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Page added on December 1, 2013
Economic Prosperity Ahead Or A Train A Comin’
Whether the light at the end of the economic tunnel represents sunshine or an on-coming train depends on whom you ask. I am of the opinion that it is a train a comin’. Economic matters cannot get better until we hit bottom and rebuild from the ashes. That need not be except government policies drive us there.
Government, especially the current one, has incented people to not work by providing overly long and generous benefits. Society has an obligation to take care of its less fortunate, but it does not have an obligation to encourage people to join that group and then make it comfortable enough that they have little incentive or ability to leave. The dole should not be a safety net, not a career choice!
One political party in particular has interest in seeing dependency grow. It forms a substantial part of their support and power. The creation of more dependents is the creation of more voters and more electoral success. No society can grow or recover when government deliberately undermines the need to work. That path leads to poverty and destruction.
Printing money is no substitute for effort. It does not create things or wealth. The myth of Keynesian economics is not the answer to a society that declines in labor force participation and has fewer productive people supporting more dependents. Incentives at the individual level must be changed in order to make work more desirable and attractive than welfare.
A society whose workforce is in decline is one that can pretend to live at former levels only by consuming the wealth and capital created by previous generations. This behavior is equivalent to the man who used to make $250,000 per year in a job and now is unemployed. To save face, he continues to live as if he is still earning at his previous rate. He achieves this short-run living style only by consuming the capital that he built up from years of hard work. At some point, he runs out of capital and must live as a pauper (or the modern equivalent of one).
Our economy and government both behave like this formerly rich man. Both are consuming the seed corn in order to maintain the appearance of well-being. Politicians will continue this behavior until the music stops. Hopefully when that happens there is enough left of society and freedom to allow a rejuvenation.
Many believe that government and its partner the Federal Reserve are wise and strong enough to avoid this crash. If printing money and spending money were a solution, there would be no poverty anywhere in the world. Even the poorest country has a government and can afford a printing press.
Thus far there has been no collapse. However, that is equivalent to the man who jumps off the Empire State building and is heard to say as he flashes by the fortieth floor: “So far, so good.” His fate was sealed when he jumped. Similarly, so is our economy’s. Economics has its own gravity. It is as powerful and immutable as that of physics.
“So far so good” is not acceptable for an economy. There has been no economic recovery since one was falsely declared in June of 2009. The distortions and mis-allocations imposed on the economy for the last several decades are cumulative and have finally reached that stage where they can no longer be covered up. The myth of a recovery is getting harder to maintain.
A complete cleansing of the mal-investments, distorted incentives and regulatory burdens must occur before a true recovery can take place.
Can the economy flutter around is some kind of air pocket at the fortieth floor for a year or even several before resuming its destiny with terra firma? Perhaps, but it cannot fly without wings and these have been removed by regulatory interference and economic interventions over the course of decades. They can re-grow, but not before a complete and total cleansing.
A major crash is coming. The dot.com bubble and the housing bubble were not crashes, at least as I imagine a crash. They were the beginnings of corrections that were aborted by government economic intervention. The country survived these two major bubbles, but only at the cost of making the next one bigger. Government did not save us from these two events. They created them and by deferring their correction assured the next one would be bigger and more painful.
The video below shows a train moving down a track. It struck me as a reasonable metaphor for our economy. The train represents market forces, slow but powerful. The train does not appear threatening. But, like markets, it represents a massive force. That the video is in slow motion exaggerates the surprise and the force.
Government may believe it is in control of the economy, but it is not. It may think it is influencing and controlling outcomes. To some degree it is and has. However the forces that have built up over decades of these interventions cannot, at some point, be controlled. The mismatch between Ben Bernanke, Barack Obama, the Federal establishment and all their dollars and regulations is about to be run over by the train that represents decades of suppressed market forces.
No government is a match for hundreds of millions of citizens who are represented by markets. Suppressing markets is suppressing the will of citizens. At some point markets dig in their heals and say enough. Then government is helpless.
10 Comments on "Economic Prosperity Ahead Or A Train A Comin’"
eugene on Sun, 1st Dec 2013 1:38 pm
Could have been written by Milton Freidman. Simplistic, dump the disadvantaged, no mention of an out of control military, bloated/incompetent health care system, dismantling the “living off the taxpayer corporation and the list is long of a corrupt system. Wonder what it’s like to sit on high and criticize from an agenda laden mind.
dashster on Sun, 1st Dec 2013 2:23 pm
There is a $2.99 Kindle Book on the 7 myths of economics that makes the point that a big problem with the economy is the concentration of income and wealth in the top 1% of USA residents. Switch money from to the top 1% and it stops being spend like it used to be. And when they invest it – since they don’t need it – it can lead to speculative bubbles, and then financial crashes.
We are becoming like a Latin American country in regards to income and wealth disparity. Versus the way things were 50 years ago.
Juan Pueblo on Sun, 1st Dec 2013 3:33 pm
Why was this article selected? It shouldn’t be here. It is only tangentially related to PO and very badly written. It reminds me of some of the terrible stuff some of my classmates wrote when I was taking ENC 101 in college.
J-Gav on Sun, 1st Dec 2013 3:49 pm
Despite a couple of points I can agree with : “A complete cleansing of the mal-investments … must occur,” and “A major crash is coming,” the rest of the article reads like a sub-chapter from the Market-Mantra Bible.
Northwest Resident on Sun, 1st Dec 2013 6:40 pm
Worst article I’ve ever read on this site, period. In Monty Pelerin’s world, lazy shiftless Americans are lounging around waiting for government handouts because that’s what makes them fat and happy. In the REAL WORLD, fat-cat CEO’s are dismantling American companies, sending millions of jobs overseas, hoarding cash rather than hiring and collecting multi-million dollar salaries with stock options while the financial squeeze is tightened daily on regular Americans who, if they are working, are more terrified than ever about losing their jobs in today’s economy. Monty is a robotic mouthpiece for the Fox News corporate propaganda machine.
rollin on Sun, 1st Dec 2013 7:17 pm
The author mentions welfare which is 1.5% of taxes. He does not mention corporate welfare which amounts to about 5% of the total income tax and 50% of the corporate income tax. Most taxes are paid by individuals (90%).
So the real welfare cases are corporations. Many industries use a large amount of resources but provide no real physical needs for the population. Yet they still are heavily purchased. The half trillion dollar US entertainment industry (2 trillion world wide) is one example at 4% of GDP. Agriculture is at 1 percent of GDP. Which of the two do you really need?
Top 10 US industry sectors and percent of GDP
Real estate 13%
State and local government 9%
Finance and insurance 8%
Health and social care 8%
Durable manufacturing 6%
Retail 6%
Wholesale 6%
Non-durable manufacturing 6%
Federal government 5%
Information 4%
7% is about a trillion dollars. Total GDP is about 16.6 trillion.
15% of the population is below the poverty line and another 15% are marginal. This in an economy with GDP per capita at 50,000 dollars and a median household income of $98,000.
Dashter has the right answer, too much money at the top.
BillT on Mon, 2nd Dec 2013 1:41 am
While there may be too much money at the top, there is too much greed at the bottom also. Take the videos of Black Friday as an example. If ALL of those people just thought about tomorrow and noticed all of the signs of collapse around them, they could reverse course. After all, the French found the guillotine useful when they got tired of the way things were going.
Norm on Mon, 2nd Dec 2013 2:23 am
Its a shmit sandwich. bunch of greedy psychopath monsters at the top, trillionaires who want to build a skyscraper that looks like an upside down pyramid (in other words, spend billions on their stupid dumb ideas) and flat broke losers on food stamps at the bottom, punching and fighting each other at the Wal-Mart in a battle to the death over who gets the $89.95 Chinese flat screen (when their NTSC TV set of 20 yrs ago still worked just fine and might have even been made in USA, i.e. RCA).
Billionaire scumbags at the top, food stamp welfare scumbags at the bottom, and we’re in the shmit sandwich right in the middle, of those two extremes.
Getting squeezed from both sides. And even right at our exact own level, are all the upper-middle class welfare bums, the military retired-at-20-yrs and working some other job crowd, and so on. Welfare bums leeching from the country they proclaim to be patriotic to.
If America was a wooden board, it would be down to sawdust and dry rot, crumble apart in your hands. Just different assorted flavors of creepy crawlies and the wooden board fall right in half.
Northwest Resident on Mon, 2nd Dec 2013 4:36 pm
Norm, nice rant. Here is what Kunstler says on the topic, which goes nicely with what you have to say:
By the way, one reason for the vulgar orgy of “consumerism” that, in recent years, has turned the Thanksgiving holiday into a sort of grotesque sporting event, is to mount a crude demonstration that our “money” is a viable medium of exchange. The dumbest people in the land are induced to swarm through the merchandise warehouse stores and fight to exchange their “money” for hard goods offered at false “bargains.” I wonder how much of it is a dress rehearsal for what happens in a hyper-inflation?
http://kunstler.com/clusterfuck-nation/between-a-rock-and-a-squishy-place/
J-Gav on Mon, 2nd Dec 2013 6:34 pm
Rollin- Yep, that’s why it’s called corporatocracy!