Optimism, America, and the Welfare State

by Benjamin Domenech on 7:13 am July 13, 2010

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Neil Reynolds shares a few doom and gloom thoughts today on the disintegration of the welfare state:

Democracies produced Nazi Germany and Fascist Italy, fulfilling the expectation of Socrates and Machiavelli that democracies end in tyranny. Now democracies are fulfilling the complementary expectation of Nobel laureate economist Milton Friedman that democracies end in bankruptcy. Put a democracy in charge of the Sahara, Mr. Friedman once said, and sand itself will become scarce. Democracies are indeed profligate trustees – or have been for the past 30 or 40 years. Mr. Friedman’s primary fret, though, was the tendency of democracy to centralize political and economic power in the same hands… Mobs have already taken to the venerable, iconic streets of European states, notably among them Greece, birthplace of Athenian democracy. It’s apparently easier to give wealth away than it is to take it back. Democracy assembled the welfare state peaceably enough. Can democracy dismantle it as peaceably? No, it can’t. The mobs are not finished.

This passage reminded me of a conversation I had recently with my colleague, Francis Cianfrocca, about America’s economic future (sadly, not a recorded one — it would’ve made a pretty good podcast). It started, as many of our conversations do, on the odd bit of news — reports last month about Chinese workers are striking for higher wages in Guangdong and other places. We discussed the possibility that the labor unrest was occurring only at subsidiaries and suppliers of Japanese automakers (obvious astroturfing by the regime), or if they became more widespread, if the story could signal the start of a wage-price spiral.

Francis was speaking about his general pessimism about America’s economic future (though it’s nothing compared to the lefty econ bloggers, who are near-constant purveyors of doom), and his predictions for China, noting:

I know many plenty of knowledgeable people who expect China to stall out due to endemic corruption and demographic problems. What I fear most about them is something very different: they show no particular interest in shared growth. Doing business with them is just hell. You don’t get good long-term outcomes. Unlike the US throughout our history, they don’t view trade as something that makes life better for everyone. The axioms of free trade hold that everyone gets more prosperous as a result. (The corollary is that barriers to trade are self-defeating.) But I think we’re fooling ourselves to think that what we’re engaged in with the Chinese is free trade.

While I agreed at the time with his main prediction about China, and continue to agree with his repeated predictions about Europe (which have been borne out in public view for all to see), this doesn’t necessarily tell us anything about where America is headed. Expectations about China tend to assume a level of cultural and demographic change — toward thrift, away from corruption, etc. — that I just don’t think is justified as a prediction of patterns we’re going to see over the next decade or so. And the level of pessimism about the appetites of the American consumer culture (and the hiring patterns of the coming years) is so prevalent on the conservative side that I naturally incline toward the contrary opinion.

Here’s the problem, if the mainstream press is to be believed: while China has a vast amount of structural demand in place to drive economic growth in the future (hundreds of millions of people who currently ride bicycles and pee outside who may wish to upgrade in both arenas), our nation is saddled with overeducated and unmotivated youngsters who seek life-affirmation from their career choices — not mere prosperity or monetary growth to pass on to the next generation.

There’s no question that this population of the unmotivated do-gooder raises socioeconomic problems — I’ve written about them at length. A more difficult issue than the lack of karmic motivation is a lack of familial motivation — delayed marriages, declining family bonds, and fewer children translates to less drive to carve out an inheritance to pass on to the next person who shares your name. The rising generation of American workers and innovators want to pass on their life’s work to the village, not the few children they have.

This is a challenge. And unlike nations like China, who can probably recover from problems like this thanks to the anticipated mass of built-in demand — as Francis noted on a recent Coffee & Markets, they can recover from their mistakes because the curves point upward –in the United States, we’re creating jobs that essentially boil down to maintenance rather than construction. Americans already pee inside, and they already drive cars, and the devices and possessions they desire aren’t made here. This leaves us with little margin for error.

Yet even given these challenges, I’m optimistic about the nation’s economic future, because I view these as challenges that are less structural and more cultural. America has succeeded again and again in spite of the odds — whether because we’re lucky, or because we’re good, or because we don’t quit. All signs indicate that the next few decades will bring a massive expansion of civil infrastructure, much of which has already begun. Thanks to the technological acumen of our workforce, America can be the world leader in this capacity, even if the infrastructure we build and the jobs we create aren’t necessarily located here.

The cultural change that needs to happen, and the one Reynolds alludes to, is a massive shrugging off of the burden of taxation and regulatory policy which prevents America from restoring its entrepreneurial verve. This begins with a rejection of those economists and idea peddlers whose dead-end solutions led to this circumstance — something that has already begun in Europe with the destruction of their Keynesians. The Alexis de Tocqueville quote I referenced in response to the BP oil spill is apt here:

After having thus successively taken each member of the community in its powerful grasp and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.

Destroying leviathan will take time and effort. The welfare state will not die quietly. But if there is a positive outcome to the current downturn, it’s that it has given those Americans who still desire success new levels of clarity in viewing what stands in the way of a prosperous future for themselves and their family. And that is, unquestionably, a good thing.

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