Look at the U.S. Postal Service and see the future of the Federal Government
Economics / Economic Theory Nov 03, 2011 - 06:33 AM GMTBy: Gary_North
Niall Ferguson is my favorite Establishment analyst, because he is an historian who understands a lot about free markets. He writes for the literati. He starred in a PBS series that was worth viewing, and another is scheduled in 2012. He teaches at Harvard University and the Harvard Business School.
He thinks America is running an empire, and he thinks it will not survive much longer. As with all empires, it is going to run out of wealth to support it. So, when he wrote a piece for the Daily Beast, Newsweek, I read it.
He used the metaphor of computing to describe what has been good with the West and what is no longer good. He says the West has had six "killer apps." These are: competition, the scientific revolution, the rule of law and representative government, modern medicine, the consumer society, the work ethic. All of this is true, but are these features fundamental? Are they, in the words of Karl Marx, more substructure or superstructure? I think the latter.
He avoids the crucial questions: (1) Why the West? (2) Why beginning in 1800? Why not earlier?
He uses the metaphor of the computer. But this analogy is strained. Why? Because we can date the invention of the computer: the war years, 1943-45. We know who did it: Mauchly, Eckert, and Von Neumann. We know their motivation. We know the applications.
We do not know exactly how or why Ferguson's six killer apps came into existence. We do not know how they came together around 1800 to create a new civilization. Why not earlier? We do not know what social, ethical, and religious forces undergirded the six. They are not autonomous. They were not designed by men. Computers were.
He says that the USA and the West are no longer the centers of these six features.
Ask yourself: who's got the work ethic now? The average South Korean works about 39 percent more hours per week than the average American. The school year in South Korea is 220 days long, compared with 180 days here. And you don't have to spend too long at any major U.S. university to know which students really drive themselves: the Asians and Asian-Americans.
Fair enough. But why is there this difference? What ideas or traditions led to this? Why was Korea in 1945 not much more productive than sub-Sahara Africa? Also, what led to the decline of the work ethic in the USA? Or was there a major decline? I did not spend more than 180 days in high school in the late 1950s.
Don't tell me television did it. Television was as addictive in 1960 as it is today.
What about taxes? The top income tax brackets are lower today than in 1960, thanks to Kennedy (70%) and Reagan (28%). They went back up a little under Clinton, but nothing like Eisenhower's era (91%).
Social Security taxes are up. Inflation prior to 2007 was up. Look also at the increase in regulations. These have hampered the American economy. But Americans still work hard. If they were taxed less, they would work harder, but to think that a taxation policy change would radically re-shape people's use of leisure time is naive. Good habits are easier to break than re-learn.
A programmer can re-program a computer. No one can reprogram a society. Those who try are first called revolutionaries, then tyrants, and finally failures.
THE HEALTHY-CUSTOMER SOCIETY
Ferguson speaks of the consumer society as a killer app, and so it is. It is a good thing for people to have more options. That is what liberty is all about. It is also what economic growth is all about. The two are linked at the hip.
How do people get more choices? By being better served by producers and by serving other customers. Producers save and organize and bear enormous uncertainties in search of profit. They cannot earn a profit in a free society in any way other than by serving consumers, meaning customers. The customer is king.
It is not that we live in a consumer society. It is that we live in a customer society. We have the legal freedom to consume. We also have a legal right to save. We can make investments today that we hope will bring us even more wealth in the future.
The consumer who is future-oriented chooses to consume less than he produces. This is the key to economic growth. People defer consumption for the sake of future consumption.
But some people save in order to produce. They live to produce. Their self-esteem is based on their production. They want to leave a legacy. They do not work mainly to eat. They eat mainly to work.
The customer society places economic authority in the hands of those who produce and those who are the heirs or beneficiaries of producers. Production creates its own consumption at some market-clearing price.
MODERN MEDICINE
Modern medicine is great, but the big gains in life expectancy came before 1912. People were richer. They bought screens for their windows and screen doors. Water treatment in cities got better after 1860. In rural areas, it was usually good. Most people lived on farms.
LESS RULE OF LAW
This is disheartening news.
The rule of law? For a real eye-opener, take a look at the latest World Economic Forum (WEF) Executive Opinion Survey. On no fewer than 15 of 16 different issues relating to property rights and governance, the United States fares worse than Hong Kong. Indeed, the U.S. makes the global top 20 in only one area: investor protection. On every other count, its reputation is shockingly bad. The U.S. ranks 86th in the world for the costs imposed on business by organized crime, 50th for public trust in the ethics of politicians, 42nd for various forms of bribery, and 40th for standards of auditing and financial reporting.
Here, we are retrogressing. As Western civil governments get more intrusive, the rule of law declines. Who can keep up with 70,000 pages of the Federal Register each year? Only armies of costly lawyers.
The increase in regulation is relentless. The law books are vastly thicker today than in 1960. So are rules and regulation books, where bureaucrats interpret and apply the laws of Congress.
I am in favor of going back to 1960 in most areas of administrative law, the laws enforced by bureaucracies. The areas where there has been improvement, such as civil rights, are dwarfed by the dark shadow of the Patriot Act.
SOCIAL DISORDER
He does not exactly predict that the West will turn into Greece. Possibly we can avoid the following, but maybe not. He puts question marks at the end of each sentence.
An upsurge in civil unrest and crime, as happened in the 1970s? A loss of faith on the part of investors and a sudden Greek-style leap in government borrowing costs? How about a spike of violence in the Middle East, from Iraq to Afghanistan, as insurgents capitalize on our troop withdrawals? Or a paralyzing cyberattack from the rising Asian superpower we complacently underrate?
Our problem is that we could turn into Greece. There is no immunity. The same bad policies could easily produce similar results.
Is there anything we can do to prevent such disasters? Social scientist Charles Murray calls for a "civic great awakening" – a return to the original values of the American republic. He's got a point. Far more than in Europe, most Americans remain instinctively loyal to the killer applications of Western ascendancy, from competition all the way through to the work ethic. They know the country has the right software. They just can't understand why it's running so damn slowly.
There is a problem with this analysis. What evidence is there that any civic awakening in America ever occurred apart from a religious awakening? Civic awakenings are not autonomous. I know about the First Great Awakening (1720-60). I know of the Second Great Awakening (1801-1840). I even know of the Third Great Awakening (1858).
There is another major problem: all three led to major political changes: centralized politics in the wake of major wars.
The social disruptions of 1965-70 led to greater centralization, and not just in the United States.
What we need to do is to delete the viruses that have crept into our system: the anticompetitive quasi monopolies that blight everything from banking to public education; the politically correct pseudosciences and soft subjects that deflect good students away from hard science; the lobbyists who subvert the rule of law for the sake of the special interests they represent – to say nothing of our crazily dysfunctional system of health care, our overleveraged personal finances, and our newfound unemployment ethic.
Correct. But who are "we," and how will "we" accomplish this?
I know how: cut their budgets. Let the free market sort out winners and losers. After all, this is the consumer/customer society. But the teachers in the tax-funded schools will resist any such move.
Do most Americans have a "newfound unemployment ethic"? I doubt it. Getting a job and keeping it has been basic to the American way of life throughout history.
What we have are government regulations everywhere. We have a kind of blind, deranged central economic planning by administrative law. We have what Ludwig von Mises sixty-five years ago called "planned chaos."
THE "C" WORD
Ferguson escalates the rhetoric.
I refuse to accept that Western civilization is like some hopeless old version of Microsoft DOS, doomed to freeze, then crash. I still cling to the hope that the United States is the Mac to Europe's PC, and that if one part of the West can successfully update and reboot itself, it's America.
But the lesson of history is clear. Voters and politicians alike dare not postpone the big reboot. Decline is not so gradual that our biggest problems can simply be left to the next administration, or the one after that.
If what we are risking is not decline but downright collapse, then the time frame maybe even tighter than one election cycle.
He speaks of collapse rather than decline. I prefer to speak of decline. The division of labor still operates. The profit and loss system still operates. Where these two social institutions operate, people are given fair warning of trouble lying ahead.
The squeezing of the free market by administrative law, monetary inflation, and taxes is increasing in some areas of life. It is not increasing in others. Where we need factories to produce, the various American governments are indeed a threat to our productivity and therefore our consumption. But where digits are concerned, the free market is in the saddle.
I believe that freedom of communication is far more important than low taxes. The former can produce the latter if the defenders of liberty make their case strong.
The ability of people to circumvent the Establishment media today is unprecedented in man's history. The World Wide Web is bringing down governments. It is increasing the cost of exposing bad science and bad government.It aids price competition.
In short, the Web offers more choices: of ideas, goods, and services. This is central to the changes that are going on today in the realm of ideas. We should not discount these too heavily.
I do not think this is the USSR in 1991. The United States is not a tyranny on that scale. It is far richer. Its people are connected digitally. The government can run, it can't hide.
CONCLUSION
I have no doubt that the transition costs from the Keynesian welfare-warfare state will be high. But I don't think a collapse is likely. There is a free market. There is a private communications system.
I look at the U.S. Postal Service and see the future of the Federal government. "I have seen the future, and it is mostly junk mail."
There will be attempts by the present Establishments to resist these changes. But the reality of the digits. They are getting more influential, and the Establishments control the older institutions that are threatened by cheap communications.
Decline for a time, yes. Comparative decline, Asia vs. the West. Yes. Transition costs, yes. Trapped voting groups that relied too heavily on government promises, surely. But a collapse is unlikely. The movement is toward freer markets. The freer the market, the less likely a collapse. Profit and loss signals enable us to adjust.
For those who don't adjust in time, or don't adjust enough, there is bad news ahead. The blind men who are passing laws are a threat. So are the petty tyrants who enforce these laws.
Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .
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