INSIGHTS: NANNY SOCIETY – LOSER ECONOMY
Guest Columnist Andrew McKillop:
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission.
Wikipedia defines “the nanny state” as a system or process where governments play the role that a nanny has in child rearing. This could seem good, but as early as 1965 British MP Iain Macleod lashed out at the underside of the nanny state: authoritarian, interfering, overprotective, repressive. Since then, this politically correct mix has taken over in almost all Western states, becoming ever more intense, and is now a sure and certain driver of economic failure. The process is simple: the state “babies” its governed population, but pretends to be aghast at the consequences when it finds out that creating and sustaining a nation of zombies with no interest in creating wealth – only consuming it.
Big government wants the Nanny State. Examples are so many that we have to conclude it is the rule, today. For at least 30 years, since the early 1980s economic meltdown of the Thatcher-Reagan years, industry upon industry in almost any Western nation became a layer cake of subsidies, loan guarantees, tax benefits, cash incentives, and zoning ordnances which even decide exactly where that industry will be located.
NANNY FINANCE: PROGRAMMED DISASTER
We can be totally sure and certain that without nannyism, huge parts of the financial industry would have been swept away in the financial storm of 2008-2009. Astoundingly, even so-called intelligent persons able to use an iPhone do not instantly conclude that they have been spun the most fantastic fairy story about this financial storm and “how it was resolved and settled”
All and every government-friendly media, whether it concerns Nobel economists or airport bookstand pulp fiction finance thrillers, and TV expert panel discussion shows have pumped out the storyline as follows. State authorities acted heroically and responsibly, saving us all from the worst depression “since the 1930s”, and our friends in the banking sector have the sincere intention to pay back the money they were given “in the fullness of time”. Today, at the same moment this article is being written, the same storyline is being beamed out of Davos, Switzerland with the minor frill that “world economic deciders” say they want different free gifts from the Nanny State, now that the banks have filled themselves up so full on billion dollar handouts that they are having trouble losing it at the rate they are accustomed to.
In the US case, since 2008, the Federal government transferred nearly $2 trillion in various ways and forms, from the public purse to the pockets of the financial industry, enabling nearly all the “tried and trusted firms” to survive, with a tiny few Sacrificial Goats like Lehman Bros and Bear Stearns. This strategy had more than one underside because, in this way, the new firms which should have replaced the Nanny Finance team were virtualized, cancelled and magicked out of the public mind and out of the real world.
The nanny economy is based on industries that need to be sustained by the government because they cannot sustain themselves. Unfortunately, real economic indicators when stripped of the crony capitalist tinsel show that the drain on resources — human and material — due to this zombie circus show produces net outputs with less total value than the inputs and costs for making them. Unsurprisingly, this eats into the productivity of capital and labour, the economic system and society, and exercizes a constant downward pressure on economic growth.
KEEP NANNY HAPPY
The Nanny society is by no means a free service. Fooling the couched potato public into believing they are getting a free ride is now a pernicious and longstanding “tradition”. One important apsect of this Ponzi game is through mixing the personal interests of the self-elected and self-promoted Nannies – politicians and crony capitalists – with the interests of society and the nation. Because the political and corporate cronies live high on the hog and the pork barrel, the media tells the couched potatoes, you also are living “the best years of your life”. Woe betide you if you step out of line!
Giving this the frills and thrills of old style or traditional “social class conflict”, the people are told to think they are “middle class”, even if they do not know how to use an iPhone! All they have to do is consume, not produce, and vote for Nanny politics. A wonderful life in the best possible of all worlds.
That way, upstream Big Nannies feel good and continue their heavy, one-way migration to “where the cash is”, which inevitably means diverting more resources from the productive sector to their own personal consumption, which is deliberately confused with the nation and national wellbeing. In a very clear and stark way, the Nanny class thinks “L’etat, c’est moi!”. I am the State.
Surprisingly perhaps this did happen before, but an awful long time ago – in the late 18th century, when so-called Liberal Economics was the New Thing. It was invented by Adam Smith and his French friends headed by Francois Quesnay and Robert-Jacques Turgot. All three of these “early liberals” said point blank that the service sector is entirely parasitic. In today’s Nanny societies, around 85% of the economically active population operates in the service sector.
Today, the modern Nanny state is proud of its environmental record – there are few or no smokestack industries anymore – but in exactly the same way as the reigns of last two King Louis of France, the trick is based on consuming accumulated and previous wealth, and is only a trick. Today’s rentiers are now the entire Western developed world, a class of zombies who contribute absolutely nothing to either national or global prosperity.
KEEP NANNY RICH
Long before the French revolution of 1789, the “rentier class” and especially its royal summit of the monarchy were short of funds. The problem was, and still is today, “entitlement”. Favored groups were able to secure special privileges and monopolies giving them the right to income. Never mind if this affects the economy and your “laisser faire free market”. The early answer, from another Scot John Law helping the French, came with the run up Ponzi scheme, called the Mississippi Company, which preceded the 1721 Paris bourse collapse – the world’s first modern stock market crash.
Entitlement had run riot in France long before. The French crown raised funds by selling the right to earn a “rent”, one example being Turgot’s specialty of selling the rights to levy cross-country road tolls and taxes: with free enterprise brigands doing it their own way. Unfortunately, and as the Sorcerors Apprentice childrens story recounts in its own way, too much of a good thing does harm. Very quickly, the rentiers found they had problems collecting their “easy money”.
In our modern, developed societies the number, types and forms of entitlement have run riot. It is difficult to know where to start and to accurately gauge which are the most noxious, the most toxic. As one example, the “liberal democratic” party machines and systems of the Western developed countries, and their promises to voters, are so intensely Nannified that reforming this system is probably impossible.
By the close of 2012, the Nanny state and its economic system were deeper in debt than ever, despite this being a somber miracle. Exactly as it was during the times of the later dynasty of “Louis Kings” in France, the dysfunctionality of creating but not sustaining entitlement resulted in an attempt to cover this with a mix and mingle of repression and nannyism. Today’s version is only more overblown, more insidious and more incoherent.
Nannyism is stilted and delayed adulthood, the refusal to face up to the future, even the denial and rejection of the future. All previous types and outbreaks of this disease have ended in mass unrest or international war. Why it should be different this time, is hard to believe.
ON THE ECONOMY: GAMES PEOPLE PLAY
By John Dunham:
Managing Partner, John Dunham & Associates
“Games people play, you take it or you leave it. Things that they say, just don’t make it right. If I’m telling you the truth right now, do you believe it? Games people play in the middle of the night.”
So rang out the Alan Parsons Project in 1980. The same can be said for Washington today.
I remember one afternoon when I heard a government affairs colleague at Philip Morris screaming at a state legislator. I will never forget what he said: “For God’s sake man! Dealing with taxes and the budget is the most important thing that you do!”
Old school tobacco lobbyists were not known for their tact, but I have to say the statement is dead on.
Tomorrow, the Federal government will experience something called budget sequestration, or an across-the-board spending cut basically affecting all departments and programs by an equal percentage (although in this case, military spending is impacted to a greater extent). The sequestration legislation was proposed by the President and passed by Congress in order to force the Republicans and Democrats to come to an agreement on some relatively small cuts in Federal spending. Were they not able to agree on cuts, then across the board cuts would be imposed.
True to form, the President proposed no legislation, and the munchkins on Capitol Hill were unable to agree on the shape of a conference table. The sequestration has now come to pass. Also true to form, both sides are running around blaming the other and saying that the sky is falling. It is easy enough to see that there is blame aplenty in a President who has not received any votes on a budget in 4 years, and on a Congress that has been running on continuing resolutions since 2009 and has not passed a real budget since 1997. It is harder to determine what the effect of sequestration will be – but we can make some general assumptions.
First, sequestration does not fall equally across all budget categories. In fact, most of the Federal budget is exempt. This includes Social Security, Medicaid, the Children’s Health Insurance Program and interest on the debt, or basically the largest portions of the budget. Outside of these programs, according to the Congressional Budget Office, half of the approximately $85 billion in cuts (actually reductions in the growth of budget authority)are to come from the Defense Department. Of the remainder, $10 billion will come out of payments to doctors and hospitals participating in Medicaid. Nearly all of the remainder will come from what is called discretionary spending. This is basically all of the programs and services that the Federal Government provides from air traffic control, to maintenance of the interstate highway system to Congress itself.
Considering that both defense and non-defense discretionary spending is slated to grow in nominal terms even with sequester, even the hardest hit portions of the Federal budget will not face the kinds of draconian cuts that both the President and members of Congress are claiming. Since these claims are not true, does the associated claim that sequester will impact the economy hold water?
Considering that the American economy is about $15 trillion in size, sequester at best represents just one-half of one percent of GDP. Therefore, if the most Keynesian of Keynesian economists are correct and debt and spending are equal to production, the worst case is that sequester will cut 50 basis points from growth. We would argue that this is not the case. First, spending simply does not equal investment or production, and since most government spending is non-accretive, the impact on GDP will be much smaller. Also if sequester reduces government borrowing at all, there would be positive impacts on both the exchange rate and long-term interest rates, both of which would offset any loss from sequester.
That said, the politicians are right in suggesting that across the board cuts are not the best way to go. Cutting a dollar from funding for highway maintenance, air traffic control, or maintenance in the national parks would have an economic cost in many cases greater than the benefits of smaller spending. Cutting that same dollar from nonsense research grants, politically motivated subsidies, bridges to nowhere or paying someone not to farm would also benefit the economy.
Kicking the can when it comes to the most important thing that Washington has to do is simply playing games in the middle of the night – not governing.
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