The Revenge of the Gods of the Copybook Headings
All of our economic woes, more or less, have come from defiance of what Rudyard Kipling called the Gods of the Copybook Headings. These are the nonpartisan, scientific, and implacable laws of economics and human behavior on which Henry Ford elaborated as follows:
Most of the wisdom of the world was in the copy books. The lines we used to write over and over again, the homely old maxims on which we practiced to obtain legibility of our p's and q's, were the essence of human wisdom. (Ford Ideals, 1922)
The implacable laws in question include the basic economic concept that no system can deliver more value to its stakeholders than it produces. Ford's mastery of these principles, along with what we now call lean manufacturing or the Toyota production system, built a multibillion-dollar enterprise and made the United States the wealthiest and most powerful nation on earth. Ford prospered by acting in accordance with the Gods of the Copybook Headings, while Kipling described what happened to those who went against them:
We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.
The "Gods of the Market Place" refers to temporary fads like Dutch tulip bulbs, dot-com stocks, mortgage-backed securities, and, if the Obama administration has its way, carbon credits. These lesser gods of Kipling's pantheon are temporary, ephemeral, and mortal, while those of the Copybook Headings are eternal and immutable. Kipling continues,
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."
Eight-thousand-dollar handouts to first-time home-buyers, $7,500 tax credits to purchasers of the General Motors Volt, and multibillion-dollar "stimulus packages" all sound like "robbing selected Peter to pay for collective Paul," or incurring billions in national debt for the same purpose. The next sentence is even more terrifying in light of Bank of New York Mellon's proposal to charge depositors to hold large sums of cash. The concept of negative interest suggests that the bank does not expect to loan the cash even at trivial interest rates, which suggests in turn that there are no economic opportunities to which borrowers might apply the money.
The Great Depression was the opposite of the scenario described by Kipling because people had very little money. Anybody with the independent means to grow, mine, or make something could, however, usually get by. Farmers could, for example, often exchange food for vital services like medical care. This leads to the point, which Ford stated explicitly, that any society's affluence relies directly on its ability to grow, mine, and/or manufacture things. Only with the products of mining, agriculture, and manufacturing can we then pay for services like medical care, news and commentary, and so on, along with entertainment that improves our quality of life.
Our country's problem is very straightforward, and it is quite likely that the investment community recognized it during the first week of August. There is a widespread delusion, which is shared by the numerous members of Congress, that it is possible to have an affluent society without growing, mining, or manufacturing anything. Senator Kirsten Gillibrand (D-NY) said openly that we can run an economy by trading in carbon credits:
According to financial experts, carbon permits could quickly become the world's largest commodities market, growing to as much as $3 trillion by 2020 from just over $100 billion today. With thousands of firms and energy producers buying and selling permits to emit carbon, transaction fees for exchanges and clearing alone could top nearly half a billion dollars.
No, Senator, a commodity is something you can eat (cattle, pigs, wheat, soybeans), burn to make energy (coal or oil), or use to manufacture something (iron, aluminum, and now rare earths that are unfortunately controlled by China). Carbon credits have less intrinsic value than baseball cards, collectible comic books, and Dutch tulip bulbs (an investor who lost his life savings on those could at least plant them and have tulips) and are therefore not commodities.
To this may be added the president's belief that we can build a "green economy" on "renewable energy." There is nothing at all wrong with green manufacturing; Henry Ford made enormous profits, paid higher wages, and lowered his prices simultaneously by eliminating material and energy waste from his processes in an era with few if any environmental protection laws. The problem consists of subsidies or mandates for cost-ineffective renewable or green energy sources. If, for example, Mr. Obama's friends and campaign donors at General Electric could make cost-effective solar panels or wind turbines, they would not need government subsidies or mandates for the purchase of their products.
If delusions like "green economy" and "carbon permits as commodities" represent our country's understanding of basic economic science, it comes as no surprise that investors don't want to stay around when, as Kipling concluded:
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!
William A. Levinson, P.E. is the author of several books on business management, including content on organizational psychology as well as manufacturing productivity and quality.