15 November 2010

The 2010 Maine Conference on Wealth

The envied wealth of America is an illusion, according to a panel of economics experts meeting this fall in a conference at a scenic resort on a remote lake in northern Maine.  Actually, the conference consisted of myself, some assorted shoreline refuse, and the geese winging southward overhead, (OK, don't count them; they didn't even look down), but the setting is authentic.  I was really just there to soak up some frosty wind, watch the sun set, and think.

Nor did this conference actually conclude that America's wealth is an illusion. That was the premise on which the conference opened, and it was neither proven nor refuted. Perhaps the illusory property of America's wealth will be the topic of next year's get-together.

As the ranking conference member present at this year's event, I set the agenda. First I imagined a slate of conference participants.  The lake shore was littered with rough, rounded granite stones, so I arranged a dozen or so of these into a few orderly rows at the water's edge.  Since it was possible to forgo registration and introductions, the first order of business was to assess America's wealth. We weren't looking for a dollar figure here.  Since there is no longer any such thing as a unit of value, there is no way (and no point) to assign a value to this nation's wealth. (When the dollar was essentially an ounce of silver, up until 1964, there was a unit of value that the federal government could not control: an ounce of silver.)

We actually found ourselves defining wealth, in a way, as we brainstormed a list of what constitutes America's wealth.  As at any conference, latecomers drifted in and tried to appear inconspicuous. We were joined by an occasional piece of driftwood, some flotsam such as a candy wrapper, and a couple of mallards that seemed not to realize that they were at the wrong conference.

Those of us participating, though, concentrated on our work. We imagined a large flip-chart of Post-it sheets and began listing what we could include that represented America's wealth.

We immediately rattled off broad categories, such as land and natural resources.  We included all the gold at Fort Knox, if that's where it is still hidden.  (Later, during the analysis and refinement sessions, we decided to exclude all the gold at Fort Knox.  This will never again find its way into the hands of the citizens, and so it's essentially as unavailable as all the gold that has never been found.  Only the federal government will ever have access to it, and it's safe to predict that it will only ever be used in some corrupt way to pay off a foreign dictator or to fund some idiotic project such buying carbon offsets from -- or for -- the Chinese.)  We agreed that gold in the hands of individuals is a component of each individual's wealth.  And we agreed that silver is abundant enough for industrial and private use that it can be counted in America's wealth.  But government gold effectively doesn't exist.

We thought of the things that are bought and sold on the stock market.  Shares, we call them, shares of ownership in large ventures, which many individuals regard as wealth.  But we had to separate these into different categories too.

We decided that some businesses own real assets -- forested land, for instance.  Oil shale.  Tooled-up manufacturing facilities, such as tractor factories.  A large agri-business.  A string of resort hotels, even. These businesses are in one category because they truly own something tangible.

We began to have trouble with some other categories of shares in the stock market, though, even though a lot of Americans (and foreign investors, too, we suspect) have much of their money tied up in such investments: For-profit health care facilities, banks, and retailers came most quickly to mind. Since I was doing most of the thinking at this conference, we stopped with those three, since our light was fading, we were distracted by the brilliant colors reflected in the rippling water, and the chill was increasing, meaning that it was time to move along to the next step.

We analyzed these three examples more deeply. Health-care conglomerates don't really own much, except for expensive buildings and expensive equipment.  Their ability to return profits to investors depends on sick people's ability to coerce someone to pay.  We couldn't guess how many billions of pretend dollars are invested in banks, but what do they own besides debt?  Well, they own shares of all manner of other stock, but we kind of guess that their portfolios are offset by their debt ownership.  And retailers: If they even own the inventory in their stores, it isn't much to brag about -- next year's outdated fashions, next year's obsolete consumer electronics, perishable and mostly useless food such as potato chips.  But their inventories are also often not their own.  Their stock has pretend value only in the promise that they will continue to have customers day after day who will leave behind more dollars than the store needs to operate.

Those of us at this splendidly-illuminated fall conference -- myself and a bunch of rocks -- realized that if we had any money to invest, we'd be reluctant to give it to retailers handling junk merchandise for other people, banks juggling debt, and places that hope government programs will pay them for providing sick care.  We think those are very risky places to lay our money down.  No one at our conference knew whether accounting firms and law firms are bought and sold on the stock market.  If not, why not?  (We may be experts, but even economics experts don't know everything.)

We don't know what proportion of the stock market is composed of shaky enterprises and what proportion includes those with true assets.  We just think that, if there is another stock market collapse, we'd rather own the ability to make tractors than the option to join a lawsuit against a bankrupt bank.

We also realize that the public value of a company is not just its assets but is comprised also of some anticipation of its ability to find customers and return a profit to its investors. We aren't naïve. And some companies with impressive assets have lousy money-handling habits, or they goof around with unrelated ventures that drag them down, such as GE dabbling in insurance.

In assessing America's wealth, we considered its luxury features, in spite of who owns them.  This means its golf courses and resorts, vacation meccas and parks, sporting arenas and museums. We were divided on these things. They do not detract from the nation's wealth, but since there are few investors in these things, neither do they represent functional wealth.

A nation has an easier time remaining wealthy and productive if its citizens share access to the ability to move things around, so we counted its coastal access and navigable waterways and its vast highway system unimpeded by regional boundaries. The nation's railroads were a grand asset fifty to eighty years ago when they were privately-owned and the government wasn't yet taxing them out of existence in order to fund a highway system, so in their decaying state they are a secondary consideration in terms of America's wealth. They could come back, but only if government were to get out of the way, which it won't.

We gave some thought to other institutions that contribute to, if they don't comprise the wealth of, a nation.  Colleges, for instance.  We have lots of those, and their physical and intellectual resources are splendid (except in the arena of ideas, where they are decidedly fungal and Marxist-leaning).  Colleges aren't bought and sold on the stock market. Citizens don't own them.  But we weren't trying to quantify America's wealth, in order to compare it with Germany's wealth, for instance.  We were trying to assess its assets but also to figure out, concomitantly, what makes this country strong and resilient -- what it has which secures its wealth, in other words. Colleges, in spite of their determination to destroy the founding principles, are a positive force in securing America's wealth.

At the break, someone was heard to remark that, of all the thoughts listed so far, federal, state, and local governments had not appeared on any list of what contributes to the wealth of the country.

When we re-assembled after a light snack, our optimism began to wane.  Maybe it was the remark about government.  It comes through as the villain in the equation, because it has the option to bleed the wealth from anything, as it did in the last century when it gave promises to pay in exchange for the nation's circulating gold and silver coinage.  (And what does it pay in?  More promises to pay.)

We began to think of the individual citizens who, together make the nation.

One "average" citizen would have a paid-for house on a half acre of land, a paid-for vehicle that would serve if fuel distribution systems remained intact, also a few judiciously-selected implements to assist in gardening and harvesting wildlife for food as well as the skills to use them.  This same person might have a few pieces of silver set aside, some way of illuminating the interior of a darkened home on long winter evenings without electricity, a shelf containing books to while away the quieter hours, and the mental discipline to wait out a period of uncertainty lasting from a year to a generation. All of this might comprise the keys to survival.  He might also have an investment portfolio strong in manufacturers and natural resources that retains a remnant of value in catastrophic circumstances.

Another citizen, this one a "gadget guru", might share an apartment with a couple of parasitic "friends" in a megalopolis that extends across six states.  He might have a collection of gadgets for status and entertainment and the skills to use them when not using his skills at locating restaurants and social settings.  He might also have some fading martial arts skills and a vast knowledge of television history. He might have a half-finished collection of tattoos and a couple of days' worth of cigarettes.  He might have an investment portfolio strong in pharmaceuticals and bonds.  He might have a few select pieces of avant-garde artwork as an illusion of tangible wealth.

When our little conference compared these two citizens and then tried to add them to the formula that includes national parks and oil wells, we had an apples-and-oranges problem.  That's when we realized that the wealth of an individual is distinctly different from the wealth of a nation.

And that's when a breakthrough occurred. A breakthrough is the dream result of any conference. We realized, suddenly, that there is wealth available for common use and actual, personal wealth. That enlightenment engendered the corollary that personal, individual wealth may include more than physical assets such as land, money, and belongings. It may also include knowledge, skills, and relationships.

The sum total of individual wealth is a portion of the nation's wealth, which then is extended to include that which we hold in common, our natural resources, transportation systems, museums, and secure communities.

When we pondered which of the two matters more -- our common wealth or that which each individual has to his name, it seemed to depend on the circumstances of the moment. When a community is secure and systems are functioning, our common wealth holds things together. What does an individual have at his disposal, though, when the chips are down -- if suddenly some global calamity interrupted everything?  If we all suddenly had to cash in our chips, survive without public assistance, and live by our skills and the implements in our toolboxes, what would we have?

We considered the multi-millionaire -- a Hollywood celebrity, maybe -- with a high-rise apartment in Mega City and a two-acre hot property on the inter-coastal waterway in Jupiter, Florida. Besides his two ex-wives and their children, his dependents include an accountant, a lawyer, and an agent.  We decided that this rich person is in deep trouble if all, or even half, the systems that support that "lifestyle" were to fail for any significant period (from one year to a full generation).  These would be systems such as a supply of potable water to either location, airports, servants, courts for divorces, and expensive restaurants.

We contrasted this rich guy with the poor farmer in rural Idaho or Vermont who has twenty cleared acres and a ten-acre woodlot, six or ten head of cattle, and a clean well.

The wealth of the nation is of about equal blessing to the "average" citizen and the poor farmer as it is to the "gadget guru" and the celebrity, but the first two are richer in skills and assets when the artificial systems fail that support the other two.

As with any conference, participants were found drifting out early. Some rocks were being reclaimed by the water as the wind shifted northeasterly and the chop engulfed the ones nearer the shoreline. The ducks had long since become bored. I realized, with little warning, that I had just taken part in a serious and unexpected awakening about wealth. I also realized that no one was left but me to record the proceedings and the discoveries of the event.

Just as the conference faded into silence, the last thin band of orange faded to gray on the western horizon. I left the lake shore behind my truck's headlight beams, as happens following most conferences. But, as with many that I have attended, this one left me so much to ponder that I didn't bother to play the radio on the way home.