Cuts

Cuts:

Reason offers an analysis of the current political situation, with a one-step solution.

We may not be France yet, but there are disturbing signs that Americans may be ready to take to the streets angrily in defense of their government deals and giveaways. (Some polls showing a lack of support for the very idea of public employee unions are encouraging, but it doesn’t take a majority to cause civil unrest.) Wisconsin may be the first sign that, no matter how much support one can gin up for shrinking government, actual attempts to restrain a free-spending government will be met with strong political counterforce—even when that interest is overpaid teachers and big-money unions.

The threat of federal government shutdown, happening simultaneously with the Wisconsin crisis, demonstrates that the fiscal crisis is multileveled, and no one wants to allow it to be dealt with seriously....

The only really serious position moving forward about government size and government spending is how to cut it, and how soon. While the fight to cut specifics here and there may seem ugly and unfair, all cuts need to be supported, wherever they seem politically possible.

All politically possible cuts must be supported. That's interesting, but it is not a solution to the current problems.

By this I do not mean that it isn't a good idea: in general, it probably is. The easiest way for a cut to become politically possible is if it is a Republican priority (say, a new engine for the F-35). While in the short term that means a government that is only executing the program of the left, it leads by example, and more importantly, it refocuses the minds of the party of the right on the question of cutting, not spending.

Even so, the runaway problems are three:

1) Medicare,

2) Medicaid,

3) Un- and underfunded retirement benefits, including Social Security, government pensions, and government health care plans.

Here is a chart showing the explosive growth of these three types of problems. This is not new; we've been talking about unfunded pensions here since 2007. My thoughts back then pretty much echo my thoughts now: the political system will not be able to address cutting these things, which means that the cuts will come in the form of systemic collapse. That means a kind of tribalism, not solely based on blood ties, but on ties of kinship and friendship.

Well, and that was the old system: and mostly it worked. Sometimes it didn't, which is why Social Security was a popular idea. Nobody wanted a situation where elderly people were dying in the street after a lifetime of work.

A bigger problem, though, is that our economic system has changed in fundamental ways over the last sixty years. The capitalist system of the 1950s assumed that everyone would be a jobholder, because there was so much labor that needed to be done. Automation was in its infancy, so even on an assembly line you needed a massive number of people to put things together. It was still difficult and expensive to ship things around the world, so you needed people for your factories who lived close by, and the factories needed to be close to their customers. In the offices, the absence of things like copiers and computers meant huge pools of typists were necessary just to ensure that adequate copies of important documents were made, properly formatted.

By the 2000s, automation had progressed to the point that a huge number of workers were no longer needed in the factories. Manufacturing as a sector of the economy continues to outproduce China and to grow in real dollars, but jobs in manufacturing shrank from the 1970s through today.

Similar things happened to typists and secretaries, whose jobs were steadily cut by improved technology. Now even executives tend to type their own letters in word processors, and as many copies as they need are a couple of clicks away.

That's called efficiency, and it is a major reason that the US economy remains so much more productive than the rest of the world. Capital is cheaper than labor, so the investment of capital meant that profits rose as costs fell.

Profits, though, don't go to everyone. The benefits of automation are for the owners of the machines: the workers without jobs not only do not benefit, but are positively harmed.

In addition, the ease and cheapness of global shipping means that it is now feasible to make things abroad. Improvements in telecommunications make it easier still.

The upshot of all of this is that -- not to put too fine a point on it -- there's a lot less labor that needs to be done. There will be less labor needing to be done in the future.

For now that means persistently high unemployment. In the future, it means a day when we have to face the reality of permanent unemployment for a large part of the population.

That means rethinking our basic model about how we adjudicate resource distribution in America. For as long as the nation has been in existence, that was done in terms of their pay for employment.

It may have to be done differently in the future, and we don't have a good model. On the one hand, it is simply unreasonable to ask people who are permanently out of work to get by on nothing. They can't. On the other, direct payments from the government -- entitlements, that is -- have a soul-destroying quality when applied as welfare instead of retirement pay. This is true in Saudi Arabia, for example, where the massive wealth of the society is such that everyone gets a stipend. They all hire servants to do all the labor; but it somehow fails to be the happiest place on earth.

For the short term, we need to cut spending and entitlements; but for the long term, we need to look at new ways of raising revenue. There are good arguments against corporate taxes, though it seems fair to suggest that some of the benefits of the efficiency of automation should go to the people who are put out of work. It may also be the case that we need to look at ways of raising revenue from the world at large to help pay for the Navy that guards their trade lanes, thus providing a benefit to their nations as well as our own.

This is a pretty sticky problem. The only answer we've come up with so far is to make-work through bubbles: that is, since we don't need any more than we have, we'll spend money on things we just want. That got us many McMansions with tile kitchens, and for a while it paid for many construction workers; but it was never sustainable. We need a better answer.