Posted by: theoptimisticconservative | April 19, 2011

Think Big: It’s Our Only Option

As usual, I liked Kevin D. Williamson’s piece at NRO today on the real drivers of federal deficits (hint: not tax cuts, not wars, not bailouts).  Among several gems, he comes up with this one, on the effects of government control of economic sectors:

The only important products in the United States that do not get better and cheaper every year are K–12 education and health care, which are about 97 percent and 55 percent dominated by the government, respectively, and therefore have little consumer-price pressure.

I would have said health care was more like 75% dominated by the government, but the point is the same, and extremely well made.  He says this too, however:

A study from Credit Suisse puts the net value of all the financial assets in the world (excluding real estate) at about $80 trillion ($117 trillion in financial assets minus $37 trillion in household debt). Our unfunded entitlement liabilities are about $100 trillion. Given that they exceed world financial wealth, I suspect that those liabilities are not going to be met.

This is where I have to part company with him – and with, as far as I can tell, at least three quarters of the commentators who write about these things.  There’s an obvious reason to criticize his conclusion: current global wealth, tallied up in a snapshot of 2011, is not what we will have available in the future, when America’s unfunded obligations come due.  Those $100 trillion in unfunded entitlements will come due over time.  They are projected out for decades; we don’t have a $100 trillion bill coming due tomorrow.

But this factor isn’t my main reason for disagreement.  It does, however, highlight the basis for my rejection of the widespread, pessimistic conclusion that, basically, we’re doomed.

Before getting into that, let me clarify that I take the deficit problem seriously, and I don’t think we can postpone dealing with it.  Same goes for the unfunded entitlements problem.  Suppose, just for discussion purposes, that the $100 trillion facing us right now came due in increments of $1 trillion a year for the next century.  The government is already spending over $1 trillion more per year than it’s getting in tax revenues.  We obviously can’t handle another $1 trillion per year.  There’s no question this has to be dealt with – now.

And we do need to cut current discretionary spending and reform Social Security and Medicare.  We need to reform unearned benefits programs too: Medicaid, welfare, food stamps.  All these reform measures are indispensable.

But cutting expenditures is only half the equation.  If we only cut expenditures, we will be leaving ourselves inside a box of our own making – accepting a “pie” whose maximum size has been dictated to us by decades of government policies, and proposing only to cut everyone a smaller slice.

This is quite possibly the most stupid, shortsighted, inexcusable thing we could do, as we stand at the parting of the ways in 2011.  The world could have so much more wealth, in the next 50 years, than projected by the Credit Suisse study, if its people were allowed by the government policies on seven continents to produce and profit according to their interests and abilities.

Policies are holding people back in numerous ways, from the endless terrible tribal wars in Africa to the repressions of Islamism and sclerotic statism in much of Asia and Europe.  Consider the millions of young, able people living on government benefits in the Western nations.  Instead of producing, sustaining themselves, enriching their communities and nations, and – yes – paying taxes, they are idled resources.

Millions more are recently unemployed and looking for work – people who would resume their status as producers again tomorrow, if they had the chance.  Government policies bear a huge portion of the blame for putting them out of work; and they, again, are idled resources.

How many now are only marginally fit for productive work because they are graduates of the American public school system?  They are accomplished at regurgitating propaganda, but have not been trained to think critically, and have little experience with challenge, failure, and perseverance.  Too many younger Europeans, Canadians, Australians, etc fall into these categories as well.  Almost all young people blossom as producers and grow in sturdiness and character, if they are set the right example, given better principles, and required to perform.  But we have turned too many of them into underemployed resources.

How many people around the globe – some of whom are the unemployed, no-longer-looking-for-work in the US – would start small businesses and add to the sum total of productivity and wealth, if the obstacles of regulation and taxes were not so steep?  In how many nations would the economy take off like a rocket if real property laws were fair and better codified?  If bureaucratic corruption and sloth were reduced?

Granted, there is only so much we can affect outside our own borders.  But in terms of affecting foreign-government policies through our example, we are headed the wrong direction:  making it too expensive to do various kinds of business here, increasing the size of the entitlements state, and closing off economic sectors with regulation.

Consider that we would have enormous additions to our national wealth, kicking in with a vengeance 3-5 years from now, if we would simply drill for oil and gas where government decisions now prohibit doing so, improve our indigenous refining capacity, resume a friendly regulatory attitude toward coal, and allow the development of tar sands and shale oil.

The US has millions of acres of federal land that could be sold and put to productive use – and we could sell millions and still have millions left for conservation.  I’m not a dyed-in-the-wool libertarian in this regard; if it were up to me, I would continue to retain some lands under federal administration, and I wouldn’t sell off public land to foreign interests.  American buyers only (well, OK, maybe Canadians too), and I mean checking IDs and doing forensic investigations of business relationships.  But the point is that these lands are idled resources – or, in some cases, resources that can be idled at any time, on the whim of a federal judge and at the behest of activists.

It’s worth noting that there are tremendous tracts of productive land, all over the face of the earth, that have yet to be put under cultivation or set to organized human use.  Trillions in wealth is sitting unclaimed under our feet.

None of this means that we should have no regulation at all.  It is sophomoric to react as if that’s what I am proposing.  But one of the best resets we could give ourselves is eliminating the regulatory discretion of federal and state agencies.  Any form of regulation that will affect business costs, economic viability, and consumer prices – and virtually all of them do – should properly be imposed only if a majority in the legislature agrees, point by point and regulation by regulation.  This will make it harder to impose regulations, yes.  Exactly.

The ways in which regulatory clamps on productivity keep our resources idled pervade every facet of society and the economy.  We have got to start recognizing this regulatory straitjacket for what it is, and realize that the reason we don’t expect to have the $100 trillion we need over the next 70 years is that we insist on constraining ourselves by a network of rules that idle our resources.  (And, for that matter, divert them into compliance activities, which is an entire post of its own.)

Yes, reform entitlements.  That absolutely must be done.  We’ll be better off if our entitlements burden is whittled down as far as possible, and I don’t think cutting it by 90% is too much to shoot for.  But the way we get there, politically as well as practically, is by unleashing the productivity of the people and letting them decide what to do with their wealth.  A people that is providing very nicely for itself will not miss the $90 trillion the US federal government was never going to be able to “transfer” to it anyway.  And we’ll be better off for every foreign economy and every foreign citizen whose governments’ policies allow them to journey down the same path.

J.E. Dyer blogs at Hot Air’s Green Room and Commentary’s “contentions.” She writes a weekly column for Patheos.


Responses

  1. In essence, what you’re saying is that what we need is for the political Left to be neutered. Since those on the Left live and breathe politics and immerse themselves into the political realm at every conceivable opportunity (as opposed to the Right, which is less enamored with politics and generally lists other concerns ahead of politcs), this is a daunting task. The Left LOVES govt regulation and holds most of the levers that dictate it. It will take a full blown economic calamity (much bigger than in 2008) for the Left to lose it’s grip from its political power in my opinion. The rest of us will have to pry it out of their dead cold fingers I figure.

    • A good way of putting it, RE. You’re right, there is a big difference between left and right in how we see government and its importance to our lives. It’s not too much to say that many on the left DO “love” government.

  2. The increase of human productivity that correlates with the industrial revolution and the free market has produced the wealth that has enabled the leviathan state. In the feudal age, no matter how much the small states confiscated, there wasn’t enough wealth to support large, oppressive bureaucracies, finance wealth redistribution schemes and wage unimaginably destructive wars. The advent of the specialization of labor, the trade enabled by it and innovation in finance have created the pools of riches that despotisms of all stripes confiscate for their own purposes. Governments at all levels are basically gangs that extort wealth from the general population for distribution to their own membership, whose welfare is of utmost importance. At times circumstances might require that the government agency provide some form of benefit to their victims; a diploma, a stretch of asphalt pavement, an occupational license or a park but those are incidental to the primary objective, confiscation of wealth for the purposes of the members of the gang.

    • There’s much to what you say, cm. In earlier technological eras, it wasn’t possible for government to regulate and extort in the accomplished manner characteristic of it today.

      The understanding that government tended inevitably to get bigger and more activist, at the expense of the people, was one our Framers had. In terms of the abstract trend, they invoked ancient Athens as one of their chief examples. But even they probably didn’t envision the extent to which governments now can, in Jefferson’s words, break our legs and pick our pockets.

  3. The only things that don’t get better and cheaper???

    Not quite. Our biggest socialist outfit of all, the military, (not 97%, or 55%, but 100% dominated by government) sure don’t get cheaper by the year. Nor is it subject to any consumer price pressure whatsoever.

    You might have a point about healthcare inflation if you were able to show that the part of it which is outside the ambit of government and is entirely controlled by the private sector demonstrated lower inflation. It doesn’t. Anyone buying private health insurance, or privately paying for treatment knows the reality of what all objective studies show in bald figures. The facts are that healthcare inflation within the government controlled area is lower – in spite of the fact that the health-risk profile (older and poorer) of those dependent on government provision would make one assume that the contrary would be the case.

    To suggest that cutting the entitlements bill back 90% would solve our unemployment problem is risible. There are virtually no “entitlements” in sub-Saharan Africa – well known for headline making productivity and full employment. On the other hand, some nations with higher levels of entitlement than ours have lower unemployment (eg Australia and the Netherlands). The answer to this connundrum (as anyone who knows something about economics will tell you) is that the employment rate is governed by many complex and interacting factors. Some of these are cultural. Culturally, the US has an extremely high crime rate for a first-world nation. Tell us please what effect your simplistic recipe would have on our crime rate. (By the way, the police and correction system are part of the “socialist” state. Perhaps we could solve the employment situation by employing another million or so police-officers and starting a great public works programme building even more police stations and prisons)

    God help us (and our ex-patriate citizens and corporations) if the Europeans and our other partners in the OECD start “checking I.Ds.” to ensure that only their own citizens have title to assets situated in their countries. If the South Americans did likewise some of the biggest doner-corporations of the Republican party would go straight down the toilet (Think “bananas”).

    Sad to say it, but you are truely, utterly, clueless.

    • “Our biggest socialist outfit of all, the military, (not 97%, or 55%, but 100% dominated by government) sure don’t get cheaper by the year.”

      Factually incorrect as you ignore the ‘industrial’ part of the military/industrial complex. Factually incorrect as the US military’s effectiveness and level of performance, it’s “productivity” has greatly increased per dollar spent over the past 50 years.

      But focusing on absolutely necessary and budgetarily modest military expenditures while failing to offer any suggested corrective for the main drivers of our deficit is a standard tactic of the left.

      What’s driving the inflationary costs of Medicare and Medicaid is the exponentially increasing costs and declining cost to benefits ratio of care for the elderly, who are enjoying an increasingly longer life. ‘Bang for the buck’ declines, and costs exponentially increase as we try to extend both the length of life and health of the elderly.

      The alternative is rationed health care. Opt for rationed health care and the choice is then between our current private ‘you get what you can pay for’ or some form of bureaucratic death panels. Any other proposed ’causes’ of this issue are either driven by ignorance, willful obtuseness or agenda driven misinformation.

      What’s ‘risible’ is your stating that, “the employment rate is governed by many complex and interacting factors” while simultaneously trying to assert that Australia and the Netherlands lower unemployment rate and higher entitlements is ‘proof’ that lowering entitlements in the US won’t have an economically desirable impact.

      The high US crime rate is the result of lax social attitudes toward personal responsibility. 85% of criminal activity is committed by repeat offenders.

      Solution: target the violent felony category; three violent felony strikes and they’ve proven themselves to be incapable of civilized behavior, so they’ve ‘struck out’ and through their actions, forfeited their rights, consequence; a lobotomy, castration and street clean-up duty for the rest of their lives. Just a few sweeping the sidewalks in front of every McDonald’s in America and your ‘high crime rate’ will drop like a stone.

  4. J.E.,
    It is unfortunate to hear that you are truly, utterly, clueless. If only you had some exposure to the military, irrespective of how limited, and possibly some academic background in economics and/or political science; then you would be far better prepared to convey your point to an obviously superiorly informed individual such as Paulite who easily reduces your argument to muddled nonsense after his rigorous intellectual assault.

    Hopefully, you will do better on future topics of interest.

    • Hopefully you will……..

      p.s. Irony is much better applied with a scalpel than a shovel.

      • A broad brush is necessary when the area covered is so large.

      • On this point we are in agreement. However, when disposing of manure from the barn, I find a shovel a more useful tool.

    • I’ll try to work on that, Jim.

  5. “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” Winston Churchill

    The more socialistic the economy, the less productive it will be.

    The less socialistic the economy, the greater the inequities shall be.

    Given the conundrum, common sense dictates that we try to achieve a successful balance. But liberal immaturity protests against life essential unfairness and fails to appreciate the essential necessity for life’s unfairness. The ‘progressive spirit’ seeking the ‘utopia of ordered fairness’ opposes freedom because freedom inevitably results in failures and losers in life’s lottery, some of whom lose out and /or fail through no fault of their own.

    Unfortunately, to the degree that we try to ‘make’ life be fair, do we lessen individual freedoms.

    Commensurately, to the degree we reduce freedom, do we move closer to tyranny.

    There are two types of people in the world; those who support tyranny and those who oppose it. There are far more of the former than of the latter.

    “Men by their constitutions are naturally divided into two parties:
    1. Those who fear and distrust the people, and wish to draw all powers from them into the hands of the higher classes.
    2. Those who identify themselves with the people, have confidence in them, cherish and consider them as the most honest and safe, although not the most wise depository of the public interests.
    In every country these two parties exist, and in every one where they are free to think, speak, and write, they will declare themselves.”
    –Thomas Jefferson to Henry Lee, 1824.

  6. Paulite, I would just note that the military is a governmental responsibility actually defined in the constitution. Education and health care amazingly are not defined federal responsibilities, and health care is not a defined state responsibility either. Even so, I think you’d have to admit that with drones and all the other fancy tools the military have become over time much more efficient at its main job, harming enemies while minimizing harm to our own.

  7. Agreed, Margo (and GB, for that matter). I assume no honest person would suggest that the elements of the military are getting “cheaper,” in the sense of weaponry and personnel costing less per unit. (Some things do cost less now, in constant dollar terms, than they did 20 or 30 years ago, but the cost-suppressing effect of economies of scale can’t be counted on in military procurement.)

    But in terms of effectiveness per dollar spent, in constant-dollar terms, today’s US military is measurably better than the military of only 10 years ago. The military of 2011 is substantially better than the military of 1991, and hardly bears comparison to the military of 1971. The militaries of 2011 and 1941 are recognizable as the same type of organization only in the most general outline.

    The significant measure of military cost-effectiveness is, as Margo says, the extent to which the US achieves its objectives through military force while keeping casualties down. Casualties have plummeted, for our forces and civilians, in US miitary actions since the end of the Vietnam War, but our effectiveness in achieving combat objectives has steadily improved.

    Even our effectiveness in foreign occupations (where COIN is necessary) has improved, although I have serious reservations about the advisibility of making this our baseline model of warfare. Actually, let me rephrase that: I’m opposed to doing so. I accept that it can sometimes be necessary, but I disagree with those who say we should build our doctrine and forces around COIN, occupations, pacification, etc as our way of war.

    I think national policy should keep us out of such enterprises to the maximum extent possible. That said, however, the effectiveness of our training and weaponry for this military discipline has continued to improve. Our soldiers secure whatever territory they are asked to, and with far fewer casualties than we (or the local civilians) suffered in a similar effort in Vietnam.

    Today’s infantry soldier is, in terms of military effectiveness, worth three or four from the 1991 era. Today’s Aegis destroyer can, for some purposes, do what a formation of battleships used to do 60 years ago. US strike aircraft can literally attack five times the number of ground targets in a day that they could attack in 1991.

    Yet our national military spending remains historically low as a percentage of GDP (around 4% this year).

    That is not the case with K-12 education and health care. Health care quality has improved even during the period of heavy government intervention in it — the last 40 years — but its price to the consumer has been multiplied several times, in constant dollars. We don’t know what we would have to pay for it if it were not so heavily regulated, because it IS — and has been since the early 1970s. Whether you think regulation is the cause of the huge increase in the price of medical care or not, the unalterable fact is that regulation — which was intended principally to keep it “affordable” — has been fully consistent with that gigantic increase.

    K-12 education has grown dramatically more expensive, but has not improved at all, and indeed, in a number of ways, has become considerably worse. Education is the poster child for ruining a product and driving up its price with regulation, unionism, and lack of competition.


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