Charlie Munger: 'Basicland' A Parable Of How One Nation Came To Economic Ruin

Slate Magazine:

From Munger's parable of "Basicland," an imaginary -- though extremely recognizable -- economy:

"Basicland's investment and commercial bankers were hostile to change. Like the objecting economists, the bankers wanted change exactly opposite to change wanted by the Good Father. Such bankers provided constructive services to Basicland. But they had only moderate earnings, which they deeply resented because Basicland's casinos--which provided no such constructive services--reported immoderate earnings from their bucket-shop systems. Moreover, foreign investment bankers had also reported immoderate earnings after building their own bucket-shop systems--and carefully obscuring this fact with ingenious twaddle, including claims that rational risk-management systems were in place, supervised by perfect regulators."

Read the whole story: Slate Magazine

Comments

[sposton]

10:39 PM on 02/21/2010

For an infinitely better explanation of this thieving system read Matt Taibbi. Basicland seems too contrived to me.

What we all miss is the truth first told to us by Louis O. Kelso. At the founding of our republic the economic output was due to 90% labor and 10% capital. For the most part we had an economic democracy (excepting slavery) which preceded our political democracy. By the end of the 20th century those two figures were inversed. The modern economic system can produce increasingly without labor and with offshoring phenomenon even without American labor. The pathetic state of democracy is just a reflection of lack of economic democracy. How can we fix something if we don't even talk about it?

[max hp]

11:12 AM on 02/21/2010

One of our Natinal Treasures speaks up AGAIN:

BILL MOYERS:

"Those who write the checks keep buying the results they want at the expense of the public. As a reputedly self-governing democracy, we desperately need to address the problems that we have created for ourselves, but money makes impossible the reforms that might save us.

Nothing in this country seems to be working to anyone's satisfaction except the wealth machine that rewards those who game the system. Unless we break their grip on our political institution, their power to buy the agenda they want no matter the cost to everyone else, we're finished as a functioning democracy."

Watch or read transcripts of Bill Moyer's Journal Online :

http://www.pbs.org/moyers/journal/02192010/watch.html

http://www.pbs.org/moyers/journal/02192010/transcript4.html

[NevaforLeadership]

09:47 AM on 02/21/2010

Continuous GDP growth and overpopulation are the two main causes of the global economic mess.

Other significant causes:

(1) Progressive tax systems.

Time for flat-rate tax systems. No additional taxation. No loopholes or exceptions. Get rid of non-productive tax civil servants and non-productive tax accountants and lawyers in one stroke.

(2) Western suburban lifestyles.

Suburbia as we know it today, with its joking polluted highways, is unsustainable. Time for local economic clusters.

(3) Unhealthy populations.

Healthcare spending is on track to cripple and bankrupt western economies. Unhealthy lifestyles are at the bottom of all healthcare crises; not this system or that system.

(4) World Trade

Foggy thinking about world trade has to end. It does not make sense in a world of fast diminishing resources, to ship raw resources half way round the world to manufacturing countries; then to ship the finished goods half way round the world to the points of sale.

[David01]

10:00 AM on 02/21/2010

I prefer the TRUE CONSERVATIVE approach. Let's go back to the time before we had big government mounting unconstitutional spending sprees.
Like the federal highway system.
Lets go back to the good old days when our freedoms were secure.
Before toilet paper.
Let's go back to ...STICKS, ROCKS, DIRT.

[NevaforLeadership]

09:06 AM on 02/21/2010

No need for a boring zillion-paragraph article to analyze what has gone wrong with the US economy.

Like the rest of his fellow "casino players," the author all too conveniently ignores the two central and controlling causes of the mess -- that's global mess; not isolated US mess.

(1) Overpopulation on a finite planet with limited and diminishing resources.

(2) Continuous GDP growth as a measurement of economic well being.

[NevaforLeadership]

08:52 AM on 02/21/2010

Charles Munger?

A lawyer turned casino player -- in real estate development and those bucket shops as he defines them; concentrated investor in Coca Cola sugar drinks (healthcare and social security on track to take entire US budget ) and Goldman Sachs ($82.3 billion in Level 3 assets for Q ending Feb. 2008) among others.

How disingenuous!

[distractionreaction]

08:07 AM on 02/21/2010

parable????????? try simple logic just once ....

It was/is fraud and they should be prosecuted and the money confiscated.

[rabiddog6708]

05:58 PM on 02/20/2010

Top 1%: Lower Tax Rate Than Their Secretaries.......Yes, there is a class war, Warren Buffett once said, and my class is winning. The IRS study of taxes paid in 2007 makes his point. The top 1% of taxpayers averaged about $138 million in income, and paid taxes at a rate of 16.6%....In its annual update of the taxes paid by the 400 best-off taxpayers, who aren’t identified, the IRS also said that only 220 of the top 400 were in the top marginal tax bracket. The 400 best-off taxpayers paid an average tax rate of 16.6%, lower than in any year since the IRS began making the reports in 1992.

[Christopher Huber]

04:01 PM on 02/20/2010

He lost me at Basicland. Probably because i don't have a degree in Psychobabble or Doublespeak or even Newspeak. If it is horse manure, it simply horse manure.
The sad truth is if the Wall Streeters. and the Bankers were living on Potato Soup with the occasional onion thrown in, there would be no mess. Unfortunately for us when they are reduced to, we will have already broken into the local Aldi's because we no longer will have any money for food.

[cbini]

02:27 PM on 02/20/2010

It's about time Wall St. realizes its place in society: the middle man. Any for-profit investment structure is going to be horribly inefficient. If these bankers wish to make big money, consider getting into real industries

[msjimmied]

01:04 PM on 02/20/2010

Someone got to work and produce stuff and maintain stuff, and that's us. For them it is important to maintain the status quo. Real estate=rent. Money=Interest. So if they gather all the money and the land, they can extract from us for the rest of our lives. The final nail in the coffin of our bubble economy was the high price of gasoline, and..

"..And then came the twin shocks. Hydrocarbon prices rose to new highs. And in Basicland's export markets there was a dramatic increase in low-cost competition from developing countries."

Not so much the competition Munger, it was the manipulation of the oil market. JP Morgan and Citi leased tankers to keep the oil off the market and create the conditions of peak oil. It was artificial. Let me post the link, cos this stuff is so surreal, I probably sound crazy..

http://www.bloomberg.com/apps/news?sid=auE79A8VeBis&pid=20601087

[grateful4thedead]

11:56 AM on 02/20/2010

Charles....really, just like your partner Warren, you're full of baloney on the "simple" banking concept.

Proof?

your investments in Goldman Sachs, Wells Fargo, American Express, and probably US Bancorp.

The investment in Goldman is truly the ultimate in hypocricy in regards your article as they are one of the largest abusers of your suggested "plain vanilla" approach.

You and Buffett are hypocrites, really.

[capitaldysfunction]

11:42 AM on 02/20/2010

Horse blinders!

That's the metaphor we're looking for. They put them on race horses and carriage horses so they only see straight ahead. Wall Street doesn't want to think about the impending collapse of the middle class. It isn't concerned about the damage to our society. The anger, the cauldron of resentment, the hate. There is political implications, of course. But the corporatocracy can handle that. Throw a few coins at legislators and keep going. Keep your eye on the goal directly in front of you. "We've paid back the government bailouts," they say, "so what we do with business is our business now. I'm charging straight ahead, and making as much money as possible, because I don't want to be like those poor slobs on Main Street."

[NevaforLeadership]

10:24 AM on 02/21/2010

I challenge you to set up home in a country with no "Wall Street." See how well you get along.

Who on earth do you think made it possible for you to own the computer on which you made your comment? The house in which your computer sits? The electricity on which your computer runs? The auto that transported your computer from the shop to your home? The gasoline that powered your car?

If your avatar is a photo of you, it looks as if you have retired. Who on earth do you think made it possible for you to do that?

We are each completely and totally responsible for what happens to us. Start thinking about that and analyzing its implications. Ask yourself if you are prepared to walk your talk; put your money where your mouth is.

[capitaldysfunction]

03:19 PM on 02/21/2010

You seem to feel life on planet earth did not exist before corporations. That it's all about "They the corporation" and not "We the people", as Ralph Nader put it. Yes, I want corporations. I don't want a corporatocracy that runs the government as well as a business.

Your version of Bless our Corporation is what I would expect from a right winger. We are headed for another Depression and I would like you to stand up and admit your wrong headed thinking when that happens.

[schatsie]

07:57 AM on 02/20/2010

Stupid Obfuscating Blathering.....calling that a parable is like calling Great Expectations a trash romance....

[swift goat pet for truth]

03:15 AM on 02/20/2010

Charlie Munger is a smart guy, but he lacks basic political understanding.

With his money he should buy a couple dozen legislators and get the laws he wants passed.

[Carl Caroli]

10:48 PM on 02/19/2010

The original purpose of Wall St. was to provide public capital to private commercial enterprises in an effort to support growth of those industries and allow them to capitalize on the efficiencies of scale. It functions now solely to generate banking/trading profit, irregardless of any underlying value, or lack thereof, of the "products" they peddle and insure against failure to cover their losses, making it a win-win for them. How sad that we have lost our way a society.

[derWahrheit]

12:46 PM on 02/20/2010

The original purpose of Wall St. was no such thing! It is and always has been the vehicle by which the parasitic classes manipulate the system to their advantage, regardless of the consequences to the nation or the people.

[NevaforLeadership]

10:29 AM on 02/21/2010

You need to learn about Wall Street and how Main Street would become Back Alley without Wall Street.