugar grower. We could save a fortune by going to each of those producers and saying, “Here’s one hundred thou- sand dollars a year for life, a condominium at the beach, and a Porsche. The only thing we ask in return is that you never raise sugar again.” A further irony is that, waste aside, the massive spending for the sugar-support program actually has a detrimental impact on our economy. Because of sugar price supports, 270 million consumers in the United States end up paying two to three times the world price for sugar. We’re also ruining the economies of our Latin American allies because they can’t sell us their natural product, sugar.
Why is this? Because there is a constituency for each of these programs — the sugar producers, the mohair producers, the defense industry, the military itself-walking up and down the halls of Congress to make sure the money keeps rolling in.
There are such an extraordinary number of cases like these that raising taxes to pay for such misguided, wasteful programs is lunacy. Eighteen- year-olds should be in the streets over these issues, for they are the ones who have the most to lose, who will suffer the most. We have guaranteed them a bankrupt future.
The chief concern of our government at this moment ought to be to cut needless spending in order to put our budget on a sound fiscal basis. The measures Chile has taken to put its economy in order ought to be lesson enough. If a country that was far more of a basket case than ours can pull itself up by its bootstraps in fifteen years, we ought to be able to do the same in less time-if we have the leadership and stamina to pull it off.
Should taxes then be cut? Yes, but the essential issue is not the level of taxes but the tax system itself. We need to completely change our tax structure, which penalizes savings and investment. If you’re lucky enough to have a job, you pay taxes on the money you earn. If you then put some money in a bank or a mutual fund and earn interest or dividends, you pay taxes again. If you earn any capital gains on that investment, you pay taxes a third time.
The rest of the world doesn’t do it that way. All the economies running circles around us-Japan, Germany, Singapore, and others- encourage savings and investment; they don’t tax them. They tax consumption. We do just the opposite: We encourage consumption and we tax savings.
Our savings rate is 4 percent; the Japanese rate is five times this. More savings means more money for investment. More money for investment means more productivity. More productivity means an increasing standard of living-precisely what we’ve lacked for the past twenty-odd years.
Here’s another dead-simple, easy-to-understand, natural law of economics: what you tax you get less of.
We need to change things in the United States. We must eliminate all taxes on savings and investments. We should junk the present tax code, which is several thousand pages long, and replace it with a flat tax. Huge money and energy in this country are devoted to wrestling with the tax code and avoiding taxes-at least 1 percent of our gross domestic product at a time when we’re struggling to achieve a 2 percent rate of growth. We could have a five-page tax code and file our income taxes on a postcard. We should supplement the flat tax with a consumption tax, making it more expensive for people to spend than to save.
Then we should eliminate a host of wasteful government programs. Washington is spending enormous sums on tanks and missiles, which do absolutely nothing for future productivity, and on transfer payments, which also do nothing for productivity or the future of the country. Why aren’t the eighteen-year-olds in the streets?
More radically, why allow congressmen to go to Washington, where as a group it’s easy to lobby them? Let’s make them stay in their home districts, conduct their meetings through video conferencing, and vote electronically. If lobbyists in this country had to go to 535 districts, our laws would be quite different. Wouldn’t we be better off having the local banker, teacher, and plumber watch our congressman vote from our high-school gym rather than have lobbyists watch them in Washington? Plus we could eliminate the travel and staff waste built up around Congress in DC.
While we’re at it, let’s change the date of the elections to April fifteenth. It’s no accident that November was chosen, the date six months before and six months after we pay our taxes. Let’s select our politicians at the same time we’re paying them-as we do everything else in life. We would all vote better if we realized how much our votes cost us.
A main tenet of my philosophy is that when you have a leak in your roof, you’d better fix it, as it’s sure to cost you more later. Unfortunately, another lesson history teaches us is that little reform happens until it’s forced on people. The air now is full of talk that fiscal reform isn’t “politically feasible.”
Given all this, what does the future actually hold for the United States? Given the real political, economic, and social world, what will happen?
Twenty years ago we could have afforded the luxury of “politically feasible” measures. However, our debt now is $5 trillion and rising by several hundred billion dollars a year. It’s too late for moderate measures. We’re coming to a time when only strong measures will stop the hemorrhaging. Even if we somehow balance the budget tomorrow, there’s still the debt of trillions of dollars for someone to pay. It will kill the economy to cut spending further, so the sensible way to pay this down and put ourselves on a sound basis is through privatization, through selling off government assets such as our public lands, airports, seaports, and the post office. As an example, most of Nevada is owned by the government and could be sold. The list of assets we could sell is endless. The rest of the world is doing it; why not us? Wouldn’t it be glorious to live in a debt-free country with a balanced budget?
If this sounds radical, all I can say is wait until everything collapses around us-that’s really going to be radical. Eventually even the politicians are going to have to discuss these ideas because the country is slid- ing toward bankruptcy. As happens to all societies that keep their heads in the sand, the markets will force the issue upon us. Then it will be a lot more painful.
Simplistically, we’ll encounter either an inflationary collapse or a deflationary collapse. Under the inflationary scenario, our government will print more money than it has assets to back it. Nobody will want the dollar. A dollar then won’t buy 1.7 deutsche marks; it will buy half a mark.
Or, if the government doesn’t overprint money, because of the enormous public debt there won’t be enough money to fund building houses, businesses, and factories. We’ll have deflation, some of which was felt in the early nineties in the U.S. with the collapse of residential and commercial real estate values. In a deflationary collapse, as in the Great Depression, asset values will fall because there won’t be enough money to fund anything.
When Americans ask me to suggest solid currencies in which to invest, I mention the deutsche mark, the Dutch guilder, the Swiss franc, the Austrian schilling, the New Zealand dollar, and the Singapore dollar. Central banks’ policies are tremendously important. The European currencies are tied to the German Bundesbank, whose mandate is to keep the mark hard. Our own Federal Reserve seems more interested in maintaining a short-term even keel than pulling into dock and overhauling our bloated, out-of-control monetary system.
Will our country survive? Sure. The Italians and the British haven’t had their fiscal houses in order for decades, yet life there has gone on even if there hasn’t been much dolce in their vita. In 1910, Argentina was the richest country in the Americas and yet by the Depression it had col- lapsed into poverty. Life was hard, but, yes, it has continued for sixty years.
If there’s one thing I’ve learned in going around the world, it’s that societies become rich, swagger around for a few years, decades, or centuries, and then their hour is done. The other thing I’ve learned is that even when all the wealth is gone, life goes on.
More important, I’ve also learned that if you’ve got a dream, you have to try it; you must get it out of your system. You will never get another chance.
If you want to change your life, do it.
Published with permission of Random House
Porter & Co.
Stevenson, MD
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