There’s been a lot of talk in the Blogosphere on how to “Enjoy the Decline,” spurred on by the popular book with that title by econo-blogger Aaron Clarey on America’s future — or the lack thereof. But what happens next? What happens after the decline?
As Kevin D. Williamson, who writes the “Exchequer” blog at National Review Online and frequently contributes to the dead tree edition of NRO, wrote in the Sunday New York Post, “It’s the end of the world as we know it (and that’s great!)”:
The total fiscal overhang of our federal, state, and local governments — their combined debt and unfunded liabilities — is around $140 trillion, and growing. That is about twice the annual economic output of human civilization, and nearly the value of all the financial assets in the world. It is something close to a mathematical certainty that those debts and obligations will not be made good on at their present value.
The real debate for the next 30 years is not how we go about paying our bills, but how we go about not paying them. What is most likely is a much smaller and more modest government, something closer to what Robert Nozick called the “nightwatchman state.” The reason for that is the fact that we have good substitutes for Social Security and the Department of Education but not for the army or the courts.
This all sounds painful and disruptive, and it surely will be, though exactly how painful and how disruptive will be in part a question of luck and in part a matter of how prudently and intelligently our policymakers proceed while we get from where we are to an economically sane position.
Difficult, yes. But it is also going to be great. There is cause for short-term pessimism, but there also is cause for long-term optimism.
Despite the best efforts of Washington (and Albany, Sacramento, Austin, etc.) the United States is a very, very rich country. Fantastically rich. Absurdly rich. We have a great deal of wealth, extraordinarily productive and creative people and stable institutions.
Our key economic failings are in education, health care and retirements — three sectors dominated by political rather than economic action: the K-12 monopoly model of education, Social Security and other retirement entitlements and a hodge-podge of medical programs which meant that even before the enactment of ObamaCare about half of all health-care spending was government spending, a fact that Republicans foolishly ignored when they protested that we had “the best health-care system in the world.” (Note to Republicans: We have great medicine and medical technology; we have a terrible system of paying for health care, and it was terrible before ObamaCare, too.)
Kevin’s new book, The End Is Near and It’s Going to Be Awesome, explores this topic in detail. Kevin and I recently discussed the end of the world in a wide-ranging 20-minute podcast, including such topics as:
● How cataclysmic will the earth-shattering fiscal kaboom be?
● How government red tape fuels both the higher education bubble and retirement shortfalls.
● Kevin updates Leonard Read and Milton Friedman’s classic “I, Pencil” lecture for the Internet era, with an assist from Gordon Gekko’s cell phone.
● Why do those who design, and many of those who purchase the Apple iPhone want highly customizable 21st century technology in their day-to-day lives, and yet want socialized healthcare and retirement schemes that are straight out of the 1930s smokestack era?
● Speaking of Mr. Gekko, how did the GOP lose him to the left in 2008? And what to make of Occupy Wall Street being simultaneously for and against their fellow Democrat, Barack Obama, aka, President Goldman Sachs?
● Why was Mitt Romney so ineffective in communicating Economics 101 to the American voters?
And much more. Click here to listen:[audio:http://pjmedia.com/eddriscoll/files/2013/05/20130505-pjm-ED.mp3]
If the above Flash audio player is not be compatible with your browser, click on the YouTube player below, or click here to be taken directly to YouTube, for an audio-only YouTube clip. Between one of those versions, you should find a format that plays on your system.
[jwplayer config=”pjmedia_eddriscoll” mediaid=”63194″]
Transcript of our interview begins on the following page; for our many previous podcasts, start here and keep scrolling.
MR. DRISCOLL: This is Ed Driscoll for PJ Media.com, and we’re talking with Kevin D. Williamson of National Review.com, who, according to the title of his new book, assures us that The End Is Near and It’s Going to Be Awesome. It’s published by Harper Collins, and available from Amazon.com and your local bookseller.
And Kevin, after chatting a few times on various National Review cruises over the years, thanks for stopping by today.
MR. WILLIAMSON: Hey, thank you. How are you doing?
MR. DRISCOLL: Oh, not too bad. Kevin, there’s two statements implicit in your book’s title. So let’s unpack them one by one, beginning with the first half of the title. How soon is the end, and how cataclysmic will the earth-shattering fiscal kaboom be?
MR. WILLIAMSON: Well, it’s hard to say exactly. You know, if you look at — if you measure what the federal government does by spending, if you look where it actually spends its money, a little bit more than eighty percent of all spending right now is on three things, essentially. It’s on entitlements. It’s on national defense. And it’s on interest on the debt. And the biggest piece of that is entitlements, by a long shot.
If you look at the fiscal overhang on the entitlements, which is to say, the money we’d need to have in the bank right now to make those work in the long term, you’re talking about a number like 100 trillion dollars, maybe a little bit more. It depends on the assumptions you use to calculate it.
That happens to be more than GDP of the whole planet, and it’s roughly equivalent to all of the non-real estate assets in existence. So the idea that we’re going to somehow hijack a sum equivalent to the wealth of the planet in order to make Social Security, Medicare, and Medicaid balance outright, is just crazy. It’s not going to happen.
Interest on the debt, of course, is a function of the other spending. And then defense accounts for about nineteen percent of the budget.
So if you assume that the entitlement state is — is just simply, mathematically speaking, unsustainable, and that federal spending which, you know, right now we’re running a forty-one percent deficit for the last several years, is also unsustainable, then about, you know, seventy or eighty percent of what the government does is going to have to undergo some sort of radical change in the near future.
Now, that could be a — you know, a short, sharp Argentina-style event. Let’s hope not. It could also be a series of incremental but serious and deep reforms, starting very soon. And I think the main challenge for us going forward, for our generation, for the next ten years, is how to get from where we are to where we’re going to be in the least disruptive manner. And that’s part of what my book’s about.
MR. DRISCOLL: And that sort of dovetails into the second half of your book’s title, which is picked up by its subtitle. The End is Near and It’s Going to Be Awesome: How Going Broke Will Leave America Richer, Happier, and More Secure. That sort of sounds like addition by subtraction.
MR. WILLIAMSON: In a sense. You know, one thing I hate about our political discourse is this, you know, sort of rhetoric of scarcity we have going on. I mean, scarcity is a real thing. That’s why it makes economics work. I’m not talking about scarcity in that abstract sense. I’m talking about scarcity in the colloquial sense of privation. We aren’t poor. You know, we’re a really, really rich society. And the rest of the world keeps getting richer, which is very good for us, because we make high-end stuff. It’s hard to sell stuff — the sort of stuff that we make to poor people.
You know, there are countries like China that make sort of low-priced, low-margin products — although China’s moving away from that — India, Bangladesh, Vietnam, places like that. You know, we make Apple products. We make Boeing airlines. You know, we make that sort of thing. You don’t sell that to poor people; you sell that to rich people.
So I’m, you know, in the long term, very optimistic about our — about our economic outlook, although I’m pessimistic about the short term. I think there’ll be some disruption and some genuine unhappiness. So a lot of the things that we look to the federal government to do, particularly to provide for things like education, to provide for healthcare for people who, for one reason or another, can’t provide for it for themselves, and to organize retirement savings for people, we do a terrible job of that through the federal government.
And the sooner the systems go bankrupt and broke and get pushed to the side and replaced with productive volunteering alternatives, based on real accumulation of capital and real productivity and real assets, the better off we’ll be.
You know, we’ve got more than enough resources right now to provide a real first-rate education to every kid in this country who wants one. You know, college — or kindergarten through grad school. We’ve got the resources to do that. It’s not that expensive. It’s not that difficult. We’ve got a great big political apparatus standing in the way.
We’ve got the resources to allow people to save and invest for their own retirements, to an extent that most people could retire with incomes very similar to what they had when they were working. But we take twelve and a half percent of their incomes out and throw it into the entitlement black hole, and it just goes away. You know, it’s a terrible deal for a lot of people. And it’s a super unproductive system. Plus, it takes all that capital out of circulation as well, and keeps it from going to productive uses.
You know, the same thing with healthcare. Healthcare is a little bit more of a challenge, because you’ve got a slightly more complex universe of providers and services there than you do in, say, kindergarten through twelfth grade education. But for those things that we really, for the last thirty years, forty years, sixty year, have looked to the government increasingly to provide, we can do much better without the government.
[jwplayer config=”pjmedia_eddriscoll” mediaid=”63139″]
MR. DRISCOLL: Kevin, you mentioned the Apple iPhone a minute ago. Your book begins with a marvelous update of an essay originally written in the late 1950s by libertarian economist Leonard Read, and later adapted in the ‘70s into a television segment by Milton Friedman, that’s pretty easily found on Youtube called “I, Pencil,” which you’ve updated with the Apple-friendly spelling of iPencil.
Could you talk a bit about that, and why both those who sell the iPhone, and so many who purchase them, want highly customizable twenty-first century technology in their day-to-day lives, and yet they want socialized healthcare and retirement schemes that are straight out of the 1930s smokestack era?
MR. WILLIAMSON: Yeah, even before that. Yeah, the — the iPhone — I’ve got one sitting here in front of me — is kind of an amazing thing when you think about it. Not just because it’s a technological marvel, although we shouldn’t be as blasé about technological marvels as we are. We’ve just gotten used to them. You know, get a new one every six months.
But if you think about it, you know, I always think about the movie Wall Street, with Michael Douglas, and, you know, he’s Gordon Gekko, this Wall Street kingpin gazillionaire, master of the universe. And he’s got this ridiculous Motorola cell
MR. DRISCOLL: The giant brick.
MR. WILLIAMSON: — in the size of a cinderblock. You know, in 2011 dollars, that thing cost ten grand, and it cost about a thousand dollars a month to operate. It had a talk time of something like twelve minutes. Couldn’t play “Angry Birds” on it, much less trade a stock. You know, you couldn’t give away a piece of junk like that now to the, you know, poorest kid in the country, because nobody would want it.
[jwplayer config=”pjmedia_eddriscoll” mediaid=”63143″]
So in a very short period of time, we’ve gone from, you know, you could be a billionaire in 1985 and not have a cell phone as good as a iPhone — it just didn’t exist — to everyone’s got one now. You know, the sort of thing that used to be a luxury for millionaires is now as commonplace as it can be. Regular cell phone, you know, non-smart phones, lower end phones, are literally free. Any cell phone provider in the country would be happy to give you one if you’ll sign up for service. And of course the services have gotten very cheap too, compared to where they used to be.
So we have this one set of products that keeps getting better and cheaper, you know, every month, every six months, every — every year you’ve got a new generation of product and the prices fall. But some things that are really important, like healthcare and education and retirement, just don’t follow that same trajectory. And so I was looking to explore why that is.
Now, Read’s essay is one of my favorite things in the economics literature, “I, Pencil,” where he writes this autobiography of a number 2 pencil. And he comes to a really interesting conclusion. If you look at everything that goes into making pencil, you know, the graphite, the rubber, the brass for the ferrule, the wood, all that, and you take it one order of magnitude back from there, you know, the forestry techniques that go into making the wood; the mining woods that go into getting the metal out that you make the brass out of; the agricultural techniques necessary for producing the rubber and the mining for the graphite. If you look at the machinery that’s necessary to do that and the technology that’s necessary to produce that machinery, something as simple as a number 2 pencil ends up being the process of a system that is so complex, that the complexity of it is literally incalculable.
You know, we have a modern thing called complexity science, where we study really, really complex systems and how order emerges out of them; things like evolution and how consciousness arises in the brain and that sort of thing. And there are various levels of measuring degrees of complexity; and the system that produces the, you know, simple, humble, number 2 pistol — pencil, rather — is really beyond measure.
So we’ve got this thing that’s cheap and ubiquitous, and you know, it’s so cheap that if somebody asks you, can I borrow your pencil, you say sure. You never even really worry if you’re going to get it back. But it takes, you know, more capital than you imagine to make that system work, more expertise, and there’s more complexity in that system than you can really even calculate.
And the point that Read takes away from it is that you’ve got a system that produces pencils even though nobody knows how to make a pencil. Various people have little pieces of the knowledge necessary to do that, but no one actually knows how to do it, much less something complex like an iPhone.
So then you’ve got 535 guys in Washington who say, oh, we’re going to plan healthcare for you, or we’re going to show you how to run education. Well, these things are much, much more complicated than a simple number 2 pencil, and yet we’ve got these political bureaucracies and elected officials and especially presidents, are bad about this, who say well, we just had a panel of experts and we get the right guys in there with — put them in the a room, and they’ll smart and they’ll figure this stuff out; it’s just literally not possible. It’s not even possible in principle for them to even understand the stuff that they’re pretending to solve, much less actually solve the problems.
MR. DRISCOLL: And that sort of dovetails into something else you wrote in The End Is Near, where you wrote that “American healthcare is great. Healthcare financing is a mess.”
MR. WILLIAMSON: Yeah.
MR. DRISCOLL: And Obamacare, I guess, isn’t going to solve all these ills?
MR. WILLIAMSON: [CHUCKLES] No, I don’t think it is. You know, this is one of the things were the Republicans, and conservatives, more broadly, I think, really dropped the ball on the healthcare debate. You know, every time someone said we need to reform the healthcare system, they would say, you know, nonsense, we have the best healthcare system in the world.
Well, we have the best healthcare system in the world if you’ve, you know, got a pretty good insurance plan through your employer and you’re pretty secure in your place of employment, and you haven’t had any real serious illnesses. The people who have a beef with the healthcare system don’t really have a beef with the healthcare system. We’ve got great medical devices and pharmaceutical products and hospitals and doctors and specialists and everything you can think of in the world. What they’ve got a beef with is the system by which we finance that, which is a mess. And it was a mess before. And conservatives, particularly us, you know, free-market-oriented people, really should have come out during that debate and said, look, we were talking about two different things here. We’re talking about the healthcare industry and the stuff that it can provide, the things that it does, its innovation, its research, its products it brings to the market. You know, it’s like the iPhone. It’s a miracle every week. There’s just new stuff always coming out of the pipe, and it’ll just, you know, knock your head off.
We had people this week using 3D printers to assemble little miniature human livers, and it looks like they’re eventually going to be able to just, you know, use the 3D printer to produce the full liver for people who need them. You know, this
is — this is science fiction stuff. They didn’t even think about this thirty years ago, forty years ago. It was beyond thought.
But what we’ve got is this system where unlike practically anything else you use, healthcare, you don’t go to a provider and buy it and negotiate over prices. And so anytime you’ve got a third-party payer, you know, you’ve always got this weird distortion in the market where prices are always going to go up and the insurance company and the healthcare provider, instead of having an adversarial market relationship with each other, they each have an adversarial market relationship with you.
You know, if you’re an insurance company, you’ve got a lot more invested in just keeping people who are going to be expensive off of your dime or purging them out if they’re already customers, than you do in quibbling with providers over this price or that price or the other price. That’s really where you — where you exercise your savings options.
So we’ve got this weird market that’s not really a market, that’s not functional, where people don’t negotiate with providers the way they would if they were buying a car or a pair of shoes. And there are no prices in healthcare, which is the really maddening thing. It’s impossible to comparison shop.
You know, I’ve got this little anecdote I included in the book where I had something I needed done a couple of years ago, a little minor surgery, and I was looking at changing jobs at the time, so I didn’t know if I was going to have insurance.
And so I called a couple of places to see, you know, what it would cost if I was going to pay for it out of pocket. It took like forty phone calls, and I never really got an answer. And the answer would range from you know, X to ten times X, depending.
Imagine if you went to go buy a Honda Accord, and they said well, it might cost 22,000 dollars or it might cost 250,000 dollars? It’s just not acceptable. You’re crazy. You know, how can you possibly do business like that? But healthcare is exactly that way.
And everyone says well, we can’t have a normal market in healthcare because things are so expensive and you really need them. You know, you can’t really say well, I’m going to go, you know, comparison shop for six months when you’ve had a heart attack. That’s true. But people also need things like food and shelter and water, and we’ve got normal markets that operate in that. There’s no fundamental reason why we can’t do that with healthcare. And there’s no reason why, you know, a two-week stay in a hospital should have to cost 350,000 dollars.
It’s largely — not entirely, but largely — a product of price distortion because of the third-party payer problem. And then there’s some other things in there too. I mean, some things are just expensive in healthcare. But that’s a separate issue.
MR. DRISCOLL: Kevin, when you were talking about the iPhone, you mentioned Michael Douglas’ Gordon Gekko character from the film Wall Street.
MR. WILLIAMSON: Yeah.
MR. DRISCOLL: In late 2008 or early 2009 you wrote a terrific piece for National Review on how the GOP lost Gordon Gekko to Obama.
MR. WILLIAMSON: Yeah. Yeah.
MR. DRISCOLL: What are we to make of a protest such as Occupy Wall Street, which features protestors, virtually all of whom were Democrats, protesting the policies of a Democrat President, who has been dubbed President Goldman Sachs, because so many of his economic advisors are Democrats from Wall Street?
MR. WILLIAMSON: Yeah, and particularly from Goldman Sachs. Yeah.
They — those guys are plugged in to the Democratic side of things.
Occupy. You know, I have a love-hate relationship with Occupy Wall Street, to be honest. They’re right in the sense that they intuited there’s something basically wrong with the relationship between Wall Street and the government and that there is an unhealthy nexus of power and self-interest there. And that’s absolutely true.
Now, everything they do after that is insane and totally off the reservation. You know, they take precisely the wrong lesson out of it, which is that they want to, you know, give more power to politics, more power to government, they would call it to democracy. But it’s really — it’s still just to government.
And of course, the power to corrupt really only comes through the state, because there’s no power to corrupt without the power to coerce.
You know, as bad as Goldman Sachs can be, and there are some rotten people over there — don’t get me wrong; I cover Wall Street; I know these SOBs, and there are some rotten people at these institutions — but Goldman Sachs doesn’t have any power to come rob me. You know? JPMorgan doesn’t have any power to come take my money away from me, unless they do it through the government, and which they did to the bailouts. Whereas the government does.
You know, the only way that these guys get special deals, that they get special favors, that they get, in some cases, just plain money from the government, the way Solyndra and some of these alternative energy companies and other firms do, is just through the state, through that coercion. Whereas, you know, the worst player in the private marketplace doesn’t have any power at all to coerce me to do anything with them.
You know, if I — Microsoft, you know? Enormous company, Bill Gates, wealthiest guy in the world. But when I go into the computer store to decide what I want to buy and what I don’t want to buy, we really come to that on equal footing, because it’s not me against Microsoft. It’s everybody in the world who sells those sorts of products trying to get my business. And so I’ve got — you know, you can borrow strength from people in the marketplace that way, whereas you can’t do that in politics.
You know, if you try to tell the IRS, well, I’ve got something I’d rather do with that thirty percent of my income this year, you still go to jail. You know, there’s really just no good way out of it.
MR. DRISCOLL: Kevin, let’s talk a bit about the GOP’s presidential debacle in 2012. For a man who built up considerable wealth, why was Mitt Romney so ineffective in communicating Economics 101 to the American voters?
MR. WILLIAMSON: Well, I don’t think it was the year to run a gazillionaire private equity guy from Wall Street. I mean, just culturally, it wasn’t the year to do that. People were still pretty upset with financer at large because of 2008/2009. Rightly or wrongly, they blamed the financial community in Wall Street for what had happened to their housing prices, what had happened to the economy, for a good deal of what the situation was with unemployment.
And so you know, here’s Mitt Romney, who is this guy who doesn’t seem — I hate the whole emotional side of politics, you know, can identify with this guy. I don’t want to identify with politicians any more than I want to identify with my banker or with the guy who cooks my dinner. I just want them to do their job right.
But that works in politics that way. So here you’ve got Mitt Romney, who’s just a space alien compared to — you know, from where the average American is sitting. He’s from a family that’s unlike families that people are familiar with. He’s a gazillionaire. He’s a Mormon. He’s this sort of picture-perfect-looking guy with the picture-perfect-looking family and all that sort of stuff. And he’s a Wall Street guy.
I just don’t think that was the year to do that. It didn’t set well with people.
And the other thing, of course, is that there’s a difference between being good at business and understanding economics and economic policy. You know, Romney was right when he came out and said I like being in a situation where I can fire people. I mean, that’s absolutely right. You’re absolutely powerful in that way. When you’re a consumer, you can fire Microsoft; you can fire AT&T; you can fire JPMorgan. You just take your business elsewhere.
But if you’re used to being in the boardroom, used to being able to say hey, you, do this, do that, hit this benchmark, or it’s your job, or its your bonus, or something like that, that’s a whole different style of management, a whole different style of communication than going to the economically and politically illiterate American people and saying please vote for me even though I seem like a freak to you, because I really have your best interests at heart, even though there’s nothing about my life or biography that will convince you that that’s the case.
You know it’s really hard — Republicans always run into this — it’s really hard to beat the party of here, let me give you something. And the only way you beat that, and I think we’re about to beat that in a big way, is when the money runs out, when there’s no longer stuff to give.
MR. DRISCOLL: Well, barring a repeal of the 22nd Amendment, Barack Obama will leave office in January of 2017. What happens to the nation after he does leave office?
MR. WILLIAMSON: Well, I think some people breathe a giant sigh of relief. I think some people will be overly optimistic if he is replaced by a conservative or a Republican.
Yeah, this is going to sound funny for a — you know, all the way to the wall, libertarian like me to say; but in a sense, I take kind of a Marxist view of American history, that we have certain economic forces that are in action right now, that are dispositive. You know, the way that our politics and our economy is going to be shaped from here on out, I think, is not inevitable, because nothing is really inevitable, but there are very, very strong longstanding economic forces that are larger than any election, larger than any political party, that are going to keep pressing us in the same direction, which is toward an ever-growing welfare state, until the point at which the credit markets no longer believe in us, and say no more money for you. And then things start to hit the fan.
The real question, I think, is whether that happens very, very quickly and suddenly, in which case we’ve got real problems, or whether it happens slowly through interest rates beginning to rise, and rising in a steady way for a number of years until we are forced by the, you know, remorseless mathematics of that to reform our public institutions.
So I mean, what you hope for is a slow-motion crisis, because you can — you know, you have options at that point, rather than a really fast one. But if we — you know, if we don’t start to make some changes very, very quickly, we’re setting ourselves up for a fast crisis, either in the form of a fast and unmanageable spike in interest rates or a fast and unmanageable spike in inflation.
MR. DRISCOLL: This is Ed Driscoll for PJ Media.com. And we’ve been talking with Kevin D. Williamson of National Review.com, the author of The End Is Near and It’s Going to Be Awesome. It’s published by Harper Collins and available from Amazon.com and your local bookseller.
And Kevin, thank you once again for stopping by today, and good luck with the new book.
MR. WILLIAMSON: Thank you very much. It’s always a pleasure to be with you.
(End of recording)