The Death Spiral of Progressivism

[GameTheory]

Another good read from Walter Russell Mead:

http://blogs.the-american-interest.com/wrm/2011/06/10/when-government-jumps-the-shark/

[highnote]

Another good read from Walter Russell Mead:

http://blogs.the-american-interest.com/wrm/2011/06/10/when-government-jumps-the-shark/


I agree with a lot of what Mead writes in this column. He writes about big ideas and he can only touch on the institutions he mentions in a superficial way. It's complex. It's so complex that he doesn't have room in his blog to offer concrete solutions other than to say reform is needed. I agree. There needs to be reform. I would say almost everyone thinks there needs to be reform.

The U.S. is experiencing a certain phase in an economic cycle. These programs appear unsustainable at the current levels. It's time for a haircut, but I don't think you need to cut the heads off and kill the programs. And some new programs may need to be delayed. I don't see the need for a high speed rail. There are plenty of airports, railroads and highways.

The cycle we are in was predictable.

Around 1976, close relatives of mine (the oldest baby boomers) bought a house for about $130k. About 1980 they sold their house for $250k. In four years it nearly doubled. Traditionally, houses appreciate about 4% per year. I was 20 years old in 1980 and I knew then there would be a housing crash. I just didn't know how long it would take because there were so many boomers hitting working age.

Now, my relatives took the $250k and bought a $350k house. Two years later they sold it for $550k. In 6 years they made a nice chunk of money just flipping their primary residence. They moved out of state and bought a $450k house around 1982. They lived there until they retired. Unfortunatey, they held it a couple years too long, but still, I imagine they sold it for well over a million.

Warren Buffett also said in 1978 that one of the greatest stock market is just beginning. Look at a chart of the Dow from 1980 to 2007 -- it is almost straight up.

My point is that this financial and housin correction was predictable -- even inevitable. It was just hard to say when it would happen. I assumed it would happen when the oldest boomers hit retirement age. And this is what we see happening.

During the runup from 1980 to 2007 huge fortunes were made. Tremendous wealth was generated. I would have to say much of this was made possible because of the systems that were put in place. Many boomers went to college and were able to create businesses and do jobs that foreign competitors could not compete against. Obamacare is the fruit of all the hard labor so many have done. What I do not know is if is Obamacare is practical now.

Many of the manufacturing jobs were sent overseas during the big runup. So we lost an important economic footing. Many of these foreign countries will now enter the cycle we just finished.

What is the answer going forward?

Like I said a haircut. But there is one more important piece of the puzzle.

Corporations are sitting on trillions in cash. The FED just finished pumping $1 trillion into the economy (QE2). It takes 6 months to a year for one dollar to have a noticable effect. So by the end of 2011 through 2012 we should see huge economic gains.

The IPO market is on fire. VC firms have a ton of capital they are obligated to invest. They will continue funding new companies at a furious pace over the 18 months. Some of these companies will become very successful.

My prediction is that the economic boom will continue after the hiccup of 2007-2011. With this economic boom will come tax revenue that will sustain these progressive programs -- for better or worse. On worse side, there will be waste, corruption and fraud. On the better side, many people who need help will benefit. Some of those who are needy will benefit and they will go on to do great things and help make this economy sustainable.

But I'm an optimist. :)

[ArlJim78]

I'm not optimistic. I don't think there is any hope of changing things up via reforms. Too many are fine with the way things are, there is a vast entrenched bureaucracy which will not let go of these white elephants. I see us muddling along until one day when we're visited by a black swan. the subsequent collapse and calamity will be the catalyst for reform.

[bigmack]

Nice piece. Tanks, GT.

The fierce commitment of progressive lobbies today to dysfunctional institutions and programs has brought matters to a crisis stage; the progressive legacy is morphing from white elephant to shark. Fierce attacks on anyone seeking to reform dysfunctional institutions combine with unreasoning devotion to unsustainable entitlements. “Progressives” today are too often grimly determined to achieve two incompatible ends: an indefinite expansion of entitlements and benefits on the one hand — and the preservation and even the extension of inefficient organizations and methods on the other. Everyone must have a college education, but the archaic and inefficient organization of universities cannot be touched. Public services must be vastly expanded, but every effort to rein in pensions and benefits for government employees, or to trim the size of the public labor force through greater efficiency, must be fought to the bitter end.

Unfortunately, the process doesn’t stop here. When enough progressive programs have become both unsustainable and untouchable, we move to the final stage. It is bad enough when a government program becomes a shark; it is much, much worse when a social paradigm as a whole jumps past the shark stage. A cluster of unsustainable but untouchable policies and institutions sooner or later reaches the point when it no longer threatens the country with ruin at some indefinite point in the future: imminent ruin stares us direct in the face.

[Hank]

Factual for the most part in content,deceptive and dishonest in intent.This piece is akin to noting that the Titanic's engine needs an overhaul.The overarching problem of Globalization coupled with the return of failed laissez-faire economic liberalism is the gash in the hull here.Globalization completely decouples capital from the nation-state, enabling and encouraging disinvestment in the first world,[take a look around] and a return of the robber-baron monopolies[take a look around] sweatshops and etc of the 19th century.Note the massive profits of the transnationals and wall-street banks there should be linkage to the real economy but there is none.The differences of the right and left although valid in a personal context are being exploited to divide and rule.This the problem with this piece it deceptively infers that the problems cited with these "progressive" programs are "the" cause,and it logically follows that a shift to "conservative" agenda is the cure.This is laughable,when you are free falling from a great height Left or right is irrelevant, up and down is what matters,and its financial elites up and everybody else down.

[GameTheory]

This the problem with this piece it deceptively infers that the problems cited with these "progressive" programs are "the" cause,and it logically follows that a shift to "conservative" agenda is the cure.Not at all. Read some more of his blog. Mead is no conservative. He has written at length about where he thinks we need to go, and it is not the "conservative agenda".

[lamboguy]

instead of putting labels on everything in this world, why doesn't everyone try to do things thats good for this place. we all breath the same air, drink the same water and live under the moon and the sun. the axis rotates just as equally for a conservative as it does for a liberal.

[JustRalph]

the axis rotates just as equally for a conservative as it does for a liberal.

Lambo, that is deep man ,

[newtothegame]

instead of putting labels on everything in this world, why doesn't everyone try to do things thats good for this place. we all breath the same air, drink the same water and live under the moon and the sun. the axis rotates just as equally for a conservative as it does for a liberal.
For someone who speaks so well on gold and finances, I am amazed you post the above....
Here's a hint...cause what is "good" for a liberal, is NOT "good" for a conservative....
They want total opposites.
But, in their own worlds, what they believe is that they are doing good....

[lamboguy]

my wife was a text book liberal to the 10th degree. she has done a complete flip flop, she is now an ultra conservetive. maybe her mindset has changed, but her body hasn't.

this is the whole point i was trying to make about both being the same. you can be opposite anything that you want to be opposite on, but your body does not change, it just gets older. everyone's body needs the same things in this world, no matter where you are or how rich you are.

[newtothegame]

my wife was a text book liberal to the 10th degree. she has done a complete flip flop, she is now an ultra conservetive. maybe her mindset has changed, but her body hasn't.

this is the whole point i was trying to make about both being the same. you can be opposite anything that you want to be opposite on, but your body does not change, it just gets older. everyone's body needs the same things in this world, no matter where you are or how rich you are.

Well in the end, I will agree that all of us ultimately die........
That's all that is about the same. Mentally, spiritually, etc etc...there are differences. Yet both sides feel they are doing the "good" fo the people. Reality is they are more then likely doing good for themselves....if you happen to be lucky enough on the right side, hopefully you benefit!

[boxcar]

my wife was a text book liberal to the 10th degree. she has done a complete flip flop, she is now an ultra conservetive. maybe her mindset has changed, but her body hasn't.

this is the whole point i was trying to make about both being the same. you can be opposite anything that you want to be opposite on, but your body does not change, it just gets older. everyone's body needs the same things in this world, no matter where you are or how rich you are.

But the rub is that people are miles apart on how to get what "everyone's body needs", isn't it?

Boxcar

[lamboguy]

But the rub is that people are miles apart on how to get what "everyone's body needs", isn't it?

Boxcarthats for sure