By Arnold Kling
Here is an unpopular but undeniable fact of life: When private sector demand is weak, the federal government must serve as the spender of last resort.
When the New York Times entitles an editorial “The Truth About…” what it really means is “the liberal elite narrative about…”
The narrative is that we are suffering from a shortfall in demand. The reality is that the private sector has decided that workers should be hired on the basis of profits, rather than on the basis of debt. The government may choose to make a different decision, of course, but that will not necessarily strengthen our economy.
The editorial continues,
To truly tame deficits will require serious health care reform
Is this the truth? In Washington, serious health care reform means “fixing” private health insurance. But our deficits are caused not by problems in private health insurance. They are caused by the structure of Medicare and Medicaid. That is where we need reform. But the Times and other liberal mouthpieces need to create a narrative that makes it sound as though unsound government programs are the fault of the private sector.
When it comes to the big issues, voters at the midpoint usually get the policies, if not always the exact outcomes, they want. In the federal budget, the largest line items include Social Security, Medicare, Medicaid and military spending — all very popular programs. The interest on the national debt is mounting because we don’t like paying higher taxes now for all those benefits, so our government borrows to postpone the pain.
In the immortal words of Pogo, we have met the enemy and he is us.
Take a look at the top ten countries in the economic freedom index. Then look at the top ten countries by population. The United States is the only country in both lists, and at the rate things are going we will not be in the top ten in terms of economic freedom much longer.
My reading is that there are serious diseconomies of scale in governance. The larger the polity, the worse the ability to govern. Yes, some small countries are very un-free, but the most-free countries are all small. Of the other countries in the top ten in terms of economic freedom, Canada has the largest population, and it is barely more than 1/10th of ours. My impression is that Canada also is less centralized than the U.S., with more autonomy in the provinces.
Several readers have asked how one can prepare financially for a collapse of European currencies. Perhaps in the short run the U.S. dollar will be helped, but I would be thinking in terms of securities from countries like Canada, New Zealand, Singapore, and Switzerland.
Ultimately, I think that democracy is a very unreliable friend of economic freedom. The ability to vote with your feet is more valuable than the ability to cast a ballot. The trend in the U.S. is toward giving people less power to vote with their feet, as power becomes more centralized. If the median voter would like more decentralization, that is one message that is not getting through.