We're still wearing the boots we bought in Argentina. We think they give us a certain dash...a romantic air of gigolo from the pampas. Most likely, here in London, they merely look ridiculous. But they are helping us to
focus: Why are some places so expensive, and others so cheap? Why do people prefer the expensive places over cheap ones? Which are the better places for your money...the places where people are rich and decadent? Or those that are cheap and growing? Why would people want to live in a cold, rainy city where you can't find a parking place and a glass of wine cost $8, when they could live in a warm, sunny place at 1/10th the cost and park anywhere they like?

In America, household earnings declined last year. But the average household nevertheless spent more money and went further into debt. It got poorer, in other words. We do not have equivalent figures for England, but we imagine they are similar.

In India, China, and Argentina, on the other hand, real earnings rose. The Financial Times tells us that wages in India are rising faster than anywhere in the world - up 7.3% in real terms last year. In China, wages rose at a 4.8% annual rate.

Every empire needs a competitive advantage; an edge that allows it to become the Alpha Nation.

The Anglo-Saxon empire's advantage was its ability to make things. In the 18th century, the Industrial Revolution began in England and then, almost at the same time, took root in New England. For nearly 200 years, English and American factories could turn out more and better products than anywhere else on the planet. GDP, wages, productivity, and real wealth raced ahead the rest of the world. London and New York became two of the most sophisticated, and expensive cities on earth.

Germany industrialized later, but went about it with typical Teuton energy. By the end of the 19th century, she was growing faster than Britain, and her output actually surpassed the United Kingdom in 1910. Then, in 1914, Germany challenged the world's leading empire, Britain, militarily. America came to Britain's aid with massive amounts of money and war supplies. In World War II, the Anglo-Saxon empire was challenged, once more by the Germans, who had not given up, and by a new latecomer to industrialization, Japan.

And again, the balance of power was titled, not by the superior fighting skills of American soldiers (who lacked the experience and toughness of the Huns) nor by the superior quality of their arms (the American tanks, for example, could never match those of Germany or the Soviet Union), but by America's ability to produce more tanks, guns, ships and ammunition than all the other combatants combined.

And one other thing: America had cheap Texas oil. Neither Germany nor Japan ever had decent access petroleum.

How things have changed! Texas oil fields peaked out in the 1970s. Coincidentally, so did America's competitiveness in factory output. The balance of trade turned negative in the 1970s, and by the time Alan Greenspan arrived at the Fed in 1987, the rest of the world owned more U.S. assets than Americans owned overseas. England's North Sea oil production has peaked out, too. Now, the Anglo-Saxon empire has lost its edge. It has no money, no oil, and few competitive factories. But it still has its rich imperial cities - like Samarkand and Baghdad, waiting for the Mongol invasion.

As the 20th century progressed, another thing happened: American capitalism passed out of the hands of serious capitalists and into the hands of managers, caretakers, manipulators and middlemen. In effect, it has been collectivized...owned by millions of small shareholders, and directed by employee functionaries. Now, more than half of all stocks in the United States are owned by a group of 100 large money managers. And how many corporations do capitalists themselves run? Warren Buffett holds a light, but firm, hand on his enterprises. Bill Gates is unquestionably at the helm of Microsoft. But most large companies have fallen into the grip of professional CEOs, often celebrity managers who write popular books, pay themselves absurdly grand salaries, and drive their businesses into the ground.

A real capitalist can take a long-term view of things. He usually has enough money of his own already. His goal is to build a good business that can endure. He can build a factory, knowing that the return on investment may not come for many years. He is usually indifferent to quarterly profit reports. In fact, he may be willing to invest vast sums for a return far in the future, or hedge against the risk of loss by withdrawing from lines of business that are currently very profitable, things that few professional CEOs or money managers would tolerate.

Still, ask the people in the business class lounge and you'll find they want to be just like Lee Iacocco or Jack Welch; they want to live in New York or London

*** Ooh la la..."Slowing is seen in housing prices, " says the New York Times. Elsewhere, from CNN, comes news that "Manhattan Luxury Apartments Take a Hit."

First the old world...then the new. Prices in London have been slipping for months. Now they are softening in New York.

Bonds, too, are sinking...gently, so far. But lower bond prices mean higher mortgage rates. And higher mortgage rates put pressure on real estate prices.

*** Harper's Weekly reports that George W. Bush's new Supreme Court nominee once said the president was "brilliant." We know nothing of the woman, but we already have doubts: Either her honesty or her judgment must be defective.

We are not saying that there is anything wrong with G.W. Bush. The liberal press is hammering the poor man for his "mistakes" in Iraq and Louisiana. Now, he's sure to take a beating for nominating a crony to the Supreme Court rather than a proven judge. They will say he has made another "mistake."

We once spent three long and tedious years at Georgetown Law School. What we learned from the experience was that a good judge is one who agrees with you persuasively. A bad judge is one who comes to the wrong conclusion - that is, one who thinks you are wrong. Franklin Roosevelt tried to pack the court with stooges who would do what he wanted; is it any surprise that G.W. Bush does the same thing?

*** In today's paper is the story of a bidding war for an ordinary-looking house in a seaside town in North Cornwall. The house next door sold in the 1960s for about 7,000 pounds. Yesterday, The Scotsman reports that the neighboring row house brought 2.2 million pounds (about $3 million) at auction.

Also in The Scotsman is the story of how, "Jack Vettriano, Scotland's most successful artist, painted some of his most famous pictures." Vettriano's painting, The Singing Butler, sold for almost $1.5 million in April 2004, "breaking all records for a Scottish painting." How did he paint it? He copied it, "from a 16.99 pound book of photographs, with only minor changes to clothing."

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.