Friday, June 11, 2010

The Decline and Fall of Everybody

By Alan Caruba

I have a friend of over twenty-five years who I watched build a single idea for a business into one that, at one time, was taking in a million dollars a year. Then the Internet came along, followed by the 2008 financial crisis.

After a reasonable period of agonizing, my friend sat down and put the numbers on the page. They added up to firing all his employees and not renewing the lease on the office in which he’d been since the mid-1980s. Tech savvy, his business has gone “virtual.” As he put it, “I will make sales from my cell phone.”

Now take my friend, the classic entrepreneur and small business owner, and multiply him by thousands across the fruited plains and purple mountains majesty. Not only has the economy crashed, thanks to the latest “bubble” of bad housing mortgages, but it happened just in time to ensure that Barack Obama who never owned a business, met a payroll, or worried about selling anything other than himself was elected president.

Next on the list of burst bubbles will be all the “green” technology and “clean energy” companies into which the government has been pumping billions in subsidies for wind and solar power, grants for research on biofuels, electric cars, and all the other “green” projects the public continues to be told represent a bright new world.

Why would anyone think that a “community organizer”, academic, and briefly a working lawyer, could know or even be brought up to speed fast enough to know what to avoid and what needs to be done to put people back to work or help small to medium businesses? The answer is he couldn’t and he wouldn’t and he didn’t.

Obama’s most basic instincts are a liberal distrust of “big business”, “Wall Street”, and anyone else involved in shaping and making the economy. This is particularly true since his political rise has been fueled by millions from unions. He is their man. They own him. He is beholden to a number of other special interests, but that is where his heart is. That is where he looked for and received campaign funds, campaign manpower, and votes.

Once in office, he set about reversing the slow and well-deserved decline of unions that, while having a long-ago past history of correcting working conditions, are now totally parasitic no matter whether it is the auto or any other industry, or whether it is in the public service sector where they toil as government workers, teachers, and others whose work rules, health benefits, and pensions have contributed to the insolvency of most states and cities.

They and the nation’s other blood-suckers, the lawyers, are Obama’s chosen constituency and everybody else can just plain go to hell or shut up and take a government-issued check for a return on taxes you may not have paid (40% do not pay taxes these days), your food stamps debit card, or any of the other government handouts that keep people docile and unproductive. Don’t worry, when your unemployment benefits run out, Congress will just extend them.

The problem is that Congress and the nation are just flat broke. At some point all the borrowing will stop because those doing the lending will decide they are not seeing any real return on their investments in U.S. Treasury notes.

The problem is that one of the wonders of globalization is that when one country goes belly up, it affects all the rest. Sooner or later the whole global network of central banks is likely to run out of money with which to bail out one another. Then what?

My friend will run his business as best he can in an economy where his customer base has increasingly reached the same point that whole nations will. They will have to decide where to spend what little money they have.

This is going to become an increasingly difficult decision when Obama and the Congress raise taxes at the worst possible time, thus sucking anywhere from 40% to 60% or more out of the pockets of the middle class, the entrepreneurs, the managers, the professionals. If they own homes as many do, they will cease to have any equity and prove hard to sell.

So it will be the decline and fall of everybody other than the millionaires who can afford the lawyers and accountants to show them how to pay less taxes than a chimney sweep or bus driver.

My friend is sounding a lot more relaxed these days. He is no longer responsible for all the costs involved with hiring, paying, or firing anyone. He no longer has to meet the rent on his office. Even so, he has discovered a whole new layer of reporting to the IRS regarding his venders and must in turn provide data to those who continue to use his services. American businesses, large, medium and small are strangling on government regulation and taxation.

There is a ripple effect here. It begins with the laid-off former employees who cannot find new jobs. It includes the owner of the office building who has space he cannot rent to a new business enterprise. It includes a copier machine lease allowed to lapse. As he put it, he can walk down the block from where he lives and use printing and delivery services. For list maintenance and other IT services, there’s always the vendor in Bangalore, India.

© Alan Caruba, 2010


Ronbo said...

I was depressed this morning after reading this article by Robin of Berkeley, a mental health professional of many years who lists a number of psychological issues our president seems to be dealing with - and then I read your article on the coming crash of world economics - so now I'm REALLY depressed.

I'd get drunk, this being Friday, except for the fact that the alcohol would make me even more depressed tomorrow. What to do?

Cheers, Ronbo

accounting guy said...

in the last several decades productivity in America has increased greatly.
During that same time, real wages (and wages adjusted for inflation) have decrease.

Alan Caruba said...

A nice glass of Zinfendel wine and a bit of fine cheese will cheer you up. :-)

Rich Kozlovich said...

When I was a kid we were taught that Rome fell because of moral decline. The reality is that morality was never a part of Roman culture from its very beginning.

For centuries Rome had a self-absorbed incompetent leadership that wasted money to keep the mob happy and the upper classes living in luxury and decadence.

When this gigantic welfare state collapsed it was because they went broke.

Alan Caruba said...

That was part of it, Rich, but Rome was brought down in large part by having to constantly be at war in distant places. Nations often asked for Rome's protection. After a while, that became too costly, required mercenery armies, and ultimately led to its ruin.

Unknown said...

accounting guy, unfortunately our increase in productivity has not been in making things to sell as exports.

We've lost the higher-wage smokestack jobs and replaced them with low-wage service jobs, insofar as a percentage of all jobs.

The sides of our economic pyramid have become concave, rather than straight or even convex.

I doubt it will get better with age.


LarryOldtimer said...

Rome fell because the Roman Warm Period came to an end. Pure and simple. Then came substantially less agriculture production. Nations which had been conquered by Rome could no longer pay tribute to Rome. Without this tribute, Rome could no longer keep its extended army fed and otherwise supplied, so had to gradually withdraw its troops (which enforced Pax Romana). The Roman empire shrunk, until Rome couldn't even protect Rome itself, and Rome was successfully invaded. End of the Roman Empire.

During the Roman Warm Period, humanity waxed well indeed. After this warm period ended, civilization substantially contracted. For people to be free to do other than subsistence farming, a surplus in agricultural production has to exist. For scribes to produce manuscripts, food has to be provided to them.

We at present are most fortunate to be living during one of those historically rare warm periods. It won't last forever. To fear some inconsequential minor temperature fluctuations is absurd, as is extrapolating minor differences in temperature many years into the future.

We here in the US are also most fortunate in that our only geographical neighbors are the extremely weak nations of Canada and Mexico. Europeans are no where that fortunate.

Ronbo said...

We can endlessly debate reasons for the fall of Rome, but always remember in one form or another, the Roman state lasted from 753 B.C. until 1453 A.D. when finally conquered by the Turks, a period nearly 2,000 years long.

In contrast, America seems to be flying apart in little more than 400 years existence in one form or another.

Cheers, Ronbo

Frank said...


Take Reaganomics and add in some Clintonomics and what do ya' get?

Well, look around.

Keep this up and the US will be the next Haiti....