Monday, March 18, 2013

How did we get in this handbasket, anyway?

I'm sure many readers know the old expression, 'Going to hell in a handbasket'.  It's a pretty good description of our economic situation right now - not just here in the USA, but worldwide.

Following my posts about the economy and the Cyprus crisis on Saturday and Sunday, I've received a few questions from readers via e-mail.  Here are a few of them, paraphrased and edited to remove profanity.

  • "How did we get into this mess?"
  • "Why won't politicians do anything to fix it?"
  • "Surely the electorate won't stand for this?"


I'm afraid all my questioners have ignored the fundamentals of the situation.  Let me spell it out a bit more clearly.  I'll have to begin by laying out some historical background, then illustrating how difficult it is to change the situation that's been produced as a result of that background.  (If you already know the history, please bear with me while I discuss it for the benefit of those that don't.)

Over the past several decades, ever since President Lyndon B. Johnson's 'War On Poverty' and 'Great Society', the US government has engaged in a deliberate, naked, cynical attempt to reshape society by transferring income and assets from the richer sections of society to the poorer ones.  It's subsidized housing, education, welfare, and many other elements of everyday life.  Today, those programs have expanded out of all recognition.  Subsidized cellphones, benefits extended to illegal aliens, SNAP (the so-called 'food stamp program') expanded to cater for those who would never before have qualified for it . . . the list is almost literally endless.  Every time I think I've discovered all the programs like that, I find another one!  I've no idea how many there really are.

Furthermore, the federal government has undermined the independence of state and local governments by distributing federal funds with riders governing how they may be used, or setting conditions that the states have to fulfil in order to go on receiving those funds.  Inevitably, state and local governments have gone along, and are now addicted to such income.  They can no longer do without it.

In addition, US government departments have shamelessly collaborated with pressure groups to ensure that a liberal, partisan agenda is foisted on the nation despite any and all scientific debate or evidence to the contrary.  This has greatly increased regulation of and costs imposed upon our economy.  Examples include:

  • the EPA's funding of pressure groups that sue it to force it to impose draconian environmental standards;
  • restrictions on the exploitation of natural resources on government lands due to environmentalist and conservationist pressures (see, for example, the well-known cases of the spotted owl and Delta smelt);
  • forcing commerce and industry to adopt a so-called 'green' agenda when many of the required technologies and solutions that would enable such an agenda don't yet exist.  The cellulositic ethanol debacle is a prime example of such folly.  As the Wall Street Journal summarized: "Congress subsidized a product that didn't exist, mandated its purchase though it still didn't exist, is punishing oil companies for not buying the product that doesn't exist, and is now doubling down on the subsidies in the hope that someday it might exist. We'd call this the march of folly, but that's unfair to fools."

I could cite many more such examples, but why bother?  It'd only raise my blood pressure.

All of these policies, programs and entitlements have to be paid for, as do the wars in which this country has indulged.  (The wars in Iraq and Afghanistan are estimated to have cost several trillion dollars so far.)  However, no increased taxation has been levied to pay for these costs.  They've all been financed by deficit spending.  Unfortunately, these expenditures have gone on for so long that they've produced dependencies in individuals, and in our economy as a whole.  If any cuts to defense expenditure are proposed, companies and pressure groups howl to the heavens that the economy will be decimated by such cuts, and we can't afford them.  If entitlement programs are threatened, left-wing and progressive movements scream that such cuts would 'benefit the rich', or are 'racist' because they'd affect minority groups more than the rest of the population.

In response, the Democratic Party and the Obama administration have tried repeatedly to increase taxes on the 'rich' (which now includes the upper middle class, according to their definition).  They don't want to decrease expenditure - they want to increase tax revenues to pay for that expenditure, and make it a permanent feature of the US political, social and economic landscape.  Some Republicans agree with them.  There are relatively few moderate and conservative Representatives and Senators who are opposed to continuing such expenditure, and want to reduce it to what we can afford, without imposing additional tax burdens on the economy.

Our tax situation is parlous, to put it mildly.  US corporate taxes are already the highest in the developed world.  Furthermore, our so-called 'rich' already pay far more than half of all personal income taxes.  In fact, in 2011 46% of US households paid no income tax at all.  (We may safely assume that most of the latter households are also among the primary beneficiaries of the programs and entitlement subsidies referred to above.)  In short, the only way to increase tax revenues to pay for government expenditure is to increase taxes on those individuals and corporations already heavily burdened by taxes.  It's no wonder that some are muttering about 'going Galt' in response.  I sympathize!  If I were in their shoes, I'd be considering it too!

That's the background.  Now, why is it so difficult to change things?  How do we get out of this handbasket, now that we're in it?

The answer is, it's going to be very difficult.  It may, by now, be impossible.  Here's why.

Look at the electoral map after President Obama's victory in 2012.  This graphic is courtesy of the Washington Post.

As UrbanCincy pointed out:

Perhaps unsurprisingly, cities appeared to deliver the victory of a second term for President Obama this election season. According to Edison Research, President Obama earned approximately 69.4% of the vote in cities with more than 500,000 people, and 58.4% of the vote in cities with 50,000 to 500,000 people.

Furthermore, with the exception of Jacksonville and Salt Lake City’s home counties, President Obama won the plurality of votes in every major American city.

There's more at the link.

The Atlantic also noted that President Obama won the support of most of the richest counties in America, as well as the college-educated and the unemployed.  The former constituencies are those most likely to admire and support the European 'welfare state' model, where cradle-to-grave care is provided to citizens by the state, paid for by redistributionist taxation policies and rates.  The latter constituency is, of course, comprised largely of those who benefit most from government handouts, and who are therefore likely to support the candidate(s) and political party(ies) that promise to continue, and even increase, such policies.

This overwhelming urban and liberal support, largely from those parts of society that benefit most from redistributionist policies and programs, is why we're going to find it so difficult - if not impossible - to change things in the short term.  Those who 'feed off the government teat' aren't contributors to our economy at all - they're consumers.  Those of us who do contribute, and pay taxes, are effectively funding their lifestyles.  We're filling the coffers.  They're draining them.

Right now, the 'drainers' are concentrated in urban areas, while the 'fillers' are more widely scattered.  The 'drainers' form geographically and economically cohesive, easily-reached centers of political mass, which President Obama and the Democratic Party have exploited to cement their hold on power at present.  Unless and until we can break that stranglehold - unless and until we can stop the 'drainers' from insisting that the 'fillers' keep on filling the coffers for them - we're screwed.

The same 'tyranny of the majority' applies to issues such as gun control.  Those urban enclaves don't give a damn about the constitution, or the rights of anyone except themselves.  Daniel Greenfield has pointed out, quite accurately, that the problem isn't gun control at all.

The murderers of tomorrow will not be found wearing orange vests at your local sporting goods store. They won't have NRA memberships or trophies on their walls.

You won't find them in America. Look for them in Obamerica.

67% of firearm murders took place in the country's 50 largest metro areas. The 62 cities in those metro areas have a firearm murder rate of 9.7, more than twice the national average. Among teenagers the firearm murder rate is 14.6 or almost three times the national average. Those numbers are from six years ago. They have grown worse since.

Those are the crowded cities of Obamerica. The places with the most restrictive gun control laws and the highest crime rates. These are the places where the family is broken, money comes from the government and immigrants crowd in from some of the most violent parts of the world bringing with them their own organized crime. These are also the places that have run by Democrats and their political machines for almost as long as they have been broken.

Obama won every major city in the election, except for Jacksonville and Salt Lake City. And the higher the death rate, the bigger his victory. He won New Orleans by 80 to 17 where the murder rate is ten times higher than the national average. He won Detroit, where the murder rate of 53 per 100,000 people is the second highest in the country and twice as high as any country in the world, including the Congo and South Africa. He won it 73 to 26. And then he celebrated his victory in Chicago where the murder rate is three times the statewide average.

These places aren't America. They're Obamerica.

In 2006, the 54% of the population living in those 50 metro areas was responsible for 67% of armed killings nationwide.

. . .

Democratic leaders and machines, combined with liberal social workers and justice crusaders have run Obamerica into the ground.

More at the link - and well worth reading.  You can apply what Mr. Greenfield says about gun control to what I'm saying about the economy.  The cause-and-effect relationship is the same.  Right now, what he calls 'Obamerica' rules America through its elected leaders.  That's the way it is.  That's the reality we face.  Objecting to that reality won't change it.

Frankly, I don't know any way to resolve this problem by peaceful, democratic means.  I'm not advocating violent revolution, because we'd all lose in such a situation, even more than we are at present.  The only light I see at the end of the tunnel is an oncoming train - an economic one.  The present levels of government expenditure and debt are simply unsustainable:  in fact, they're based on a lie, because they've been funded by deficit spending (i.e. debt).  As Karl Denninger has pointed out:

... there has been no sustained and actual return on investment for the last 30 years.

Specifically from 1980 to the crash [of 2007/08] there was not one single quarter where the US economy added more output than we added in debt.

. . .

At its core when total systemic debt crosses above about 150% of GDP the economy becomes constrained by the service on that debt.  This is what the historical data tells you.  The actions taken since 1980 have been to dramatically and ridiculously increase total systemic debt as a substitute for production, since production is now being suppressed by debt service.

Today we stand at more than double this sustainable level.

More at the link.  Bold, underlined print is my emphasis.

When the crunch comes - and it's very close now - we won't be able to continue to pay the present levels of benefits and entitlements.  They'll either have to be cut - and cut drastically - or our politicians and central bankers will have to achieve the same net result by deliberately allowing our currency to inflate.  That way they can claim that we're still receiving X number of dollars in benefits, and the latter haven't been reduced - even though X number of dollars now buys half (or less than half) of what it used to.  (That's already happening, thanks to the Federal Reserve's policy of 'quantitative easing'.  This sort of officially-induced inflation is going to get worse, as we've discussed before - it may lead to hyperinflation within the foreseeable future.)

I believe the present system has to self-destruct before it can be replaced with something better.  I simply don't see any way in which it can be reformed.  I wish I could, because my own disability pension, and the retirement income on which many US residents rely, is going to go down the tubes with it . . . but that's probably going to be the price we'll all have to pay for the profligacy of the past.  And, let's be honest, we deserve it.  Far too few of us have taken a stand against the mess we see today, back when it could have been stopped with far less pain and trouble.  It's inaction, inattentiveness and indifference on the part of far too many Americans that has led to this catastrophe.

This also leads me back to the Cyprus situation, which we discussed on Saturday.  This sort of brazen theft of citizens' savings is the first of its kind to occur in the Eurozone.  I doubt very much whether it'll be the last - and I confidently predict that elements of our own liberal and progressive self-proclaimed 'elites' are looking at it with interest, and pondering whether they could do the same thing here.  If they stole confiscated 'nationalized' between 30% and 40% of private savings and pensions in the USA, they could reduce our exorbitant national debt to sustainable levels at current tax rates.  That would give them breathing space to finance ongoing entitlement programs by incurring still more debt, while trying to figure out a tax solution that would allow them to sustain such programs in the long term.

Do you want to bet they haven't already figured that out?  And do you want to bet they won't do it in a heartbeat, if they think they can get away with it?

I thought not . . .



Old NFO said...

Well said Peter, and you're correct... dammit...

Mudbug said...

It worries me to death that you are right.

Cybrludite said...

Short of an outright gun ban, I can't think of anything more likely to trigger an armed revolution here. You hit people in the savings, they're going to hit back.

Anonymous said...

If they 'nationalized' between 30% and 40% of private savings and pensions in the USA, they could reduce our exorbitant national debt to sustainable levels at current tax rates. The target isn't going to be 'savings' in the usual sense of the word. The saving they'll confiscate are the 401k plans. Together, IIRC, there's around 15 to 20 Trillion in thos accounts.

Simply put, you can't have that much money lying around where DC can see it. It's like leaving a few pounds of crack out in the open in a roomfull of crack adicts.

Silicon Graybeard @ work