Zombies Everywhere — Zombies Are Not Necessarily Good or Bad

Why do empires collapse? And why do economies decay?

Keeping it all very simple…

A society prospers or declines depending on how much of its vitality is engaged in providing useful goods and services…

…compared to how much is spent grifting…stealing…politicking…and wasting time and savings on zombie companies, wars, and dead-end investments.

And appearances can be misleading…

Complete disaster

In the early days of the Third Reich, for example, many observers thought the German economy would be a good model for the rest of the world.

Coming out of a catastrophic hyperinflation in the early 1920s…and after dragging the burden of reparations like a ball and chain…Germany nevertheless rebounded smartly in the 1930s.

Suddenly everyone was working, and every industrial chimney was belching smoke.

But it was a fraud. The German economy had been hijacked by warmongers — drafted in to support Hitler’s fantasies of world domination.

Instead of making passenger cars, it was tanks that rolled off the assembly lines. Instead of making commercial airliners, they built fighter jets and bombers. Instead of growing wheat and vegetables for their families…German labourers were needed on the Eastern Front!

In the 1940s, when the unemployment rate in Nazi Germany went to zero…workers were forcibly recruited from France and Poland. By then, Germany was ‘investing’ more than half its entire GDP in the war effort.

We all know what these ‘investments’ produced — a complete disaster for Germany as well as her neighbours.

Impaired judgment

As a general rule, the more of a society’s energy is ‘invested’ by government (rather than by private investors with a profit motive), the lower the return.

Government ‘investments’ are more likely to be either disguised transfer payments…or worse, megalomaniacal crackpottery. In either case, the real return on investment is typically below zero.

Over the last two weeks, we’ve noticed that many private investments can also be unproductive. When fake money is handed out like free booze, it’s bound to lead to some impaired judgment.

At its recent peak, the cryptocurrency market was worth US$2.4 trillion. And of the US’ top 1,500 companies, 200 of them — with a combined market value of US$2.3 trillion — haven’t made a profit in three years.

Cryptos aren’t designed to provide products or services. And money-losing companies subtract wealth; they don’t add it.

Together, that is nearly US$5 trillion of zombie capital. (Much of it will disappear in the next crash.)

Connecting the dots

But how can we connect these dots? The misguided investments…the idle minds…the goofball spending?

For the first time in the history of economics — you are the first to see it, dear reader — we unveil our Zombie Index [ZI].

Remember, when people can work, save, invest, and innovate — without interference — they prosper.

But when people are distracted, detained, bamboozled, or otherwise prevented from carrying on with their projects, the society gets poorer.

And now, our impression is that the zombies are many…they are breeding like rabbits. We think that explains why US GDP growth rates are now at their lowest levels since the Great Depression.

Let us see if our hypothesis is true.

The US labour force participation rate hit 67% in 2000. Now it’s down to below 62%. That’s about seven million more zombies right there.

This year, there are about 260 million adults in the US. But, according to the Bureau of Labor Statistics, only 151 million are ‘employed’. That leaves 109 million zombies.

An important nuance: There is nothing wrong, morally, with being a zombie. Old people. Sick people. Children. Prisoners. Malingerers…lazy bums…and crypto day traders.

Zombies are not necessarily good or bad. But they must eat. And since they do not produce, they must eat what others produce.

We hasten to let ourselves…and many dear readers off the hook…adding that a retired person, living off his own accumulated savings, is not a zombie at all. He earned the money…and merely delayed spending it.

But that kind of fine tuning of our Zombie Index will have to wait for someone with more than half an hour to think about it.

Grossissimo modo, our Zombie Index tells us what percentage of the population is producing wealth…and what part is consuming it. Generally, (this is in no way to be confused with science) the more zombies you have…the lower the wealth of the society.

Government zombies

But wait…

What about all the people employed by the government? Some, such as firefighters and teachers, do useful work that we would gladly pay for.

Most do not.

Optimistically, let us say that 80% of government employees are ‘zombies’. In 2020, there were about 22.5 million on state, local, and federal government payrolls.

So we take 80% of these ‘employed’ people — about 18 million — and move them over to the zombie side of the street.

It should be added that there are millions more who are honestly employed in the private sector…but who still do zombie work. Accountants preparing tax returns, lawyers…lobbyists…diversity commissars…and millions of others…do not really add to our wealth. But that calculation is far beyond the scope of this little reverie.

So is the fact that many people — in and out of government — not only fail to add to output, they actively try to reduce it…by imposing regulations, paperwork, skullduggery, and claptrappery — such as the Federal Reserve’s zero interest rates.

As they say in France…‘Half the population works; the other half tries to stop them.’

Final tally

So, putting the numbers together…out of 332 million people in the US, approximately 199 million (109 million unemployed plus 18 million ‘zombie’ government employees plus 72 million non-adults = 199 million) — 60% of all Americans — are zombified.

To these simple numbers we add another important measure.

In 2000, state, local, and federal governments together — the biggest source of zombieism — spent an amount equal to 34% of GDP, or about one out of every three dollars.

Today, the number is 44%. That represents a huge gain for the zombies. And it completes our Zombie Index as follows…

We add the two ratios together — 60% and 44% — and divide by two, giving us our final Zombie Index reading of 52%…or just over the halfway mark.

The French are right! Half the people work, the other half get in their way.

For reference, the Zombie Index for the year 2000 would have been about 45%, which confirms our impression: The zombies are multiplying.

Regards,

Dan Denning Signature

Bill Bonner,
For The Rum Rebellion

PS: The Rum Rebellion is a fantastic place to start your investment journey. We talk about the big trends driving the Australian Economy. Learn all about it here.


Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries.

A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally.

With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.

Bill has been a weekly contributor to The Rum Rebellion.


The Rum Rebellion