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The Impending Disaster of the Current World Economy

A recent issue of The Economist sports a cover story entitled: “Be Afraid.” The theme of the story is that “unless politicians act more boldly, the world economy will continue heading toward a black hole”. I believe their assessment is spot-on.

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Here are three of the biggest reasons:

  1. Europe’s currency, the Euro, is in serious trouble and European leaders are hapless. Because the European Union is a best a loosely organized and almost completely decentralized entity, their ability to work together – especially when only a few of their members perceive the imminence of their danger – is nil. If Greece and/or Italy collapse economically, will Germany and France step up? Probably not with adequate strength or timeliness.
  2. Class warfare, especially in the United States and Europe, is heating up. Like the days leading up to the French Revolution, the wealthy are facing increasing levels of acrimony and jealousy. It is fueled not by rational thought, but by politicians who – due to their own failings of leadership – are now casting about for someone – anyone – to blame for the pitiful state of our economy. Nowhere is that more obvious than in America, but it is no less true in Europe and the results are proving to be devastating on a global scale.
  3. Emerging markets’ growth is slowing. In the case of China, there is an overshadowing level of debt from 2008-2009 spending. In other cases, it is simply the inertia of the greater world economy. 

There are some significant underpinning weaknesses in the politicians and economists who are failing to lead us out of this crisis, and we shouldn’t be surprised by that; after all, it was politicians who brought us here to the brink in the first place. First of all, they want to find a “fall guy”, and since there is no foreign dictator who can be blamed with sufficient credibility to drum up an economy-saving war, the fall guy has become the wealthy (millionaires and billionaires for the moment.) Secondly, the politicians are focusing on austerity rather than growth. While spending cuts and size reductions are absolutely appropriate for US Government agencies, outside of government spending it is impossible to “cut your way to growth.” Intelligent and insightful investments must be made in innovative enterprises and endeavors to spawn new businesses and extensions built on the platforms of current technologies. Thirdly, there is no central planning and management of global crises. That means that in order to come out of this, the US will need to adopt a policy of increases isolationism (see my blog on that topic), or participate in / submit to a strong world governance body. Of course, a world economic governance body will only help if the members of that body know what they are doing, and have absolute authority to implement and enforce their directives. 

I don’t like our odds in either scenario. What do you think?

State vs. Federal Government Authority in the USA

States authority vs. Federal authority has been an area of waxing and waning conflict since the authoring of our Constitution. In 1798, Jefferson and Madison wrote: “whensoever the general government assumes undelegated powers, its acts are unauthoritative, void, and of no force.” In other words, the view of these founding fathers was that the Federal Government should have only those authorities granted to them explicitly by all of the states, and any action taken by the Federal Government that violated the laws of individual states was illegal. Of course, that didn’t last long. The Federal Government certainly asserted itself when the southern states decided to withdraw from the union, sparking the conflict that became the US Civil War.

The tragic thing about the current situation, it seems to me, is that since around the beginning of the 20th century, the Federal Government has been accumulating far too much power, and accumulating it far too quickly. When the Federal income tax was implemented as a permanent burden on all citizens by the 16th Amendment back in 1913, the role of state government in determining the course of our nation began to shrink. Since that time, a simple equation has been proven over and over and over again; MONEY EQUALS POWER. A citizen earning $100,000 living in California pays a maximum sate income tax of 9.3%, while paying 28% in Federal income taxes. Similarly, a person with the same income living in Michigan pays 4.3% in state taxes but 28% in Federal taxes. In Texas, that citizen would pay 0% in state income taxes but 28% in Federal taxes.

What happens in this situation?

  1. The Federal Government spends more money than it needs to. “Spend it or lose it” becomes the mantra as the Government approaches fiscal year end each year. Government employees and officials scramble to ensure that their budget is committed (“obligated”) such that it cannot be turned back in as surplus at the end of the fiscal year, supporting the inaccurate perception that every agency needs at least as much money, and preferably even more money, for the following year.
  2. The Federal Government spends money on things that the citizenry would not support if they were allowed to vote on individual expenditures rather than having elected officials voting on a budget based on how much “pork” it contains for their respective districts or states. (Individual states would be very unlikely to spend the millions currently spent on many of the studies, programs, and sheer bureaucracies currently supported in our Federal budget.) The ability of the Federal government to do this arose from the adoption of the 17th Amendment, which deprived state governments from exerting control over the Federal Government through the representation of each state’s legislature in the U.S. Senate. (Consider Federal farm subsidies, for example.)
  3. The Federal Government extorts desired behaviors from individual states by threatening to withhold Federal funds (especially highway funds) from those states if they do not comply with the desires of the Federal Government. This occurred around the implementation of the 55 mph speed limit during the Nixon era, and another similar set of actions surrounded the implementation of the federally mandated 21 year-old drinking age. Thomas Jefferson once said: “To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical.” He would not be pleased with what the Federal Government is doing today.
  4. The Federal Government uses its funds to openly bribe state representatives to vote in favor of Administration proposals that would otherwise not make it into law. Recent examples include the “Louisiana Purchase” and “Cornhusker Kickback” payoffs made to assure the passage of Obamacare into law.

Unfortunately, the Federal Government continues to levy more taxes, spend more money, and even beyond that, borrows money to spend, resulting in multi-trillion dollar Federal debt that will fall on the shoulders of our children and grandchildren. Our Federal debt level as of this writing is $14,358,442,243,737.99, or $46,200 per American citizen. (http://www.brillig.com/debt_clock/) So if you are part of a family of 4, your family is currently indebted for $185,000 over and above your current tax burden. And at this point, there is no end in sight. Perhaps returning some of the Federal Government’s “out-of-control control” to the individual states is a good idea.

What do you think?

The Growing Problem of Child Homelessness in America

Child homelessness in America, according to the United States Government, is at the highest level since the Great Depression, and continuing to grow rapidly. More than 1 child in every 50 in the United States is now homeless, according to the National Center on Family Homelessness (http://www.homelesschildrenamerica.org/documents/rc_summary.pdf) Children are defined as “homeless” by the study when they share the housing of other persons due to loss of housing, economic hardship, or a similar reason, are living in motels, hotels, trailer parks, or camping grounds due to lack of alternative accommodations, are living in emergency or transitional shelters, have been abandoned in hospitals, are awaiting foster care placement.

Other circumstances that qualify children as “homeless” for purposes of the NCFH are using a primary nighttime residence that is a public or private place not designed for, or ordinarily used as, a regular sleeping accommodation for human beings, living in cars, parks, public spaces, abandoned buildings, substandard housing, bus or train stations, or similar settings.

The impacts of homelessness on American youth are traumatic. More than one in seven homeless children have moderate to severe health conditions. Nearly one in 18 homeless children are members of families where adults hit or throw things, and one in six homeless children suffer from emotional disturbances. Homeless children score lower in reading and math averaging 16% lower than the scores for all students. Fewer than one in four homeless children ever graduate from high school. This situation, of course, manifests itself in lifelong challenges. Since students who drop out of high school earn on average $200,000 less over their lifetime than high school graduates, and well over 1 million homeless children in America today will not graduate from high school, over $200 billion in lifetime earnings is lost among this population.

Why is this situation occurring, and continuing to worsen? In the majority of cases, it comes down to diminishing income among parents. In three words: It’s the economy. The United States – through a combination of Government malfeasance and corporate greed – has enabled and sponsored the widespread loss of value-adding jobs from the United States to any country that promises lower cost production and service costs. This has left a huge middle class of Americans, especially former manufacturing workers, jobless or with jobs that pay less than a livable wage. (See my article on Manufacturing’s impact on the US economy at: http://sensiblethought.com/2011/american-manufacturing-economy.) The Middle Class is shrinking to nothing, as their population falls into the ranks of the poor. As the gap between rich and poor has increased, the purchasing power of low-income families has also plummeted. The Center for Budget and Policy Priorities has said “income inequality in the United States has risen to historically high levels…and has been increasing for more than 30 years.” According to the NCFH report, “Between 1979 and 2005, the income of the richest Americans more than tripled, rising 228% ($76,500) per household, while the income of the bottom fifth rose only 6% ($900). As a result, many low- income families no longer have the purchasing power to sustain their households.”

In addition, housing costs have grown as the supply of affordable housing has shrunken – exacerbating the problem for families at the bottom of the income scale. As housing costs rise, millions of Americans must choose between housing and other necessities. Many American families are now paying over one-third of their incomes for housing – the proportion at which housing costs are considered affordable. In these cases food, transportation, and medical care are often unaffordable. It has been reported that more than six million American families now spend at least 50% of their income to housing and/or live in substandard housing. Foreclosures have also skyrocketed, with recent slowdowns occurring not because there are fewer homes lost, but because of new delays introduced into the foreclosure process. According to recent reports: “sales of bank-owned homes and those in some stage of foreclosure accounted for 28 percent of all U.S. residential sales in the first quarter of 2011, up slightly from 27 percent of all sales in the fourth quarter of 2010 and the highest percentage of sales since the first quarter of 2010, when 29 percent of all sales were foreclosure sales. (http://www.realtytrac.com/content/press-releases/foreclosure-homes-account-for-28-percent-of-q1-2011-sales-6586)

We also seem to keep relearning (or failing to learn) the same lesson: Government cannot fix a bad economy by simply handing out money and Government services. To quote the NCFH report: “Housing assistance programs have been unable to close the gap between the supply and demand for affordable housing. The dual problem of declining housing stock and increasing rents for existing housing has been exacerbated by the failure of housing assistance programs to keep pace with the need. In 2002, HUD’s budget was less than half of what it was in the late 1970s in real dollars. Vouchers, originally designed to bridge the gap between income and rent, have become the primary form of housing assistance – yet, three out of four eligible households receive no federal housing assistance. Because of the high demand for housing assistance and already-lengthy waiting lists, some agencies have stopped taking new voucher applications altogether. In many areas with tight rental vacancy rates, families allocated vouchers are unable to find landlords willing to rent to them. Many lose their chance to become adequately housed.”

The real solution to the growing problem of child homelessness in America must be based on repairing the damage done to America’s middle class. Parents with inadequate income are the primary cause of child homelessness. Parents have inadequate income because they are not employed, or are underemployed. They are unemployed or underemployed because the United States, through a combination of Government malfeasance and corporate greed, is destroying the Middle Class by shipping value-added jobs out of the United States.

Unfortunately, America is in the throws of an increasingly liberal bias among our politicians and our media. This bias leads policy makers and opinion makers to advocate providing more to the poor through Government programs rather than getting middle class jobs back in America. For example, this same NCFH report includes the following recommendations:

• “Capitalize the National Housing Trust Fund at $10 billion for two years to rehabilitate or build 100,000 rental homes.

• Fund 400,000 new Housing Vouchers at $3.6 billion for two years.

• Fund the Emergency Shelter Grant program at $2 billion for two years to assist 400,000 households.

• Adopt proposed $2 billion funding for the Emergency Shelter Grant and ensure that 30% is dedicated to trauma-informed services for children and families.

• Invest $3 billion into child care vouchers for children experiencing homelessness so they can receive early care and education, and their parents can engage in employment and job training.

• Allocate funds within all federally funded programs to support training and career ladders for service providers working with homeless children.

• Fully fund the Violence Prevention and Services Act at $175 million and increase the Victims of Crime Act cap to $717 million annually.

• Temporarily increase Supplemental Nutrition Assistance Program benefits, which states should implement within 30 to 60 days of enactment.

• Create state and local housing trust funds to complement the National Housing Trust Fund.

• Use National Housing Trust Fund, Low Income Housing Tax Credits (LIHTCs), and HOME dollars for new units of affordable housing.

• Provide short-term financial assistance to at-risk households, including help with back rent and utilities, and security deposits to obtain housing.”

This approach simply shifts an ever-increasing financial burden from an ever-increasing percentage of US population that is falling into the “poor” category to the backs of the ever-shrinking population of “wealthy” people in the United States. We are creating a society of a few haves and many have-nots, a society that cannot survive indefinitely because, as Margaret Thatcher once correctly observed: “The problem with Socialism is that eventually you run out of other people’s money.” In fact, in the same interview, describing the propensity of increasingly socialistic governments – governments who try to provide more and more government services to resolve problems such as child homelessness, Margaret Thatcher had this to say: “Socialism started by saying it was going to tax the rich, very rapidly it was taxing the middle income groups. Now, it’s taxing people quite highly with incomes way below average and pensioners with incomes way below average.” (http://www.margaretthatcher.org/document/102953)

Summarizing then, childhood homelessness in the United States is a growing problem, and it is caused by unemployment and underemployment. Unemployment and underemployment is being driven by a combination of Government malfeasance and corporate greed, as middle class jobs are being shifted out of the United States – literally – by the millions. There are two approaches to resolving the problem: One approach is to provide an ever-increasing array of US Government social programs to distribute more and more services to an ever-increasing population of poor (otherwise known as Socialism). The other approach is to rebuild America’s middle class through the recapture of jobs in manufacturing and other value-adding businesses so that parents can properly feed and house their children. The answer would be obvious except that the first choice is comparatively easy – the easy way out is rarely the best way, but it is the most common approach. And as still another famous British leader, Sir Winston Churchill once observed: “You can always count on Americans to do the right thing – after they’ve tried everything else.” (http://www.1-famous-quotes.com/quote/14790)

I hope America awakens soon from the stuporous intoxication of liberal ideology; if it does not, there will be many more homeless children before the situation improves.

 

What do you think?

Lower Incomes Kill People

Lately I have gotten a number of blog responses and Facebook feedback indicating that the disappearance of the Middle Class in America is unimportant. It seems to some folks – usually those who occupy lower income strata themselves – that Americans who have lost their middle-income jobs in manufacturing and other industries should just learn to live with less, and simplify their lives. They argue that employers shouldn’t need to provide health care benefits, and that the long waits and other maladies of socialized medicine are just an inevitability that America must come to grips with, and embrace.

Recent studies by the Robert Woods Johnson Foundation report that African Americans die from diabetes twice as often as white Americans, the life expectancy of black American men is 6.3 years shorter than that of white American men, native Americans are 2.6 times as likely as white Americans to have diabetes, and Hispanic children under the age of three are 18% less likely to be in good health. Why? Because some American neighborhoods are healthier places to live than others, according to the Foundation’s Public Affairs Director, Adam Coyne.

Among the factors noted are: an abundance of liquor stores and “convenience” stores selling tobacco and fast food, a dearth of retailers offering fresh fruits and vegetables, and little open space devoted to exercise and fresh air. It’s also fairly obvious to experienced observer that drug abuse, violent crime, and generally unhygienic environments typify lower income neighborhoods. An article by Rick Docksai in The Futurist magazine (http://www.wfs.org/node/1128) quotes Jim Marks, the Foundation’s Senior Vice President: “If you’re in inner-city Detroit, where there are hardly any supermarkets, where are you going to get fresh foods? It’s structured such that it discourages some from leading a healthy life.”

Research conducted in 2008 by the Center for Health Disparities Solutions at Johns Hopkins University (seems there is a foundation or an institute for everything these days) confirms that people with lower incomes tend to die sooner, and for similar reasons, citing: Supermarkets are 4.3 times more likely to be located in predominantly white neighborhoods, full-service restaurants are 3.4 times more likely to be located in predominantly white neighborhoods, low-income African American neighborhoods have eight times as many liquor stores as other neighborhoods, and tobacco companies advertise more heavily in African American neighborhoods. Researcher Tom LaVeist says: “You put anyone in a low-income environment, and they are going to be sick. It doesn’t matter what race they are.”

Researchers like LaVeist want to move us all toward socialized medicine, relying upon a combination of “universal health coverage (see my blog on Obamacare), expanded health care services, and community enhancements” to achieve equality in the heath of all Americans. Unfortunately, just as allowing American jobs to be exported is “leveling the playing field” by lowering the annual wages of displaced manufacturing workers by roughly $30,000, leveling the health conditions for all Americans would require a tremendous redistribution of wealth from productive middle-class America to those without an adequate income to provide it. Rather than addressing the root cause of declining incomes due to the declining industrial base in America, they support moving toward the models of Great Britain and Canada. In that scenario, we place heavier and heavier tax burdens on income producers until almost no one can afford decent heath care, decent food, or a clean hygienic place to live. Only the elite upper class will be able to afford the effective modern health care and fresh, nutritious food that Middle Class America enjoys today.

I believe the solution is not more government intervention. The solution is restoration of America’s industrial base and American jobs that pay middle class wages. We need to provide opportunities for the people in lower-income neighborhoods to go to work and earn a decent living, providing for their families in a way that lifts them out of poverty and enables their children to do better.

What do you think?

A Balanced Budget Amendment: The Solution to Our Growing Debt Crisis

The US Federal Government continues to levy more taxes, spend more money, and even beyond what it is able to garner in taxes, borrows money to spend, resulting in multi-trillion dollar (actually over $14 trillion now) Federal debt that will fall on the shoulders of our children and grandchildren. Our Federal debt level as of this writing is $14,358,442,243,737.99, or $46,200 per American citizen. (http://www.brillig.com/debt_clock/) So if you are part of a family of 4, your family is currently indebted for $185,000 over and above your current tax burden. And at this point, there is no end in sight.

Foreign governments and investors hold $3.43 trillion of this debt — approximately 24 percent of our GDP. The major creditors are the People’s Republic of China ($798.9 billion), Japan ($751.5 billion), the United Kingdom ($249.3 billion), OPEC nations ($185.3 billion), and Caribbean banking centers ($171.7 billion); even Russia currently holds $118.0 billion of the US national debt. The interest costs to service this debt is in excess of $383 billion a year (FY-2009) — approximately 20 percent of our total tax revenues. The interest costs are now more than the Federal government spends on Homeland Security, education, the environment, housing, veterans programs, transportation and agriculture combined. Payment on our debt is now the biggest annual appropriation line item in the Federal budget. About 20 cents out of every tax dollar is spent to pay the swelling interest on the Federal debt. It’s growing to a size that surpasses our entire defense budget. In fact, about half of all individual income taxes are now required to pay the interest on the Federal debt. (http://www.businessforum.com/debt01.html)

It’s time for a balanced budget amendment to the US Constitution. In fact, it’s well past time. The US Federal Government must be required to spend than less than the amount it receives from income taxes every year, unless there is an ongoing war. I am reading an interesting work of fiction by Vince Flynn entitled “Term Limits”. The premise of this book is that powerful people in the US decide that in order to save the United States from corruption and malfeasance on the part of Government officials, they are going to assassinate congressional representatives, senators, even the President if that is what it takes to get a meaningful reduction in spending. The zealots described in this book believe that it is the only course of action capable of saving America from itself. It’s an interesting read. I’m hoping that it doesn’t come to that. I’m hoping that electing responsible, courageous representatives will enable us to make course corrections before it’s too late. Hope springs eternal, right?

What do you think?

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