I know, many people have thought things would peter out before, and we are wealthier than ever, so the optimists have historically been correct, but things change. In the 1970′s people were sour on capitalism and were wrong. I remember talking to my old Northwestern professor Robert Eisner, a famous Keynesian, and he noted that in the 1980′s there was basically a huge re-education among his kind, that Marxism/Socialism was not going to overtake capitalism, and capitalism by itself does not self destruct. This was not a minor shift in opinion, but a major one, because the pessimists expected another Great Depression all the time. It is easy to forget that back in 1975, 1980, the Marxists thought it was the endgame for capitalism. Ten years later when the Wall fell, they basically retreated to Scandinavian-style welfare states as their objective, quite a change over ten years.
I’m sour on American democracy, and as the American Founders noted, every democracy has committed suicide, ergo, we need a democratic republic. The difference between a democracy (where we are going) and a democratic republic (where we started) is that the masses are kept one-step away from decision-making in a democratic republic. The masses are stupid, having an average IQ of only 100, a whole standard deviation below that of your average college grad of 115, and this is below that of George W. Bush, who most people think is the world’s biggest idiot — they have no idea what average, let alone below-average, is. People basically think profits and social value are inversely related, so basically most successful innovators and entrepreneurs are parasites, much as the Nazis thought Jews were parasites because they were successful, as opposed to being a key component of pre-WW2 German excellence. The masses are morons, and pandering to them is like letting your kids stay up late: no one is happy the next day. We are basically making policy for everything real-time via Nielson ratings.
The US has been living off Ponzi schemes (Social Security) and a growth in government too long. Our federal deficit is 10% of GDP, and as interest rates are historically low, there is no incentive to try to reduced this. The states have similar problems, making this much worse than it appears. Further, the debt is significantly underreported because of off-balance sheet items like social security and pensions. No one can turn away the simple redress of paying out huge amounts to people who’s only claim is being pathetic. The problem is that while we have an appetite for a certain amount of GDP, the ability to get that out of GDP via taxes is not straightforward: there is a Laffer Curve. Sure, you can raise taxes to 90% and people will still work; they just won’t tell the government about it at the same frequency, as the rampant tax avoidance in high-tax countries like Greece and Italy shows.
Consider the following expenditures that recently ran across my browser. They exemplify our inability to say ‘no’:
Washington DC schools are an abject failure: poor performance, $20k/child expenditure. In response, voters ousted the reformer mayor in favor of the status quo, and this week a new $100MM secondary school building was proposed.
The Pigford settlement decided to give $4.6B to Black farmers for discrimination. They never proven an actual case of discrimination, it just is proven statistically, and through threats of being called racist. Given that criteria — disproportionate success — bank loan recipients (of course), econ PhDs, traders, quants, computer programmers, and bloggers, all discriminate against black people, meaning, I am daily awash in rampant discrimination, and thus all of my acquaintances are racists. I find this accusation offensive, because calling someone a ‘racist’ is the modern-day version of calling someone a witch: demeaning and nonfalsifiable. An estimated 95K plaintiffs will receive payments even though only 33k black farmers existed during the time Pigford targets, implying a remarkable extra-effort by racist FDA bureaucrats. To scutinize this give-away is considered evil, because the Chinese are giving us the money to spend.
The Obama-McConnell tax bargain with an extension of a tax credit for ethanol that costs about $6 billion a year, and with an extension of a tariff on ethanol imports. Ethanol is so uneconomical that Congress supports it three different ways — with a mandate for its use, a tax credit to subsidize it, and a tariff to keep out competitors. Even Al Gore and Obama science adviser Stephen Chu now admit this is a boondoggle, but it continues. Sugarcane yields about eight units of energy for every one unit invested to grow, harvest and convert the cane into ethanol; corn is 1:1.4. So, of course, we put tariffs and quotas on the more efficient sugarcane to help American farmers. In October, the EPA approving an increase in the amount of ethanol — a hydrophilic, corrosive, low-heat-content fuel — that can be blended into the U.S. gasoline supply from 10 percent to 15 percent.
The 9/11 first Responders Bill allocates $5B to cover 50,000 responders and survivors, creates a mandatory spending program until it sunsets 10 years from now. basically, free medical for everyone who did anything related to the cleanup of the 9/11 disaster. If you go to the 9/11 site, you’ll see a bunch of medical studies, with lots of analysis of methodogoly and ‘post traumatic stress’, but nothing demonstrating any effects on lungs, etc. (see here.
These are all examples of spending when you think you have an infinite amount of money: you don’t make priorities, you simply spend on pathetic target groups to show you are doing something. You know, like the $220MM BP spent on sand berms to catch oil in the Gulf that captured 1k of the 5MM barrels released of the spill. They had to do something according to The Mob.
As long as interest rates are low this will continue. Like the ‘affordable housing initiative’ that targeted historically disadvantaged groups — who were historically denied housing because they could not afford it — it was impossible to change this without something major happen (alas, the FHA has yet to get the memo). So, something major will happen, and it won’t be an internal re-evaluation, it will be solved via inflation or default. Meth addicts don’t turn around until they hit bottom.
