The Tea Party's Victories Are No Surprise
Why did the Tea Party win big in the recent U.S. congressional primaries?
President Obama’s obsession with higher taxes for families with incomes over $250,000 a year and the strident Republican defense of the Bush-era tax cuts lay bare the sterile competition between the economic philosophies of the two major parties.
Neither reckless Keynesian spending and deficits nor supply-side tax cuts and indiscriminate deregulation will rescue the U.S. economy from its quagmire.
Resurrecting the United States of America requires addressing structural impediments to growth — the gaping trade deficit with China and self-destructive corporate outsourcing hysteria, the sorry state of the balance sheets at the 8,000 regional banks, and the reckless casino culture on Wall Street that is luring local governments into fiscal disaster just as it did homebuyers several years ago.
The U.S. economy is likely to grow at less than 3% a year — the minimum necessary to bring down the unemployment rate and provide state and local governments with the taxes they need to meet their obligations.
The U.S. economy will, at best, grow only fast enough to accommodate productivity growth at a bit less than 2% and labor force growth at 1%. Under these circumstances, appreciably working down the number of unemployed in the current economic policy environment will be extraordinarily difficult.
Just count on unemployment close to 10% for a long time — and leading politicians from both parties peddling snake oil, quick fixes and all-around demagoguery.
The exit of "made in the USA" industry and R&D to China and other Asian venues will continue. The United States is outsourcing its economic strength, sovereignty and standard of living to China.
Businesses simply lack sufficient demand to add capacity because of the huge trade deficit with China and other Asian countries — and, in the case of small businesses, because they lack capital in the form of credit from the regional banks that serve them.
In many ways, the United States is reenacting the British experience in the 1950s and 1960s — an overvalued currency coupled with excessive state intrusion in the private economy. British growth simply did not match progress on the continent or in North America, and its standard of living fell from roughly on par with to half that of Germany — and the British economy has not since adequately recovered.
The British experience demonstrates that once statism kills the entrepreneurial culture and infrastructure of industrial engineering, it is tough to rekindle it — except in the casinos that call themselves banks in the new millennium. British bankers live very well, while most others across the pond live not nearly as well as their U.S. and German counterparts despite having similar levels of skill, education and productivity.
Meanwhile, U.S. state and municipal governments struggle, and many are on the edge of defaulting on bond payments, thanks to politically attractive but self-defeating non-essential spending, school board and hospital bureaucracies, and new recent federal mandates for higher healthcare outlays.
New York investment bankers are peddling to vulnerable local politicians the kinds of schemes that brought down Greece — sales to private investors of parking meters and other revenue-generating assets that would patch budgets this year but ultimately create calamity a few years down the road.
All this spells not economic recovery, but decline. We are experiencing the last days of "high living" before an ill-prepared society faces its next big challenge with too few resources and too little courage to avert the final collapse.