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Thursday, April 11, 2013

Americans Can’t Handle the Truth

David Stockman’s new book, The Great Deformation: The Corruption of Capitalism in America, is getting a lot of attention these days. I recommend you don’t buy it. It’s much better to ignore the book and continue to listen to the White House and Wall Street, both of which tell us everything will work out just fine.

Stockman, President Ronald Reagan’s first budget director, confronts us head-on with blunt truths we simply can’t handle. He argues that our current economy -- and recent prosperity -- aren’t real. Instead, they’ve been fueled by a series of artificial bubbles created by runaway deficit spending and reckless money-printing at the Federal Reserve. This is all going to lead to an epic crash, Stockman predicts, and next time around, there won’t be any bailouts.

I hate to say it, but most of us would rather the president and our representatives in Congress don’t cause us any pain. That means don’t touch my Social Security in any way, don’t do anything to cap the runaway growth in Medicare and Medicaid, and don’t raise my taxes either. And keep printing money. We elect our officials to create no discomfort for us, and they deliver.

Inspired by Stockman’s blunt assessment, I’d like to focus on three areas where all of us -- the White House, Congress, and citizens, too -- need a heavy dose of truth-telling: the unemployment rate, the unsustainability of healthcare, and the reality of America’s economic growth.

The unemployment rate in the U.S. is stagnant at best. Yes, the U.S. Department of Labor says the rate has dropped from 7.8% to 7.6%, but it’s actually frozen when you apply a more accurate measure. In simple terms, the Bureau of Labor Statistics’ survey of 60,000 households per month doesn’t count you as “unemployed” unless you looked for a job in the past four weeks.

I think it’s better to turn the number upside down and ask, “What percentage of the population does have a good job?” According to Gallup’s monthly payroll to population (P2P) survey of 30,000 adults, the employment situation has failed to improve recently and has remained relatively little changed year-over-year. Workers haven’t found the full-time jobs they’ve been seeking, and the labor force and unadjusted unemployment rates are flat.

Healthcare costs are out of control. We must confront this problem now -- it cannot wait any longer. At $2.5 trillion annually, the U.S. healthcare tab is three times the size of the defense budget and nearly two times the whole Russian economy. It’s also roughly twice the size of the whole Indian economy, and India has a billion-plus population.

The fact is, healthcare is breaking America faster than Social Security and other pension benefits. And healthcare is growing at an average of 6% per year, which means the new costs over the next decade will be a staggering $10 trillion over and above where we currently are.

We need authentic economic growth. While I agree with Stockman that the current booming stock market is an illusion driven by money-printing and deficit spending -- namely, that it doesn’t reflect real prosperity -- many of his solutions are more political in nature: abolish the electoral college, impose term limits on the president and Congress, and so on. I have a more straightforward fix: Restore and encourage the spirit of American free enterprise. Get the engine of business roaring again.

Whatever anyone in the White House or on Wall Street says, don’t forget that our economy is currently growing at a pathetic 1%, where we need a minimum of 2.5% GDP growth just to tread water, in my view. That being said, I think we need GDP growth of about 4.5% to get the economy humming again. We’re not going to get there with more deficit spending and with the Federal Reserve handing out more free money to investors.

What will get us to authentic economic growth and job creation is for federal, state, and local governments to do everything in their power to help America’s 6 million small businesses succeed. That means restoring their confidence in the future -- 30% of small-business owners are worried they may not be in business in 12 months, according to a Wells Fargo/Gallup Small Business Index survey -- and removing any barriers they may face. What most people probably don’t know is that small businesses -- not large enterprises -- create most of the good jobs in America.

Maybe Stockman’s political reforms are the right way to go, but whatever the case, I think that restoring the spirit of robust, free-market capitalism will cure most of our ills and put the country on a sustainable path for the future.

But first, we need to start telling ourselves the truth about what really drives prosperity and what’s just an illusion. David Stockman has done us all a favor by getting us to confront reality. Of course, I actually do recommend his book.

13 comments:

Anonymous said...
April 14, 2013 at 11:52 AM  

it seems to me that the presidents proposal to cut medicare costs by about 40 billion per year are not that drastic when you consider the percentage of medicare spending it actually represents

Tina Sjogren said...
April 14, 2013 at 12:24 PM  

What a great article. Thank you.

Todd Smekens said...
April 27, 2013 at 9:20 AM  

Jim,

Some of us who don't follow corporate media sources have a real good grasp of several truths, and one is not only the disparity in incomes, but the disparity of power and influence over the solutions.

The government represents industry - not the people. Any solution without discussing this truth will fail.

Let's look at the food industry and its lobby. How much control does it have over our government?

Too much.

It leads to many issues like the high costs associated with preventable diseases. You can focus on cutting costs, but without discussion our epidemics of obesity caused by our food system, you are just appeasing the food industry.

Then by all means, focus on cutting healthcare costs from the top down. Look at the profits made by "non-profits" and the salaries of CEO's.

No need to reinvent the wheel, there was a very good article in Time which addresses many of the healthcare fixes.

I also agree with small businesses driving the economy, but if people cannot afford to buy products and services produced by small businesses, what is your recommendation for local governments? Most local governments are facing their own financial crisis and will be cutting payroll - services. Therefore, no money to assist small businesses. Reducing the tax burden might work if there is a profit from the business, but if there is little or no demand, chances aren't good there will be a profit.

Lastly, I would like to know how free markets produces a sustainable path. We've seen free markets in finance, healthcare and food industries. How well has that been working for this country?

Thanks for the article.

Sue G. said...
May 9, 2013 at 12:54 PM  

I appreciate, and agree with, Todd's response.

Anonymous said...
May 9, 2013 at 2:53 PM  

Todd:

"We've seen free markets in finance, healthcare and food industries. How well has that been working for this country?" By basic economics we can't have a free market in finance as a market system only works where the laws of suplly and demand work. Since money is created at will in our society, a free market system for finance will always fail. Either finance has to be heavily regulated (far beyond what we have now) or we need to return to money that is subject to the laws of supply and demand.

Healthcare is not in a free market as the government controls over 50% of the market. Singapore has one of the best healthcare systems in the world (per WHO)that uses only a fraction of GDP that we use for healthcare (3.8% versus a growing 17%). That is the model we should be emulating.

Anonymous said...
May 9, 2013 at 3:01 PM  

Why is it that we only look to middle- and low-income people to deal with our budget problems? What about reducing the military budget or asking wealthy people to make a bigger contribution?

Anonymous said...
May 9, 2013 at 3:03 PM  

Who is John Galt?

Anonymous said...
May 9, 2013 at 5:52 PM  

Great article!!

Anonymous said...
May 9, 2013 at 10:54 PM  

You lost my belief at the health care cost paragraph. Most of us know they're finally on the decrease.

Anonymous said...
May 10, 2013 at 10:01 AM  

Stop getting involved in foreign wars. Stop foreign aid. Stop paying benefits (food stamps etc) to non workers. Stop paying unreasonable and unchecked amounts to health services providers. Deport all illegals. Stop printing money to pay for all of the above. It may not solve our economic problems completely, but it certainly would be a step in the right direction.

M Caulfield said...
May 11, 2013 at 5:45 AM  

The NWO people in both parties have deliberately created this coming crisis. Until we acknowledge the socialist invasion and the covert attacks on freedom, Christianity, and free enterprise, and return to the ideas, values and self-sacrifice that made this country great, we'll continue our prolonged, suicidal, downward spiral.

M Caulfield said...
May 11, 2013 at 5:46 AM  

The NWO people in both parties have deliberately created this coming crisis. Until we acknowledge the socialist invasion and the covert attacks on freedom, Christianity, and free enterprise, and return to the ideas, values and self-sacrifice that made this country great, we'll continue our prolonged, suicidal, downward spiral.

Anonymous said...
August 30, 2013 at 3:50 PM  

You can't reform something that is inherently flawed. Politics run on one kind of fuel....money. That translates to greed. The world was never meant to become a big money making empire. So I say that MOST all people cannot handle the truth. For two main reasons.

One. Because they have a false version of the truth which is tailored to tell them what they want to hear.

Two. Because they prefer lies over the truth. For instance, the scene in Open Season cartoon where in the shadows, it looked as if a bear was tearing apart another animal, which in reality he wasn't at all. But it was an excuse to show violence to children. Thus, lies were chosen over truth. Call it deception.

Greed is the number one problem in the world. And when you put things iinto proper perspective, you will find that it runs through the veins of the majority of all people. It may not consciously be money. It might be something else. But people are "wanting" everything. There is very little self sacrifice left. No virtues. Just people selling something. I;ve never seen so many book writers who claim to offer solutions to people's problems. And after decades of this nonsense, people still haven't found the solutions that way. People who claim to help others for a price are LIARS and THIEVES. The only real helpers are the volunteers who work for FREE. They are serving a higher purpose at their own expense. And they ask nothing in return. In the churches we often see the hypocrites who do good deeds so they can brag and gain a reputation. They are no better than a killer, spiritually speaking.

I for one learned early on in my life there was more to it than all the vanity and lust that is all around every single day. The world is getting worse. Not better. That is subjective depending on how much you love yourself and money. I actually have a brother who is the opposite of me. He loves money. And he still lie and con people to get it. Some day the world will end up being turned inside out. And it will be the greedy people who will break apart. Only those who saw things coming will know better. And they will haters of greed.

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