America’s Long Depression
Is America in a recession already, or does a definitive downturn still loom on the horizon? What difference does it make, given that for decades the US economy has grown much more slowly than it could have? Over 30 years, a $50,000 real per capita income at 1 percent compounded annually grows to about $67,000, while at just 2 percent it grows to over $90,000.
Economic pundits worry about that $67,000 dropping to $66,000 next year, but they should focus on why the nation hasn’t achieved the $90,000 level. The real question we should be asking, in other words, is why growth in inflation-adjusted output per American became and remains anemic.
In a fitting scene from the second season (2003) of HBO’s The Wire, stevedore union leader Frank Sobotka explained to his lobbyist that “We used to make shit in this country, build shit. Now we just put our hand in the next guy’s pocket.” That answers the growth question while begging another: why did Americans begin taking instead of making — raiding instead of trading?
It was not cultural change, whatever that means, it was a change in incentives brought about by the US federal government, which has grown steadily, if not monotonically, since Franklin D. Roosevelt’s failed New Deal in the 1930s. Millions, then billions, and perhaps soon trillions can be had in the backrooms of the nation’s capital, dollars taken from taxpayers’ pockets and placed in the hands of bureaucrats and their “toadies.”
American colonists feared just this state of affairs. They called it corruption and fought a revolution to combat it. They understood that their money funded “placemen,” or well-connected people with government sinecures, and the wealthy recipients of government debt interest payments. The colonists feared that to satiate placemen and public creditors the British government would eventually use its power to, as the Declaration of Independence put it, “eat out their substance.” In other words, they foresaw a day when taxes would impoverish them.
For most Americans, that day thankfully has not yet formally arrived, although their share of the national debt (approximately $240,000 per household) is currently twice their median net worth (approximately $120,000 per family). Moreover, the tiny government the Founders and Framers created has grown much larger than any private organization. It is the nation’s largest enterprise as measured by the number of employees (2.9 million vs. Walmart’s 2.3 million and Amazon’s 1.6 million), budget (at $778 billion, the US military alone has a larger budget than Walmart’s $537 billion), or borrowings ($1.9 trillion vs. $186 billion for Toyota and $185 billion for Volkswagen, the world’s largest non-financial private borrowers). The proverbial crumbs falling from Uncle Sam’s table are big enough for individuals to fight over, and they do.
Due to the incentives created by big government, ambitious, bright young people tend to sign up for majors that will allow them to land cushy jobs as diversity, inclusion, and equity (DIE) bureaucrats or to successfully engage in rent-seeking, the fine art of using the power of government to get something for nothing. For many, careers in entrepreneurship or STEM have become too risky or difficult by comparison, especially when one’s obsequiousness trumps one’s market merit or technical skills, and government bases its policies on, for example, climate virtue signaling rather than science. The profits of entire industries, like solar energy, now rest on receiving public funds and favors rather than on increasing the value of their goods.
Until profitability again stems from producing valuable goods at the lowest possible cost, the US economy may continue to grow or shrink a few percent from year to year, but it will remain mired in a deep depression compared to what it could have achieved. And many Americans will remain mired in psychological depression until they are once again rewarded for working faster, harder, and smarter instead of for posting the right virtue signals on social media.