The Decline and Fall of the United States - Part II

Rome was not burnt in a day, and neither will the United States be turned into a howling wasteland in a day. The fall of Rome can not be explained by any single factor: not their lead plumbing, not a corrupt government squandering the empire's wealth, not intellectual stagnation, moral decay nor external pressures. All are cumulative and we exhibit all of them except the lead piping. The follies of many Roman emperors are certainly one of big reasons for the fall, as the scope of the emperor knew no bounds and his decisions or lack of decision would affect the whole empire. The founding father's sought to limit government and saw it as a potential threat to the lives and liberty of its citizens. This could not continue in the modern world but what would be the scope of government and could it be counted on to lead and make good decisions.

The Great Depression marks the point where the government started to expand its influence far beyond its modest means to deliver. Prior to that the economy had little management from Washington. The government had little power nor ambition to run things it had no particular claim of experience to run. The Depression is presented and accepted by most people as a failure of the capitalist system that required the government to step in and take control. Unbeknownst to most people, after years of analysis most of the blame is now laid on the Federal Reserve System, a government agency. Certainly amelioration of hardship was necessary at a time when some rural Americans were desperate enough to resort to feeding their kids boiled thistle! The New Deal opened the floodgates.

The New Deal lead to a huge expansion of government. This continues today as programs once created seldom die. Government support for agriculture especially the farm subsidies continue to this day despite sky high prices for farm commodities. A new government agency named Fannie Mae was established to help people own a home. This agency which along with its cousin Freddie Mac just recently had to be seized by the Federal Government to prevent possibly another Great Depression. The most enduring New Deal measure was the Social Security Act, originally envisioned as a way to get old people out of the work force to make way for the unemployed. Here the New Dealers came up with a pension system that would become a millstone for future generations. The money collected to fund future retirees would come into the governments's hands and be spent, not put away in some tangible asset like a private pension plan. Meanwhile fresh IOUs were issued in the name of the Social Security Trust fund so that in reality future generations were themselves the trust fund. This had the beauty of being predictable, unlike Wall Street Stocks or Bonds. The money was guaranteed - to be lost. Normal accounting rules for pensions were never required, because it is deemed to this day that this program could be discontinued at any time. Fat chance! This is the rationalization that it not be treated as a normal pension fund.

SS provided a bonanza of cash for the expansion of social programs as the inflows to the system far outweighed the outflows. As they crunched the actuary tables the New Dealers noticed that the liabilities accrued and bankrupted the system over time. As FDR said, "It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980. We can't do that. We can't sell the United Short in 1980 any more than in 1935". Since the government took the money and spent it, while claiming it was a "trust fund" without any real tangible assets, the New Dealers must have been counting on an ever increasing population. They could not see the demographic bulge of the Baby Boom, nor reduced fertility and population grown in later years.

WWII furthered the growth of government as it controlled all aspects of production, rationed resources and imposed wage and price controls set priorities as bureaucrats saw fit. One way companies found to attract workers, since they could not offer higher wages was to offer a new benefit, health insurance. Originally offered for this purpose this had the ill effect of uncoupling the costs of medicine from the beneficiaries that received them. This would become more and more significant as time went by.

The return of prosperity after WWII saw the United States fit right into the mold of the English Empire or the Roman one. Instead of a return to the depression, which many feared it was a boom time. The US Navy ruled the seas while the US economy was second to none: materially, financially and endowed with tremendous human resources. The GI bill turned thousands of soldiers into scientists and engineers. The equation of prosperity is very similar to that in the early 1800s: the country was vast, self-sufficient with huge natural resources, the people were on average more intelligent and educated and free to pursue their interests. Shiny cities on a hill, nor the intervention of the supreme being are not needed to explain this good luck.

The overwhelmingly dominant position the US had after the war would start to slip during the 50s and 60s. Our allies and former enemies were getting off their feet and the US encouraged them with free access to its markets and free trade. While the US could boast 50% of world manufacturing after the war, this was an anomaly that would fall as other countries recovered and started to compete with the United States. The voracious appetite for energy soon set the Texas oil fields into decline. The United States became a little less self sufficient by the day.

With time this bountiful prosperity and seemingly limitless power led to delusions of grandeur and lessened the fiscal restraint practiced in early times. The lessons of the New Deal were applied in the Great Society as Medicaid and Medicare came into existence with more government spending and little or no control of costs. Private medical plans had helped to seed this phenomenon which led to an ever increasing portion of the nation's wealth flowing into health care. Increasing numbers of government employees became more and more significant in the polling booth, voting themselves higher wages, better pensions and benefits.

The lack of fiscal and monetary restraint reached a crisis on President Johnson's watch as he pursued a guns and butter policy, not willing to curtail government spending while hemorrhaging money in Vietnam, he found the levers of the printing presses and used them. In fact he actually used physical intimidation on his Treasury secretary to force him to print more money "for the boys" fighting in Vietnam. This did little to help Johnson who left office a shattered man. It did lead to the ruinous period of inflation of the late 70s. The government made several attempts to stop inflation from Nixon's infamous wage and price controls and five point plan to Gerald Ford's humorous Whip Inflation Now button. Things would not go well for the US, until some discipline could be restored in Washington. The Arab oil embargo did not help as the US would have it demonstrated that it was no longer self sufficient in energy. A general malaise and a sense that the United States was adrift permeated society through the end of the Carter years.

Despite these reverses the United States still had many advantages as it lumbered towards 1980. It still had vast resources even if energy was not one of them, a skilled mobile work force, it was still a net creditor country, it had a significant manufacturing base and it was a leading exporter. The ruinous Keynesian approach of attempting to micro manage the economy from Washington was abandoned, the printing presses went idle. The new Fed Chief Paul Volker ran up interest rates, tanking the economy long enough and raising unemployment to wring out inflationary pressures. A brutal but necessary action at the time, this set the stage for the Reagan presidency. Reagan cut taxes from ruinously high 80% levels to more manageable ones. He failed however to reduce government spending. As he was interested in a major defense build up the democrats were all too willing to give it to him as long as he maintained social programs. These budget deficits were made good by borrowing as opposed to printing money.

As the federal budget deficit increased there were calls for restraint. Even when Reagan left office there was talk of the invisible hand his deficits had caused that would prevent new government spending. The Gramm Rudman act tried to instill some fiscal discipline on the Congress to match the new monetary discipline. The economy expanded during the 80s and the US regained its self confidence. An era of divided government with the presidency in the hands of the Republican party while Congress was in the hands of the Democrats worked for time to limit big increases in government spending. The Democratic party ever ready to lavish gifts on its constituents and supporters was moderated by a more fiscally responsible Republicans.

The Republican party was in many ways a moderating influence not a great mover or shaker since had not controlled the Congress since the Eisenhower administration. The Republican party needed rejuvenation and found it in the rise of the evangelical movement and especially Jerry Falwell's Moral Majority. As social conservatism waxed its fiscal responsibly waned. The leading issues were all about abortion or gun holders's rights. These things fired up "the base" of the party but were in fact a diversion from real challenges that were starting to heat up.