America, Land of the Social Security Check, Home of the Welfare Dependent

I applied for Medicare on Friday.  I'm going to be 65 in roughly three months.  When I called the Social Security Agency (welcome to socialist America),  I had an hour-and-fifteen-minute wait before I could get through, and they told me that I had to apply online.  Mark Zuckerberg needs to know, and make no mistake, Facebook can know if it wants to.  The Social Security website froze me out because I had typed in the wrong password when I had checked it several months before, so I called the helpline, which involved an additional 50-minute wait.  The young government worker was helpful, and I eventually applied after a four-hour battle.

As I was waiting on voicemail, the SSA proudly announced that 50 million Americans are currently on Social Security.  The number of Americans on means-tested welfare is roughly the same, about 52 million.  If you add the number of government employees, about 22 million, that's 124 million.  In July 2017 there were 252 million Americans over age 18, the voting age.  That means that 124/252 = 49.2% of Americans are dependent on the state. If you add to that the people who work in zombie industries that would not exist without state support-- including Wall Street, the auto industry, and public partnership real estate--the percentage of voters who depend on government is well above 50%.

In other words, the productive sector in America is well below 50% of the economy.  So much for land of the free, home of the brave--or liberty and justice for all.  America is a socialist welfare state with a dependent population.

I recently finished Garrett C. Fagan's audio  Roman history series from the Great Courses, which was a wonderful experience. The Great Courses lectures are all wonderful, and Rome was one of my favorites, along with Vejas G. Liulevicius's World War I. Fagan teaches at Penn State and Liulevicius teaches at the University of Tennessee.  My next one will be William R. Cook's history of the Catholic Church.  

In between, though, I am listening to Tucker Carlson's audio book Ship of Fools. Carlson makes a number of excellent points, and I am finding the book to be educational. Also, his writing is sharp.  I'm only up to Chapter Three. (I listen to all this in my car, so it is slow going.)

Carlson blames much of the recent decline in the American economy on elite selfishness and immigration.   Some of  his arguments parallel Christopher Lasch's in his books The Revolt of the Elites and The Culture of Narcissism.  Like Lasch, Carlson notes that the segregation of elites in all-white, upper-income neighborhoods makes them insensitive to the effects of the policies they advocate.   

Carlson's pillorying of Democratic Party looters is awesome. His discussion of dumbed-down, overprivileged millennial Chelsea Clinton is hilarious, and his discussion of  Mark Zuckerberg and the ugly effects of Facebook are eye opening.  He accurately depicts the Southern Poverty Law Center as a one-time opponent of racism that has become a fraudulent partisan advocate for Democratic Party elitists.  

As well, Carlson accurately depicts the current economy as one of decline for the average American and one of subsidization and privilege for financial, political, and technology elites.  However, a point of disagreement is that Carlson places the blame on immigration. 

Real wages have stagnated for the past 50 years, since the early 1970s, when immigrants were less than five percent of the population. Immigration is not the reason for stagnant real wages. It is at most a contributory factor, but in the absence of regulation and subsidization, immigration flows would adjust to the market- clearing level.  Native Americans ought to enjoy an economic advantage over immigrants, who do not know the language and culture. Increasing the minimum wage is likely harming immigrants, whose labor is less valuable than native speakers.  I'm not convinced that immigration is the real problem, and Carlson does not offer much fact for his claim.  The real hourly wage began to stagnate in the 1970s, right after the abolition of the gold standard and less than 10 years after the establishment of Medicare and Medicaid. By 1980 immigrants were still only six percent of the population, but real wages hadn't grown in seven or eight years. 

At the same time, it may be time to put a moratorium on immigration because of the anger it has caused. I have heretofore been in favor of open immigration, but about ten years ago I remember thinking that perhaps a moratorium on immigration might be helpful to American workers, who have suffered grievously at the hands of the Fed, the Democratic Party, and big government.  In general, a free economy based on limited government will result in optimal economic outcomes, including rising real wages, modest income inequality, and a stock market, with six percent returns.  In the 19th century most of the returns from the stock market were in the form of dividends.   

Besides immigration, my chief point of disagreement with Carlson is that he seems to believe that old-fashioned state activist liberalism--New Deal liberalism,--ought to be the new conservatism.  The old-fashioned state activist liberalism of the 1930-1970s may still capture President Trump's supporters' imaginations, but it will not restore the economy; it will not restore real wage growth; it will not return the country to the rapid economic growth of the laissez faire, Progressive, and New Deal eras (which ended in the 1960s).  

It is true that much of America's elite--the Clintons, Buffetts, Goldman Sachses, Zuckerbergs, Soroses--are a cancer on the average wage. It is also true that New Deal policies led directly to their ascendancy, and the group that was in power before them was already taking the country down a primrose path. Replacing today's rapacious, politically correct, finance-and-technology elites with the military-industrial complex about which Eisenhower and C Wright Mills warned and included George HW Bush's dad, Prescott Bush,  will not change the underlying problem, which is the result of monetary and regulatory systems controlled by a centralized, special-interest dominated state. The federal government has squashed real wages and allocated credit to crappy technology like Facebook,  crooked Wall Streeters like George Soros, and crooked hacks like the Clintons and Bushes.

Franklin Roosevelt, copying the innovations of Gustav von Schmoller and Bismarck in Germany, implemented a system that has similarities to what brothers Tiberius and Gaius Gracchus imagined for Republican Rome in the early phases of the Roman Revolution, which led to its becoming a dictatorship, then an empire, and ultimately a monarchy:  Their plan was to give the plebeians cheap grain. (Later in the empire Emperor Septimius Severus made grain free.)    The dislocations of World War I and Progressive eras paralleled the processes in the Roman Revolution, which lasted about 150 years.  Although the Progressive era was short, its system may last for as long as the early empire and the Pax Romana, which lasted 150-200 years.  It may be that in 2,000 years historians will view our era as an extension of the Progressive and World War I eras. This is already occurring as historians are beginning to view the two world wars as one war.   

It is sad to see an America with the beautiful ideals of Locke and Jefferson turned into a bread-and-circus, totalitarian state dominated by the nincompoops of today's state, technology, and finance elites and their dumbed-down propagandist-journalists.  Carlson's hilarious depiction of psychopath Max Boot is on the money.

Even if  President Trump follows the proscriptions of Carlson and slows the looting by state, technology, and Wall Street elites, there is little hope for improvement because Americans have been satisfied with a $16,000 Social Security benefit, a welfare check, and Medicare. The dynamics of public choice and special interest behavior guarantee that a large, centralized government will benefit the most corrupt and opportunistic, and  Carlson's debate with the Democrats ignores the underlying dynamic. 

The Disadvantages of Trade Are Due to Federal Intervention

The federal government, not trade, is the source of social losses from the exit of manufacturing firms. Trade always results in making the parties to the trade better off. It may result in one party's being made better off to a greater degree than the other, but without both parties' being made better off they wouldn't trade.

The declining automobile industry and Chinese manufacturing illustrate separate issues. With respect to the US auto industry in the 1960s and into the 1970s, when I was in high school and after, consumer advocates talked in terms of "planned obsolescence"--that American car makers deliberately produced badly made cars so that consumers would be forced to buy new ones within a few years. That was probably an exaggeration of the Big Three's competence: They produced bad cars because their management systems were crummy, not because they consciously made bad cars. The 1979 book by John Z. DeLorean and Patrick Wright "On a Clear Day You Can See General Motors" covers GM's often laughable incompetence.

Thus, global competition has been a boon to Americans. It increased the quality of cars because of the Toyota production system invented by Taiichi Ohno and the Toyoda family. The result is that cars that once had to be junked at 100,000 miles or less now frequently last 300,000 miles.

That means every American who buys a car enjoys three times the value. Although American auto workers lost their jobs (a plight amply illustrated in Michael Moore's best work, "Roger and Me"), Americans have on balance been made better off by trade.

With respect to China, there is a combination of issues. First, labor costs are lower in China, and there is a reason to move labor-intensive plants there and to other low-wage countries. Low labor costs mean lower prices to Americans. One of the reasons we have sustained a relatively high standard of living is the inexpensive merchandise at big box stores due to low labor costs in China.

At the same time, plant relocation requires capital investment, and when capital is at its market rate, there is an impediment to making risky and costly moves. The costs of relocation have been suppressed by the federal government and the Federal Reserve Bank. By keeping interest rates artificially low, firms have been able to invest in plant relocation and make other labor-cutting capital investment at subsidized cost. There likely has been overinvestment in labor-saving technology as well as plant relocation because of suppressed capital costs.

Hence, the relocations and the loss of blue collar jobs are not entirely due to free trade. They are in part due to the federal government's subsidization of capital investment.

That's not the only way, though, that big government interventionists have hurt blue collar workers. During the same period that it subsidized plant relocations, the federal government increased all kinds of regulation, from human resources and employee benefits to OSHA, to environmental regulation, to Sarbanes-Oxley, to product liability. In addition, it raised corporate tax rates. The Democratic Party's policy mix seems designed to force manufacturing to move overseas.

Moreover, and most importantly, the federal government through its protected monopoly, the Federal Reserve Bank, has inflated the money supply while the dollar is used as the world's reserve currency. Foreign holdings of dollars limit the inflationary effect of historically low interest rates. The dollar remains relatively strong despite massive increases in the number of dollars.

In a free market trade regime, if many manufacturers exit a home country and sell their goods back to the home country, the value of the home currency will decline. That has not occurred. Rather, the dollar has retained its relative value despite the exodus of manufacturing to China. The reserve currency status of the dollar allows the Fed to subsidize privileged industries in services, government, education, and health care while it drives productive industry to China.

It is not surprising that President Trump's often-blue collar supporters have been skeptical of trade, for the managed version of it has harmed their interests. In contrast, the well-to-do beneficiaries of Fed policies, stock market investors, Wall Street, government employees, beneficiaries of government welfare plans, real estate developers, professionals like psychologists who benefit from state programs, are key constituencies of the big government economy. Notice that none of these produce much of value. America's has increasingly become a vampire economy.

The Sources of Middle Class Anxiety

In today's New York Sun Robert Samuelson argues that middle class anxiety results from an economy that generates greater returns at the expense of greater risk. He claims that we are better off because many of us have purchased technologically advanced consumer products like flat screen televisions and high speed internet access but at the same time the fluidity that a market economy requires has made us less secure. Mr. Samuelson's argument is half right. Americans are less secure, but they have bought less security at the price of stagnant real wages. In the past 36 years wages have increased at lower rates than in any prior period of American history.

According to the Census Bureau, in the 23 years from 1947 to 1971, American males' real incomes in 2006 dollars increased from $17,967 to $31,915, an increase of 77.6%. In 1971 Richard M. Nixon abolished the international gold standard. In the 35 years from 1971 to 2006 American males' real wages increased from $31,915 to $36,011, an increase of 12.8%. The reduction of increase from 77.6% to 12.8% is 83.5%. This is unquestionably the slowest wage growth in any 36-year period of American history.

In contrast, a 1971 dollar was worth $.55 in 1947, an inflation rate of 1/.55= 181.8%, while a 2006 dollar was worth $.20 in 1971, an increase of 1/.20 = 500%. Moreover, the consumer price index was doctored in the early 1980s to omit house prices, price increases of which have been the primary source of economic anxiety among the middle class until this past year. Thus, while real incomes increased at the slowest rate in American history between 1971 and 2006, 12.8% over 35 years, prices increased at the fastest rate in American history over the past 35 years, 500%, and their increase was understated.