Observations

The big thinkers -- without realizing it -- tried to understand the struggles between the power groups of their times. I think there are three main power groups – government, entrepreneurs, and the rest of the population.

The government should be the umpire, setting the rules of the game and making sure we respect them. It is difficult, however, to remain an impartial referee because of the pressure of the other two power groups. Rules become more complex. Bureaucracy increases to the point of becoming autocracy and despotism.

Entrepreneurs are the wealth generators. Creative, independently minded, they have the drive to achieve. They invent products. They manage or start new companies. They adjust to risk and hire people to help them. They are usually well educated and wealthy.

The third power group is the rest of the population. They depend on the other two groups for jobs and security. The strength, productiveness, and competitiveness of the country depend on this group.

Salaries in government are soaring, a sign our government is gaining too much power. The highest-paid federal employees are doing best of all on salary increases -- $100,000 or more up 46%, $150,000 or more up 119%, $170,000 or more up 93% (Source: USA Today, 2007-2009). This is a sign of the increased reach of the bureaucracy. It is becoming the strong player.

The risk for the economy is when one of the three groups becomes dominant. When this happens, the economy stagnates. The country has decided to let the government solve our problems, authorizing the deployment of an enormous amount of resources.

The outcome is a historic increase in their power, supposedly needed to solve our problems. In other words, government is changing from umpire to active problem solver. There is a lot on the government’s plate.

Shifts in population sentiment and faulty “rules of the game” are creating a new bubble. The bubble being inflated is government. The only valid lesson of history is that the dominant position of the government will cause the economy to grow slowly. Its message has important investment implications.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 by Timer Digest

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