Tea Party Economist

Recently by Gary North: Why We Are Not on the Road to Serfdom

I read that Americans who have spoken to poll-takers express the fear that their children will not live as well as they have. Here is an example. The poll was taken in October 2011.

More than two-thirds of voters say the United States is declining, and a clear majority think the next generation will be worse off than this one, according to the results of a new poll commissioned by The Hill. A resounding 69 percent of respondents said the country is “in decline,” the survey found, while 57 percent predict today’s kids won’t live better lives than their parents. Additionally, 83 percent of voters indicated they’re either very or somewhat worried about the future of the nation, with 49 percent saying they’re “very worried.” The results suggest that Americans don’t view the country’s current economic and political troubles as temporary, but instead see them continuing for many years.

The usual explanation relates to the poor economy. Other explanations include the environment, the educational system, the national debt, Asian competition, illegal immigration, and moral decline.

I have not seen any poll relate this pessimism to concern over declining medical technology, rising computer prices, a crash of the Internet, rising bandwidth costs, declining automobile safety, dead spots in cell phone communications, rising book prices, declining IQ scores, or astronomical plane fares.

In other words, Americans think their children will live longer, enjoy better communications, travel more inexpensively, and not get dumber. The better informed respondents know of the Flynn effect. It appears that people born later over the last century keep getting better at taking exams, or else they are actually getting smarter. Wikipedia summarizes.

The Flynn effect is the name given to a substantial and long-sustained increase in intelligence test scores measured in many parts of the world. When intelligence quotient (IQ) tests are initially standardized using a sample of test-takers, by convention the average of the test results is set to 100 and their standard deviation is set to 15 IQ points. When IQ tests are revised they are again standardized using a new sample of test-takers, usually born more recently than the first. Again, the average result is set to 100. However, when the new test subjects take the older tests, in almost every case their average scores are significantly above 100.

This has taken place in other countries. It means that each generation does better at taking exams. Since there is no inheritance of acquired characteristics, we must seek other explanations for this rise. One explanation surely does not fit: children keep getting less intelligent.

Before a child is born, parents hope for two things: (1) the child will be healthy; (2) the child will be of normal intelligence. Parents of teenagers can be confident that the nation’s children and grandchildren will live longer, be healthier, and be better at taking IQ tests. So, why the pessimism?

Let us discount the likelihood of the following: (1) a pandemic, (2) nuclear war, (3) a collision with an asteroid.

This leaves the following: (1) the rising cost of energy, (2) rising taxation, (3) Federal Reserve policy, (4) tighter job markets (immigration and Asian competition), (5) the federal debt, (6) cultural and moral decline.

I will skip over cultural and moral issues, because most of these issues are separate from government policies. I can think of no federal program that will reform Americans’ morals, and I shudder to think of the bureaucracy that would be set up to try.

Oldsters have been complaining about moral and cultural decline ever since the Puritans arrived in Massachusetts. At some point, it’s old news. If there is a looming tipping point, we can’t forecast it accurately. Surely, an agency in Washington can’t.

I am in favor of closing down government welfare programs that subsidize personal irresponsibility. This should begin with crony capitalism. Some single mother in Detroit is not the primary source of moral hazard in America. Let’s start with the FDIC, the Import-Export Bank, farm price supports, Social Security, Medicare, and the Federal Reserve System.

RISING ENERGY COSTS

This threat is real, but we have a price system to deal with it.

For anyone who has invested in natural gas over the past few years, the energy crisis seems to be on hold. He has lost a great deal of money. Prices have collapsed.

There may be a technological breakthrough. I hope so. Meanwhile, the price system offers us ways to cut consumption. Worldwide oil consumption peaked in 2004. It is still high: about a billion barrels every 12 weeks. But the free market provides incentives for consumers to conserve and inventors to get busy.

This much is clear: rising energy costs are the result of increased consumption, which is the result of increased production. We have to get richer to afford expensive oil.

We will cut back on some consumer goods in order to buy energy. We will have time to adjust our budgets. This is a long-term problem.

In any case, the high cost of energy is going to hit the Third World and Second World before it hits America.

RISING TAXATION

Not for Americans. Americans will not tolerate rising taxes. The most that the federal government has extracted out of Americans since 1947 is 20% of GDP, and usually this has been lower. Here is a chart that shows this.

What about total taxation? It has risen to the 35% range. (This does not count the cost of regulation.)

Government expenditures have risen since 2000. But this has been covered by borrowing.

Parents should not worry about their children’s growing tax burden. One election cycle can take away that burden. A new Congress comes in and pulls the plug on any program that a majority of voters — “the kids” — decide is squeezing them.

Think of this as the ice floe solution. Some tribes in the arctic used to stick granny on a floating piece of ice, gave her three days’ rations, and wished her bon voyage.

My recommendation: Don’t worry about the kids. Worry about your golden years.

FEDERAL RESERVE POLICY

Our kids are not going to take the brunt of this. We are. What the FED has created, in conjunction with fractional reserve banking and the FDIC, is a system of moral hazard and crony capitalism on a scale never before seen. Add to this witches brew the European Central Bank, the Bank of Japan, and the People’s Bank of China. Don’t cry for the kids. Our problems are more immediate.

TIGHTER JOB MARKETS

With every extension of the division of labor since the day that Cain went off to seek his fortune, job markets have been tightening. There are more people looking for work. But an amazing phenomenon has paralleled this development. More employers are looking for workers.

Markets clear when left free to clear. Employers bid against employers. Workers bid against workers. Employment remains high as long as employers and workers are free to bid, free to choose, free to move away, and free to start a business. I mean “free” as in “under no legal restrictions.”

Lots of Chinese workers want to compete to sell us trinkets that we don’t need and parts that we can hire others to assemble. China is a nation that sends out boxes with this sign: “Some assembly required.” The money is in the assembling and marketing. Think iPhone. Think iPad. For that matter, think “Detroit Big Three.”

Dell Computers is in trouble, according to its recent share price. Hewlett-Packard will lay off 27,000. What does that mean for you and me? Cheaper computers.

Agriculture has faced this problem for 300 years. “How ya gonna keep ’em down on the farm, after they’ve seen Paree” — or any other town larger than 500? Answer: you aren’t. This is why 2% of Americans live on farms, and why food is so small a portion of our household budgets. If we were willing to stick with unprocessed foods, that portion would be even lower. A “paleo” diet — which is not paleo; it’s capitalist — could be based on eggs and not much else. Eggs are cheap.

Tighter job markets are great for people who specialize. This takes productivity. There is increasing productivity. It also takes capital. It takes education. All of these are available at some price.

For unproductive people with poor work habits, low IQs, and no skills, times will get tougher. But why shouldn’t they get tougher? The market rewards workers who produce efficiently. That is what free market pricing is all about: incentives to produce more efficiently.

This was what uncompetitive farmers have faced. We need incentives to go out and find some way to serve customers. Necessity is the mother of invention. Go to the Book of Proverbs for insights here. Or go to my commentary on the economics of the Book of Proverbs.

Some parents are worried about the fact that the $100,000+ they spent to send a child to college to get a degree has not paid off. The job market is rotten for people with useless B.A. degrees in the humanities. Furthermore, the child could have gotten this degree on his own for under $15,000. All this is a commentary on the lack of parental financial wisdom, not a comment on the child’s future at age 40 or 50. Maybe the child will know better than to follow his parents’ example.

Year after year, decade after decade, for over two centuries, economic growth in the northern hemisphere of the West has increased by at least 2% per year. This has made every generation richer than the previous one. Bad government policies have slowed this down (1929-47). World wars have slowed this down. But it has continued most of the time.

Now the process has spread to China and India. There will be more people with output to trade with. This is like getting a better class of people moving into the neighborhood. Property values will rise.

THE FEDERAL DEBT

See “Rising Taxation.”

LIBERTY

Liberty is what enables people to improve their situations. Liberty is increasing.

As I wrote recently, we are not on the road to serfdom. We are on the road out of serfdom.

We have been on this road out of serfdom for a thousand years. We are not going to turn around and go back. The nation that adopted Marxist Communism first was Russia in 1917. Serfdom had been abolished in Russia only since 1861. Capitalism had barely begun in cities. It was nonexistent in rural areas, where most Russians lived.

As for Communist China, Mao’s triumph in 1949 was not a triumph over capitalism. It was a triumph over traditional bureaucracy — the oldest and most developed bureaucracy on earth. The only bureaucracy to come close to matching it was the Czar’s in 1917. Marx was completely wrong about the future. Communist revolutions came in nations that had not yet adopted bourgeois capitalism. The mode of production did not produce the inevitable revolution: from feudalism to capitalism to socialism to communism.

The revolutions were not led by proletarians. Educated bourgeois sons led peasant societies into Communism in the name of proletarianism, just as a pair of educated bourgeois sons invented Communism in the first place.

We are seeing the extension of economic liberty in Asia. Asia is booming. We are seeing the contraction of economic liberty in Western Europe. It is in a recession.

The United States has lower taxes than most industrial nations. It is easy to start a business here. Innovators still come here to prove their points in the market.

If California tightens the screws, Texas beckons. If Vermont tightens the screws, New Hampshire beckons. We can click a link to find out which state is where a small businessman wants to be.

CONCLUSION

Whether our children will be better off than we are has far more to do with their morals than the federal government. The federal government can be evaded. It can be replaced. It can be de-funded. It can go belly-up.

The heart, mind, and soul of a nation are the hearts, minds, and souls of its people.

The problem with big government is bad morality.

The problem with central banking is larceny in the hearts of the voters. They want bailouts. Who gets bailed out? Rich bankers. Surprise!

The problem with public education is tax funding. That can be cured by a few dozen sites like Khan Academy’s site.

What we need is a moral transformation, We need voters who will vote against “except.” “Thou shalt not steal, except by majority vote.”

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.

Copyright © 2012 Gary North