(’76 Contributor) I just returned from a family reunion in Sioux Falls, SD, the same day Congress raised the debt ceiling. Family reunions are interesting because a large, extended family represents a statistical sample from which one can infer much of what going on in the World. It is obvious that young people are struggling, leaving their small towns and migrating to urban areas. They are taking upwards of 6 years to get their undergraduate degrees and graduate debt–ridden. The teaching jobs they were encouraged to pursue a decade ago are now few and far between. Many of the most talented women in the family are pursuing jobs in law and medicine, but one wonders whether disruptive change will really afford them the careers they expect. This younger generation is anxious. They cannot begin families without an income and they are hitting the streets with debt and uncertainty.
Another group were the males in the 50 year–old, plus group. Many are unemployed and some have already spent years searching for jobs that have long ago were outsourced or eliminated. Most recently they lost their ability to use their home equity and 401Ks to stay above water and their wives have had to pick up the slack. Their kids have chosen state rather than private colleges. Mobility and retraining seem all but impossible, so a form of siege mentality has set in.
There is one group though, which so far, seems unscathed. They are retired teachers or have jobs in the public sector. Even they know that what has happened is not a business cycle, and profound structural changes are around the corner. It’s as though there is a hurricane in the Gulf and we know it will eventually hit landfall. What is all but impossible to measure is the magnitude and speed of the changes.
Recent discussions about the deficits have focused on the $14 trillion dollars in current federal debt. What this week’s Bloomberg Business Week magazine points out is that there has been is no serious discussion of the looming $211 trillion fiscal gap between government spending and revenues. Whatever number it adds up to be should give us reason to pause, because every $1 trillion dollars in cutbacks represents 10 million jobs. It is now abundantly clear that whatever prosperity we enjoyed over the past thirty years was false, propped up by easy credit. We are now experiencing de–leveraging and we do not know where rock bottom rests.
I believe it is now time to acknowledge that we are in the 21st century. Our lives are about to be transformed the way a caterpillar goes into a cocoon and emerges a butterfly. There will be a disintegration of the old structure. What emerges from the cocoon will barely resemble that old form.
We cannot even begin to solve large problems by cutting costs; we must increase revenues. But, the suggestion that we increase revenues by raising taxes is a false choice. We must increase revenues by generating vast new wealth from exports into the global economy. A new, 21st century economy cannot be manufacturing–based; it must be based on services such as agriculture technology, water, health care, education, sewer, roads, construction and alternative energy. These are all things third world countries desperately need and they are things we are very good at doing. The problem is that we just aren’t very efficient at these things because most of these services have been provided by the public sector. They have never been subjected to the disciplining effects of the market economy. For example, we simply cannot let health care become 20% of our GDP and continue to be an overhead item in our economy. Medicare, Medicaid and health care are the dominant reason we cannot get our government’s fiscal house in order. Nothing short of a leveling of the playing field will suffice. If health care were an export industry we would encourage it to be as big as possible.
You can go through one–by–one the other areas I outlined and see that significant reform must occur if these industries are to become efficient enough to export their goods and services in a global economy. In many cases we will have to let the old structures die off and replace them with new, incentivized, performance–based, competitive structures. We didn’t reform the Savings & Loan Associations back in the 1980s—we killed them off and replaced them. This probably will have to happen with the mortgage industry and retail banking.
I for one believe that none of the change needed will happen unless we start with a transformation of our politics. Recent events in Washington, DC have show how deeply troubled our system is. It is no longer about voting Republican or Democrat. The bipolar two party system has, by necessity been triangulated by Independents and the Tea Party. But, a coalition government is too slow to react and we cannot afford to become Italy. I further assert that any transformation will require the elimination of the dominance of the attorney–turned–politician. I recognize that singling out a profession is dangerous. The chokehold this profession has on American politics is, of late, counter–productive. The industrial age resulted in large, hierarchal organizations staffed by specialists. The lawyer seemed the most general of the group and he was given the job to legislate and govern. In the end, though, the law itself is specialized and a process with more form than substance. Most lawyers do not even take a class in economics. We now need a new generation of generalists and we are going to have to grow them the same way the military breeds generals: Through training and experience.
In the end we are like Alice asking the Mad Hatter which way to go. If you don’t know where you would like to end up, then it doesn’t matter which path to take. We have to decide what kind of a world we want to leave to our children and to what extent we want the rest of the World to enjoy what we have.