We like to ridicule campus snowflakes. They need their safe
spaces. They need their trigger warnings. They need their chill zones with nap mats and beanbag
chairs.
The public thinks of them as a bunch of feminized, whining losers.
The public is correct. They are.
The problem is this: the American economy is becoming a snowflake
economy. Major sectors of the economy are becoming safe spaces that are
protected by law. These are reduced-competition zones. They are licensed by
bureaucrats and protected by bureaucrats.
This is not a recent development. It began no later than 1901,
when Teddy Roosevelt became President. The essence of the Progressive movement
was always the creation of a regulatory state which became more and more
bureaucratic over time. This development began Europe in the late 19th century,
so Europe has a head start on the United States. The essence of the modern
regulatory state is the substitution of bureaucracy for free market
competition. In the name of protecting consumers, unelected, tenured
bureaucrats create protected areas of life throughout the economy. Bureaucrats
reconstruct society in their own image.
The essence of the process is the public school system. It has
been bureaucratic from the beginning. From top to bottom, it is staffed by
bureaucrats who seek and gain tenure. Tenure is the heart, mind, and
soul of the snowflake society. Laws force almost the entire population to
go into a massive bureaucracy to be trained, beginning no later than the age of
six, and continuing through graduate school. Career success hinges on people's
ability to tolerate enormous boredom in the classroom, and then pass
specialized examinations in order to enter their chosen professions. Almost 30%
of America's professions require examinations and licensing in order to enter
them. Everybody wants protection. Everybody wants a safe space. Bureaucrats
promise this, and voters believe them.
THE COMPLACENT CLASS
Tyler Cowan's latest book, The Complacent Class, is
one of the most important books in decades. It is well written, under 200
pages, and irrefutable.
He is a free market economist who teaches at George Mason
University, a semi-Austrian department. He is a big fan of entrepreneurship. He
shows that it is declining in the United States. New business formation is one
indicator. Innovation is declining outside of Moore's law areas of the economy.
Economic growth is declining.
I have my theory of the main culprits: relentless regulation
including licensing, Nixon's destruction of the gold-exchange standard, and
federal deficits. This does not hurt the book. These are politically
irreversible, given the present political order. What is important is the
trend, which appears irreversible.
In every area of our lives except digital technologies, we are
dependent on the state to protect us. He understands that this is what
ultimately lies behind the process. Voters use the government to create zones
of immunity from competition. Then, lo and behold, there is less competition.
This has been going on since the rise of the Progressive movement and the
triumph of the Progressives under Teddy Roosevelt in 1901. He doesn't mention
this, but it ought to be obvious.
I think it really goes back to the rise of copyright and patents
in the 18th century. These are both interventions by the government into the
economy. But there is a lot of debate about this within free-market circles, and
we've certainly had a lot of economic growth under copyright and patents.
PROTECTING THE INCUMBENTS
While he did not mention this, there is a parallel in political
life. There has been a bipartisan move at the state level to make certain that
congressional districts are locked in by political incumbents. There are
changes in districts in response to the census every 10 years. Each party uses
gerrymandering techniques to make certain that congressional districts are
safe. Parties on the losing side every 10 years have support in Congress from
political incumbents. The survivors have their districts made even safer. There
are fewer districts for one of the parties, but the ones that remain are safe
for another decade, and the incumbents appreciate this. This is why there is
not a hue and cry every 10 years in Congress when states re-district
congressional districts.
It is virtually impossible to replace an incumbent Congressman
prior to the next census and redistricting. When that comes, it is decided by
state legislatures, not by Congress. So, politically speaking, Congress is
immune to political opposition. Congress can do whatever it wants, and there
will not be political repercussions at the next election. Things change only at
the margin.
The public was overwhelmingly opposed in October 2008 to the $700
billion TARP bailout. That did not stop Congress from passing it.
This redistricting plan was never foreseen by members of the
Constitutional convention, but Elbridge Gerry figured it out in 1812. Gerry had
been a member of the Convention. He was one of the three men who refused to
sign it at the end of the Convention, because he thought it needed a Bill of
Rights. Here is a classic case of the law of unintended consequences. The
Convention did not see the rise of political parties, which was by far the most
important single development of the Constitution. Members of the Convention
hated political parties, and yet they created them as a result of the
Constitution.
What state governments do for congressional districts every ten
years is what virtually every aspect of government does in every aspect of life
that it regulates, which is just about everything. Every group wants protection
from competition. Every group appeals to the civil government to provide this
protection. It is all done in the name of protecting the consumer. It in fact
protects the producers. The process is now relentless.
One of the trends that he discusses is one which I have discussed
for years. At the national level, I regard it as the most important political
development. The most important development is nonpolitical, namely, the
expansion of federal regulation, as revealed in the Federal Register.
This is completely beyond politics. It cannot be solved by politics. It is
truly irreversible. It is a worldwide phenomenon, and it is sapping the Western
legal tradition. But what about politics? What is the primary trend there?
The primary trend is the expansion of the nondiscretionary budget.
These expenditures are built into previous legislation. The main ones are
Social Security, Medicare, Medicaid, the Pentagon's budget, and interest
payments on the federal debt. There are others, but they are smaller programs
that are not listed in the breakdown that we read on Wikipedia or anywhere
else.
According to Cowan, in 1962, two thirds of the budget at the
federal level was discretionary. He says that the present percentage is
approximately 20%. But, most important in the book, he said that in 2022, it will
be down to 10%.
This means that, even if the Democrats come in with a majority in
both houses of Congress and the presidency in 2022, the way they came in 2009
for one term, they will not be able to start any new federal program. It will
not be politically possible.
I think it is likely that by 2030, the discretionary portions of
the budget will disappear. This means that politics will be all sound and fury,
signifying almost nothing. It will be about who is appointed to the Supreme
Court. It will have to do with issues of free speech and rights of
non-cooperation. It will be all hat and no cattle.
I do not think Trump will be impeached and convicted in this term
of Congress. The Republicans obviously can block this. They control the House
and the Senate. It would take a political upheaval in 2018 for the House to go
back to the Democrats. It would not take an upheaval for the Senate to go back
to the Democrats. But that gives the country two more years before the first
President in American history will ever be impeached and convicted. Frankly, I
don't think it's going to happen. I think the media will undermine the
presidency, 24×7, until Trump leaves office. The media are undermining public
confidence in the Presidency, which is altogether a good thing. We haven't had
a principled defender of limited central government as President ever since
Grover Cleveland left office in 1897. When something doesn't work as planned
for over 120 years, it is fair to conclude that it was poorly designed.
Even if the Republicans lose the House and the Senate, they will
not lose the vice presidency. Mike Pence is far more conservative than Trump
is. If Pence becomes President, the media will back off. They will have driven
Trump out of office. To continue to attack Pence in the same way would be to
admit that getting Trump out of office was politically meaningless. The media
will want to make certain that he is not elected President in 2020, but they
will not go out of its way to vilify him personally. A recession will play into
their hands.
All the Republicans have to do over the next three years is
nothing. I think that is pretty much all they will do. I don't think they're
going to roll back ObamaCare. I don't think they're going to roll back Obama's
tax system. I think Trump has been politically neutered. There is not going to
be any wall with Mexico. Tariffs are not going to change much. Nothing is going
to change much.
He may get his tax reductions through Congress. It is a long shot,
but it is conceivable that he can do this. That will increase the federal
deficit. But the federal deficit is going to go through the ceiling, which is
fake anyway, due to the recession. We are going to see unprecedented federal
deficits in the next recession. We're going to see falling interest rates on
Treasury debt. Treasury bonds will rise in price. This will encourage a massive
transfer of capital to the federal government. That will reinforce what Tyler
Cowan is talking about in his book. It will strip the American economy of
investment.
THE GREAT DEFAULT
We are headed relentlessly toward the Great Default. The unfunded
liabilities of Social Security and Medicare are relentlessly transforming the
federal budget into a nondiscretionary fiscal sinkhole. Politically, nothing
can reverse this. Nothing that happens in Washington is going to change the
direction in which we are headed. Cowan talks about the relentless increase in
spending on Social Security and Medicare. These two gargantuan welfare state
monsters are going to get much bigger. He sees this. He does not think there is
anything that can be done to reverse this.
I think the political system is being gerrymandered by the
nondiscretionary components of the federal budget. Congress is running out of
elbow room. Nobody in Congress is going to vote against increases in Social
Security and Medicare. It is clear by now that nobody is going to vote against
the Pentagon's share of the budget. Nobody is going to run for federal office
in 2018 on a political platform of cutting the Pentagon's budget in half.
Nobody in Washington talks about what is statistically obvious,
namely, that there is no way to fund Medicare, Medicaid, and Social Security.
There is bipartisan acceptance of the federal deficit. There is no political
movement capable of rolling back the federal deficit. The Tea Party has come
and gone. It would never take a stand against Social Security and Medicare,
which meant that it was politically irrelevant from day one.
By the time the Democrats can get back into the White House in
2022, it will be too late for the incoming President to have any effect on
federal spending. Yet politics is all about special-interest groups getting
their hands into the federal till. Political promises are made to these
special-interest groups, but the absence of discretionary components in the
federal debt will prevent almost all of these promises from being fulfilled.
For all intents and purposes, national politics will be decided in terms of
debates over social issues that have no budgetary consequences. All the rest of
politics will simply be political rhetoric: sound and fury, signifying nothing.
SNOWFLAKE AMERICA
Americans have become snowflakes. They have done everything they
could to get governments to create barriers against competition. This is
seriously reducing American innovation. It is undermining American character.
The economic pie is not growing as fast as it did in the past.
Meanwhile, population is growing. Young adults who are coming into the economy
are going to find that America is becoming more like Europe. The economic
system is being rigged against the campus snowflakes. Older people who have
jobs are going to protect these jobs through government. The snowflakes coming
out of the college system are going to be melted early. They are not going to
have any safe spaces, because their parents have politically gerrymandered the
economy. They are going to find it hard to break into this economy. Robots will
be competing against them. Algorithms will be competing against them. Their third-rate
educations will do them little good. Their bachelor degrees in sociology will
let them get entry-level jobs. Not very many of them will move up the career
ladder. If they did not major in engineering, they will find economic success
elusive.
We have seen all this in Spain, Italy, and Greece. It is the
European disease, especially in southern Europe. The United States has been
relatively immune, but I think Cowan is correct. The complacent class is in
charge of both politics and economics, and the days of American innovation are
slowing. We are importing the European disease. We have been doing this
systematically since the early 1970's.
The Great Default is going to change this. There is no way to fund
Social Security and Medicare. The unfunded liabilities of the two programs will
overwhelm the federal budget. The federal government will have to cut the
expenditures. This means cutting off granny. The only way to delay this is to
slaughter a lot of sacred federal cows. This will overturn the New Deal's legacy.
But it will take a political upheaval before the straitjacket of the federal
welfare state is finally ripped to shreds. The Great Default is going to
overturn American politics and the American regulatory state. I am optimistic
about the long-run effects of the Great Default. But between now and then, the
federal straitjacket will be tightened by the federal bureaucracy. There will
be 80,000+ pages in the Federal Register every year.
CONCLUSION
The welfare state works only as long as the government can get its
hands on other people's money. There are serious limits politically on the
ability of the federal government collect taxes from the public. That limit is
about 20% of GNP. The increase in nondiscretionary spending in the federal
budget is going to place the welfare state in a straitjacket. This is good news
in general. There is no way that America can grow its way out of the
straitjacket. But the straitjacket is limited by the enforcement of federal
laws, and without money for enforcement, Americans are going to get out of the
federal straitjacket. I won't live long enough to see it, but maybe you will.
