Friday, April 29, 2016

Some Consistent Themes

It is now widely acknowledged that economic growth is a thing of the past in western nations. 
Absent economic growth, living standards for average citizens must deteriorate.  Why? Because the various mandated employer benefits are ultimately paid by the labor force, not by employers.  This means a steady erosion in the disposable real income for the average citizen, because the costs of these mandates have no upper limit. On top of this, the expected dramatic tax increases that lie ahead will fall mostly on the backs of average citizens, further reducing disposable incomes and lifestyles.

Meanwhile, the bureaucratic classes -- government employees at all level, academics and public school teachers, employees of taxpayer funded foundations, employees of international bodies like the World Bank, the IMF -- will continue to get ever higher compensation and benefits. There has been no deterioration in the real disposable income and lifestyle of the bureaucratic classes.  And there won't be, as long as the political classes force ordinary taxpayers to provide the funding for bureaucratic largesse.

So, what is the latest siren song of the big government loyalists:  Time for fiscal policy. 

The pundits and the left are singing the tune that monetary policy no longer works.  No kidding.  When did monetary policy work?  Has something really changed?  Or just the official rhetoric?

The new tune is that it is time for fiscal policy.  That means more spending. Is the argument that spending hasn't been tried?  Has anyone noticed that the only thing growing in the US economy is the national debt?  Time for fiscal policy is leftspeak for higher and higher deficits.  It used to be said that when debt reaches 70% of GDP, it becomes unsustainable.  We are way past that, thanks to the last eight years.  So, now is the time for more spending and debt?  That's the ticket?

Over the past half century, there has been a steady but certain legislative onslaught outlawing various free market activities.  This onslaught increased dramatically in the last eight years. 

It is now illegal for the free market to operate in the health care sector.  The result:  massive increases in costs imposed on average Americans and a decline in health care availability. 

It is now illegal for investment banks to make markets in securities.  The result:  illiquidity and volatility in financial markets and the absence of stock market returns since the end 2014; the shrinking of investment banks with the resulting loss of jobs and shifting of the financial center of the world away from New York in the direction of London, Tokyo, Hong Kong, and Beijing.

It is now a crime in several states for anyone with a skill set of less than $ 25 per hour to have a job.  The result: large numbers of lowly skilled workers, rather than face a prison term, are increasingly turning to welfare in order to survive.  The future for these folks, at the bottom of the US economic pile, is increasingly bleak with the new laws that effectively make it illegal for them to gain the skills necessary to enter the US work force.  Hillary Clinton proposes to  expand this ban to the entire country, if elected.

It is now illegal for a commercial bank to make a mortgage loan unless it complies with rules designed by bureaucrats who think mortgages should be doled out on a political, not economic, basis.  The result:  millions of Americans have given up the dream of home ownership, since they are effectively denied access to the mortgage lending market.

It is now almost illegal to operate a coal business in America due to arbitrary rulings from the EPA designed to eliminate America's coal industry.  This is done in the name of carbon dioxide levels that today are 6 percent of the atmospheric CO2 levels reached in earlier geological eras.

At every level of government, new rules and laws designed to snuff out free markets and free enterprise are enacted daily. 

These things matter.  They eventually reach a tippling point.  Economies cannot grow in a regulatory climate this hostile.  Free people need free markets and they no longer have them.

So, fiscal policy is an absurd prescription for what ails us.  Free markets are the only prescription with any hope of lifting economic growth in the western economies. 

It is one of history's great ironies that a communist nation now provides a more hospitable climate for free markets than the US and Europe.  Time will show that China with free markets are more than a match for the stultified bureaucracies that hold sway in the West.

No comments: