THE NEW ECONOMY

THE NEW ECONOMY

"It's the economy, stupid," was Bill Clinton's theme when he came into office.

The following is an assessment of our current economy and the glide path we're on. It should be of particular interest to young people, to those nearing retirement, and those who care about their children and grandchildren.

Many of my friends, acquaintances, and media commentators seem to believe that we are headed back to where we were before the 'Great Recession' started, and that our problems with jobs, debt, infrastructure, and a diminished middle class will be resolved as our recovery progresses.

I take a different view. The 'good old days' economy was hollow and unsustainable. It was fueled by growing debt, both public and private, and by ignoring the 'cost of doing business'--e.g. maintaining our infrastructure, and by ignoring growing liabilities (public pensions etc.).

Our current situation consists of little, or no, growth in our GDP per capita. And we continue to allocate resources in excess of those available, even before accounting for unfunded liabilities.

Before continuing, it's important to note that this essay has nothing to do with the, value, importance, or necessity of any allocation(s).

In the second half of the twentieth century, we made some progress in correcting the misallocation of our nation's resources. We improved civil rights, and ended the Vietnam War and the Cold War. Many other issues went unresolved and unrecognized. Now, we find ourselves with an economy that does not, and will not serve our needs. I have written extensively on the corrosive effects of corruption and crony-capitalism. But there is another elephant in the room: We do not recognize that we can't spend a dollar twice. In other words, we don't understand that in a nation with a slow (read, no growth) economy, allocating resources becomes a zero-sum game, money allocated has to come out of another account (program/cause).

Some of the imbalance has nothing to do with decision making, it's just happening. Our population is getting older. The world's population is growing, putting a demand on resources (fuel, water, lumber). Both of these raise our costs; the elderly require more health care, and greater consumption of natural resources raises our costs of goods and energy.

Most of our resource allocation is deliberate but with little attention to the 'zero-sum' concept. Take regulations, now being implemented at twice the rate of ten years ago. Let's assume they are all good and necessary. But let's not assume that they don't have costs. Environmental regulations are an example. I like clean water and air and I love nature. Unfortunately, the price of everything I buy includes the cost of compliance with environmental, and whatever other regulations apply. Almost every business pays someone; sometimes a team of people (employees & consultants) who understand the regulations, file for permits, fill out the reports, and interface with government bureaucrats. Great, but it's in the price, an allocation of resources.

We are living in a time of insatiable demands for resource allocations. Sometimes justified by, "We can't afford not to do this." or, "It's an investment in our future."  Too bad, we've already allocated so much to Homeland Security, wars and their aftermath, social costs including food stamps, rent subsidies, disabilities (4 1/2 million added since 2007), 'special needs' public school students. And let's not forget our illegal immigrants with their I.D. cards entitling them to benefits. Also, bear in mind that much of what we're committed to has not yet shown up in our expenditures (unfunded liabilities--even in my own town).

These things, and a great many more I could list, are not 'bad' things to do. Although, a crack-down on waste and fraud and a method for assuring that we do not create a permanent welfare class, would make the rest more palatable. Even with these in place, we'd still have a massive problem.

It's axiomatic that politicians don't solve problems that won't come to fruition during their time in office. The bi-partisan congressional budget office, apparently aware of this, has forecast debt to GDP ratios in 2030, and beyond, to reach levels exceeding those of Greece. (Argentina here we come!), and this doesn't include new allocations for social, humanitarian, or emergency needs.

I don't believe we'll reach these levels. The question then becomes: Where will the differences come from? How will the 'great' reconciliation (balancing the books) affect you? Are you prepared?

And, lastly, wouldn't it be nice to encourage more business?

Joe Bakewell

Joe Bakewell's recently published book, Class Rules, can be found at link below--CC editor.

http://joebakewell.wordpress.com/