GOING GOING GONE

Our country is in serious financial trouble. The unemployment is stubbornly high at about 7%, the labor participation rate continues to decline from 67% to 63%, wages and the net worth of the middle class are in decline, IRA’s are a fraction of what they were just a few years ago, the housing market is a disaster, there are 4.4 trillions of dollars of unfunded pension funds, annual deficits are one trillion dollars, the national debt is over 16 trillion dollars that is 100% to our Gross Domestic Product (GDP) and government spending is 39% of GDP. 100 million people are on some welfare program:

·         46 million people are on Food Stamps
·         11 million on disability
·         72 million on Medicaid
·         5 million on employment compensation and millions more have given up looking for a job

 Despite all this the people decided to keep the same leadership in place. Why?

In the entire world whenever people have had a choice they have consistently chosen security over freedom, e.g. Iraq, Egypt, and Afghanistan being recent examples. Up to now the United States has been the exception but this has now changed. People are pragmatic and take their entitlements or privileged status (47% of filers do not pay any Federal Income Tax) rather than be concerned about the 16 trillion dollars of national debt that seems so remote.  

Yet anyone can see what has happened to Greece because of excess spending with debt to GDP now at 179% and government spending at 50% of GDP.  They are now in an economic tailspin with unemployment at 12%, banks failing, and austerity programs causing rioting. The standard of living is falling for everyone.

But why are our leaders leading us down the same path? The Left uses Keynesian economics that is based on the theory that government spending will stimulate the economy. The private sector is the only way to create wealth and government can only re-distribute it. While the Left knows that Keynesian economics does not work, they continue to use it because it keeps them in power through entitlements to the people and control of the private sector.

So do we have to go a terribly long painful time of misguided management and political near-paralysis before today’s problems are solved? Or will the electorate or the economy somehow get energized to bring about better results sooner? We know the American-psyche is impatient and they want things fixed now, so maybe there is hope.

The quest for economic and personal freedom is like a glacier, it moves slowly and is unstoppable. For long periods of time political power seems stronger than economic power but in the end economic power and freedom win, e.g. the fall of the Socialist Soviet Union after 40 years of control of the economy and the people. That isn’t to say that the political struggle can’t get ugly.

Political power is the power to decide what laws will be passed or not passed, what laws will be enforced or not enforced, and determining what people must, may or cannot do. Power requires bureaucracy, bureaucrats produce regulations, regulations create arrogance, and arrogance leads to tyranny. We are presently in the arrogance phase.     

Cuba was the pearl of the Caribbean in 1959 when Fidel Castro took command of the country. Today socialism has made it like a worthless sea-shell. 80% of the work force works for the government and government spending is at 78% of GDP. Castro took away all economic and personal freedom and drained the capital base and now there is nothing left - except for the leaders of course.

The United States now has a neo-socialistic system that allows private ownership but under government control. The government is now the dominate force in many key sectors of our economy: automotive and transportation, agriculture and food processing, construction and home building, banking, lumbering, fishing, insurance, financial institutions, energy, pharmaceutical, toys, education, utilities, and now health care.

Every time a law or regulation is passed it requires somebody to do or not to do something. Therefore, somebody’s freedom is more and more limited. Freedom is the opportunity for the individual to do the right thing and optimizes the economy.

Is America doomed to be like Cuba or will it be more like European socialism? Has the situation pushed us past the point of no return? NO, but under the current spending and rate of new regulations for the next few years the economy will be strong enough to continue to grow at an anemic pace:

·         2% to 3% GDP growth rather than the 4% to 5% needed

       ·         6% cryonic unemployment rather than the 4% to 5% that is normal
       ·         the labor participation rate will stay under 64%
       ·          Inflation will become the number one issue

Business and the stock market will continue to improve because business is flexible enough to change their business model to fit the changing situation e.g. energy industry implementing fracking and horizontal drilling, and to expand in the world markets. Corporations have $2 trillion in cash reserves.

 After that we will have skyrocketing inflation, forcing higher interest rates, devaluation of the dollar and our credit rating, and loss of our status as the world’s reserve currency. We will be worse off than Greece because there will not be any country that is big enough to save us. The higher interest cost will become the largest budget item and will put stupendous pressure on the budget, require austerity measures, and higher taxes on everyone.  Rioting seems like the only thing people can do to express their frustration. Will we give up hope and accept it? As long as we have a democracy we can change things and so we can be hopeful. But our freedom is GOING! GOING! GONE?