Thursday, May 7, 2009

What's Wrong With the U.S.? (Mark Thornton)

A great post by Mark Thornton on the blog:

Everyone wants to know "How did we get in this mess?" It seems we have dug a hole that we cannot get out of and some people are even starting to realize it. We have plenty of problems with things like health care, education, etc., but the bottom line is that we are spending beyond our means and government debt is out of control. The probability of national bankruptcy and hyperinflation is the highest in living memory and more people are questioning whether our "union" will survive.

Well, Austrian economists like Mises and Rothbard tell us that it is ideas that matter in determining how events will unfold. This is a cause for concern because according to a AARP poll of Americans (45 and older) 83% want the government to help unemployed people get health insurance, 78% want government to provide unemployment benefits as long as people continue to look for work, 71% want the government to make home mortgages more affordable, and 68% want the government to help people facing foreclosure to stay in there homes.

That pretty much explains everything. Americans who are 45 and older are not going to get smarter and likely will not improve their education. They are the "backbone" of America and ¾ of them have beliefs that helped make the current mess politically possible and will make it very difficult to achieve a real economic recovery. Let's hope that those 44 and younger are better informed.

Everyone seems to think health insurance is a cure all for the rising cost of medical care, but comprehensive health insurance is the cause of rising medical care costs. If you don't pay for the cost of medical services as you chose them, then there is a huge tendency to overuse medical services and to choose the most expensive means. Imagine if you could buy comprehensive dairy insurance so that you pay a set fee, like $120/month, for the insurance, but that as a result you can get as many dairy products as you would like for a 25¢ co pay. Is it not too difficult to imagine that people with this insurance would consume more dairy products and that as a result the price of dairy products would increase and would eventually be too high for some people to afford? Comprehensive health insurance is a creature of government. Catastrophic health insurance is rational because no one really wants to use it.

Perpetual unemployment insurance--are you kidding me? That is what 4/5 of older adult Americans think would be a good idea. They obviously have never studied the issue. Unemployment insurance increases unemployment. Studies have shown that if you extend the time period for benefits, people will remain unemployed until the benefits run out. Plus, it delays the competitive process which lowers wages rates across the economy creating the conditions necessary for the nation to restore full employment and economic growth.

Make mortgages more affordable? It is hard to imagine mortgages getting more affordable. Interest rates are at all time lows. Home prices are thankfully falling from bubble levels. Tax advantages are very generous and are the most generous ever in 2009. I cannot imagine what these people are thinking. The only thing potential home buyers could want is for home prices to fall further.

However, our elders (actually I'm in this demographic group) also want the government to keep people in their homes who have failed to pay or renegotiate their mortgages. The foreclosure process is what drives the marketplace from bubble prices back to price levels that are consistent with reality. Any move to prevent or stall this process guarantees more economic hardship and a longer and more painful recovery process in the economy.

The answer to the question--what is wrong with us?--is actually simple and straightforward. We are collectively stupid and brainwashed. We have been taught and conditioned that government can solve our everyday problems at no cost so the more the merrier.

What made America great was the principle of self reliance. We have lost that principle and we will not find our way out of the mess we are in until we rediscover it.


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