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Are We Getting the Government We Deserve?

Dec 30 201010
Are We Getting the Government We Deserve?

http://www.prophetwithoutprofit.com/

There is an old labor relations saying: “companies get the unions that they deserve.” In plainer words, poorly managed companies, constantly at war with their employees, tend to spawn highly aggressive, combative unions. Put most succinctly, bad management yields bad labor relations.

In this context, let’s look at our series of rolling economic crises. Our government’s response to each one has been to encourage or spawn “bubbles.” (1.) Federal Reserve chairman Greenspan recognized the internet bubble. Instead of squelching the identified “irrational exuberance,” he continued to encourage speculation. (2.) Responding to the internet market crash, the Greenspan Fed spawned the housing bubble. (3.) With housing now in shambles, the Bernanke Fed is openly trying to create a stock bubble. See Who Elected Ben Bernanke?

My hypothesis is that our political leaders do not have the courage to speak truth to the electorate. Economies need recessions as a curative for financial and business excess. Without these necessary corrections, the seemingly easy way out of low interest rates, easy credit and promises of speculative riches becomes public policy. If we are a populace seeking easy fixes to complex problems, we get a government that acts accordingly.

Spending is Easy, Savings is Hard

In Retirement Account Fantasy and Middle Class Erosion – 1 of 3 Americans Has Zero Dollars in a Retirement Account (“Retirement Account Fantasy”) the author exposes our dangerously low level of retirement savings.

1 out of 3 Americans has zero in any retirement account (not one slowly eroding dollar). Half of Americans have $2,000 or less which puts them one month away from needing government assistance. See Retirement Account Fantasy

In a recent insurance company survey, 84% of young adults (18-29) and 60% of adults (30%) recognize that they need at least a million dollars to retire. Actual retirement savings are nowhere near that:

The median retirement account for US households is $2,000. This is why the vast majority of retirees depend on Social Security as their primary source of funds in old age even though Social Security was never designed to be a long term pension system. The average retirement account is closer to $50,000 a year but this is heavily skewed by the top 1 percent that keep most of their funds in stock wealth. See Retirement Account Fantasy

Thus, we have a failed retirement savings system which only exacerbates the shortfall in social security funding. In turn, the government will be forced to borrow even more to fund future social security payments.

Ants and Grasshoppers

The author of Retirement Account Fantasy lays the blame for the retirement savings shortfall on our low income growth, income inequality and Wall Street pilfering. While these observations are true they describe the patient’s symptoms, not causes. The causes are a lack of savings and true investment rather than speculation. Government has only worsened this problem through accommodative monetary and economic policies. Zero interest rates are a disincentive to save and invest.

Prior to 2008, there was comparatively low unemployment and GDP growth. Like the ant in the fable of the Ant and the Grasshopper, workers could have chosen to over save and under spend. That would have required living in a home one could afford, and spending money that one actually had. Instead, during this period we had our national savings rates turn negative. Debt (especially housing debt) became a virtue and cash an anathema.

Instead of a policy of shared sacrifice and thrift, the government encouraged consumer spending, especially on expensive items such as McMansions and SUVs as a means to achieve economic salvation. See The Greediest Generation – Where has Shared Sacrifice Gone?

Reflecting more on the issue, I believe there is a deeper societal issue. We live in an age of instant gratification. If a web page loads too slowly, we need a better “app” or a better device. If a marriage does not meet our expectations, we divorce our “life long” partner and look for a new one. We suffer poorly even minor hardships. Faced with a recession, we ask government to bail us out.

What happened to the ethic of earlier generations: savings equals freedom: freedom to leave a job, start your own business, transfer to a new location, avoid government assistance, or simply to retire by choice while healthy and vigorous.

Right now government openly favors financial elites who are the merchants and promoters of debt. But the way out of the financial crisis requires personal sacrifice and discipline. Unfortunately, we seem to lack that will; thus, we get the government we deserve: easy fixes, easy money, short lived artificial booms and long-lived genuine crashes.
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