Wednesday, August 3, 2011
George Orwell wrote his famous Animal Farmallegory about the corrupting potential of socialism in 1943. The novel was not published for two years because the liberal Bloomsburyestablishment did not want to offend the new Labour Party majority in London or Stalinist allies in Moscow. After WWII, Orwell defended his fable, saying that his intention was to illustrate how easily otherwise intelligent people could be "misled by propaganda in a democracy."
Political ideology in America has devolved to forms that would make Orwell cringe today: socialists (née Marxists) and democratic socialists (née Keynesians). The former views government as an all-purpose solution and the latter views government as a "stimulator," a kind of economic and social Wizard of Oz. The two are more alike than they are different. The fatal flaw of both is the chronic inability of voters and their elected representatives to distinguish between wants and needs. Elections are now confused with democracy, and the majority seldom votes for the common good -- or their own best interests.
Neither debt nor deficits are national security crises. Both are just two symptoms of civic decline, a bloodless coup in slow motion. The end may come slowly or catastrophically, but collapse seems inevitable. And the solution isn't Democrats or Republicans; both parties are now "democratic" in name only. Neither major party represents the will nor the best interests of the people.
Before the turn of the 21st century, Francis Fukuyama wrote a provocative essay for National Interest where he argued that the fall of the Soviet Union represented the "end of (authoritarian) history" as we knew it and a triumph of "liberal democracy." Fukuyama didn't have much to say about the advent of totalitarian Islamism or the spread of virulent socialism in the West. Indeed, Frank might have been more candid had he called the 20th century a triumph of "social," not liberal, democracy. Fascists and old-school Communists may be gone, but socialism has metastasized in every Western democracy under the tutelage of "progressives."
Socialism, with the able assistance of Islamism, is now poised to do to Europe, the British Commonwealth, and America what Nazis, Fascists, and Communists could not. The threat from social democrats may be more subtle than the naked aggression of Islamists, but the endgame might be the same. The illusions of socialism and the worst instincts of democracy are now joined in a death spiral.
The fatal flaws of social democracy include but are not limited to promises that cannot possibly be kept; outlays that might always exceed income; the necessity for Orwellian mendacity; the absence of all moral hazards; and ultimately, a terminal erosion of the electoral process and democracy itself.
Social democracy is a kind of piñata politics, a system where special interests seek like-minded politicians who will cater to a host of creative dependencies. Few distinctions are made between real needs and simple cupidity. Once established, most federal programs quickly outlive their usefulness. Results become immaterial.
Once funded, the legislature might be lobbied by bureaucrats from within and beneficiaries from without. Social democracy is a perpetual motion machine where the prime function of government is spare parts -- spare parts for itself. Mission statements for most social agencies are adorned with adjectival admonitions like "better" or "improved," yet few if any measures of effectiveness are ever established or enforced. The "wars" on poverty, illiteracy, drugs, and terrorism and their associated federal departments are all examples of dismal, yet expensive failures. The only function that most federal agencies do well is write checks -- checks against funds which must be borrowed from folks that may not have our best interests at heart.
The liberal or proposal for solving the deficit/debt dilemma is "more of the same": tax and spend. The strategy is aptly defined as "leading from behind." Four in ten spending dollars must be borrowed today to keep America afloat. Paul Krugman tells us we must spend now, cut later. Later, unfortunately, never comes.
For the first time in history, the specter of sovereign default stalks the wealthiest nation on Earth. The wealthiest was also, heretofore, the most successful democracy. Democratic capitalism, once thought to be the engine of post-agrarian American success, has been undone by a socialist revolution without guns.
Debt and deficit, or double-"D" economics, assumes that growth and proportionate tax receipts will always compensate for imprudent spending. Like Fitzgerald's green light, this elusive future is always visible but never near. Spending your way is an oxymoron, a kind of logic that thrives only among civic knaves, politicians, and public employees. No prudent banker will raise the credit limit for an insolvent cardholder. Assumptions about ever-growing revenues are similar to public employee expectations about pay and raises. Apparatchiks and dependents see the public trough as a bottomless pit.
In a rare bit of candor, journalists have christened European insolvents as "PIIGS" (Portugal, Ireland, Italy, Greece, and Spain). The acronym does not yet include America, but well it might. Some pigs are more equal than others. The Yankee boar, like Orwell's Napoleon, has the power to wreck the international barnyard.
The proper Orwellian state requires a language of euphemisms. Discretionary and non-discretionary spending are two of the best. The latter term is designed to protect sacred cows -- as if any spending is ever "mandatory." Taxes are never taxes; words like "," investments that never pay, mask the pain. Keynesian deficit spending masquerades as "stimulus." If a stimulus package doesn't work, clearly it wasn't big enough. A corruption of language is necessary for any successful fraud. Mendacity is a standard kit for grifters and social democrats.
The most egregious deception turns rhetoric and logic on their heads. Those who argue that spending should not exceed income are libeled as immature, radical, insensitive, and dangerous. Those who would end the spending bender are labeled as right-wing "nuts." Somehow a balanced budget threatens the future, full faith, and credit of America. In the bizarre world of social democracy, all facts and logic are subverted by compulsive spending and fiscal deficit disorders. Blaming the thrifty for impending default is a little like blaming fire on the alarm.
There are no moral hazards in the world of social democrats. Indeed, government is not required to produce goods, nor does it necessarily deliver services. In spite of decades of Keynesian stimulus, government at all levels has become a net consumer, not a creator of wealth. And most programs and departments are vampires, they cannot be killed. Failure always looms, yet there are no penalties for poor performance. No-fault politics is a value that crosses party lines. Of 15 cabinet departments, six have been in default for decades. All are immune to reform or the axe.
Consider just three: Defense, Welfare, and Education. America has waged a host of wars since WWII. Few have been unambiguous successes. Indeed, among four ongoing wars in the Muslim world, the word "victory" is the most notable casualty. At home, two cabinet departments now service the welfare state. Even progressives argue that misguided federal largess has created a host of pathologies and dependencies that never existed before the advent of the "nanny" state. And American education is a domestic and international joke. The technology sector, that is supposed to be America's economic salvation, must go abroad to India and China to find qualified employees.
In the 18th century, the founding fathers restricted the voting franchise to the landed gentry. The idea was to restrict governance to the successful and accomplished citizens. If nothing else, successful and enterprising men were thought to serve as role models. No one anticipated a 20th-century oligarchy of venal lawyer/politicians without term limits.
Like the wise men of 5th-century Athens, early American political philosophers were aware that even a representative republic could be hijacked -- where cupidity and self-interest could thrive at the expense of the common good. It's no accident that the word "democracy" does not appear in the Declaration of Independence or the Constitution.
The original vision of an entrepreneurial, capitalist republic has devolved now to a social democratic nightmare where government programs actually suffocate initiative and enterprise. Literal, and figurative, industry is now vilified from the Oval Office. At the local level, especially in urban areas, social democrats thrive in dysfunctional, one-party towns. These urban blights cannot afford incompetence, even; it must be subsidized.
Fifty percent of the population pays no income taxes, but they do have the vote. This constituency has no skin in the game except, maybe, to collect a government check. There's no incentive for fiscal prudence when deadbeats can be bought with other people's money.
The American crisis was not created by reformers or conservatives. It was created by a bovine electorate and a porcine federal government -- a horrible model that actually cultivates social pathologies for political purposes. More than four out of ten dollars spent by Washington must be borrowed to finance what now amounts to an American "Animal Farm." Indeed, George! The pigs have taken over again. Napoleon and Squealer are back.
WASHINGTON (AP) -- The U.S. service firms, which employ nearly 90 percent of the country's work force, experienced their weakest growth in 17 months in July. The report confirms other data that show the economy is struggling two years after the recession ended.
The Institute for Supply Management said Wednesday its index for services companies fell to 52.7, from 53.3 in June. Any reading above 50 indicates expansion.
The ISM's index covers a range of service industries, including health care, retail, and financial services. The index reached a five-year high of 59.7 in February, but has fallen since then.
Growth slowed to less than 1 percent in the first six months of this year, the government said Friday. Consumer spending, which fuels 70 percent of economic activity, fell 0.2 percent in June. It was the first decline since September 2009.
Less spending has hurt service-sector companies such as restaurants, retailers, and amusement parks.
As the economy has slowed, so has hiring. Employers added only 18,000 jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent.
The government will release the July jobs report Friday. Economists predict only 90,000 jobs were added last month and the unemployment rate was unchanged. The economy needs roughly three times that many jobs to reduce the unemployment rate.
Much of the slowdown stems from a spike in gas prices since last year. That reduces the amount of money consumers can spend on discretionary goods such as furniture, electronics, and appliances. Spending on those categories has fallen for three straight months.
Spending fell largely because most Americans aren't seeing any pay increases. Incomes rose only 0.1 percent in June, the department said, the smallest gain since September. Americans are also saving more, boosting the savings rate to 5.4 percent.
Manufacturing output has also been hit by supply disruptions stemming from Japan's March 11 earthquake, which caused auto companies in the U.S. to reduce production.
Many analysts had predicted the economy would turn around in the second half of the year once those temporary factors began to fade.
But the ISM's manufacturing report, released Monday, showed the economy is still deteriorating. The manufacturing index fell to 50.9, its lowest level in two years.
Most economists have reduced their growth forecasts. Paul Dales, an economist at Capital Economic, now expects growth of only 2 percent in the second half of the year, down from an earlier forecast of 2.5 percent
Tue Aug 2, 2011 4:34pm EDT
* S&P 500 turns negative for year
* S&P closes below 200-day moving average
* Global growth fears weigh on stocks
* Dow off 2.2 pct, S&P off 2.6 pct, Nasdaq 2.8 pct
* For up-to-the-minute market news see [STXNEWS/US] (Updates to close)
By Edward Krudy
NEW YORK, Aug 2 (Reuters) - The S&P 500 turned negative for the year on Tuesday as the wrangling over the U.S. debt ceiling faded and investors turned their attention to the stalling economy.
The broad-based index fell for a seventh day and crashed through the key 200-day moving average in an ominous sign for markets. The seven days of losses mark the longest losing streak since October 2008.