Friday, November 2, 2012

President of The Grand Delusion

This is an open letter to Obamney and Robama the next President of the United States.

As you know, there are significant problems facing the United States at this juncture, so I wanted to take this opportunity to point out the key issues.

The biggest problem with the United States right now is people like you
Both of you (and most others) seem to be under the  ongoing delusion that the current way of life is scalable and sustainable even though you have been warned several times and several ways that it's neither.  In general the Westernized consumption-oriented lifestyle is no longer sustainable, as indicated by total debt levels approaching several multiples of GDP across all Western nations, all of which are attempting desperately to maintain the status quo.

More specific to the U.S., this belief that the country can at the same time cut taxes to the lowest level of any Western nation, fund a Social Security and Medicare deficit, and increase or maintain military spending at wartime levels indefinitely, is totally unfounded.  This entire package of foolishness is bundled under the aegis of Supply Side Economics aka. Trickle Down economics aka. Voodoo Economics.  With effective tax rates down around 20%, the delusion of being able to cut tax rates further to grow the economy enough to offset the direct reduction in tax revenue, is mathematically impossible i.e. requiring a 5:1 growth multiplier.  This strategy has been deployed for 30 years now.  Thirty years ago, the national debt was $1 trillion, today it's $16 trillion.  That's a 9% compound annual growth rate in debt in an economy growing at 2%.  Does that sound sustainable to you?  If it does, then you are not qualified to be a 3rd grade teacher, much less President.

Some Things Have To Go
In a Democracy, that means a little bit of everything has to go.  Right now, the U.S. is borrowing 8% of GDP to garner a growth rate of 2%.  We live in the largest credit expansion in human history which explains why interest rates remain at historically low levels i.e. there is a lot of money in very few hands and that money is seeking a return on capital.  In the days to come that desire for a return on capital will morph into a desire for a return of capital at which point historically low interest rates will revert to the mean or above and then the ability to sustain unlimited deficits will be substantially curtailed.  Even if the U.S. is capped at its current debt level, elimination of the deficit implies an 8% reduction in GDP assuming a 1:1 multiplier.  If one factors in a collapsed credit and stock market, that multiplier will grow exponentially.  Which means a lot more things will go.

Just to recap history: for most of the last century, the U.S. and other Western nations were in the unique position of having advanced economies with steady growth.  Now however, the rest of the world wants what we have and they are willing to work a lot harder than us, to obtain our standard of living.  Therefore in a world competing for scarce resources, mathematically that means their standard of living will rise and ours will fall.  Granted, we have used every device known to man to forestall this equalization, not the least of which was borrowing from poor countries to prop up our bloated standard of living at their expense.  However, only a fool would assume that they will go along with that program indefinitely, when they realize we have no capacity to repay them on prior loans much less new ones.

In summary, I don't expect two power hungry megalomaniacs to heed these facts and logic.  I also realize that we live in a society that is programmed to want ever more materialism,  money, and power, which means that neither of you has any plan that would include adopting a lifestyle involving accepting less.  Therefore, according to the law of diminishing returns of debt which we see playing out in real time, whoever wins this next election will find out the hard way that there is a lot more to being a leader than a winning smile and a set of constantly recycled campaign slogans.  In short, it's very likely that this next election will have two losers instead of just one.