Friday, August 19, 2011

Defining America's Future .... A Standalone Michigan Looks Too Much Like Europe

The future will never be precisely like the present, only later. Change is continuous.

In the U.S., our system of federalism consists of a central government coupled with fifty state governments. That approach has brought us the world's highest standard of living and the world's strongest military power as well. Our individual freedoms are the basis for this strength. In important part, states such as Michigan and Texas are aligned as critical parts of what is intended to be a limited national government.

Because of this federalism, if Michigan is troubled, the resources of Texas and others can be used to help. And vice versa, of course.

In Europe, however, there is no center. If Spain, Italy or France is in trouble financially or otherwise, they have no political allies who will stand by them as a matter of right. Each is a sovereign and each stands or falls on its own. That's why Europe is pretty much falling apart today. That and the fact that most European states are like Michigan and unlike Texas, for example. We'll explain hereinbelow. For now, let's look closely at our American future.

Several game-changers will profoundly impact our American future (and that of the rest of the world, too). How we elect to deal with these issues will move us closer to socialism or back to a free market capitalistic society. Future generations will pay the price or reap the benefits of what we choose for them to inherit.

Three fundamental American game-changing issues are (1) economic growth, (2) demographics and (3) entitlements.

(1) For years to come, our economic growth will be adversely affected by the size of government as well as the huge debt levels we now have and the future deficits we will incur. Unless we focus on private sector growth in a way we never have, our problems will linger for years and years. In any event, there will be huge "headwinds" limiting growth for the foreseeable future.

(2) Demographics are facts. We've gotten older as a nation, and we're getting older each year. That creates a big strain on the economy and its resources, adding to the woes of financing our entitlement programs.

(3) Those entitlement programs present some hard-to-face facts, too. We've made promises to ourselves that future generations should not be asked to keep. How, when and whether we reform these programs will impact future economic growth. As will what we spend for public education as well.

Creating sustainable economic growth, dealing with demography's effects and amending entitlement promises are completely within our ability to resolve in a satisfactory manner. We simply need to muster the will to do so. That said, having the required political will requires our collective and serious attention as citizens of a free society. We must make choices about our overall priorities and what government will do compared to what will be the responsibilities of individual citizens.

Let's compare our overall national situation to that of a European sovereign nation. We'll also look to Midwest America, and specifically the state of Michigan, for historical guidance as well. My conclusion is that we must stop looking to both Europe and our Midwest as models. Europe and the American Midwest are formulas for failure.

Let's begin with Europe.

Economic growth in Europe has long lagged behind ours. Unemployment rates have been higher, too. My view is that this is essentially attributable to the social democratic governments European sovereigns have adopted since World War ll. They are the home of entitlements, and "progressive" Americans have long wanted for us to follow Europe's welfare state model. Unfortunately for the Europeans, they are so far down the path of socialism that adopting a genuinely free market system and therefore strong economic growth in the future is not a realistic option.

Lesson From Europe (Take 2) represents a less-than-optimistic view of what's ahead for the European sovereign states. Quoting from the editorial, "For the past four decades, "Europeanism" has been an amalgam of Keynesian economics, bureaucratic centralization, and welfarism, corporate and social. Even now, the ideology remains unshaken by events. Though there is plenty of talk about getting spending under control and balancing budgets (typically by way of tax increases), nobody in Europe is proposing a serious growth agenda."

Meanwhile, in the U.S. The Fall of the Midwest Economic Model attributes the historical reliance on big companies and big unions as the cause of its now largely insoluble woes. Using Michigan and the auto industry as a Midwest proxy, the article states, "The Michigan model was based on the Progressive/New Deal assumption that, after the transition from farm to factory, the best way to secure growth was through big companies and big labor unions."

The Big Three auto companies ... could create endless demand for their products through manipulative advertising and planned obsolescence. The United Auto Workers would ensure that productivity gains would be shared by workers and the assembly line would never be speeded up. In those days, 40% of Michigan voters lived in union (mostly UAW) households, the base vote of a liberal Democratic Party that pushed for ever larger governments at the local, state and federal levels. You found similar alignments in most Midwestern states."

Later the author notes how government and public employee unions switched positions with the auto companies and the UAW, "Michigan is an extreme example of what has afflicted the industrial Midwest. Big corporations were replaced by big government as the leading employer, and public-employee unions replaced industrial unions as the chief financiers of the Democratic Party. In effect, public-employee unions have been a mechanism by which taxpayer money, in the form of union dues, permanently finances a lobby with a vested interest in higher spending and less accountability."

Finally, he comments, "The idea that the wave of the future is an ever-larger public sector financed by a more or less stagnant private sector looks increasingly absurd. The Midwest's public sector has, as Margaret Thatcher put it, run on "other people's money"."

Sadly, Michigan today looks a lot like a typical sick European sovereign. So do Illinois and several other Midwest states, for that matter.

Our overall American reaction to the global competitive situation will determine how successful our future America will be. We have to choose to compete with everybody in the world, both educationally and industrially. To do that we must tear down our welfare state and mindset, and we must embrace the private sector as the only path to sustainable economic growth and general prosperity.

Our American competitiveness issues are many and difficult. But I'm betting on enough, if not all, of my fellow Americans to choose to compete, and then we'll win, as we've always done.

Thanks. Bob.

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