Free Markets, Free People

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.

~McQ

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14 Responses to Is prosperity about to become a thing of the past?

  • Yeeeeeup.  It’s the math, stupids.

  • 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.

    Uh, the answer is that in the 30s FDR created SS and in the 40s the Supreme Court destroyed the constitutional limits on the federal government. In the 60s LBJ pretty much finished the job.

    The Great Depression probably had more to do with it then WW2.

    • But we couldn’t afford it after the depression and, frankly, there was still opposition to doing all of that.  However, in the ’50s, with roaring prosperity … not so much.  There was a shift and we’ve never recovered from it (nor is it likely we will).

      • One thing I’d add to that: Like the airline industry that never really learned to deal with a competitive market from the 1980s onward, after fifty years of mercantilism, the American people (i.e., “Political Economy”) never made the transition to a competitive world economy that existed after the reemergence of Europe and Asia from the 1970s onward.
        I’d say that the entitlement mentality had it’s roots back in the 1890s with W.J. Bryant’s Populism, it got a kick in the pants in the 1930s, hit a long stride in the 50s and hit full bore in the 1960s and 70s.
        It can’t be cured now anymore short of full and utter collapse. Even that is the worry, that Americans, pussified and Oprahfied, would or would not set up a totalitarian dictator (as they are doing today).

    • The US was the “factory to the world” after WWII.  Almost of that was over sometime around the late 70′s or early 80′s.
      Unfortunately, we have unions who still think it’s the 50′s.  A regulatory government bureaucracy that thinks it’s the 70′s.

      Once I used to join in
      Every boy and girl was my friend.
      Now there’s revolution, but they don’t know
      What they’re fighting.
      Let us close out eyes;
      Outside their lives go on much faster.
      Oh, we won’t give in,
      We’ll keep living in the past.

      • We were factory to the World before WWII.  Actually possibly before WWI.
         
        The loss isn’t just from the Unions.  Unions were able to get as fat as they did for as long as they did because we use to defend domestic companies from non-reciprocal trade situations.  Starting the 60′s & 70′s, the government stopped doing that without notice.

      • We’re headed to being Aqualung.

  • We have to have a nice round of ‘it happened here’ to convince them it CAN happen here.
     
    but we’re all just crazy last century folks with outdated ways of thinking.

    • Well, we do have a significant number of folks who believe thinking rationally and objectively is soooo oppressive Western Culture.
      Thomas Sowell’s ‘Conflict of Visions’ is only the tip of an iceberg that notes not a difference of visions, but of totally different REALITIES.

  •  
    In a recent CBO report, the CBO says that the national debt is not sustainable.  It goes on to say the USA will eventually have to default, that the only question is when we will default and what liability (i.e., presumably which entitlement) will be the cause.   When he leaves office, Obama will go down in history as the President who accumulated more debt than all of the other Presidents combined.  Let us hope he does not go down in history as the President who resided in the White House when America defaulted on its debts.  Yet, the Democrats or Progressives consistently want to spend more and tax more.  Thank goodness for the Tea Party Conservatives.

  • And, of course, no one wants to face that fact, certainly not any politician.

    Actually, a few politicians, most notably our thug-in-chief, would love to be then when the wheels come off. What better way to declare martial law and make himself an absolute dictator rather than merely a proximate dictator?