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The Real Reason There Will Be No Economic Recovery in America

Economics / US Economy Apr 07, 2013 - 12:25 PM GMT

By: Bill_Bonner

Economics

Nothing much happened on Wall Street yesterday. The Dow rose 56 points. Gold was flat.

From the Daily Mail in London:

US sees highest poverty spike since the 1960s, leaving 50 million Americans poor...


The number of Americans living in poverty has spiked to levels not seen since the mid-1960s, classing 20% of the country's children as poor.

It comes at a time when government spending cuts of $85 billion have kicked in after feuding Democrats and Republicans failed to agree on a better plan for addressing the national deficit.

The cuts will directly affect 50 million Americans living below the poverty income line and reduce their chances of finding work and a better life.

As President Barack Obama began his second term in January, nearly 50 million Americans – one in six – were living below the income line that defines poverty, according to the bureau. A family of four that earns less than $23,021 a year is listed as living in poverty.

The newspaper illustrates its bleeding-heart story with a ridiculous example, taken from the streets of Baltimore. A Mr. Antonio Hammond abandoned his children for 20 years... and stole copper pipes and other things to support a full-time drug habit.

"All I wanted to do was to get high," he told the Daily Mail.

Then Hammond kicked the habit and got a job at $13 per hour. Now he's a success story. And if you believe the Daily Mail, cuts to the federal budget may make it harder for people like Hammond to escape from poverty.

Seems much more likely to us that cuts to federal spending will help people like Hammond get back on their own two feet; the feds won't have the funds to keep him in poverty.

Baltimore has been fighting poverty for the last 50 years – ever since President Johnson declared a war on poverty in the 1960s. Spending has gone up and up, blasting away at poverty with hundreds of billions of dollars.

But now Baltimore has more poor people than ever – one in four residents is below the poverty line, according to the Daily Mail. And no wonder. When poverty pays, why take up something else?

No Brave New World

We wonder how come there are so many poor people? Wasn't the Internet supposed to make us all rich?

Even Hammond can now go online and discover the secrets of business and science. He can know as much about economics as Ben Bernanke. He can know as much about politics as Nancy Pelosi. He can know as much about journalism as Tom Friedman.

So how come they get the big bucks and he doesn't? How come a man who can know almost everything settles for just $13 per hour? Is that all omniscience is worth?

Back at the end of the 1990s, we ran into people who thought the Internet changed everything. With so much information at everyone's fingertips, they thought they saw a brave new world coming.

We would all have access to the information we needed to increase productivity and add wealth. No one would be poor again. All they would have to do is to go on the Internet to find out how to get rich.

We were suspicious of these claims back then. Information is cheap, we pointed out. It's wisdom that is precious, and you don't get much of that on the Internet. You have to pay for it... with bitter experience.

In fact, information – unless it is exactly what you need, exactly when you need it – has negative value. It distracts you. It must be applied. And stored.

How much good would it have done Napoleon – on his disastrous retreat from Moscow – to have the plans for a nuclear weapon? Suppose Louis XVI, mounting the scaffold to the guillotine, had had proof that Sacco and Vanzetti were innocent! Imagine whispering to Hugo Chavez, as he lay on his deathbed: "Studies show that people who eat less meat have less cancer."

No, dear reader, information is like manure. A little, at the right time, is a good thing. Pile up too much, and it stinks.

Productivity Falls

And now we have proof... that the Internet did not add to the wealth of the US... or apparently anywhere else. From The New Yorker:

For a time, the Labor Department's productivity figures appeared to support the idea of an Internet-based productivity miracle. Between 1996 and 2000, output per hour in the non-farm business sector – the standard measure of labor productivity – grew at an annual rate of 2.75%, well above the 1.5% rate that was seen between 1973 and 1996.

The difference between 1.5% annual productivity growth and 2.75% growth is enormous. With 2.75% growth (assuming higher productivity leads to higher wages), it takes about 26 years for living standards to double. With 1.5% growth, it takes a lot longer – 48 years – for living standards to double...

Since the start of 2005, productivity growth has fallen all the way back to the levels seen before the Web was commercialized, and before smart phones were invented.

During the eight years from 2005-2012, output per hour expanded at an annual rate of just 1.5% – the same as it grew between 1973 and 1996. More recently, productivity growth has been lower still. In 2011, output per hour rose by a mere 0.6%, according to the latest update from the Labor Department, and last year there was more of the same: an increase of just 0.7%. In the last quarter of 2012, output per hour actually fell, at an annual rate of 1.9%. Americans got less productive – or so the figures said...

If the sluggish rates of productivity growth we've seen over the past two years were to persist into the indefinite future, it would take more than a hundred years for output-per-person and living standards to double.

How about that? The Internet. A big dud. A time waster, like television, not a wealth booster, like the internal combustion engine.

Bill Bonner
Bill Bonner is a New York Times bestselling author and founder of Agora, one of the largest independent financial publishers in the world. If you would like to read more of Bill’s essays, sign-up for his free daily e-letter at Bill Bonner’s Diary of a Rogue Economist.

http://www.lewrockwell.com

    © 2012 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.


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