All told, finance, insurance, real estate, automobiles, energy, and health care account for about one-third of the U.S. economy. Reconfiguring these industries to conform to political calculations, and not market-driven decisions, is likely to transform American economic life. And the fiscal consequences of the spending involved will be enormous. The federal budget deficit for 2009 was about 11% of gross domestic product, which is far higher than any the United States has experienced since World War II.
Transform it, indeed. Obama's stimulus package has had an enormous impact on all of the sectors mentioned above. In fact, only about 5 percent of the federal stimulus funds went to things like roads and bridges. The rest went into the banking industry, the automotive industry, schools, food stamps and health care. One could argue that much of this funding was needed in anticipation of possible economic collapse. But this sort of spending carries with it great risks.
The Congressional Budget Office projects that existing laws will now lock in a structural budget deficit of more than 3% of GDP every year for the foreseeable future. And this assumes we will escape the current global economic situation without further financial catastrophe (and that America won't be forced into a war or other unanticipated major contingency over the next several decades). The CBO states flatly that this long-term budget path is "unsustainable."
The basic character of America's financial position is changing before our eyes. One year ago, federal government debt held by the public was 41% of GDP. Today, it is about 54% of GDP. The CBO projects that it will approach 70% of GDP by 2020, which is a level not seen since the immediate aftermath of World War II.
Clearly, not good. So what are our options?
According to Manzi, there are three: raise taxes, default on debt, or devalue our currency. I highly doubt the last two are going to happen so, more than likely, it's going to be raise taxes. Manzi talks of a value added tax but an easy fix would be to raise the top tax rate. Of course, this will never happen because raising taxes in this country is akin to going on a shooting spree at an elementary school.
An option that Manzi doesn't mention is cut spending. Does anyone out there think that is going to happen considering our government? But let's suppose it did. Where would we cut spending?
We begin to see a fairly apparent direction.
The end result would be an America much closer to the European model of a social-welfare state, which prioritizes cohesion over innovation. Of course, the European model is not an inherently terrible way to organize human society. It is, however, a model very poorly suited to America's current strategic situation, and would leave us in a far worse position to deal with the challenge of balancing innovation and cohesion. We do not have the luxury of drowning our sorrows in borrowed money while watching our power and influence wane.
He's right. We can't move towards a European model of socio and political economics. It won't work here and it will leave us vulnerable to our enemies in a plethora of ways.
Before I get to Manzi's solution, does anyone have any idea at all how to achieve the balance between innovation and social cohesion? Obviously, I have a few ideas of my own but would like to hear from you first.
7 comments:
M this is only bad news for that part of the left like yourself - the part that, a la FDR, still believes in capitalism as a fundamental part of the equation. There is also that part of the left that has no use for capitalism at all. For them, economic collapse is not a problem, it is in fact the desired end state. That would of course have consequences that are not at all favorable to their cause, but as in the parable of the frog and the scorpion - it's in their nature.
To me, reading this, it just screams that the govt must retreat from doing everything it does. No section of the federal budget can be considered off-limits, and yes, I tend to be a defense hawk (even before I had an economic incentive in that regard); I include defense as an area that needs to be pared. If it were up to me, the first two departments to be gutted would be Agriculture and Education - as the nation prospered for generations without either, and neither is noted for its achievements. I don't have much praise for Carter's presidency, but one thing he suggested that was an outstanding idea was zero-based budgeting. Perhaps it is an idea who's time has finally come?
I would have a real hard time gutting defense spending. In fact, that would be the biggest pill for me to swallow. Since this blog started, I have wanted to go all in in AfPak and we are now. I just can't go along with any reduced spending in that area. Of course, it would have been nice if we hadn't blown 1 tril on Iraq but that's another argument.
Just to clarify, I don't think we gut the whole govt, just some parts. But the entire budget should be subject to a full on review, not just the usual "we spent this much last year, so we spend that plus 10% next year".
I also think there may be a creeping false dichotomy here - that more govt spending means greater social cohesion. Manzi doesn't say that, yet there seems to be an implication in that regard. I don't want the cohesion that Britain has, where so many otherwise able-bodies live 'on the dole'. I want their asses up and working to support themselves, not sponging off of me and the actual working class!
Well, we should never have what Britain has lest we give up our position in the world. There's no one that has our backs so we can't adopt a European model.
"I want their asses up and working to support themselves, not sponging off of me"
And here lies the problem in our country. While we do have people like that in this country, there are far more that work 2 or 3 jobs and are still fucked over by the wealthy elite of this country. There is a lot of anger out there, juris, and I for one do not want a socialist revolution.
So, please, I'm begging you...do away with one of the greatest lies this country has ever seen...the welfare mother with a Cadillac. The only people truly sponging off of you live in Wall Street and K Street.
There's no one that has our backs so we can't adopt a European model.
Not the point. I wouldn't want it even if there wasn't that implication.
...and are still fucked over by the wealthy elite of this country.
Such as? You appear to be falling back on old thoughts and bad habits.
...the welfare mother with a Cadillac.
I didn't even hint at that, so why do YOU bring it up? Hmmm?
Sorry, juris. I thought you were conflating the lazy people of Britain with our lazy people. My mistake.
Such as...our entire system. The recent SCOTUS decision will magnify this tenfold. I don't understand why the right is happy about this...now unions and groups like the ACLU...heck even George Soros' companies can buy elections. Corporations are moving to control every aspect of our lives.
It's more than that, though. Work hard, they say, and you can get to where we are. Complete bullshit. With rising cost of energy, health care, education...virtually every industry...and wages stagnating, damn near all of us will not achieve any sort of financial success. Therefore, the wealthy remain elite which, of course, is there goal.
Such as...our entire system.
Boy, you sure know how to be specific, don't you? C'mon M, let's hear something REAL about how the wealthy are "fucking over" you, me, SOMEONE? No just throwing your hands in the air and saying "EVERYTHING!!! Every time a rich person breaths he is stealing the air from poor babies!!!"
Work hard, they say, and you can get to where we are.
So you got to where you are, how? Some rich person just handed it to you?
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