Investment Biker
Page 44
We’re now the largest debtor nation in the world. That would be okay if we were investing the money in productive assets, as we did in the nineteenth century, but it’s all going into entitlements, welfare, agricultural subsidies for such crops as mohair and sugar, interest payments, tanks, and intercontinental missiles, none of which builds future productivity. Our troops still occupy Europe and Japan, over fifty years after the end of the Second World War, at a cost of $150 billion a year. Despite massive publicity about the foolishness of it, we still pay huge subsidies to our farmers when we should fly them to Siberia or Zaire instead. They’d all get rich!
Why, thirty years after the Pentagon has told Congress it doesn’t want any more mohair, are we still spending $50 million a year on the stuff?
There are five thousand sugar growers in the United States. We spend approximately $5 billion annually to support sugar prices, which works out to roughly $1 million per sugar grower. We could save a fortune by going to each of those producers and saying, “Here’s one hundred thousand dollars a year for life, a condominium at the beach, and a Porsche. The only thing we ask in return is that you never raise sugar again.” A further irony is that, waste aside, the massive spending for the sugar-support program actually has a detrimental impact on our economy. Because of sugar price supports, 270 million consumers in the United States end up paying two to three times the world price for sugar. We’re also ruining the economies of our Latin American allies because they can’t sell us their natural product, sugar.
Why is this? Because there is a constituency for each of these programs—the sugar producers, the mohair producers, the defense industry, the military itself—walking up and down the halls of Congress to make sure the money keeps rolling in.
There are such an extraordinary number of cases like these that raising taxes to pay for such misguided, wasteful programs is lunacy. Eighteen-year-olds should be in the streets over these issues, for they are the ones who have the most to lose, who will suffer the most. We have guaranteed them a bankrupt future.
The chief concern of our government at this moment ought to be to cut needless spending in order to put our budget on a sound fiscal basis. The measures Chile has taken to put its economy in order ought to be lesson enough. If a country that was far more of a basket case than ours can pull itself up by its bootstraps in fifteen years, we ought to be able to do the same in less time—if we have the leadership and stamina to pull it off.
Should taxes then be cut? Yes, but the essential issue is not the level of taxes but the tax system itself. We need to completely change our tax structure, which penalizes savings and investment. If you’re lucky enough to have a job, you pay taxes on the money you earn. If you then put some money in a bank or a mutual fund and earn interest or dividends, you pay taxes again. If you earn any capital gains on that investment, you pay taxes a third time.
The rest of the world doesn’t do it that way. All the economies running circles around us—Japan, Germany, Singapore, and others—encourage savings and investment; they don’t tax them. They tax consumption. We do just the opposite: We encourage consumption and we tax savings.
Our savings rate is 4 percent; the Japanese rate is five times this. More savings means more money for investment. More money for investment means more productivity. More productivity means an increasing standard of living—precisely what we’ve lacked for the past twenty-odd years.
Here’s another dead-simple, easy-to-understand, natural law of economics: what you tax you get less of.
We need to change things in the United States. We must eliminate all taxes on savings and investments. We should junk the present tax code, which is several thousand pages long, and replace it with a flat tax. Huge money and energy in this country are devoted to wrestling with the tax code and avoiding taxes—at least 1 percent of our gross domestic product at a time when we’re struggling to achieve a 2 percent rate of growth. We could have a five-page tax code and file our income taxes on a postcard. We should supplement the flat tax with a consumption tax, making it more expensive for people to spend than to save.
Then we should eliminate a host of wasteful government programs. Washington is spending enormous sums on tanks and missiles, which do absolutely nothing for future productivity, and on transfer payments, which also do nothing for productivity or the future of the country. Why aren’t the eighteen-year-olds in the streets?
More radically, why allow congressmen to go to Washington, where as a group it’s easy to lobby them? Let’s make them stay in their home districts, conduct their meetings through video conferencing, and vote electronically. If lobbyists in this country had to go to 535 districts, our laws would be quite different. Wouldn’t we be better off having the local banker, teacher, and plumber watch our congressman vote from our high-school gym rather than have lobbyists watch them in Washington? Plus we could eliminate the travel and staff waste built up around Congress in DC.
While we’re at it, let’s change the date of the elections to April fifteenth. It’s no accident that November was chosen, the date six months before and six months after we pay our taxes. Let’s select our politicians at the same time we’re paying them—as we do everything else in life. We would all vote better if we realized how much our votes cost us.
A main tenet of my philosophy is that when you have a leak in your roof, you’d better fix it, as it’s sure to cost you more later. Unfortunately, another lesson history teaches us is that little reform happens until it’s forced on people. The air now is full of talk that fiscal reform isn’t “politically feasible.”
Given all this, what does the future actually hold for the United States? Given the real political, economic, and social world, what will happen?
Twenty years ago we could have afforded the luxury of “politically feasible” measures. However, our debt now is $5 trillion and rising by several hundred billion dollars a year. It’s too late for moderate measures. We’re coming to a time when only strong measures will stop the hemorrhaging. Even if we somehow balance the budget tomorrow, there’s still the debt of trillions of dollars for someone to pay. It will kill the economy to cut spending further, so the sensible way to pay this down and put ourselves on a sound basis is through privatization, through selling off government assets such as our public lands, airports, seaports, and the post office. As an example, most of Nevada is owned by the government and could be sold. The list of assets we could sell is endless. The rest of the world is doing it; why not us? Wouldn’t it be glorious to live in a debt-free country with a balanced budget?
If this sounds radical, all I can say is wait until everything collapses around us—that’s really going to be radical. Eventually even the politicians are going to have to discuss these ideas because the country is sliding toward bankruptcy. As happens to all societies that keep their heads in the sand, the markets will force the issue upon us. Then it will be a lot more painful.
Simplistically, we’ll encounter either an inflationary collapse or a deflationary collapse. Under the inflationary scenario, our government will print more money than it has assets to back it. Nobody will want the dollar. A dollar then won’t buy 1.7 deutsche marks; it will buy half a mark.
Or, if the government doesn’t overprint money, because of the enormous public debt there won’t be enough money to fund building houses, businesses, and factories. We’ll have deflation, some of which was felt in the early nineties in the U.S. with the collapse of residential and commercial real estate values. In a deflationary collapse, as in the Great Depression, asset values will fall because there won’t be enough money to fund anything.
When Americans ask me to suggest solid currencies in which to invest, I mention the deutsche mark, the Dutch guilder, the Swiss franc, the Austrian schilling, the New Zealand dollar, and the Singapore dollar. Central banks’ policies are tremendously important. The European currencies are tied to the German Bundesbank, whose mandate is to keep the mark hard. Our own Federal Reserve seems more i
nterested in maintaining a short-term even keel than pulling into dock and overhauling our bloated, out-of-control monetary system.
Will our country survive? Sure. The Italians and the British haven’t had their fiscal houses in order for decades, yet life there has gone on even if there hasn’t been much dolce in their vita. In 1910, Argentina was the richest country in the Americas and yet by the Depression it had collapsed into poverty. Life was hard, but, yes, it has continued for sixty years.
If there’s one thing I’ve learned in going around the world, it’s that societies become rich, swagger around for a few years, decades, or centuries, and then their hour is done. The other thing I’ve learned is that even when all the wealth is gone, life goes on.
More important, I’ve also learned that if you’ve got a dream, you have to try it; you must get it out of your system. You will never get another chance.
If you want to change your life, do it.
APPENDIX I
How We Packed for Our
Twenty-two-Month Motorcycle Trip
CLOTHES
Jim:
5 shirts (2 business)
3 pairs underwear
3 pairs socks
2 bow ties
1 running shirt
1 pair of running shorts
1 jogger’s watch
Tabitha:
4 cotton turtlenecks
3 washable silk blouses
3 pairs socks
4 pairs underwear
2 pairs tights
1 pair high heels
1 washable black silk dress
1 silk scarf to cover head in Muslim countries
1 sun hat
Each of us:
3 pairs jeans*
3 wool sweaters
Motorcycle boots*
Running shoes
Foul weather gear
Leather jacket* and chaps
Helmet, goggles, and gloves
Silk long underwear and a silk ski mask
EQUIPMENT AND SUPPLIES
2 BMW motorcycles (an R100RT and an R80)
Spare parts (tires, plugs, gaskets, etc.)
Repair manuals and tools
1 hand-cranked winch
Small jerry cans for gasoline and water
Shovel, bucket, bungee cords, ropes, and chains
Shortwave radio (God bless the BBC!)
3M super tape to repair everything from carburetors to windshields
Camping, water-purification, and cooking gear
Extra pair prescription eyeglasses
Toiletries and sunscreen
First-aid kits, anti-malaria pills, and antibiotics
Sterile syringes, needles, and sutures
Birth control pills and tampons, three-month supply
Sewing kit for leather as well as cloth
Guidebooks and maps (rarely available where you need them)
Lots of passport photos for visa applications
Stamp kit for forging entries in documents, I regret to say
4 cassette tapes—Eine kleine Nachtmusik, Beethoven’s Ninth Symphony, Mozart’s Thirty-ninth and Forty-first symphonies, Willie Nelson’s “On the Road Again,” and the Fine Young Cannibals’ “She Drives Me Crazy”
Polaroid camera and film, to win friends in the wild
200 $1 bills, useful for small purchases and as gifts
50 Susan B. Anthony dollars as commemorative gifts
Cigarettes and liquor with which to bribe border guards or whomever
1 top-of-the-line Swiss army knife, used every day
Tube of Loctite
* Doubled as Jim’s dress-up wear for fancy hotels, restaurants, and business meetings
APPENDIX II
Daily Log
The way to read this log is a little complicated. We wrote it every morning as we were taking off. So the date is the date of departure from that place. For example, on April 5, 1990, we were in London, having left Oxford on the second.
For those of you
consumed by the passion
to see it all and
fathom the world
as it really is.
And for C. Rider,
of course.
I would like to thank Donald Porter,
without whose insight and editorial guidance
this book could not have been written.
Thanks also to Marshall Loeb
at Fortune.
ALSO BY JIM ROGERS
Adventure Capitalist
Hot Commodities
A Gift to My Children
ABOUT THE AUTHOR
Born on October 19, 1942, JIM ROGERS had his first job at age five, picking up bottles at baseball games. After growing up in Demopolis, Alabama, he won a scholarship to Yale University. Upon graduation, he attended Balliol College at the University of Oxford, where he earned his first Guinness record as coxswain of the rowing crew. He cofounded the Quantum Fund, a global investment partnership. During the 1970s, the portfolio grew 4,200 percent, while the S&P rose less than 47 percent. Rogers then decided to retire—at age thirty-seven—but he did not remain idle.
Continuing to manage his own portfolio, Rogers served as a professor of finance at the Columbia University Graduate School of Business and as a moderator of The Dreyfus Roundtable on WCBS-TV and The Profit Motive on FNN. At the same time, he laid the groundwork for his lifelong dream: an around-the-world motorcycle trip of more than one hundred thousand miles across six continents, his second Guinness record. That journey became the subject of Rogers’s first book, Investment Biker (1994).
Rogers’s Millennium Adventure 1999–2002, his third Guinness record, took him and his wife, Paige, through 116 countries (and about fifteen civil wars) and over 152,000 miles. His second book, Adventure Capitalist, chronicled that incredible journey.
He lives in Asia with his wife and daughters and is a media commentator and lecturer worldwide.
He can be reached at www.jimrogers.com.