If things are bad, now is the best bad times ever

By DAVID MOON, Moon Capital Management, LLC
March 16, 2014

In his most recent share holder letter, Warren Buffett chastised those who believe that America has lost its economic luster, explaining that his 2009 purchase of the railroad BNSF was an “all-in wager on the economic future of the United States.” Comparing our present condition to 237 years ago, Buffett concluded that our best days lie ahead.

That sounded like more than a little hyperbole—even for Warren—so I decided to check for myself.

Starting a country is hard work.

By the third year of the Revolutionary War, annual inflation had reached 30 percent. Soldiers, paid a month in arrears, experienced significant declines in their purchasing power before receiving their compensation.

In 1779 the Continental Congress literally printed $242 million in paper currency (called “Continentals”) to pay Revolutionary War soldiers. The US eventually redeemed the Continentals at one cent per the dollar.

Economic historians repeatedly state that the US has never defaulted on its debt, but devaluing a fiat currency by 99 percent is default by any practical definition.

The young government wasn’t just borrowing money from its soldiers. Relying mostly on tariffs for revenue, the US borrowed heavily from England’s European enemies, most notably the French.

And borrowing money was infinitely more politically difficult in the young US. The Continental Congress debated and approved each debt issuance, making our annual fights over the federal debt limit look like a well-oiled machine.

Everyone knows the story of Alexander Hamilton and Aaron Burr, but think about that in modern context. Imagine Joe Biden killing Henry Paulson or Dick Cheney shooting Lloyd Benson—and then never standing trial for the murder.

It sort of makes South Carolina’s Joe Wilson yelling “you lie” at President Obama almost civil.

Not only is Washington a more genteel place today, so is society in general—despite the vulgar and violent unintelligible lyrics of what passes as today’s music.

The US murder rate in 2012 was 4.8 per 100,000, compared to a whopping 24 in 1790.

Our increase in economic well-being is even more dramatic. The primary determinant of the economic well-being of any entity is the amount of wealth it produces. Since 1790, US GDP per capita has increased from $1,100 annually to more than $49,000 (2009 dollars.)

The average American today retires at age 62. In 1800 the average American died at 39. Infant mortality has dropped from 20 percent to less than 0.7 percent.

If you earn $34,000 a year today, you are one of the richest one percent of the people on earth. And you are likely in the top .07 percent of the wealthiest humans to ever live.

Like many, I am disappointed by an increasing passivity, dependence and general wussiness in our society. If my observations and conclusions are correct, however, a general sense of societal entitlement creates less competition and more opportunity for those willing to create.

You may believe things in the US are bad, but this is the best things have ever been bad.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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