Monday, November 19, 2012
Grim outlook for failing Western economies
In Europe, Britain and the USA
Many on the Left will finally have got the economy of their dreams – or, rather, the one they have always believed in. At last, we will be living with that fixed, unchanging pie which must be divided up “fairly” if social justice is to be achieved. Instead of a dynamic, growing pot of wealth and ever-increasing resources, which can enable larger and larger proportions of the population to become prosperous without taking anything away from any other group, there will indeed be an absolute limit on the amount of capital circulating within the society.
The only decisions to be made will involve how that given, unalterable sum is to be shared out – and those judgments will, of course, have to be made by the state since there will be no dynamic economic force outside of government to enter the equation. Wealth distribution will be the principal – virtually the only – significant function of political life. Is this Left-wing heaven?
Well, not quite. The total absence of economic growth would mean that the limitations on that distribution would be so severe as to require draconian legal enforcement: rationing, limits on the amount of currency that can be taken abroad, import restrictions and the kinds of penalties for economic crimes (undercutting, or “black market” selling practices) which have been unknown in the West since the end of the Second World War.
In this dystopian future there would have to be permanent austerity programmes. This would not only mean cutting government spending, which is what “austerity” means now, but the real kind: genuine falls in the standard of living of most working people, caused not just by frozen wages and the collapse in the value of savings (due to repeated bouts of money-printing), but also by the shortages of goods that will result from lack of investment and business expansion, not to mention the absence of cheaper goods from abroad due to import controls.
And it is not just day-to-day life that would be affected by the absence of growth in the economy. In the longer term, we can say good-bye to the technological innovations which have been spurred by competitive entrepreneurial activity, the medical advances funded by investment which an expanding economy can afford, and most poignantly perhaps, the social mobility that is made possible by increasing the reach of prosperity so that it includes ever-growing numbers of people. In short, almost everything we have come to understand as progress. Farewell to all that. But this is not the end of it. When the economy of a country is dead, and its political life is consumed by artificial mechanisms of forced distribution, its wealth does not remain static: it actually contracts and diminishes in value. If capital cannot grow – if there is no possibility of it growing – it becomes worthless in international exchange. This is what happened to the currencies of the Eastern bloc: they became phoney constructs with no value outside their own closed, recycled system.
When Germany was reunified, the Western half, in an act of almost superhuman political goodwill, arbitrarily declared the currency of the Eastern half to be equal in value to that of its own hugely successful one. The exercise nearly bankrupted the country, so great was the disparity between the vital, expanding Deutschemark and the risibly meaningless Ostmark which, like the Soviet ruble, had no economic legitimacy in the outside world.
At least then, there was a thriving West that could rescue the peoples of the East from the endless poverty of economies that were forbidden to grow by ideological edict. It remains to be seen what the consequences will be of the whole of the West, America included, falling into the economic black hole of permanent no-growth. Presumably, it will eventually have to move towards precisely the social and political structures that the East employed. As the fixed pot of national wealth loses ever more value, and resources shrink, the measures to enforce “fair” distribution must become more totalitarian: there will have to be confiscatory taxation on assets and property, collectivisation of the production of goods, and directed labour.
Democratic socialism with its “soft redistribution” and exponential growth of government spending will have paved the way for the hard redistribution of diminished resources under economic dictatorship. You think this sounds fanciful? It is just the logical conclusion of what will seem like enlightened social policy in a zero-growth society where hardship will need to be minimised by rigorously enforced equality. Then what? The rioting we see now in Italy and Greece – countries that had to have their democratic governments surgically removed in order to impose the uniform levels of poverty that are made necessary by dead economies – will spread throughout the West, and have to be contained by hard-fisted governments with or without democratic mandates. Political parties of all complexions talk of “balanced solutions”, which they think will sound more politically palatable than drastic cuts in public spending: tax rises on “the better-off” (the only people in a position to create real wealth) are put on the moral scale alongside “welfare cuts” on the unproductive.
This is not even a recipe for standing still: tax rises prevent growth and job creation, as well as reducing tax revenue. It is a formula for permanent decline in the private sector and endless austerity in the public one. But reduced government spending accompanied by tax cuts (particularly on employment – what the Americans call “payroll taxes”) could stimulate the growth of new wealth and begin a recovery. Most politicians on the Right understand this. They have about five minutes left to make the argument for it.
Will America be killed by its own internal parasites?
No one understood the dynamics of aging societies approaching decrepitude better than Mancur Olson, an economist who taught at the University of Maryland until his death in 1998. Olson’s crowning achievement was a book published in 1982 titled, “The Rise and Decline of Nations.” Olson argued that the proliferation of interest groups (collusions or distributional coalitions, in his terms) eventually spells doom for the societies they inhabit. And proliferate they have, from 6,000 in 1959 to 22,000 at the beginning of the 21st century, according to the Encyclopedia of Associations. Like it or not, every man, woman, and child in the country is represented by an interest group.
But when we say “interest group,” what exactly do we mean? America’s master political thinker, James Madison, said it best with his definition of “faction” in Federalist 10, as comprising “a number of citizens, whether amounting to a minority or majority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community” (italics added). So much for our contemporary, naïve notions about how factions (interest groups) proclaim to represent some greater good.
It gets worse, especially considering three additional developments. First, America’s mammoth federal government constitutes an interest group itself, which means it does all the things other public and private groups do to protect itself. Second, about half of the population receives some form of aid from the federal government, according to the Heritage Foundation’s 2012 Index of Dependence on Government, and these recipients constitute perhaps the most behemoth group of them all. Third, close to one-half of the entire population does not pay federal-income taxes, a figure that climbed from 12 percent in 1969 to 34.1 percent at the beginning of the Bush administration to its current figure as President Obama starts his second term. The question is: What does all this mean for the destiny of America?
Prepare yourself for some very bad news. As societies age, they “tend to accumulate more collusions and organizations for collective action over time,” which in normal speak means that societies become infested with interest groups just like arteries become more rigid and clogged with body gunk as you get older—a phenomenon Jonathan Rauch referred to as “Demosclerosis.” Further, groups “reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.” Example: anyone read the healthcare bill lately? And the thousands of regulations in existence and forthcoming? And consider its huge increased costs?
The keystone of this argument is a passage that is terrifying in its implications and is worth quoting in full: “The typical organization for collective action [interest group] within a society will … have little or no incentive to make any significant sacrifices in the interest of the society” and “there is ... no constraint on the social cost such an organization will find it expedient to impose on the society in the course of obtaining a larger share of the social output for itself”. This means nothing less than it says: a group will kill its host, the American republic in this case, before relinquishing even a modicum of benefits for itself.
Nations die this way, empires collapse, societies atrophy, and countries implode (like the old USSR) or are conquered from without. In the United States, this phenomenon cannot be blamed exclusively on Democrats or Republicans; both parties represent coalitions of groups that all want something from the government. Indeed, if there is any difference between Republicans and Democrats in this regard it is that President Obama has accelerated this process over the last four years. But institutionalized selfishness was a going concern before he came along.
It’s Economic Growth, Not Redistribution, that Lifts Everyone, Including the Poor
Stephen Moore and Julian L. Simon note in their underappreciated work, It’s Getting Better All the Time: 100 Greatest Trends of the Last 100 Years, that in the last century,1900 to 2000, real per capita GDP in America grew by nearly 7 times, meaning the American standard of living grew by that much as well. The authors explain,
“It is hard for us to imagine, for example, that in 1900 less than one in five homes had running water, flush toilets, a vacuum cleaner, or gas or electric heat. As of 1950 fewer than 20 percent of homes had air conditioning, a dishwasher, or a microwave oven. Today between 80 and 100 percent of American homes have all of these modern conveniences.
Indeed, in 1900 only 2% of homes in America enjoyed electricity. As Cox and Alm note further in their insightful Myths of Rich and Poor, “Homes aren’t just larger. They’re also much more likely to be equipped with central air conditioning, decks and patios, swimming pools, hot tubs, ceiling fans, and built in kitchen appliances. Fewer than half of the homes built in 1970 had two or more bathrooms; by 1997, 9 out of 10 did.”
Such economic growth produced dramatic improvements in personal health as well. Throughout most of human history, a typical lifespan was 25 to 30 years, as Moore and Simon report. But “from the mid-18th century to today, life spans in the advanced countries jumped from less than 30 years to about 75 years.” Average life expectancy in the U.S. has grown by more than 50% since 1900. Infant mortality declined from 1 in 10 back then to 1 in 150 today. Children under 15 are at least 10 times less likely to die, as one in four did during the 19th century, with their death rate reduced by 95%. The maternal death rate from pregnancy and childbirth was also 100 times greater back then than today.
Moore and Simon report, “Just three infectious diseases – tuberculosis, pneumonia, and diarrhea – accounted for almost half of all deaths in 1900.” Today, we have virtually eliminated or drastically reduced these and other scourges of infectious disease that have killed or crippled billions throughout human history, such as typhoid fever, cholera, typhus, plague, smallpox, diphtheria, polio, influenza, bronchitis, whooping cough, malaria, and others. Besides the advances in the development and application of modern health sciences, this has resulted from the drastic reduction in filthy and unsanitary living conditions that economic growth has made possible as well. More recently, great progress is being made against heart disease and cancer.
Also greatly contributing to the well-being of working people, the middle class, and the poor in America has been the dramatically declining cost of food resulting from economic growth and soaring productivity in agriculture. As Moore and Simon report, “Americans devoted almost 50 percent of their incomes to putting food on the table in the early 1900s compared with 10 percent in the late 1900s.” While most of human history has involved a struggle against starvation, today in America the battle is against obesity, even more so among the poor. Moore and Simon quote Robert Rector of the Heritage Foundation, “The average consumption of protein, minerals, and vitamins is virtually the same for poor and middle income children, and in most cases is well above recommended norms for all children. Most poor children today are in fact overnourished.” That cited data comes from the U.S. Census Bureau. As a result, poor children in America today “grow up to be about 1 inch taller and 10 pounds heavier than the GIs who stormed the beaches of Normandy in World War II.”
That has resulted from a U.S. agricultural sector that required 75% of all American workers in 1800, 40% in 1900, and just 2.5% today, to “grow more than enough food for the entire nation and then enough to make the United States the world’s breadbasket.” Indeed, today, “The United States feeds three times as many people with one-third as many total farmers on one-third less farmland than in 1900,” in the process producing “almost 25 percent of the world’s food.”
Moreover, it is economic growth that has provided the resources enabling us to dramatically reduce pollution and improve the environment, without trashing our standard of living. Moore and Simon write that at the beginning of the last century,
“Industrial cities typically were enveloped in clouds of black soot and smoke. At this stage of the industrial revolution, factories belched poisons into the air—and this was proudly regarded as a sign of prosperity and progress. Streets were smelly and garbage-filled before the era of modern sewage systems and plumbing.”
Such sustained, rapid economic growth is the ultimate solution to poverty. It was economic growth in the last century that reduced U.S. poverty from roughly 50% in 1900, and 30% in 1950, to 12.1% in 1969. Among blacks, poverty was reduced in the 20th century from 3 in 4 to 1 in 4 through economic growth. Child poverty of 40% in the early 1950s was also reduced by half. It was economic growth that made the elimination of child labor possible as well.
The living standards of the poor in America today are equivalent to the living standards of the middle class 35 years ago, if not the middle class in Europe today. With sustained, vigorous economic growth, 35 years from now the lowest income Americans will live at least as well as the middle class of today.
If real compensation growth for the poor can be sustained at just 2% a year, after just 20 years their real incomes will increase by 50%, and after 40 years their incomes will more than double. If pro-growth economic policies could raise that real compensation growth to 3% a year, after just 20 years their real incomes would double, and after 40 years it would triple. That is the most effective anti-poverty program possible.
Just imagine what 2100 will look like if we can keep this economic growth going. Physicist Michio Kaku gave us an indication of that in a March, 2012 interview in the Wall Street Journal, explaining, “Every 18 months, computer power doubles, so in eight years, a microchip will cost only a penny. Instead of one chip inside a desk top, we’ll have millions of chips in all of our possessions: furniture, cars, appliances, clothes. Chips will be so ubiquitious that we won’t say the word ‘computer.’”
Kaku continued, “To comprehend the world we’re entering, consider another word that will disappear soon: ‘tumor.’ We will have DNA chips inside our toilet, which will sample some of our blood and urine and tell us if we have cancer maybe 10 years before a tumor forms.” He adds, “When you need to see a doctor, you’ll talk to a wall in your home, and an animated artificially intelligent doctor will appear. You’ll scan your body with a hand-held MRI machine, the ‘Robodoc’ will analyze the results, and you’ll receive a diagnosis that is 99% accurate.”
Kaku further projected, “In this ‘augmented reality,’…the Internet will be in your contact lens. You will blink, and you will go online. That will change everything.” Kaku concludes, “If you could meet your grandkids as elderly citizens in the year 2100, you would view them as being, basically, Greek gods.”
Just maintaining the real, long term, U.S.economic growth rate of 3.2% from 1947 to 2007 would have doubled our GDP of today 4 times, meaning a GDP 16 times as large as today, In that future, the poor of the time will have the standard of living of the American middle class in 2065. We will enjoy peace in our time, as the American military will be so advanced and dominant that no one else will even try to spend enough on their military to even threaten or challenge us. A world of free trade resulting from this Pax Americana will spread prosperity throughout the now third world. If we can gain some sense and reform and modernize our entitlement programs, and restrain unnecessary spending, America’s national debt will be a tiny fraction of our GDP.
For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena . GUN WATCH is now put together by Dean Weingarten.
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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)
Posted by JR at 12:04 AM