Sunday, April 17, 2016

The Coming Crash

Government (at all levels: Federal, State, County, City, School district, etc.) now takes 47% of GDP, and people are starting to notice that it takes 2 incomes to live.  As American labor becomes more expensive, more jobs are driven overseas — and times get tougher.  Eventually we will have too few Americans employed and paying taxes to support the lavish government programs which have become a fixture of modern life.

We are in a destructive feedback loop in which taxes and regulations impel salaries upward and rising salaries impel outsourcing.  How did the world's most productive economy get to this point?  As the unemployment rate rises, salaries and wages should fall to compensate, but they don't.  At the very bottom of the scale, wages are forbidden by law from being adjusted downward.  This 'loss to friction' means the economy cannot completely adapt to changing conditions.  And we will soon understand that it is beyond the power of the Federal government to change that.  Nevertheless, we have politicians promising to raise the minimum wage, and thousands of potential voters cheer them on as they promise to make a bad situation worse.

With government costing us 47% of everything we earn it's as if each one of us has a whole second person to support with our labor.  No wonder stay-at-home-Moms are a thing of the past.  Our standard of living is incredibly high, no doubt about that, but that's a normal progression.  Marian the Librarian lived much higher on the hog than did Hypatia of Alexandria but their taxes weren't noticeably different;  our high standard of living is not due to careful stewardship by the government's minions.  We should expect the SOL to rise if the government does nothing but fend off the barbarians.  Unfortunately, we should also expect that (pretty soon) our SOL is going to fall enough that we'll all be SOL.  Here's what's going to happen:

  1. As unemployment rises more people will find themselves dependent on the dole;
  2. the welfare system will become over-stressed; benefits will be scaled back; taxes will rise;
  3. regardless, the number of tax-producers will decrease as the number of tax-consumers increases;
  4. at some point the system will implode.  Either a depression will happen, or the currency will be inflated a la Germany at the end of WW-I, which is actually the same thing.  A military dictatorship may stave off the end for a while, but collapse is inevitable.

There are precious few things we can do to prevent this.  Prime among them is to reduce the size and cost of government, and thus reduce the tax/regulation burden on the producers.  Of almost equal importance is to granulate the effect of charity;  this can only be accomplished by removing it from the control of the 14th Amendment — equal protection — which presently operates to impede welfare agencies from culling able-bodied slackers.  In practice, that means returning the function — all of it — to the private sector where the 14th Amendment is not operative.

Most certainly, we will no longer be able to afford an Armed Forces three times larger than necessary to defend the United States.  Troops pulled back from the 150-or-so countries where they are presently deployed will be spilled into a labor pool already filled to overflowing.

Large numbers of people will go hungry for the first time in our history.  Alexander Tytler laid out the game-plan two hundred years ago:

"A democracy cannot exist as a permanent form of government.  It can only exist until the voters discover that they can vote themselves money from the public treasury.  From that moment on, the majority always votes for the candidate promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship.

"The average age of the world's great civilizations have been two hundred years.  These nations have progressed through the following sequence:

  • from bondage to spiritual faith,
  • from spiritual faith to great courage,
  • from courage to liberty,
  • from liberty to abundance,
  • from abundance to selfishness,
  • from selfishness to complacency,
  • from complacency to apathy,
  • from apathy to dependency,
  • from dependency back to bondage."

I believe we have arrived, at last, at Tytler's last stage.  Only a very great deal of luck (and the passage of time) will restore us to liberty.  Along the way we will have to give up the notion that democracy is an unalloyed good to be instituted here at home and spread abroad, by war if necessary.

Now would be a good time for that.

As in Atlas Shrugged, the motor of the world is about to stop.  We haven’t been oiling the things that make it go;  we’ve skimped on its maintenance.  Some would say we’ve actually tossed sand into the gears.  At the bottom line, those who make the world ‘go’ are wearing out, and when they’re gone, we’re all gone.

The US Dollar is now trading at nearly two-to-one against the Pound Sterling, a ratio that has not been seen since 1992, but the British Pound is not a special case.  The Dollar is trading soft against almost every major currency.  It’s not that they’re doing so well, as that we are doing so poorly.  At some point, OPEC is going to abandon the Dollar for something more stable...  the Euro, perhaps.  Countries that hold large stores of Dollars and use them to buy oil will, at that moment, lose the last reason they have for taking a position in Dollars;  they will shed their Dollar reserves, and the US economy will tank overnight.  It will be ‘1929’ all over again.  Brother, can you spare a dime?

When we recover...  if we recover...  we will have to construct a system which will not be subject to the excesses and abuses to which the current system is heir.  Tytler’s prediction gives us a roadmap back.

To avoid the trap in which tax-consumers vote themselves largesse, we will have to restrict the franchise to tax-producers.  Public school teachers (if there be such) will not vote, but private school teachers will;  policemen, firemen, mayors, aldermen, and county clerks (and their staffs) will not vote;  Congressmen will not vote, nor will FBI agents or food inspectors.  The kid who makes your sub at Quizno’s will vote, but the clerk who issued his driver’s license won’t;  airline pilots will vote, but the air traffic controllers who guide them in won’t.  W-2s (or what passes for them in any system-to-come) will show income in two classes:  tax-derived and non-tax-derived.  If the Tax Due is more than the total of tax-derived income, you’ll be issued a permit-to-vote;  if not, not.  The incentive to get a productive job will be enormous;  the incentives to get a ‘cushy government job’ will evaporate before our eyes.  As a result, government service will attract only those who get fulfillment from such activities.  We should expect very few people to make a career of it.  We will return to the Founders’ vision of the townsman who is drafted by his peers and sent, possibly against his will and better judgement, off to Washington where he will serve one term or two and then return to his original occupation.  Political campaigns will be long, expensive, and brutal only when deep-seated philosophical divisions rear their ugly heads;  we should expect very little of that.

I’m trying hard to see a ‘down side’ to all this.  There must be one, but I can't seem to find it.

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