Monday, July 9, 2012

The Real Blunder of the Sixties

The sensible Robert Samuelson has a piece out today about the economic blunder of the 1960s.  He writes:
Until the 1960s, Americans generally believed in low inflation and balanced budgets. President John Kennedy shared the consensus but was persuaded to change his mind. His economic advisers argued that, through deficit spending and modest increases in inflation, government could raise economic growth, lower unemployment and smooth business cycles.

None of this proved true; all of it led to grief.
OK.  It's true, as far as it goes.  Although there have always been advocates of "cheap money" and there always will be. Sometimes they get the ear of politicians, and sometimes they don't.

It is true that, by giving itself permission to borrow and print money, America's ruling elite basically exempted itself from rules of prudence.  It swept away an important political excuse, as in "Gee fellas, I'd love to spend more money on your pet program but it would involve deficit spending, and that would be wrong."

But the real blunder is the whole idea that major social functions should be performed by government.  It is just not true that there is a need for a compulsory program of national retirement savings.  Most people are pretty prudent; once they get their kids raised they start to save for retirement.

That goes for health care and education, too.  Women are passionately engaged in health care for their family, and drive family spending to budget for health care.  Ditto education.  If the government weren't delivering health care and education then people would do it on their own, like the middle class did before the invention of the welfare state.

Of course, all these social functions would be different if government didn't do them.  They would involve a lot more personal involvement.  People would volunteer at hospitals and schools and give money to them; they would help their relatives with hospital bills and school fees; they would belong to fraternal organizations that provided social benefits to their members.  That is what middle-class people used to do.

But the ruling elite decided that they wanted to run all these social functions.  They would use government and the tax system to organize and fund it all, and they would use university experts to plan and structure the programs.  And when they got in a jam they would borrow a little money.  When they got into a recession they would print a little money.

That is what Keynesianism is all about.  It is all about the welfare state pitcher trying to get out of a jam.  A little spit, a little scuff, and he should be able to throw a strike and make that last out.

The trouble is that, after a century of spit-balls and scuffing, the Keynesian ball is such a mess that today's pitchers can't deliver that crucial out.

Ten years ago Robert D. Putnam set our liberal friends tut-tutting with his Bowling Alone.  He mourned that America was hollowing out because people weren't "joining" any more.  Of course liberals completely missed the point.  Humans join organizations not because they like joining up but because social organizations help them to live and thrive and help them when they need help.  But with the welfare state and its bureaucratic provision of all the social functions there is no point in joining organizations for mutual benefit.  It's a waste of time as you merely end up duplicating a function that the government provides for "free".  You might as well just stay home and sit in front of the TV.

The truth is that our liberal ruling class has created a monster.  The more that it taxes and spends the less that people feel responsible for getting out and making a difference, and the more people demand "free stuff" like everyone else.

The bottom line with blunders is that it costs a bundle to set a blunder right.  Usually the cost can be counted both in money and in heartache.  Back in the 1980s Ronald Reagan gave us a chance to correct the blunder after the stagflation of the 1970s, but liberals refused to reform their welfare state and their "free stuff" subsidies.  Today, the politics of President Obama amounts to "free stuff" politics on steroids.

So now we have to go through the horrors of 1979-82 all over again.  Only this time it is hurting a lot more than back in the early days of the Reagan revolution.  That is because we are in a bigger hole this time.

Will liberals learn their lesson this time?  We can but hope.  Here is an idea. Eight years of a Republican in the White House and a Republican Congress would go a long way to changing their minds.

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