Is prosperity about to become a thing of the past?
You tell me. Robert Samuelson:
The presumption of strong economic growth supported the spirit and organizational structures of postwar America.
Everyday life was transformed. Credit cards, home equity loans, 30-year mortgages, student loans and long-term auto loans (more than 2 years) became common. In 1955, household debt was 49 percent of Americans’ disposable income; by 2007, it was 137 percent. Government moved from the military-industrial complex to the welfare state. In 1955, defense spending was 62 percent of federal outlays, and spending on “human resources” (the welfare state) was 22 percent. By 2012, the figures were reversed; welfare was 66 percent, defense 19 percent. Medicare, Medicaid, food stamps, Pell grants and Social Security’s disability program are all postwar creations.
Slow economic growth now imperils this postwar order. Credit standards have tightened, and more Americans are leery of borrowing. Government spending — boosted by an aging population eligible for Social Security and Medicare — has outrun our willingness to be taxed. The mismatch is the basic cause of “structural” budget deficits and, by extension, today’s strife over the debt ceiling and the government “shutdown.”
You know, we keep saying this is “unsustainable”, yet we keep refusing to face the problem head on and do anything about it.
This little bit of political theater isn’t going to change that and we all know it. The last paragraph identifies the problem. What apparently isn’t understood, though, is government is not the solution. And big government simply makes the problem worse because it sucks down more and more of the GDP.
The solution is both painful and difficult. And, of course, no one wants to face that fact, certainly not any politician.
So the can gets kicked down the road – as you know it will before any of this ever begins. None of the politicians want to be “the ones” in power when all of this collapses.
For whatever reason, after WWII, we decided to change the purpose of government from “night watchman” to “Santa Claus”. Maybe it was the horror of war. Maybe it was the huge surge in post-war prosperity, but like the story of the goose that laid the golden eggs, we’re about to kill the goose.
So what does that mean?
As economist Stephen D. King writes in his book “When the Money Runs Out: The End of Western Affluence”:
“Our societies are not geared for a world of very low growth. Our attachment to the Enlightenment idea of ongoing progress — a reflection of persistent postwar economic success — has left us with little knowledge or understanding of worlds in which rising prosperity is no longer guaranteed.”
And that fact alone makes any recovery from this mess even less likely. We’ve been able to stumble along and put off the inevitable because we have managed to have “persistent postwar economic success”. But if you look at economic projections for the future, they don’t show the historical growth that America has enjoyed since the ’50s. They show European type “growth”. They show slow growth as the “new normal”. Why?
Lindsey attributes U.S. economic growth to four factors: (a) greater labor-force participation, mainly by women; (b) better-educated workers, as reflected in increased high-school and college graduation rates; (c) more invested capital per worker (that’s machines and computers); and (d) technological and organizational innovation. The trouble, he writes, is that “all growth components have fallen off simultaneously.”
As it seems now, Greece is our future. Nothing, politically, is going to be done about it, despite the current political theater. Neither the politicians nor the citizens want to face reality. And as it is shaping up, it isn’t a matter of “if”, but “when” it all folds in on itself like a wet cardboard box.