Pulling the Plug on Entitlements

09.02.2017 • Politics and War

Bill Bonner – Bill Bonner’s Diary (United States) –

MIAMI – “The CQ certainly went down when you came into the hotel,” said one of our two sons here with us.

“What’s the CQ?”

“The cool quotient.”

The Edition hotel in Miami’s South Beach has so much cool, your fuddy-duddy editor barely put a dent in it. Sleek… white… expensive… It would be a great hotel for a family from São Paulo. Or from Paris.

Coming from Baltimore for a business meeting, however, it seemed almost excessive, trying too hard to make a good impression.

We are attending an unusual meeting. Analysts, editors, economists – we are all guessing about what will happen next and how we can profit from it.

“Private property will disappear in my lifetime,” said one, boldly.

This was such an explosive prediction, fragments must have lodged in our brain, irritating the surrounding tissue.

We thought about it. At first, it sounded crazy. Now, we’re not so sure.

But we’ll come back to that tomorrow…

Butting Heads With the Deep State

We left off yesterday describing the three zombie-crony zones where no politician wants to go: entitlements, Wall Street, and the Pentagon. The entitlees provide the votes. Wall Street provides the fake money. The Pentagon provides the fake enemies and the illusion of security.

A friend wrote to suggest a fourth candidate:

I would nominate a fourth big deal in the win-lose category: the K–12/university-industrial complex. Run by the employees, for the employees. Consumes more than ten percent of GDP.

Together, all these public-private complexes, with their win-lose deals forced onto the American people, cost the Main Street economy trillions of dollars per year. How do we know they’re win-lose deals? Because you have to pay for them whether you want them or not.

So if Donald Trump is to keep his promises, he must bring these programs under control, where he will butt heads with the biggest Deep State players.

We discussed two of them yesterday: the military/security industry and Wall Street. We noted how hard it would be to cut off their funding in any serious way.

Without spending reductions, tax cuts are meaningless and futile. They would lead to bigger deficits, which would have to be covered with more fake money. That would lead to more distortions… more mistakes… and end up leaving the average American even worse off.

Alan Greenspan said as much (or more!) when he met with our group last month:

I maintained for quite a while that our entitlements, which were legally mandated, are rising at such a pace that the data show unequivocally, going back to 1965, that the sum of gross domestic savings plus entitlements as a percent of gross domestic product [GDP] has been a constant. It wiggles a little bit (I shouldn’t say it’s a constant) but has no trend.

That means, assuming that the driving force is entitlements – which it’s got to be because it’s mandated – every dollar increase in entitlements decreases the gross amount, the amount of gross domestic savings, by $1.

Since we can borrow from abroad and have now built up a debt of $8 trillion because our current account balance continued to erode, we’re now in a position… where we can no longer keep gross domestic investment at a higher level in gross domestic savings or, in fact, even close.

So we’re going to be in a position now where gross domestic investment, because it’s not being funded, will start to decline as a percent of GDP. If that happens, productivity growth will slow from where it is even now. And that means that GDP per capita is going to rise hardly at all.

Using fewer words, Dr. Greenspan’s point (much the same as that of our book Hormegeddon) was… the more a government spends, the less an economy grows.

Scoundrels and Chumps

As promised, we focus today on the crony-zombie complex that is expanding fastest and probably has the widest public support: entitlements.

Since 2000, the economy has doubled. Federal spending on medical care has gone up five times.

Rare is the voter who minds a win-lose deal if he thinks he is on the winning side. And he’s happy to vote for the politician who gives it to him. This makes spending on medical care, drugs, and pensions particularly difficult to stop. In the swamp itself, the cronies fight hard to protect it. And many voters, too, want it to continue.

Drugmakers, hip replacers, hospitals – they all lobby for more “public support” from the feds. Already in Japan, more adult diapers are sold than baby diapers. As the U.S. population ages, too, the diaper makers are looking forward to fat years.

The customers, too, want more of other people’s money. Old people want fat pensions and thin medical care bills. And old people vote.

As the medical/pharmaceutical industry rolls out new drugs and new treatments, how can the geezers say no? Someone else is picking up the tab.

Entitlements – like insults – are easy to throw out and hard to take back.

In the past, politicians could bribe older voters with “social welfare” spending. As long as the economy grew fast enough, there was no problem. Yesterday’s promises could be covered with today’s revenues.

But now, the economy is growing only about half as fast as it did when America really was great – in the ’50s and ’60s.

The number of young people paying taxes is going down… and they earn no more than their parents. So, projected federal revenues need to be marked down, too.

Many retirees think they already “paid for” their benefits. Maybe they did. But the feds spent the money on other crony-zombie projects. So, the only way they can make good on their promises is to squeeze younger citizens.

And when that blood runs out, they have to borrow… which means squeezing the money out of an even younger group, some of whom haven’t even been born yet.

Old people win. Young people lose.

This makes scoundrels out of us and chumps out of the young. But the scoundrels like it and the young don’t vote.

Regards,

Signature

Bill

-Read more at bonnerandpartners.com (Paywall)-

Related Posts

Comments are closed.

« »