Wednesday, October 20, 2010

Saving America from Ourselves

By Alan Caruba

I receive Social Security. I am enrolled in Medicare. I won’t be getting a cost of living adjustment from the former and the latter has been effectively destroyed by Obamacare. Both are the products of the Great Depression of the 1930s. The nation’s housing bubble that led to the 2008 financial crisis began with legislation passed in 1934!

Born in the course of the Great Depression and benefiting from the extraordinary era of prosperity that followed the end of World War Two in 1945, I voted Democrat right through to Jimmy Carter because my parents were Democrats and I gave it no further thought. I really should have. In 1980 I voted for Ronald Reagan and became a Republican.

After Bill Clinton became president, even my sainted Mother, then in her 80s re-registered as a Republican. In 1994, I cheered the takeover of Congress after forty years of Democrat control by Republicans. Nothing changed. The spending continued. The entitlement programs expanded.

To paraphrase St. Paul, when I was a child, I spoke as a child, I understood as a child, but when I became a man, I put aside childish things.

Candidly, the times were good and I progressed from being a journalist making very little money to working for a New York State agency that sold bonds to build housing and then to a New Jersey institution of higher learning where I was responsible for its various student recruiting and other publications. Then, like Snow White, I drifted into public relations where my writing skills earned a good living. I’d like to say I am retired, but I cannot.

Despite any number of recessions that occurred in the 1970s, 80s and 90s, the times were good and everyone I knew was making money. I was, however, getting older.

To put this in context, by 1968 when I was already in my 30s, there were 62 lobbyists in Washington, D.C. Today there are 34,000. They outnumber every member of Congress and all of their staffs combined by a ratio of two to one. They are not there to represent the majority of Americans in the middle class and the result is the decline of the real median household income that has stagnated for more than a decade.

Who’s making money these days? Government workers. They belong to the largest union in America.

With the passage of Obamacare, it is now apparent to those Americans who still have a job or a business, along with the growing legion of the unemployed, that voting Democrat can be dangerous to both your health and your wallet.

All this has been on my mind while reading an extraordinary book by Ronald R. Pollina, “Selling Out a Superpower: Where the U.S. economy went wrong and how we can turn it around.”.

We have all been living with a number of myths that Pollina spells out in the initial chapter of his book.

Myth #1: The United States is the preeminent global superpower in economics, political influence, and military dominance, and that is not going to change, certainly in my lifetime or that of my children. Wrong.

Myth #2: Offshoring is simply part of the twenty-first-century globalization and ultimately America will benefit. Wrong.

Myth #3: Sure, America has lost a lot of jobs, but as the economy picks up, our companies will be hiring these people back. It’s temporary—it’s just like the past recessions. Wrong.

Myth #4: Corporate greed is the main reason so many jobs are offshored. Wrong.

Myth #5: China and India may be growing rapidly now, but the American economy is keeping pace with global economic growth. Wrong.

Myth #6: China and India are simply examples of bubble economics in countries with significant social and political problems and therefore will never rise to be threats of the United States’ economic supremacy. Wrong.

The truth is that the United States has been strangling job growth with the over-regulation of business, causing many to set up shop elsewhere.

The truth is the government has deliberately neglected our energy needs while environmentalists sold us fairy tales about “sustainable growth”, “dirty” coal, thwarting our ability to drill for our own oil, mine for coal, or even build new nuclear plants.

The truth is that the government and the rest of us have been on a spending binge based on cheap credit and endless borrowing.

The truth is the nation has been drifting toward socialist “solutions” since the 1930s that have never worked successfully anywhere. That is why the British have hit the wall and the French are in the streets rioting. Famously, socialism has run out of other people's money to give away.

The truth is what the cartoon character, Pogo, said. We have met the enemy and it is us.

© Alan Caruba, 2010


Rachel Pohli said...

Well spoken, sir. All right on the money, I do believe. Not good news, though, I'm afraid. I hope that whatever he suggested in the book about "how we can turn it around" is the kind of thing that we will see happening soon after the election. God grant that it be so. Otherwise, I have very serious fears about the future.

Alan Caruba said...

Thank you, Rachel. Yes, the author of the book cited has some excellent advice and, like you, I hope a new Congress will be tough enough to make the changes needed to save our nation from total financial collapse.

Unknown said...

"To paraphrase St. Paul, when I was a child, I spoke as a child, I understood as a child, but when I became a man, I put aside childish things."
Alan, this statement and the way you placed it in your article spoke to me. Like you, I grew up in a Democrat is the way family. We didn't change until later on, after a few years of Clinton. I regret having not understood the difference during Reagan's time but now when I look for the right kind of person, I am struggling to find the whole package.

I'm wondering what you see for us out there amongst the leadership. I want to steer away from what we have had representing us on the conservative side because I think that the Republican Party is a mess now. I see great promise in a Chris Christie type of leadership but when it boils down to it, he might not get the real support of the GOP. It seems like we have shifted towards popularity rather than standing on principles. It isn't always the favorable thing that is right for the country, but it is the favorable thing that we do now. I guess I am just wanting to avoid voting the party line because it's the party line and that is what everybody has done for years. Look where that has gotten us. Instead I hope we can turn the tide of a misdirected party.

Any thoughts on the kinds of leaders for us to look to in the coming years?

Ronbo said...

Indeed, the USA has "HIT THE WALL," and the grand experiment with the "mixed economy" of capitalism and socialism that started in the 1930s has come its logical conclusion: COMMUNISM!

Where to we go from here?

The Pollyanna in me says it's back to the traditional values and constitutional government that made the USA the greatest nation in the history of mankind.

Alan Caruba said...

@Eric: I think the GOP has a deep field of leaders-in-waiting. Among them are Mike Pense, Eric Cantor, Chris Christie, Jim Inhofe, and others who, given the opportunity will demonstrate that the ship of state can be turned around.

LarryOldtimer said...

I agree with you for the most part, but not about the "cheap" credit part. A high cost of credit will always undermine needed development of what members of the general public need from private industry.

What was really needed was what I would have called "sensible" credit. That is, credit only for loans which made economic sense, and loans at low interest rates only to those people who would be very likely to repay the loans.

And, very limited numbers and amounts of "signature" loans, that is, loans made without collateral backing up the loan. It should be by regulation that any loans of magnitude be amortized

And it was in fact greed which has mostly destroyed our economic system, pure and simple. I watched it all happen, and was appalled at how greedy Americans became. I watched as companies slashed sections/divisions because those sections produced "only" a 7% to 10% bottom line profit, laying off those who produced only such "meager" profits.

Hint: Engineering firms typically have operated with an overall profit margin of 5% to 10%, with 10% being considered as doing well indeed.

The return on investment of 5% to 10% has historically been considered a fine return on investment . . . until after about 1965.

Then greed and ego set in, beginning with the CEOs of some very large firms. And the greed was not only well rewarded, but whereas greed until then had been considered to be a vice, greedy people came to be greatly admired. What had reasonably considered to be a vice came to be considered by the great majority to be a virtue.

The great majority of Americans were allowed to borrow money, and lots of it, on no more than their signatures, and the loans were not amortized over a reasonable length of time.

No, it wasn't "cheap" credit which did us in, but rather "easy" credit to those who quite obviously were not going to be able to repay the loans, not having the visible means of doing so.

For any economy, 5% is a very reasonable interest rate, for people with a good credit rating, that is, people with a past history of paying loans on time, and allows ample money for personnel and operating expenses and a reasonable rate of return for investors in a bank.

The federal government's requirement that people with either no credit history or a poor credit history, with no visible means of paying back loans being given credit was about as foolish a concept as could possibly be.

Every bit as foolish as it would be to substantially increase the cost of credit to well beyond 5% for people with a good credit history, which all by itself would ruin our already almost destroyed economy beyond any hope of recovery.

It would seem to me that at least some of us civil engineers understand "economics" quite well. It also seems to me, at least, that those called "economists" and "bankers" have entirely "lost the plot".

Alan Caruba said...

@Larry: To clarify, I was referring to the near zero interest rate the Federal Reserve charges when it loans banks money. Anyone who has looked at his credit card bill knows that the rates they charge isn't cheap, it's usury.

LarryOldtimer said...

Given that the "money" the Fed "loans" the banks is made from thin air, it is but a way of increasing or decreasing our money supply. Banks then add additional interest rates to cover their personnel and operating expenses and make their own profits.

As I said, excessively high interest rates borrowers have to pay increases the costs of consumer goods bought with credit substantially. If the Fed charges say 5% to banks, the banks then have to add enough of an interest rate to make personnel and operating expenses, and profit.

Creation of money this way devalues the dollar, making saved money have less value, and increasing the Fed's interest rate as an way to attempt to lower "inflation" is absurd.

Most of what is called by the term "inflation" isn't really inflation at all. When government regulations increase the real cost of doing business, consumer prices have to increase or businesses go out of business.

Greenspan failed to recognize that banks were making really foolish loans, loans which in many or most cases obviously would and could not be repaid. He said so himself.

The higher the interest rate the borrower has to pay, the fewer prudent borrowers taking out loans there will be, and if sufficiently high, only those in desperate financial straits will be requesting loans.

Bankers are not making loans because they fear that their bank's reserve will fall below the Fed's minimum reserve requirement, as when that happens, the bank will be closed by the Fed, and the bankers will lose their own jobs.

In my opinion, the "Fed" officials don't know the first thing about how our money supply should be regulated, or even the basics of the conditions under which bankers have to operate.

But then, the "Fed" is composed of "Big Bank" officials only, with no real banking experience of their own and it is to their advantage when small banks fail.

The way the Fed "regulates" is the most absurd thing I have ever seen, and is and has been most detrimental to the US economy.

All of this could be regulated in a far more reasonable fashion, but it never will be so long as "Big Bankers" are in charge. They, in reality, want small banks to fail, and have been exceptionally competent in causing small banks to fail.

As we once farm boys used to say, "Don't put the foxes in charge of the hen house."