Tuesday, December 7, 2010

Bad News for the Welfare State

The Nov.-Dec. issue of Foreign Affairs, a publication of the Council on Foreign Relations, contains the article "American Profligacy and American Power: The Consequences of Fiscal Irresponsibility" by Richard Haas and Roger Altman, two very high-powered establishment guys. It's worth your time to pedal down to the local library and read this essay rather than put down $12.95+tax at Barnes & Noble for the whole magazine. However, if the tires on your bike are flat, I can give you a synopsis of what they're trying to get across. It's over. The US congressional strategy of purchasing votes with the future production of the country has resulted in a state rapidly descending into irreversible financial disaster. US commitments to virtually unlimited defence spending and geometrically expanding entitlement programs financed by treasury bonds are unsustainable. The country is rapidly approaching a situation where a huge percentage of the GDP will be required just pay the interest on these bonds. It is inevitable that government services will be curtailed and that taxes will be increased. This isn't the raving of a radio talk show host. The first is the president of the CFR and a Phd. from Oxford and the second is a former Assistant Secretary of the Treasury, an adviser to presidents and presidential candidates, and a fixture in the world of finance and its academic auxiliaries. So what does that mean for you and me?

First of all, the celebrated US standard of living is going to take a slide. We are seeing evidence of this already. Discretionary spending will shrink in predictable ways. Luxury items like sophisticated fishing boats, high-buck motorcycles, expensive furniture, etc. will no longer be options for middle class consumers. Home buyers will be forced to look at smaller houses. Food choices for many will be less exotic.

Second, and most important, the relatively new social safety net will be re-configured because there will be no money to pay for it. It's always seemed strange that while the state could require that parents are responsible for their children, there's never been a push by the government to make these children responsible for the later welfare of their parents. You could say that the parents SHOULD HAVE made provisions for their declining years and if they did so, great. But if they didn't, why does society as a whole assume that responsibility? Sure, social security was supposed to provide some help in that line but the payroll deductions have been dwarfed by the escalating benefits and inflation. Realistically, those deductions were just another tax, they've been poured into the general tax receipts. There won't be any security provided by social security.

Defined benefit public employee pension plans, the black hole that states like California, Illinois and New York stare into now along with many profligate municipalities, will become a thing of the past. And those states and communities faced with the impossible task of guaranteeing these pensions will need some creative thinking to escape their financial responsibility. Escape they must, as dunning the general population into penury to accomodate retired firemen and cops will open the gates to political demagoguery unique in our history.

The US operates under a paradigm of education borrowed from 19th century Germany and relatively unchanged since that time. The educational bureaucracy, from the small local level to the federal pinnacle, exists not to further student knowledge but to perpetuate itself and produce docile citizens with prescribed beliefs. The country can no longer afford an expensive but ineffective system that half-heartedly embraces technological advances that should make it cheaper and better.

How long will the population be able to afford a law enforcement, judicial and penal structure that dominates society? The "war on drugs" for instance, devours tax payer funds in a losing battle with black market entrepeneurs that supply a product to willing customers while encouraging disregard of important laws throughout society. Can we really afford to spend $40,000 a year to incarcerate those convicted of supplying common vegetable matter to happy consumers?

The US military establishment, larger than that of the rest of the entire world, must be shrunk dramatically. The 2011 US Navy budget request is for $160.6 billion.

"The FY 2011 budget supports a deployable battle force of 284 ships including 11 aircraft carriers and 29 large amphibious ships. It also reflects a shift to support irregular warfare and includes funds for the littoral combat ship (LCS), expeditionary E/A-18G aircraft supporting national electronic warfare requirements, P-8 Maritime Patrol and Reconnaissance aircraft supporting increased emphasis on intelligence, surveillance and reconnaissance and a variety of unmanned aerial vehicles."

No other country has more than one carrier. The US has over seven hundred overseas bases. Those in Afghanistan and Iraq are often in the news but we hear less about installations in Bulgaria, Italy, Serbia, Israel, and Greece. In the very near future American military presence will be reduced both at home and overseas, purely for financial reasons. The concept that the US should be an increasingly ineffective policeman for the world will no longer be valid, if indeed it ever was. Other countries, especially the Europeans, will be forced to finance their own military protection in reduced form or forego it entirely.

The days of federally-financed earmark projects, the John J. Murtha Airport in Pennsylvania, anything in West Virginia with Robert Byrd's name on it and obscenely expensive rail and highway projects are numbered, even as "stimulus" efforts.

In the decades to come, the gigantic statist experiment will fail. And that's a good thing.

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