A couple good articles by Robert J. Samuelson

May 10, 2010

I think these two articles are worth paying attention to. The first is about the export-led growth that we are now experiencing due to growth in Asia. The second is about how what’s going on in Greece is a warning to us. We will be in the same boat as they are in another 10 or so years if we do not either cut entitlement benefits or increase revenue to the government sufficiently to decrease the spread between revenue and spending.

“A new economic world order?”

“The welfare state’s death spiral”

If I had to make a prediction I’d say that we’re not going to react to head off the problems with entitlements until we start to feel their effects on our economy, namely “stagflation”–lethargic economic growth and inflation. The answer our society will most likely come up with is to try to increase government revenue through various taxing schemes. I don’t think we’re going to see a repeat of Ronald Reagan this time, because of demographic differences between now and the 1980s.

History has shown that increasing taxes doesn’t really increase revenue to the government relative to GDP. If you increase taxes the people who spend the most money (the wealthy) will find ways around the taxes, and so the government will get about as much as it’s been getting relative to GDP. If we have economic growth, the government will see revenue increase. If we pass a Value-Added Tax (VAT) I think the government will see a “step up” in its revenues (history shows that it does, and provides a more reliable revenue stream than with income taxes), but it’ll stay at that level no matter what they do with it.

If elderly voters have to make a choice between economic growth and a sense of security from government entitlements, history has shown that they vote for security every time.

The reason I make the above prognosis is that seniors are not going to want their benefits cut. I know that the Tea Party movement is feeling its oats now, and is supporting more fiscally conservative candidates. What it really represents in my view, is a defense of the status quo, no matter how Democrats try to cast it. It’s a rebellion against out of control government spending, but it is not a rejection of entitlements. Unfortunately this is not radical enough, because the existing entitlement programs are going into fiscal insolvency. The only way out that I see is a translation of entitlements into private sector, market solutions, with little government regulation, that provide less security, but more affordability and access. I doubt that this is the direction our society will choose, because of the tendency of the elderly to vote for security over all else.

As the Baby Boomers retire they are going to swell the ranks of elderly voters, who vote most reliably, and vote most often for candidates who promise more entitlement benefits, or to protect the ones the elderly already get. The follow on generation to the Boomers, my generation, is small. We cannot possibly out-vote our parents, even if we tried. Personally I think the days of bullish economic growth that we saw in the 80s and 90s are over for the time being. We may be in this state or worse for another few decades when today’s children of Boomers may gain political power and decide to change course.

Perhaps what we will see in the future, going off of what Samuelson says in “a new world economic order?”, is that the U.S. government will try to benefit off of the economic growth in Asia, through export-led trade. Until then it’s going to be more “exciting” in the political arena, though all too predictable if one is paying attention, than it is in the economic one.

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Governments shutting down services

February 24, 2010

In my neck of the woods we would hear threats from time to time from the city about shutting down certain services if a tax increase was not passed, or an existing tax was not sustained. So far the threats have been empty, I think mainly because we’ve been better off in terms of the ratio of tax base to spending we have.

Well the crap has finally hit the fan in Colorado Springs, CO. It started shutting down many of its services on Monday. Some street lights have stopped operating. I guess they’re now four-way stops? This is kind of pathetic. You mean they’re unable to pay their electric bill? Maybe I’m being too harsh, and it’s just that they’re not able to be maintained. They’re selling their police helicopters to bring in some needed cash. They’re laying off some firefighters, police officers, and crime detectives. They’ve stopped mowing, watering, and picking up trash in their parks. For people who come to them, they’re going to have to BYOB (bring your own (trash) bags). They’ve shut down their road maintenance service, though a limited county-run road maintenance service is available. City recreation centers, city pools, and a few museums may close permanently at the end of next month, unless private buyers are found. Come to think of it, private companies could take over many of these services (I can imagine this for all but police services). They’d probably be able to do them for less than what the city was paying its employees. I’m surprised the city didn’t think of this. Glenn Beck recently interviewed a private company that runs state parks (the videos below are from watchglennbeck.com):

Some have criticized the voters of Colorado Springs, citing the fact that they voted down a tax increase to prevent this, but the opinion of the voters seemed to be that the city government was spending irresponsibly. John Stossel, now at Fox Business Network, wrote a brief article on this, saying that the main problem is the commitments that the city made to its unionized employees. It’s having to function like a bank rather than a city government. Glenn Beck got into some more examples of this across the country:

I know what Glenn’s talking about, in a sense. We don’t have the trouble with firing teachers here that he describes, but our local teachers union in the Boulder Valley School District has been raising hell since almost a year ago over the fact that our superintendent is not giving them the raises they want. They did a couple of work actions last year of questionable legality to make their point. The teachers union is tone deaf about the economy. Guess what, guys. That raise you were expecting has to come from us voters, and right now we’re not feeling so generous. What I’ve seen from some teachers is a callous disregard for the financial troubles of their constituents, as if we’re displaying a lack of gratitude. They say, “We have our struggles, too.” Well, maybe, but I hear that our teachers here have a spectacular pension program, better than what you’ll find just about anywhere in the private sector. And they have a “cadillac” health care plan. These haven’t been downgraded at all and they should be thankful for that. Many private sector workers have not been so lucky. When I’ve brought this up with teachers, one of the responses I’d get is, “Well that’s the much vaunted private sector for you. Why would people prefer that?” That wasn’t the point. The point is that’s where the money comes from to pay their salaries!! I swear, many government employees don’t understand this and it is baffling and frustrating to me that they don’t. I don’t mean to paint with a broad brush. I have seen some teachers and former teachers totally get it, and they’re for fiscal restraint. It’s just that some of them, the hundreds that walked out on students a couple times last year, seem to seriously believe that money grows on trees. It’s scary to think that they lack the math skills necessary to understand what’s happening. After all they’re just educating the kids!