[Swiftwater Gazette] Dr. Hanson on Wealth

[Brad Haslett]

Indeed, Greece and California are a glimpse at the future. Whether a
new crop of freshmen congress-critters have the courage to take the
necessary steps is yet to be seen. But clearly, we are on an
unsustainable path.  Who was that from the old list who constantly
bragged about Greece as an example of "the way things should be"?  To
quote economist Herb Stein one more time, "when something can't go on
forever, it won't".

Brad

------------------------

Where Did Our Real Wealth Go?

Posted By Victor Davis Hanson On February 17, 2010 @ 2:43 pm In

The Greek Lesson

No, I don’t mean the classical Greeks, but their present-day counterparts.

Economists have given us all the usual diagnoses of what went wrong in
a now bankrupt Greece — high taxes, tax cheating, too generous
retirements, unsustainable entitlements, government corruption, and
anemic demography.

Add to such socialism the natural foreign policy and collective
expressions that always follow statism in the modern Western world —
increased pacifism, utopian pretension, moral equivalence, cheap
anti-Americanism — and we have the foreign policy expression of Greece
(and much of the EU) of the last 30 years. (A citizen who believes by
birthright that he is to be taken care of by the state always hates
the state that can never do enough, in the fashion that the country
who is taken care of militarily always hates its protector.)

In other words, Greece is the canary in the mine of the impending
crack-up of the modern welfare state. It is a great gift to us all,
this example. A year ago, the socialists, even as they were juggling
and falsifying their books, were bragging that the Wall Street
meltdown was a referendum — and capitalism was doomed. Now, the entire
socialist dream is exposed and even the most ardent statist knows that
there is no longer enough “others” to pay the tab.

The poor EU learned that the Greek siesta, the 10PM Athenian dinners,
the state power company vans at the beaches in the workday afternoons,
the kafenions full of 50-year-old men at 11AM, the angry students
perpetually in the streets at each hinted reform, and the moonlighting
telephone employees all came at the expense of far harder-working
Scandinavian and German socialists, who apparently  now realize a nice
two weeks each year on Santorini or Crete aren’t worth billions of
their own Euros in rescue bailouts.

We Are All Greeks Now?

Here in California we see the symptoms of the same Greek malady as we
go from one budget shortfall to the next — dream-like borrowing,
raising taxes, and furloughing, in lieu of the tough medicine of
cutting government payrolls, changing pension payouts, and freezing
the pay of state-workers until their compensation mirror images those
in the private sector.

Postmodern Western society will soon witness a real showdown,
analogous to the teenager who rebels and either accepts that he is
still dependent on his parents and therefore subject to the rules of
the house, or runs away and implodes in a sea of drugs and
street-life.

In short, how will an entitled society react when the money runs out
and it learns that it must change or wither away — and all the whining
rhetoric about “social justice” and “a green future” and “spread the
wealth” and “redistributive change” won’t bring another barrel of oil
or bushel of wheat or Douglas fir 2” x 4”?

Imagine…

Imagine a politician announcing: we are going to raise the Social
Security age to 66. We are going to freeze and cut spending until we
balance the budget within three years, and then with surpluses pay
down the debt within 6 years. We are going to build 100 new nuclear
power plants and open up the country and its shores to oil and gas
production. We are going to cut back all federal entitlements and
subsidies by 20% immediately. We are going to ensure enough water for
agriculture. We are …

Would collective relief or revolution follow?

Two Forks in the Road Ahead — California as Greece

On the one hand, the money is vanishing. Income, state and federal, as
well as payroll, taxes here in California may soon top 60% on top
incomes (10% state, 15% plus payroll on most of one’s self-employed
income, 39% federal). Add in property and sales taxes and we’ve
reached the point where the lemon can no longer be squeezed without
either more than the current 3,500 a week leaving the state, or going
the Greek route of endemic cheating.

(Indeed, as I wrote not long ago: I go to Greece every other summer,
and lived in the country for over two years. I come away with one
overriding observation: almost every Greek I met in some way either
cheated on his tax obligation or conned a way to get some state
subsidy — or both, while furiously damning “them.” [“Them” if one were
poorer, meant the rich; and if richer, the state; and for both, also
meant the United States.])

Bottom line: I don’t see how the state or federal government can up
taxes much more and still find wealth-producing, law-abiding,
motivated job creators.

On the other hand, as the money runs out, will state workers,
pensioners, and entitlement recipients accept that there are too few
wealth-creators to fund their pay-outs, or, as in Greece, hit the
streets in protest, teenager style, each time some adjustments are
necessary?

So if we can’t raise taxes and we can’t cut expenditures what is left?
There is no Germany to bail us out? Cut defense? Keep borrowing from
the Chinese and Japanese?

Modern Drones

Where did all the wealth go? Modern Western society is in some sense
becoming drone-like, its entitled sensitive citizens assuming
ceremonial roles and attitudes about the very landscape they inherited
from their industrious predecessors.

Here in California we idle farmland, though we have the water,
expertise, and soil to produce far more food than we do. We put vast
swaths of both land and sea off limits to gas and oil production,
though we could produce far more petroleum and natural gas than we do.
We snub nuclear power, though our population steadily increases and
its desire for electronic appurtenance grows, not shrinks. We like
“wilderness areas” (who doesn’t?) where we build no roads, harvest no
timber, and build no damns.  We strangle Silicon Valley with all sorts
of labor and business regulations until it fabricates and outsources
abroad. In other words, we are creating no real new sources of
concrete wealth as we nuance the shrinking capital we inherited.

We Are Still Humans For a Bit Longer

Hollywood is great. Tourism keeps San Francisco alive. Napa Valley
produces great wines. We have strong finance, insurance and plenty of
regulators. But ultimately our generation lost sight of the fact that
we must eat and therefore grow food; we must clothe ourselves and
therefore need fibers; we must move from place to place and therefore
need fuel; and we must have shelter and therefore have wood, cement
and glass.

Yes, we can import all this from the Chinese or the Canadians or the
South Americans, but at some point one needs the real capital created
by real wealth to pay for it all — not nuancing and adjusting and
tinkering with money. Money is simply a representation of stored
capital that comes from real production of some sort.  Talking about
“millions of green jobs” and “a wind and solar future” and “high-tech
sector” is well and good. But ultimately Western man has not yet (as
we learn from his consumptive habits) evolved to some sort of ethereal
existence. Even Harvard Review grandees need real fuel to power Air
Force One to get to Copenhagen.

So for a while longer, we need the miner, the oil pumper, the farmer,
the fabricator, the carpenter, the road-builder, the railroad guy, the
cement layer, the chemist, the computer engineer — and the system that
allows them all to create wealth unimpeded by government and in an
environment in which the citizen who benefits from their labor
appreciates their industry.

The 11th Hour

Yes, before we have the actor, the writer, the professor, the insurer,
the investor, the regulator, and the politicians, we need the
elemental among us to find or create material wealth. We, the
sloganeering class, forgot that, and so subsidize our high living
either on borrowed money or the prior productive investment of those
now in the grave yards.

And the tab is coming due faster than we ever dreamed. All the
soaring, teleprompted rhetoric, the Ivy-League credentials, and the
social justice boilerplate will no more create wealth than ceremonial
fifth-century AD consuls and robed bishops could fabricate the glory
of Rome.

PS. Why am I not too optimistic right now? Our President, who
submitted the largest deficits in recent memory, and who is on track
to nearly double the national debt in record time, continues to blame
Bush — not just for Bush’s lamentable deficits, but for Obama’s own
new unsustainable ones. I think his weird logic is: “Bush’s bad
deficits made me trump them by a factor of four.” When the
Commander-in-Chief expects the populace to believe that, or drops real
unemployment figures and talks instead of theoretical jobs saved, or
flip-flops on everything from evil Wall Street bankers now suddenly
good, or bad nuclear power now vital, then we have about as much hope
as we would have under Jimmy Carter.

Remember January 2009? In the era of Democratic supermajorities in
Congress, a new JFK in the White House, and a media proclaiming Obama
“a god,”  we were all grass-roots saints, who threw out the Bush bums
and had at last a great workable Congress and White House — and were a
daring electorate eager for hope and change from a non-traditional
president. Yes, life was good and we, in the pre-tea-party age, were
the salt of the earth that earned an Obama.

Now? Suddenly in our media and politics the people are stupid, full of
ingratitude, often racist, the system broken, the Congress bankrupt,
all of us undeserving of our one chance in a lifetime state agenda.
Yes, the petulant liberal attitude in 12 months went from “We, the
People” to “You stupid idiots” — and all because some Democratic
congresspeople discovered that the more they went out on the limb on
Obama stimulus, health care, cap and trade, higher taxes, bigger
government, bailouts and endless deficits, the more they were going to
get sawed off in November by the ungrateful people. So naturally
instead blame the filibuster, the people, the clingers — anything
other than the self-preservation instincts of the political class of
your own party.