Two to Tango

My conservative ex-boss sent me this item:

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In fairness, the first statement is not entirely true.  Before the Sixteenth Amendment brought us the Federal income tax, there were state income taxes, and certainly other Federal taxes.

But, indeed, we did have all of those things with fewer taxes and less onerous government than we do now.  What happened?

Some of the items on the list–schools, roads, streets, and subways–were the province of local governments, doing what is a good local government’s first job: provide an environment in which commerce can flourish.  New York City financed the first subways (which were built and run by private firms) not to provide transportation to the poor, or for a ‘greener planet,’ but because the city was becoming overwhelmed with traffic congestion, which was getting in the way of business.

Other items on the list were in the domain of the private sector.  The railroads and the power grid were built with private investment.  (Yes, there was also some government help, and the railroads were overbuilt as a consequence, but the successful railroads turned a profit and thrived… until later in the century.)

A century ago, in general, the private sector knew that it had to work for a living.  They hired millions of workers and literally lit up our world.

Today, the private sector has gotten lazy.  They have learned that it’s easier to seek favors from the government than to actually do something.  Banks used to earn their living by taking calculated risks and lending to businesses and individuals.  Today, it’s easier to sit on the money, or park it at the Federal Reserve.

So while it’s appropriate to rail at government policy for not getting us out of our stalled economy, it takes two to tango, and the private sector has become as much of a problem as the government.

And what do we do about the lazy private sector?  Alas, I have no idea.

3 thoughts on “Two to Tango”

  1. Two of the major changes in the last hundred years are a far larger standing military with a public that expects minimal casualties and higher expectations of what we expect government to do. Were we still drafting our soldiers, sailors, airmen and Marines, we’d be paying them a lot less and require a much smaller cadre of professional military personnel, driving down the defense budget. Someone who graduated from high school or college in 1977 or so could have served a 20-year career with only one significant deployment risk: the first Gulf War.

    A lot of energy has gone into destigmatizing poverty. Instead of bread lines, we went from food stamps to an EBT card to hide the use of public benefits. Professionalizing what used to be called “relief” makes it less shameful to accept. Suppose that your neighbor was in charge of handing out food packages at your local church or community center. Chances are that you’d think twice before accepting one.

    Toll roads used to be a lot more common than they are now. You’d even have tolls charged on canals or to use waterways. This shifts the cost of building and maintaining them to the people who use them, though this cost will filter through to the people who buy the goods shipped over these roads and waterways. Our roads and other infrastructure are rated as D+ by the American Society of Civil Engineers, but try raising money to improve existing roads via a bond issue. I had expected much more money from the stimulus package to go to road and bridge repair.

    Much more of the cost of malinvestment or failure used to be borne by the private sector than it is now. When the banks fail the next time, depositors will be at risk because the FDIC doesn’t have nearly enough money to make them whole. Every Friday, there is a report of the banks that failed that week. As with unemployment insurance, we don’t charge enough for the coverage. We fail to price for risk in large measure because interest rates or other forms of return on investment that would reward risk are not available, at least not to small businessmen.

    More and more, the financial sector is so-called “hot money” that will move at a moment’s notice. An advantage of sitting on money in Treasury instruments is that there is a deep and fairly liquid market for them. Try liquidating a real estate portfolio or collection of durable goods wilthout incurring a significant loss. Transaction costs will be significant even if one gets the price that they desire.

  2. You’ve raised an interesting point about the volunteer military. If there is a draft, the presumption is that serving in the military is one of those disagreeable things that has to be done. Salaries can be lower, because there is no need to compete with the private sector or civilian civil service, and politicians will know that if they send the armed forces off to a pointless adventure, they will catch hell from their constituents for sending their sons (and possibly daughters) into harm’s way for no good reason.

    I’m reading a very interesting book: ‘The Great Deformation,’ by David Stockman, who was President Reagan’s budget director years ago. He goes into great detail about how the financial system has become warped through fiat money and debt. I’ll write more about it in a future post.

    1. It probably won’t surprise you to learn that Stockman’s book is on my reading list. I liked “The Triumph of Politics” years ago, and read his op-ed pieces. I’m waiting to see whether the local library buys it, They did order the book on CDs rather than the hard copy, which surprised me. It won’t be nearly as popular as “The Casual Vacancy” by J. K. Rowling.

      I often tell people that it is a mistake to make me curious about things. The prospect of being furloughed for 22 days, then 14 days, now possibly as few as 7 days didn’t bother me as much as it did other people because my fixed expenses are quite low. What interested me in sequestration is what happens in the “out” years, as the budgeting people say. Digging through the budget is quite interesting.

      I’ve said for a long time that the existence of easy, if not particularly cheap, credit has done a lot to mask the income stagnation that most people have endured for 30 years or so. Many people look at credit cards as their backup funds for when they lose a job, even though it is debt that has to be paid back. Take away your credit cards for a while, and consider paying for everything in cash or by checks that won’t bounce. Your spending habits will change. Being able to put it on plastic both props up current demand by bringing future demand into the present, so through the use of credit, we have an economy that is not as healthy as aggregate demand would indicate. If we had to pay cash, things would crash.

      The big lesson of Vietnam was the need for unit cohesion. Draftees did a 365 day tour, after which they would be returned to the U.S. They used to say that they have 37 days (or whatever their balance of time on the tour was) and a wakeup, and then they were going back to their civilian lives in the majority of cases. Doing more than one tour was unusual for a draftee, and even then, they usually had to volunteer by extending their tour of duty.

      The operations tempo that the Iraq War required made it necessary for many soldiers to take their Advanced Individual Training (AIT) in Iraq in a lot of cases. AIT happens after basic training. If you were a Humvee driver or mechanic, you got a couple of weeks of training at Fort Leonard Wood in Missouri, then you deployed with your unit. I know this because I attended a lecture given by the commander of Fort Leonard Wood at the time. It wasn’t a lot better in other military occupational specialties.

      We had been doing a drawdown of the military between 1992 and 1996, and it may have carried on longer, but I stopped paying attention when I moved to England in late 1996. That the Army had a shortage in junior ranks should not have been surprising, because for most of a decade, well into 2008, the Army was consistently missing their enlistment quota, so anyone who had stayed past their first enlistment, having joined in 1996 or later, would have made at least sergeant by the start of the Iraq War.

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