Government as the Titanic

 

Titanic

The great ship Titanic was thought unsinkable. So too is the great ship of government. The latter belief is as wrong as the former one was. Like the Titanic, government is in dangerous waters and will soon hit one or both of two massive icebergs. When the Titanic struck ice, it was a tragedy. When the government hits its obstruction(s), there will be danger but also opportunity.

The political class in Washington appears to have no idea of the danger. They persist in their “full speed ahead” approach to spending and expanding the role of government. Are they truly unaware? Perhaps they foolishly believe they can talk or legislate around the gaping hole that is about to be opened in the ship of state?

The two dangers ahead are citizens and markets. Either has the force to take down a government, any government. Both have destroyed governments before. One or the other will destroy government as we presently know it.

Citizens

In a recent piece entitled 2010 will be a watershed election mounting voter dissatisfaction with both political parties was discussed. It was pointed out that 71% of voters were dissatisfied with Congress. Only 10% approved of their performance. Arguably the 2008 election was a referendum against Republicans rather than an endorsement of Democrats. It is likely the 2010 election will be just the opposite – a referendum against the Democrats:

The people will change the composition of Congress in the 2010 election. But changing horses is less important than changing direction. What if the new Congress is incapable or unwilling to change direction? Then the 2010 election signals that elections no longer matter. At that point, we recognize that the people no longer control their government.

Libertarian Albert J. Nock viewed government as a predatory scam. He opined:

Lincoln’s phrase, “of the people, by the people, for the people” was probably the most effective single stroke of propaganda ever made in behalf of republican State prestige.

It is likely that the upcoming election will change parties, but little else. That will cause many to accede to Nock’s cynical view of government.

So what change do people want? There is no single answer. The Tea Party movement, while not representative of all of the anger, has certainly struck a chord amongst many at the expense of both major political parties. Their primary demand is a return to Constitutional government. The message: “leave me alone; get out of my life.”

A true return to the Constitution, would produce profound changes in government. It would require elimination of many programs, agencies and departments. Government’s role would be severely reduced. Lower spending and taxes would result.

While that likely would satisfy the Tea Party, it is unlikely to satisfy the politicians or the beneficiaries of the programs that would be eliminated. Approximately 50% of the population pays no income tax, a condition that creates a natural constituency for ever-increasing government. If something is “free,” demand tends toward infinity.

Perhaps the 50% figure is not as daunting as it first appears. Many in this group are also sympathetic to the Tea Party movement. Young and old alike participate in rallies. Both groups likely pay no or little income tax. While the elderly are concerned about their Medicare and Social Security, they are also concerned about their grandchildren.

History tells us that eventually the people get their way, even in totalitarian states.  No government can ignore an angry populous. Ultimately the people rule, one way or another.

It is dubious that the vote can be used to effect change. Politically, the problem seems intractable. How does one take away entitlements?  Is it feasible to run for office on a platform of “Vote for me and this is what I will take away from you?”

At this point, it appears more likely that the second force, markets, will produce a crisis before some clash between the people and the government.

Markets

The reality of financial markets is dead ahead. In Spiraling to Bankruptcy, details of the government debt problem were outlined and the debt death spiral was discussed:

The Federal Government is in what is known as a Debt Death Spiral. They are unable to pay the actual and implied interest on their debt. Hence, the unpaid balance is added back to the amount owed, making the problem worse next year. This debt spiral is growing exponentially. There is no way to escape a certain mathematical end — BANKRUPTCY.

Our government is insolvent. It is able to pay its bills only because Ben Bernanke’s willingness to finance government debt. While this might be a short-term expedient, it further weakens the private economy. In Crowding Out Your Future, James Turk stated:

Instead of depositor money being used to stimulate economic activity in the private sector by lending to businesses and consumers, the banks are helping to fund the growing federal deficits.  This re-allocation of resources has a negative long-term impact on the economy.  Depositor money is not being used for productive purposes like building manufacturing plants and making other investments that will create jobs and grow the economy.

Bernanke has said that he intends to terminate quantitative easing (buying government debt) in March. That promise is unlikely to be kept. (See Obama’s Ides-of-March Is Near.) Foreign investors are cutting back on funding government debt, putting even more pressure on Bernanke.

Bernanke is in a no-win situation. If he honors his promise, government will be unable to raise funds without dramatic rises in interest rates. That woudl worsen housing, employment and any reasonable hope for a recovery.

If Bernanke continues QE, then the Fed will be seen as a rubber stamp for government. Once that is fully understood, it will be obvious that the US intends to try to inflate its way out of its predicament.  Inflation would occur, probably exceeding the late 1970s rates.

Our country faces two problems, neither of which can continue. The first is a government that is out of touch with its citizens. The second is an unsustainable financial condition. The Chinese curse of “living in interesting times” is certainly upon us.

The next several years are going to be exciting and painful. An inevitable crisis will reshape the government. Moving back toward the Constitution is preferable because it may solve both problems. Not doing so is apt to anger citizens, producing an even greater crisis in the future.

Related Posts

1 Comment

Post a Comment