Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

The Continuing Zombification of the US Economy

Economics / US Economy Nov 09, 2011 - 05:04 AM GMT

By: Bill_Bonner

Economics

Best Financial Markets Analysis ArticleWe have been exploring the zombification of the US economy. Major industries – finance, health, education and defense – have been taken over by zombies, parasites whose real interest is to transfer wealth to themselves, from the part of the economy that remains productive.

As the economy becomes more zombified, the part of it dominated by these non-productive industries increases, leaving fewer resources for the productive part. And as the productive part weakens, so does the entire economy’s ability to produce real wealth, or grow its way out of debt.


How much of the economy is now in zombie hands?

Cindy Williams, of MIT’s Security Studies Program, figures that the US now devotes about 6.2% of its GDP on “defense” and related activities, including international affairs, homeland security, veterans affairs, and intelligence. She was not trying to figure out how much the nation could spend effectively, only on what it could afford. That, she calculates, is between 2.1 percent and 3.4 percent of GDP.

If this is true, we could say that about 3% of GDP is either wasted, unnecessary, or unaffordable. That’s about $450 billion right there.

As to health care…we can assume that the standard of health care is acceptable in those countries where people live much the way Americans live…and tend to live longer. In those countries – mostly in Europe – people spend about half as much as they do in the US, giving us an overspending of about $2,500 per person, or about 5% of GDP…or about $750 billion.

Education expenditures are twice what they were, in real terms, when US students got the same results they get now. The US currently spends about 6% of GDP on education. This suggests that 3% is wasted. That’s another $450 billion.

As for finance, it is impossible to measure how much of it is worthwhile and how much is just money-shuffling and debt mongering. But we will take a guess anyway. In 1940, the financial industry accounted for just 2% of the economy. By 1960, it was about 3%. Today, it is 8% or 9%. Before the big run-up in debt began – in 1980 – the financial industry probably averaged about 4% of GDP. The extra 4% is arguably wasted…it merely transfers money from the wealth-producing parts of Main Street to the wealth collecting parts of Wall Street. Four percent of GDP is another 600 billion, or so.

Adding it up, education, health and defense together may be costing the nation $1.65 trillion – almost exactly the amount of the 2011 deficit. In other words, if the squandering were stopped, the US budget would be in balance.

Add the waste in the financial industry, and you are up to $2.25 trillion – or 15% of GDP. Compare that to the IMF’s calculation of total national savings at 10% of GDP. (We don’t know how the IMF got this figure…it seems high.) And now let’s return to our small farmer to try to understand what these numbers mean.

The small farmer wants to get richer. So, he creates a surplus of 10% per year. This he will invest in greater production so as to increase his output (his wealth) year after year. But he invests poorly. He plants in swampy areas. His seed gets wet and rots. Birds eat his grain before he harvests it…then, he waits too long, and much of the harvest is lost.

Imagine that he squanders 15% of his output. Result? He grows poorer, not richer, at a rate of 5% per year.

That is the price of a zombie economy. You get poorer. If the economy appears to grow, it is usually growth in unproductive industries. If people appear to live well, it is because they are living off the accumulated capital of the past.

At the present pace, over the next 10 years, the real value of America’s output will fall nearly in half. Measured in terms of output, Americans will be only half as wealthy as they are today.

Get ready for it, dear reader.

Bill Bonner
The Daily Reckoning

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).

http://www.lewrockwell.com

    © 2011 Copyright The Daily Reckoning, Bill Bonner - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules