The Party's Over, and People Don't Get It

That's what I wrote on the board in one of my classes the other day, as we were watching the story about Wisconsin's budget problems. Like other states, voters there are reluctant to raise taxes, and this leaves the state with no other alternative than to cut spending, including areas where they'd really rather not. One of the places Wisconsin would prefer not to cut is in education; another is from the pensions of public employees who've worked so hard to get a decent income in their retirement years. To do so would just be so wrong! But as I often ask: What's the alternative?

Not much, it seems. Mostly we just hear that Wisconsin can’t do that, without hearing what they CAN do. I don't know if reducing the power of unions, and reducing public employee salaries and pensions are the only way or even a good way to deal with these daunting state deficits, but I do know this: The financial problems that the states, and the federal government, face are .... absolutely disastrous. Probably worse than in the Great Depression; perhaps the worst this country has ever seen. And people just don't get that yet. You explain how THERE'S NO MONEY, and drastic cuts HAVE to be made; they listen, shake their heads in agreement and then go "yeah, but what's this got to do with me? where's my raise? why can't I retire at 55?"

Most Americans hear about the $15 trillion dollar federal deficit, California's $26 billion deficit, and the like, and just sort of say "Well so? Fix it! Cut government waste, tax millionaires more, you know - just fix it!" Or else they figure the "problem" is just a phony one, or will just sort of go away by itself.

But it's not even remotely that simple, and there are no fixes that won't involve serious amounts of pain for almost all Americans, for many years to come. The bottom line is that almost all of us are going to have to live with smaller paychecks and smaller pensions, work longer, and get less in the way of government services and support. No use whining about it or marching around with tired old 60s-era “hey, hey, ho, ho, government cuts have got to go” chants, because that’s just the way it’s going to be. Here are a couple of reasons why this is inevitable.

First is politicians’ decision to kick the can down the road for 40 years or so. I remember back in the mid-1970s when I started in the investments business; conservative analysts were alarmed by the federal government spending more than it took in, year after year. The nation's debt was rising at a then-alarming rate, while the value of the U.S. dollar was rapidly eroding. We have to stop this now, they said, or else our children and their children will pay a heavy price down the road! Congresses and Presidents came and went, but nothing fundamentally changed. To fix the problem required raising taxes and/or cutting government spending - two equally unacceptable policies. Anyone who pushed either option would likely be voted out of office by angry voters: "You raised my taxes!" "You cut spending on my favorite program!"

So Congress borrowed more money instead, kicking the can down the road, letting the next Congress deal with the problem. Disturbing annual deficits in the tens of billions of dollars in the 1970s became shocking deficits of hundreds of billions in the 1980s and 1990s (except for a few surplus years in the late-1990s), and then insanely high deficits that eventually exceeded $1 trillion a year by the late-2000s. Each time, as Congress refused to make the tough decisions (cut spending and/or raise taxes), everybody said: "If we don't fix this now, it's today's children who will pay the price." Nobody pretended to not understand that their inaction would put the burden of their decisions on the back of future generations; the presumption was always "well, we didn't fix it this year, but next year we will!"

But it was a cruel hoax, a deceit. Most politicians knew in their heart of hearts that they couldn't solve the problem, that they didn't have the nerve to take the tough actions needed to do so. And besides, by the time the problem got totally out of control - they'd be long gone. Someone else's problem!

Well, the shell game is winding down and the future is now. The debt is so big, the economy so unable to deal with it using conventional means, that the party, the game of musical chairs, is about over. Today's Americans, especially the young ones, are getting presented with the bill for all the living high off the hog of the past 40 years. Not right away. Not all at once. Not always in obvious ways. But it's clear that it's happening; it has to happen. And most people don't get it.

My wife and I were in Mission Valley the other day, and couldn't believe the parking lots. They were all full, with people waiting for someone to leave so they could park. In this bad economy. When Internet shopping is taking more and more business away from physical stores. Still - stores were packed. People were buying stuff right and left; lots of it overpriced, frivolous stuff. Paying $11.50 to watch a movie, and then $13 for a large Coke and popcorn.

Many of these same people will quickly tell you how the economy sucks right now: prices are up, jobs are hard to find, and government is cutting its services. But they've still got their cells with unlimited texting, their $30,000 SUVs that get crappy mileage, still eat out twice a week, still consider shopping at the mall a sensible hobby. These people don’t get it.

Meanwhile, there is the other America; the 10% or 20% or 30% of Americans whose lifestyles have already taken a huge hit. They lost their jobs, lost their homes, lost their meager savings, don’t have health coverage, and after a couple of years see no light at the end of the tunnel. Or they’ve got a job, a home, lousy health insurance, but no pension to look forward to and are just barely scraping by. They don’t understand all this talk of the economy improving, don’t understand how the stock market has almost doubled in the last two years, don’t understand how so many others have money to just throw away at the malls.

So here’s the second thing. Many of those people are part of the old economy. Despite all the calls for Buy American, the old ways are gone. If you used to work at a lumber mill or a manufacturing plant; if you used to earn a good living with just a high school education and a skill set that isn’t really needed anymore; if you had a non-essential job and somebody found a way to get by without you, then you’re a casualty of the new economy. Globalization changed things, and there’s no putting the genie back in the bottle.

The changes in the American workplace were inevitable and, in a way, we should be happy about how things are working out. Because if you think about it, a big reason that Americans were able to live so high on the hog, even after we started getting a little lazy and feeling entitled, was because we were still one of the Big Dogs, benefiting from old colonial and imperialist realities.

We had lots of military and political muscle, long-standing commercial arrangements the world over; bargaining advantages of many types that gave us a huge edge over so many other countries. We had the U.S. dollar, trusted basis of the entire world’s financial system. We had good education, great inventions, good roads and hospitals and phone systems. Free markets and strong laws to protect entrepreneurs and foster civic strength. Meanwhile, the majority of people elsewhere lived in the third world, in desperate poverty, with little or no education, no military or political muscle – nothing. Or they lived in communist countries, essentially dictatorships where their futures were seldom promising.

So it was relatively easy for us to live off the fat of the land (the world) during the 60s, 70s, and 80s. But that really started changing about 20 or 25 years ago, with the fall of communism, with China’s adoption of free market policies, and with advancements in technology, communication, and transportation. Now, everyone can see what life is like in rich western countries – and they want that. Now, everyone has access to technology and information and can use them to level playing field after playing field. Now everyone has an incentive to work hard, to create, to build wealth. The Chinese work harder and much, much cheaper than Americans, so they make everything. Meanwhile, the Indians work harder and cheaper than Americans, so they’re starting to do everything (think: call centers, surgery centers, accounting services). Meanwhile, they, and other parts of the former third world, are jumping ahead of us in education, in modern infrastructure, in the things that will allow them to inevitably catch up and perhaps even surpass us.

We should be happy for them, shouldn’t we? Shouldn’t we feel bad that for decades we had the great lifestyles, at least in part because of policies that exploited poorer countries? We won the Cold War; we brought down communism! Shouldn’t we be proud that – with our help in many cases – many countries are now following our lead, and catching up? Shouldn’t we be glad that they’re now starting to have decent lifestyles, even if it means that we’re living a little less high on the hog? Hmmm…. I don’t think most Americans are quite that gracious about it.

But shouldn’t they be? I mean, the poorest Americans still aren’t starving to death. Most of them still get a decent education, have a roof over their heads, have personal freedom and a chance to make something of themselves, are free from having to worry about ethnic cleansing and bloody revolutions. So what if our GDP per capita (basically – average income per person, per year) falls from $45,000 to $35,000? We’re still well off; still in better shape than 95% of the world’s population. Can we really begrudge other people in the world the chance at bettering themselves? Do we really think that all those high paying jobs are our God-given right, for perpetuity - that nobody else should be able to take them from us?

I think the answer is yes. Americans had it all, for so long that they think that having it all is their natural right. We benefited from our world dominance, and from the buy now/pay later philosophy of our government for so long. It’s a lot harder to give up the good life when that’s all you’ve known. Americans, proud and hard-working for so long, now feel, more than anything else, entitled. But the party’s over. And that sense of entitlement is going to make it harder for people to accept what is essentially inevitable.