The Brutal Truth About Our Economy
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Going with the terrain, baby. The reality of the terrain. This is a concept that I’ve been teaching for some time here on the program. You may not like, may not like what’s happening around. Let me give an example personally. We live in a, without a doubt, we live in a post-Christian society, a secular world. I don’t like it, but that’s the reality.
of the terrain. I deal with it, make that applicable to the world around us. Politics, investing, money, the economy. I don’t, we don’t lie to ourselves. I’ve often used that line that was told to me a long time ago by Navy SEAL. You go into battle, you may have a map and a plan.
But then when you get on shore, you realize that the map is wrong and the conditions change. What do you do? Do you go with the map or the plan or do you adjust? And this type of thinking is what will make one successful. We don’t kid ourselves. What are my favorite?
Again, I talk about him often, favorite authors. He is one of the foremost risk management, I want to call it experts because he is in the entire world, bestselling author, Nasim Nicholas Taleb. And I’ve mentioned here on the program, especially to, you know, this is going out to all you young people out there that want to get involved in finance or any type of business. Go on Amazon.
Punch-In Talib Encherto, I-N-C-E-R-T-O, and that’s his entire book series, Order It Right Away. Guy’s quite the philosopher as well, and I’ve talked about him often here on the program. He recently gave a speech at the Ron Paul Institute. And again, everybody knows my affinity for Ron and Ran Paul. And the title of his…
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lecture was the world in which we live now. And I want to go over it with everybody here because again, many of the points, again, it puts a smile on my face when you get literally skies, one of my heroes as far as business and finance and money is concerned, is giving a speech and in essence saying many of the things that we say here on the program.
He started off, basically it’s a seven point speech in regards to the world around us. And this is going to tie into many of the things that are happening in the world today. He talked about this thing, he called it from connectivity to techno-feudalism. Techno-feudalism is a term by a Greek economist named Varoufakis. You may remember he was really, well, he was
really outspoken during the whole Greek financial crisis. Again, this is going back 15 years ago. And it talks about concentration in the modern world. And it is, again, read his book, The Black Swan, it is a black swan problem. And he talks about the effects of a, in essence, a winner take all society, the effects are every.
Where? And this is because of connectivity. And he says it this way. See, imagine an island with many species, but a high density per square meter. Compare that to a continent where opening up space leads to fewer species per meter, because some will eventually dominate. This mirrors cultural and economic life today. And I noticed this because I complained about just who the stars are when it.
comes to music and how difficult it is to find good music. I remember lamenting this on the program. I I got to go to other countries to hear new American music. Because again, it doesn’t work that way here. Very few musicians will prevail. Few authors will prevail. You wonder why we’re getting the same crappy movies and whatnot more often than not. Well, again, that’s how it works. We concentrate here.
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Now again, that’s the world and it’s not inherently bad. It’s a market mechanism. But the problem is, is that it’s sticky at the top. He discusses this and I have discussed this at length. We talk about this in terms of regulatory capture and how I lament all the time seeing big business working with government. That’s not good.
That’s not good. These are powers that are not going away. I know I’m getting old. I know I’m getting old, but I can remember it like it was yesterday when, especially in the 1990s, hey, the road from a college dorm at maybe Stanford to dominating was quite short. Quite short.
Go back and you think about all, I can think about all of the search engines back then. Think about all of the social media companies that were around for a period of time. You young people may not remember this, but there was lots of them. Those could go away. You could disappear very, very quickly. Somebody better, again, build a better mousetrap. Somebody would come along. Can I replace Google now?
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sticky at the top. Dominance has become entrenched, Taleb says. That’s not healthy. That’s what we call techno-feudalism. Well, that’s what Varoufakis called it. This is interesting.
And wealth, because this is the same thing. 20 % of billionaire families in the United States remain after 20 years.
20%. Think Anderson Cooper, who’s a Vanderbilt for crying out loud. In Europe, it’s been the opposite. Concentration is actually getting even stickier there. But we’re starting to see this happen globally. Now, I often talk again about Joseph Schumpeter, creative destruction, and Tala
ends this part of his discussion saying capitalism works not only by allowing upward mobility, but by accelerating its downward equivalent. Then he talks about the dynamics and misunderstanding of various different historical processes. And he talks about the difficulty people have in grasping dynamics.
And he says, in particular when it comes to geopolitics, because historians and statisticians view history differently, because Taleb, he’s a historian, but he’s also a statistician. And he sees history as a dynamic process, not as a static textbook description. And he talks about GDP and how GDP and its rate of growth can fool one in projecting future states.
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from ignoring growth differentials can be monstrous owing to their compounding when in doubt use the rate of growth as the status quo. Why is this important? Again, I talked about GDP and our obsession with it here in this country and how it’s measured improperly. He makes the point, he says back in 2007, his book, The Black Swan came out international best seller.
At that point in time, the United States accounted for about 20 % of the world economy. This is using purchasing power parity. Europe about the same, China around 6%. Now we’re 15 % and we’re going down. Europe is 14 % and dropping even faster. China is north of 20%. Again, that happened from 2007 until today.
Small differences in compound growth produce massive outcome differentials over time. Again, something that Warren Buffett talks about. Again, you take a look at also how money is spent and the problems that it has. We spend over a trillion, well, about a trillion dollars, not over a trillion yet. Close to a trillion dollars on military expenditures. China spends a third of that. But what do we get for our money compared to China?
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China, know, when they’re doing parts or buying an office chair, whatever it may be, it may cost them a dollar or two. We here in the United States, we’ll spend $53,000 on a garbage can because Lockheed Martin made it. Bit of a problem, don’t you think? And again, you it’s, take a look at areas right now in our country that cost a lot. Military.
healthcare and education. Major problem. Again, China spends about a third of what we spent. What are they getting for their money? What are we getting for our money? Again, oftentimes projections more often than not by the Wizards of Smart on TV why they fail again and again and again because they rely on a primitive analysis of the past.
completely ignoring any sort of second order effects. Am I wrong? No. Is he wrong? No. Anyway, this is interesting as well. And this is fascinating if you actually really think about it and where we’re at and the problems that we have. He talks about something and it’s because he’s a statistician. Okay, and bear with me here. Okay, I’m gonna try to make this as clear as possible.
Talks about the S curve. Again, he discussed this at length in his book, Anti-Fragile. In biology and economics, growth grows in a convex way, then slows as it saturates. Growth may be unbounded, but it remains sub-logarithmic. Example he gives, and I think this is genius, he said, once you have a two-car garage,
Do you really need a five car garage? Some might, but most don’t. The incentive diminishes. Now, China is growing at the rate that they are. And take a look at their population and also because guess what? Many of their people still don’t even have a car. Europe, United States,
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We’ve kind of reached saturation there. Not a big incentive for further growth. And we come up with all of these various different lifestyle improvements that we kind of trick ourselves into thinking that they’re going to produce economic growth like bicycle paths and cycle friendly cities and all this other nonsense. The problem we have
is that saturated economies like the United States, like Europe,
debt. got a lot of debt and Talib mentions he says, there’s a French saying, one only lends to the rich. But when you’re rich and borrow heavily, you need growth to service that debt. And that’s harder when you’re on top of the S curve. And he discusses tariffs as well in this light. Tariffs can stifle
growth by forcing resources into lower margin activities. He makes the statement here that again, I’ve made a type of comparison on the program in the past. He says like asking a brain surgeon to do some gardening two days a week to avoid being ripped off by professional gardeners. The shift from higher added value to lower added value depresses GDP. A point of
Orthodox economists tend to agree on and guess what we need growth Our metastatic government irresponsible fiscal policies exacerbate this We are already right now 1.2 trillion guys. I I mentioned this last week 1.2 trillion is what we’re spending on interest on our debt Most of again most of our expenditures. That’s where it’s heading and we don’t have
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any sort of mechanism to correct this. Unless Elon Musk will save the day. I don’t know. Maybe he will. Maybe we’ll have those types of productivity gains. I mean, I see many of them and how they can play out. But again, you got you got Republicans right now pushing for a continuing resolution, which is basically the same spending that Biden had that they voted against.
back in, back this past December. They voted against it. They voted for it, what, about four months ago, and they’re about ready to vote for it again. You try to explain that to me, okay? You can’t. You can’t. Anyway, again, we depend. We depend on foreigners. We depend on retirees.
force banks, force insurance companies, in essence, the same light to buy our debt. President Biden, as he mentions, president Biden’s policies like freezing assets in US dollars, discourage investment in US nominated assets. If your assets can be frozen because you once met someone who had lunch with the brother-in-law of a banker connected to Putin, why risk holding dollars? Good point. Immigration.
I had an immigration, talked a little bit yesterday, a podcast on it and some of the things that Trump is shifting on. I got a couple emails from listeners out there, as I normally do, it’s, know, they’re angry, you know, the, in essence, yelling at the cloud or grab the torches and pitchforks at Markowski. It happens. I’m used to it.
overwhelmingly, you know, people read what I had to say, which again, it’s not a quite frankly, it’s not an electoral process by any stretch of the imagination. But again, you know, when I talk about certain things, I think I’ve learned as well as I think people kind of hear what they want to hear or interpret things in a certain way. Not once yesterday when I talked about immigration, did I support the wall.
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Never. And you’ll never getting me to think that that’s a good idea until you can prove me the cost benefit analysis. You got to prove to me that my return on investment is going to be worth it by every metric out there that I’ve looked at. It’s a complete and utter waste of money. The reason why immigration has come to a halt and Trump has been able to shut down the border is he was just enforcing the law.
He’s just enforcing the law and changing all of this nonsensical crap where you can just declare, I wanna be in asylum, I’m asylum and letting everybody in. I watched this happen in New York City, made me sick to my stomach. Bus after bus after bus, pulling up, just letting people out, sanctuary cities get a free hotel, handing them money, handing them cards, all of this crap. Why wouldn’t you, if you were poor, why wouldn’t you come here?
They’re giving away cash like a 1970s, 80s FM radio station where the United States of America were giving away cash. No. Dumb. That’s the reason why people come here. Okay. Either they’re going to get free stuff. It’s real simple. Either you’re going to get free stuff or you can get a job. All you need to do is to cut off those two things.
people won’t And again, I’ll give you a case in point because the argument will come back. Well, you know, you take a look at the walls that are built, you know, if they didn’t in Poland and Greece and they’re trying to keep these people out. That is the first point of entry. If you think the illegals that are coming into those points want to stay there, they don’t. They’re not welcome there. Their ultimate goal is to get to Northern Europe where they’ve wrecked the place.
And again, you want to take a look at the crime rates in the Scandinavian countries, what’s happened in Germany, all these other places. OK, that’s the first point of entry. And these countries in southern Europe and eastern Europe, they don’t want to deal with the crap as people are making their way through. And rightfully so. Neither here nor there. I’m not going to talk about the wall there, because again, that work enforce the law.
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come here. It’s really that simple. Anyway, another point that I made yesterday had to do with Trump’s, know, obviously having a come to Jesus moment when it comes to the economy and recognizing and this I’ll get into Talib’s bit as well when he talks about the same thing that we need the friggin workers.
We need the workers. Okay, Trump realized, crap, what did I do? What did I do? Okay, got Hyundai building a plant down there in Atlanta, and now we’re rounding up South Koreans.
Well, you think that those jobs were filled as soon as you got rid of them? Come on, Wake the hell up. Let me give you again. is. And I again, I’m able to travel and see various different places. I’m going to give you two examples. OK, my wife’s family is in Greece. I talk about it. We go there with.
The family trips usually every summer. For years, the workers at the various different places that we stay and go to would be Albanian or Bulgarian. Albanian or Bulgarian? Guess what? They’re not anymore.
And I said, I’ve been going there for, you know, over 25 years. Guess what? Albania is doing a hell of a lot better. Their economy is bloody booming. The Albanians came there, started doing all of these work in hotels and restaurants and all sorts of stuff. And guess what? Guess what? They’re not doing that anymore.
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They have programs that are put into place. Again, know, many of the people that was working went there this past summer for an event. The entire hotel was, you know, talking with the people. They were Nigerian. They’re all legal. They were all legal. They were all brought there by design to do this work. I mentioned several weeks ago on the program, one of the Greek newspapers, they’re actually debating back and forth saying, geez, maybe all these people that want to come to America from Mexico and other places,
We can bring them here. We need the workers. It’s a great example. I mentioned this as well. Love the show. Stanley Tucci does his Italian show talking about the dairy industry outside of Milan. They don’t have the Italian workers to run the industry. What did the Italians do? They went to India, to an area where they were well versed in dairy and brought in Sikhs.
They’re working that industry outside of Milan right now and guess what? It didn’t die. Okay. This is the reality. People, you might not like it, but it is what it is. This one more point I’m gonna make before I get into Talib’s points. Chinese students, how Trump turned this around. Again, one of our listeners was upset saying they’re acting as
espionage agents.
No kidding.
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Again, you don’t think we have American universities set up in China where we have American students studying there. We do. As a matter of fact, my brother happens to be a professor at one of them. And he says, we are also educating the enemy. this…
China is our enemy. Again, I’m sorry. I’m not buying what people are selling. There’s no reason for them to be an enemy. I’ve done a lot of homework on China and their history. Can we have an adversarial relationship with them? Absolutely. Does it have to end up in a war? Again, and I would, here’s a question.
What was the last country China invaded? Throwing it out there. Why don’t you take a look at their history in the 20th century? Again, the horrors of Mao Zedong and what he did to his people. Horrible. Horrible. Cultural revolution. You know, thanks to the people who still aware of that there. You also have to remember that they helped us out a bit during the Cold War.
when it comes to Russia. Then, know, concentration camps in the West and Oregon harvesting. Yeah, I got a lot of problems with China and speech and Jimmy Lai and all of these things. Absolutely. And I also, you know, take a look and, you know, Chinese will come back and say that, you know, we allow, you know, what is it now? 14 states.
There’s 14, maybe I’m wrong, 914 states we allow for abortion all the way through to the end. That okay? We have our issues as well and then, know, fentanyl. Okay. China makes the precursor chemicals for fentanyl. Yeah, are they putting the fentanyl together? No, those are, you know, those are our ally to the south there. Those are the Mexican cartels that
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are running the country of Mexico. Wouldn’t be easy to kind of deal with them. They’re our neighbor, right? They’re our ally. think people can go back and forth, you know, no problem, right across the border there. Could be me, call me crazy. And, you know, it’s not common. We need to wean ourselves off trading with China.
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Why would you do that? That is, to me, that makes no sense. When countries do business with one another, when countries are talking with one another, there’s a hell of a lot lesser chance of going to war. Again, take a look at Japan and how they, what led to their entry into World War II.
tariffs and we stopped doing business with them. We cut them off.
Think about that. OK, that’s what led to it. No, no, no. You want to end up increasing trade, not lessening trade if you want. If you want to avoid conflict again, I don’t know, I’m just letting history be a guide as far as that is concerned. Again, the 60000 Chinese students that are here time to allow colleges to close if they can’t get students. Yeah.
And they are. They are they are closing, you know, little by little all over the country. And do I agree that many of these places have talked about here on the program, maybe convert some of them to trade schools can if you can get the kids that want to go to trade schools. But, you know, and again, I got hit with this, this is sometimes I concentrate on the economy and forget about what’s ethical, ethical. You think it’s ethical?
to all of a sudden ban 600,000 Chinese students and all of a sudden colleges and universities have to shut down because they can no longer afford to be in business. What about all the entire ecosystem of businesses that surround these colleges and universities? The families that own restaurants, that own bars, the people that clean the toilets at the school.
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You’re going to just yank that rug out? That’s a good solution. Snap our fingers. Nope, that’s it. Can’t come. And then you understand what that would do to people? No, no, no. I don’t think that that’s ethical by any stretch of the imagination. Got things going one way and then you’re going to absolutely destroy families and their businesses? No, I’ve got way too large.
of an affinity for small business owners, quite frankly, to allow anything like that to happen. And quite frankly, Trump saw that too.
Trump, again, he saw that too, and that’s why he pulled back on that. He knows the type of pain it would have inflicted. Think about all of these small towns. I’ll give you an example really quickly. Limestone University, Gaffney, South Carolina. Why am I that familiar with this school? Well, again, I sent kids there. Division II perennial power in La Crosse, small school.
Why don’t you do a little homework on how well that school just shut down? Just shut down and see how well Gaffney, South Carolina is doing right now. Anyway, as far as immigration and talib is concerned, there’s never been a society that welcomed immigration for its own sake. For reasons beyond its economic utility, the West grew wealthy then.
Ran out of people willing to clean bathrooms, fix roofs, babysit noisy spoiled brats and mow lawns.
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Is he wrong? Is he wrong? Again.
Maybe we have way too many immigrants, well not way too many based upon what? Way too many based upon the fact that we allow people to, it’s too easy to live on government assistance here in this country. We’ve destroyed lives based upon government assistance and ruining people. Yeah, absolutely, no doubt about it.
It would be prohibitively costly to ask a dentist to spend two days a week gardening for balance. Nor do many youngsters in the middle class dream of growing up to be janitors.
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must be imported reluctantly. Again, immigration, and this is the Taliban, agree, in small doses is benign.
Small doses is benign. It needs to be managed. When it becomes large doses, it causes problems within the community. In many ways, shape, manner, and form. For example, read a story today. Dearborn, Dearborn, Michigan, which is basically turned into Somalia, USA. The mayor of Dearborn, Michigan,
went off on a local resident who happened to be Christian saying that he’s going to hold a parade the sooner he moves him out of town. He doesn’t belong there anymore. That’s a problem.
Is it not?
The United States and Europe become structurally addicted to cheap immigrant labor, building oversized houses with expansive lawns and labor intensive upkeep. A sharp reduction in this supply would trigger hyperinflation owing to the nonlinear effects of such squeezes. Remember 2022. Every Western political party that won office on an anti-immigration platform has ended its term with more immigrants than before. Globally. Again.
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you need to manage it. Again, he talks about some of the moves that are done that we see on TV, thinking that many of them are largely symbolic, again, for show aimed at winning elections. And again, some also, and I get it when people think that some of these things seem a little bit vicious, and somewhat trying to humiliate immigrants for their own
But hey, listen, again, I’ve talked about this been perfectly clear. I’ve been in big favor of Salazar’s policies when it comes to again, finding a way, finding a way to have a it’s not amnesty, you’re not becoming a citizen. It’s a process or 15 year process seem to make sense to me seem to be mutually beneficial.
Can the West dispense with immigrants? Yeah, sure can, but we will crush our global GDP. It is what it is. And again, we’ve already got massive budget deficits. How is that going to work? Okay. And he says, he says, says, I have nothing against, this is Talib, nothing against closed xenophobic ethnostates per se, so long as they don’t invade others and mind their own business.
But under modern conditions, one cannot have both such a state and accumulated debt requiring economic growth.
wrong. And again, he talks about the fact that the United States, we do well when it comes to highly skilled immigrants, because of the fact that you can do business here in this country. It’s easier to, and he talked about the fact that he you know, at the Tandon School of Engineering at NYU, where he spent more than 15 years, TALEP worked for 15 years, the near totality of both faculty and graduate students were foreign born.
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does a bit on social media talk and again the good parts of social meeting the liberating effect of social media and how stories are getting out that never would have gotten out before. Very good points there as well. He also talks about the issue of the growing role of government and he talks about the creeping growth of government and makes comparisons to kings of the past dictators
of the past and how reality is today’s governments are far, far larger and more intrusive. says, in Europe, governments account for 40 to 50 % of GDP. In the United States, it’s higher than reported when you include local government and recent interventions. A century ago, governments were under 15 % of GDP, often less than 5%.
Government size is period dependent in validating cross-temporal comparisons. At no point have governments been more effectively intrusive, thanks to technology. Yeah, even, you know, you’re driven by Adam Smith principles, okay? I’m sorry, government still grows. In 1500, dictatorial government couldn’t control much because it was a smaller share of the economy. Today’s governments have far more reach
And this is proving to be unstoppable. A limited government conservative today, it’s true, is dreaming of what a centralizer was hoping for only a few decades ago. And then he’s final point. Again, all of this reality. Scale matters when it comes to governance. And there’s a phrase that he uses that I’ve used on the program.
I’m a libertarian at the national level, a Republican at the state level, a Democrat at the municipal level, and a communist at the family level. His point, his point when it comes to governance, it depends on the scale.
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talk about people who live in a gated community with their HOAs or a country club with the rules and the enforcement that they have. It’s basically a government, but nobody really calls it a dictatorship. Historically, successful models, whether it be Venice, Dubai, Singapore,
small city-states. Scale enables effective governance. But as the U.S. economy grows in size and complexity, governance becomes harder. We need even more localism than we had 50 or 100 years ago, but our systems haven’t adapted to this reality. Again, something that I talk about all the time, getting back to states’ rights. The 10th Amendment, governance on the local.
level which is really important. Where’s our focus on the national level but what we’ve handed all of that power over to them. points made by Taleb this is our terrain what to take from this again saying and it’s an annoying saying it is what it is at this point in time. We again we deal at Markowski Investments with the reality
of this. We position our clients as such. Understanding the reality. Again, I want things to change. We’re pushing for change all the time here on the program. But this is what we’re dealing with. Watchdog on wallstreet.com.
