Friday, July 25, 2008

Depression, Revolution, or War

"Which would you rather have, a major depression, a revolution, or a really big war? "

"Quite a choice of ugly alternatives!", you might exclaim in response.

Well, that's what I think are the choices we are likely to face if the U.S. government doesn't get our economy fixed for the long run.

I attended a men's outing one day this week at a lovely "cottage" on Keuka Lake, one of the "finger lakes" south of Rochester...on land worth thousands of dollars per foot of lakefront. The 20 men who attended are pretty smart guys, and we talked about a lot of things as we enjoyed the ambiance of a beautiful scene, plenty of good food and drink, and a respite from the day-to-day pressures that most of us face. Most of the men were either retired or well along in their work life.

The consensus is that our kids and grandchildren will not enjoy anything like the standard of living that we have enjoyed. The America of today is not the stable, rich land of opportunity that we remember, and all signs point to further deterioration. We don't see a large class of younger "middle and upper-middle class" people accumulating enough wealth to live well after their retirement. Rather, we see America being propped up by us older folks as we spend our accumulated wealth, and then falling rapidly as we are not replaced by a large group of relatively well-off older citizens.

Our generation enjoyed significant advantages over our counterparts around the world. Their countries were ravaged by war, their treasuries were depleted, and their cultures resisted change. They had less natural resources to tap, and often, less freedom to be entrepreneurs. But all this is past history now. Our competitor countries have rebuilt, their people have worked hard and saved, they understand entrepreneurship, and their citizens are more free to succeed.
America is no longer the source of most items demanded by consumers, and our competition has virtually wiped out America's participation in some industries.

During the time our economic competitors were gearing up, our government has fought three very expensive wars, set up social programs like Social Security and Medicare without adequately funding them, and has run big deficits and foreign debts despite being the most successful economy in the world for two generations. We have got fat and lazy while our competitors have got skinny and invigorated. At one time America was the world's banker, but now we are the world's biggest debtor. As the value of our currency falls our standard of living will fall and our sense of security will diminish as the years pass. How will our people handle the disappointment?

That's where my choices come in. If we do nothing to fix our problems we will face either a major depression, a revolution, or a big-time war. We will have a depression if the U.S. dollar depreciates even further, since oil and commodities will become extremely expensive. We will have a revolution if our citizens conclude our political system is guilty of selling us out. We will have a major war if our politicians decide that a desperate grab for worldwide power is preferable to America falling via depression or revolution. This is not a very happy set of possibilities. Can they be avoided? I don't know.

What I do know is that America needs to make some dramatic changes in order to compete and survive in the 21st century. Government needs to live within its means, get our entitlements under control, and somehow convince the citizens to endure the lower standard of living that recovering will entail. There is no quick fix; our debts are gigantic and our resistance to change is high. Will our politicians ever wake up to their responsibility to future generations, or will they, like President Bush, paper over the problems until a collapse is inevitable?

Depression, Revolution, War, or major structural change? This is no parlor game question. We don't have much longer before the answer must be given, so pray it's the latter.


ThomasLB said...

I'm not really too concerned about the falling standard of living. If things regress to the standards of the 1940s (for example), with smaller houses and fewer cars, that's still really not too bad, and things like the internet and the advances in health and dental care aren't going to go away.

I am concerned about the threat of war. I was surprised that the USSR went out with a whimper, not a bang. I will be surprised if the American empire goes out the same way.

The one factor that may reduce the odds of going to war: it's unlikely the Chinese will loan us the money we need to wage one. (Now there's a depressing reason to be optimistic.)

Dave said...

If we think about these things as we do, wonder how my nieces will think about what we are gifting to them.

Ron Davison said...

I'm not sure that we'll have a depression. It's a possibility, but the reduction in standard of living can continue to be gradual, an erosion of quality of life.