John Kay writing in the Financial Times, 22 October 2003 pointed out an interesting condition described by Economist John Kenneth Galbraith. The Bezzle. A tiny “embezzle” I suppose.
“John Kenneth Galbraith’s greatest contribution to economics is the concept of the bezzle, that increment to wealth that occurs during the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it. The gross national bezzle has never been larger than in the past decade.”
While John Kay is a very perceptive writer and Galbraith is a formidable academic, I think they may be missing an important point in all of this.
Kay’s idea in 2003 that “The gross national bezzle has never been larger than in the past decade” is always true. It does not matter at all when you say it because you will be right. So far, governments and people in general spend more time working the system than they do working their ideas, skills and strengths. In part because that works and there is no guarantee anything else will do so.
Governments are master of the bezzle. Many programs start out with the good ideas, but end up in a costly morass of errors, cost over-runs and unintended consequences. Based on the promised programs though, politicians may gain re-election or power before the duped citizens realize the cost. That magic interval that Galbraith talks about. Think spin. Think promises.
As with most things, and perhaps fortuitously, the seeds of destruction are built in to this form of endeavor. Listen to Galbraith’s idea from Chapter 8 Of “The Great Crash 1929”
“In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.”
Harder economic times make it more difficult for the perpetrator to survive. Bernie Madoff was brought down by a market fall. People who borrowed more than they could reasonably repay, failed. Future profligate governments will fall when they can no longer maintain the bezzle. When people stop believing the promises, governments disappear.
The question is, how long will it last? Or maybe better, “Can we stop?” Best question of all, “Must you participate?” Y0u can be more responsible and you can help them be more responsible. Pay attention to objective reality instead of spin. Learn to be a little skeptical. Learn critical thinking.
When there appears to be something for nothing in the transaction, or you cannot see why there is new wealth formed by implementing the idea, you should be afraid.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
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