Walls Closing In Again

It's getting tough to just keep repeating myself, and what you'll read below is nothing that I haven't said here for years. But I just posted a comment on another blog that I think is worth thinking about for those who haven't been reading my posts in the past. According to The Economist magazine, writing about the terrifying state of the U.S. and world economy, "Barack Obama or one of his Republican challengers may yet discover the courage to tell the truth about the American economy in next year’s presidential election."

My response: So what is the truth? I suspect that if Barack Obama were to tell it, he would be labelled a Socialist. And there is no chance of a Republican candidate telling the truth.  The truth is this… 

The economy of most American workers being paid less and yet spending more, the difference funded by rising debts and surrendered future pay (in retirement), and the excess spending feeding through to both exporting nations and executive pay, has now collapsed.  Business executives and financiers paid themselves richly for having created this unsustainable economy, but now that it has collapsed, they have no other ideas. 

The debt-fueled spending has left most of the paper wealth piled up by the wealthy (and the Chinese government) backed not by income producing assets, but by promises by Americans to live worse in a future that has now arrived. The only real productive investment in the U.S. has been in IT and healthcare, and those are the only things getting better, and the latter is not getting better in proportion to cost because it is far into diminishing returns.

Having the federal government socialize the losses to keep the spending going for the past three years has merely temporarily reflated the value of those paper assets, while doing little for ordinary Americans. Since little of the debt-financed federal spending went to something that might be useful in the future, such as infrastructure, it amounts to yet more promises by Americans to be poorer someday, or to make their children poorer.

The United States has run a huge current account deficit for decades. Absent debt, free trade would have required Americans to export to someone in proportion to their imports from places such as China, with trade benefitting all parties. As it is, Americans sold off their future, and through the government their children's future, as America's productive capacity dwindled.

The U.S. standard of living is going to fall by 10 to 20 percent. That is why things are getting so nasty, because part of the allocation of the pain is a political decision. If the rich are exempted, if those over 55 are exempted, if those who controlled our institutions as they were pillaged are exempted, if Generation Greed is exempted, the loss for everyone else will be that much greater.

Who is going to give up what of the American lifestyle?

That was my comment. But since this blog is about state and local government, let me add something. If bondholders are going to be exempted, if retired public employees are going to be exempted, if already hired public employees are going to be exempted, if government contractors are going to be exempted, if those with tax breaks and deals are going to be exempted, then it will be that much worse for other taxpayers and those who rely on public services and benefits.

Is that what will happen in Albany? You betcha! And it's bi-partisan. What matters isn't political party, it's Generation Greed.