As we prepare our purposefully irreverent meal for this day of thanksgiving - boiled oats and day-old biscuits - we would like to stop and make a fearless prediction which has been rolling around in our heads since about the middle of this year. We really don't have any hard data to back up our assertion; in fact, we're going to just put it right out there, that this is an intuition.
Simply put, we posit this will be the last holiday season that anyone in the United States, or elsewhere, can call normal. Note the call normal; last year saw the last holiday season which could be considered actually normal. This season, however, will be all about keeping up appearances; the show must go on, after all.
Take this Thanksgiving in the United States; 49 million Citizens are going hungry at the end of every month. Now, at last report in September, 28.4 million Citizens are on food stamps. Hmm, we sense a number problem here... but anyway, on top of that, half of all children in the U.S. will receive food aid, as well as 90% of African-American children.
Let that settle in your mind for a moment, dear Reader. Those numbers are not from Haiti or Zimbabwe, but rather the only so-called superpower in the world, the United States. Those are not good numbers to be seeing from an OECD nation; it makes us think about terms like 'third world' and 'failed state.'
This will be a failed Thanksgiving; people will max out what little credit they have remaining for the month in order to have a 'feast.' By that, we mean keep up appearances, as there are really very few people in the U.S. right now who can actually afford to have an extravagant meal, pay their bills, and have savings. Perhaps the 'recovery' propaganda has worked its magic, and most Citizens have moved into a Keynesian dreamland, where they spend now and have an economy later. We frankly think not; we posit most U.S. Citizens couldn't make a budget - and keep it - if their lives depended on it. For 49 million of those Citizens, their lives do depend on it, and they seem to prove unequal to the task.
After Thanksgiving will be the failed consumer orgy of Christmas; failed, because one cannot have an orgy if no one shows up. That's not to say that lights won't be strung and trees erected, because they will be... probably with more 'animal spirits' energy than ever. Under those trees, though, will tell the real tale. Show us an average Citizen who has lots of gifts, and we will show you someone who is nearing the end of their financial rope.
As we're writing, an ironic thought occurs to us: would it not be an expression of cosmic justice, if the attempt at summoning up a holiday shopping extravaganza is what finally topples the still-tottering U.S. economy? Think about it: maxing out credit cards for one last huzzah; blowing the savings on gifts for the kids, or Social Security cheques on the grandkids? Citizens of the United States are far too broke to enjoy the spendy, spendy ways to which they became accustomed; at this point, they should go limp, take their financial kicks to the stomach, and try to get things in order again. Instead, they will - and we mean will - go down, in vast numbers, and in flames.
Showing posts with label welfare. Show all posts
Showing posts with label welfare. Show all posts
Tuesday, November 24, 2009
Friday, June 5, 2009
Expanding Government, Declining Economy
USA Today reports "Benefit Spending Soars to a New High". 'Benefits' being the euphemism for 'Welfare', now that there is no shame in being on the dole. In any case, state and federal welfare payments are now one-sixth of Americans' income.
As the Depression grinds on, there will be considerable pressure from all sides to maintain and expand 'benefits'. These 'benefits' will have to come out of taxpayer pockets, one way or another. Since visible taxes will probably not be raised enough to cover the swollen 'benefit' roles, there will be some of that hidden tax coming down the pike - inflation.
Redistributing income, up to a point, may have some merits. But if the productive elements of society - most of whom are having a fairly rough time of it lately, too - are overburdened with increasing taxes, there will be further decline in economic activity.
As we have discussed repeatedly before, there is a range of government spending in an economy which is optimal, and spending below or above that range is destructive. At present, government spending at all levels (according to the helpful folks at usgovernmentspending.com) is a 45.2% share of the economy as a whole. This is up from a 37% share in the last fiscal year.
The rate of increase in the share is a whopping 22%! If the share were to increase at that rate for just another two years, the USA would end up two thirds of its economy (mis)managed by the State - a comparable level to Eastern Europe in the Soviet era. And probably with similar results.
Of course, the Nation's leaders are emphatically stating that since recovery is around the corner, there will be no need for further increases. We beg to disagree on the recovery part. Recovery is not around the corner. Whatever spin may be being put on 'the numbers' - they are in fact truly terrible.
In the face of Great Depression II, Mr. Obama's administration will not be able to resist expanding 'benefits', as well as bailing out and nationalising banks, insurance companies, car makers, airlines, airplane makers, and God-only-knows who else.
We believe, with some confidence, the deeper Uncle Sam dives into the economy, the worse the economy will perform. Since the leadership seems infected with some sort of intervention mania, we also anticipate that the lack of recovery will promote ever-larger bailout and 'recovery' schemes. These in turn will hurt the economy even more. We can't anticipate how long these destructive cycles will continue, but probably long enough to turn the USA into a dramatically poorer nation.
As the Depression grinds on, there will be considerable pressure from all sides to maintain and expand 'benefits'. These 'benefits' will have to come out of taxpayer pockets, one way or another. Since visible taxes will probably not be raised enough to cover the swollen 'benefit' roles, there will be some of that hidden tax coming down the pike - inflation.
Redistributing income, up to a point, may have some merits. But if the productive elements of society - most of whom are having a fairly rough time of it lately, too - are overburdened with increasing taxes, there will be further decline in economic activity.
As we have discussed repeatedly before, there is a range of government spending in an economy which is optimal, and spending below or above that range is destructive. At present, government spending at all levels (according to the helpful folks at usgovernmentspending.com) is a 45.2% share of the economy as a whole. This is up from a 37% share in the last fiscal year.
The rate of increase in the share is a whopping 22%! If the share were to increase at that rate for just another two years, the USA would end up two thirds of its economy (mis)managed by the State - a comparable level to Eastern Europe in the Soviet era. And probably with similar results.
Of course, the Nation's leaders are emphatically stating that since recovery is around the corner, there will be no need for further increases. We beg to disagree on the recovery part. Recovery is not around the corner. Whatever spin may be being put on 'the numbers' - they are in fact truly terrible.
In the face of Great Depression II, Mr. Obama's administration will not be able to resist expanding 'benefits', as well as bailing out and nationalising banks, insurance companies, car makers, airlines, airplane makers, and God-only-knows who else.
We believe, with some confidence, the deeper Uncle Sam dives into the economy, the worse the economy will perform. Since the leadership seems infected with some sort of intervention mania, we also anticipate that the lack of recovery will promote ever-larger bailout and 'recovery' schemes. These in turn will hurt the economy even more. We can't anticipate how long these destructive cycles will continue, but probably long enough to turn the USA into a dramatically poorer nation.
Monday, March 23, 2009
Unemployment versus Contraction
We were reviewing the statistics at Shadowstats - a service that reports relatively honest economic data for the USA - and noticed a 19% unemployment rate (ouch!) and a 4% rate of GDP contraction (bad, but not that bad). Two points immediately leapt up: one, there is a fairly wide divergence; and two, this is divergence in an opposite direction from the Great Depression.
The divergence points to the chronic unemployment and underemployment that exists in the US. Even at the peak of the economy in 2000, approximately 12% of the workforce was redundant. If GDP is to contract in this Depression as much as in the Great Depression (50%), and unless there is to be 60% or more unemployment, more currently employed workers are going to have to take reduced hours or rates of pay.
The nation is faced with a highly problematic scenario. At some point in the not-too-distant future, the Federal Government will have exhausted its borrowing power to maintain welfare payments and its own operations. We have discussed in prior posts how both welfare payments and government salaries will have to be cut. We expect these to be cut through price inflation.
Many private sector organisations will be facing the task of whether to cast redundant workers into a fraying social safety net, or 'sharing the pain' by cutting hours accross the workforce. Self-employed persons will be facing involuntary 'part-time' status. Price inflation will also deliver pay cuts to the private sector.
The course the nation takes to adjust the population to lower economic output will have a decisive impact on how orderly the adjustment is. The more desperately 'turf' is defended and groups attempt to clutch onto their income, the greater the polarisation of income and the potential for social disruption. If there is a consensus to 'share the pain' - even if through inelegant methods such as inflation and higher taxes on the remaining productive elements - there is less potential for acute stife. Unfortunately, the more coercively the pain-sharing is achieved, the more long-term harm is done to the economy: inflation distorts investment decisions, and taxation inhibits productivity.
Clearly, the nation is still sufficiently affluent to handle some economic abuse - but there is a limit to how much. We are not optimistic that there is any collective will to institute a sounder basis for economic development. Alert individuals, on the other hand, will find even in a less benign environment adequate possibilities of prosperity.
The divergence points to the chronic unemployment and underemployment that exists in the US. Even at the peak of the economy in 2000, approximately 12% of the workforce was redundant. If GDP is to contract in this Depression as much as in the Great Depression (50%), and unless there is to be 60% or more unemployment, more currently employed workers are going to have to take reduced hours or rates of pay.
The nation is faced with a highly problematic scenario. At some point in the not-too-distant future, the Federal Government will have exhausted its borrowing power to maintain welfare payments and its own operations. We have discussed in prior posts how both welfare payments and government salaries will have to be cut. We expect these to be cut through price inflation.
Many private sector organisations will be facing the task of whether to cast redundant workers into a fraying social safety net, or 'sharing the pain' by cutting hours accross the workforce. Self-employed persons will be facing involuntary 'part-time' status. Price inflation will also deliver pay cuts to the private sector.
The course the nation takes to adjust the population to lower economic output will have a decisive impact on how orderly the adjustment is. The more desperately 'turf' is defended and groups attempt to clutch onto their income, the greater the polarisation of income and the potential for social disruption. If there is a consensus to 'share the pain' - even if through inelegant methods such as inflation and higher taxes on the remaining productive elements - there is less potential for acute stife. Unfortunately, the more coercively the pain-sharing is achieved, the more long-term harm is done to the economy: inflation distorts investment decisions, and taxation inhibits productivity.
Clearly, the nation is still sufficiently affluent to handle some economic abuse - but there is a limit to how much. We are not optimistic that there is any collective will to institute a sounder basis for economic development. Alert individuals, on the other hand, will find even in a less benign environment adequate possibilities of prosperity.
Thursday, February 12, 2009
Pick Yourself Up, Dust Yourself Off - yeah, yeah
It is becoming quite clear to the less ignorant elements that some major restructuring of the economic sphere is in order. A host of economists without egg on their faces (Roubini and Taleb, among others) are calling for wholesale nationalisation of the banking industry. While we don't agree with them, we find the scale of that particular solution appropriate, and preferable to attempts to return to 'business as usual.'
Aside from our preferred solution of returning to bona fide money, any solution which at a minimum gets the world's circulating money out of the hands of the people who squandered so much of it is a step in the right direction. Stricter limits on what the banks may invest the circulating money in would also be an improvement.
Moving on from the financial troubles, it is obvious that neither the faux free-market system of the English-speaking world, nor the faux socialism of the EU can reliably deliver a modicum of prosperity to the masses. Major reform is in order.
One example of the sort of appropriately-scaled reform that ought to be on the table would be a negative income tax as the only form of national income support replacing social security, food stamps, and housing assistance (among other things). The idea has been lurking for quite a while, and supported by both liberals and conservatives, but has never been implemented. In our opinion the reason is that too many people make their living as welfare system bureaucrats.
This leads to the question, is major reform even possible? Has the political system become as dysfunctional as the grotesque that is the economic system? As the Depression grinds along, the presence or absence of political leadership will separate the societies that recover from the ones that don't.
Aside from our preferred solution of returning to bona fide money, any solution which at a minimum gets the world's circulating money out of the hands of the people who squandered so much of it is a step in the right direction. Stricter limits on what the banks may invest the circulating money in would also be an improvement.
Moving on from the financial troubles, it is obvious that neither the faux free-market system of the English-speaking world, nor the faux socialism of the EU can reliably deliver a modicum of prosperity to the masses. Major reform is in order.
One example of the sort of appropriately-scaled reform that ought to be on the table would be a negative income tax as the only form of national income support replacing social security, food stamps, and housing assistance (among other things). The idea has been lurking for quite a while, and supported by both liberals and conservatives, but has never been implemented. In our opinion the reason is that too many people make their living as welfare system bureaucrats.
This leads to the question, is major reform even possible? Has the political system become as dysfunctional as the grotesque that is the economic system? As the Depression grinds along, the presence or absence of political leadership will separate the societies that recover from the ones that don't.
Subscribe to:
Posts (Atom)
Posts
