Here’s a new video from the Cato Institute, featuring my pearls of wisdom, along with equally sage commentary from my colleague Chris Edwards.
We make two simple points. First, America faces a Greek-style fiscal crisis if we leave the federal budget on autopilot (actually, it will be worse since we won’t get a bailout from the IMF).
Second, the country can be saved from this fate with relatively modest spending restraint. Genuine spending cuts would be preferable, of course, but merely slowing the growth of spending can put America on a sustainable path.
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A large portion of the American electorate has reverted to the worldwide norm of collectivist behavior and thus seems in denial beyond reform. To put it more expediently, they are today’s useful idiots, advocating that Americans reject the very principles of individual economic and political freedom that made this country the most prosperous amongst two hundred in the first place.
Thus, a large percentage of the American electorate has finally joined the worldwide average in believing that a bigger government (i.e. an alias for placement of an ever larger percentage of the economy under collective management) is actually a good thing. As I have said before, rejection of the unique and extremely advantageous, but aberrant, American values of self-determination and self-reliance that have traditionally set Americans apart from the rest of the world, will bring America down into the worldwide average. In summary, with American voter behavior reverting to the worldwide norm, American prosperity will also join the worldwide average.
Amongst the remaining more skeptical voters, as the bitterness of the short term medicine that has to be taken to reverse the current situation keeps increasing, most centrists will find it easier to just bury their heads in the sand and hope that maybe, just maybe, the perpetual motion machine of prosperity advocated by charlatan economists like Paul Krugman (who use their nobel prize to bamboozle a naïve public), may just happen to exist after all.
Therefore the only question remains what will the mode of American decline be? There are 3 main scenarios:
1. A Greek style collapse which, given the fact that there is no entitity big enough to provide a US bailout, may perhaps prove cathartic (but will not lead to salvation).
2. A French style slow death with America melting into the worldwide average under an irreversible growth rate trendline of 1-2% in a world that is otherwise growing at 4-5%
3. A two steps down one step up approach where backlash to big government administrations brings temporary lulls under administrations that attempt to stall its growth (like Reagan).
4. A series of more moderate crises where the country recovers only a small portion of the lost ground before the next crisis, leading to a choppy path with a definitive downward trendline.
Against 1 is the fact that, unlike small Greece, whose bubble was being supported by the EU, the US cannot count on bailout from anyone, since there is simply no entity substantial enough to provide even moderate assistance in any form. Therefore there are limits to how much the American vacuum bubble can loose pressure before undergoing inevitable contraction. So inflation of a bubble against fundamentals to Greek pressure levels is less likely.
Scenario 3 seems more likely. So the passage of things like the “massive invitation to indolence bill”, also known as health-reform, or the “we get someone else to pay your health insurance so long as you undermine the economy by doing less work than it takes to earn $90k” bill, will create temporary backlashes which bring to power Bush fiscally conservative in public perception only Republicans or even a Ronald Reagan or two who temporarily stall the growth of government but cannot really reverse the path of firmly entrenched entitlements like Medicare, Social Security and now ObamaCare (certainly the most indolence inviting of the three).
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But the bottom line is that regardless of details the underlying theme is decline.
To make a Junior High science analogy, consider a pot set on the stove to boil.
Economists, or myself, trying to predict what will happen in the next quarter or year, are trying to predict where the first boil bubble will form, how will it rise, how will it perturb the local environment triggering yet the formation of more boil bubbles etc. a famously difficult but largely irrelevant problem to sweat over when it comes to predicting the final outcome. Economists, like Mr. Mitchell, who focus on economic fundamentals, are simply stating the obvious fact that transcends the temporary minutiae and distractions.
He is saying that if you do apply heat to a pot it will boil at some point, when exactly is secondary, but it has no choice but to boil. Or, perhaps more appropriately, that if you remove the heat, it will stop boiling. How exactly will the declining bubbles in the pot behave, is largely irrelevant and a distraction in determining the final outcome.
So, in final summary, if you remove incentives to produce and innovate, the total value of production entrepreneurship and innovation will decline, and since any country, almost by definition, enjoys prosperity equal to the value of its production, standard of living will also inevitably decline. Expecting that other countries will somehow step in, or be tricked, or coerced, into helping Americans maintain a standard of living that is six times the world average, is simply delusional.
Goodbye aberrant American morals of self-reliance and self-determination means goodbye American prosperity. Q.E.D.