Can A Nation Built By Giants Survive Nanny State Paternalism? The Numbers Don't Look Good...

While US Constitution and free market capitalism set the the foundations for American prosperity, it took a rugged, passionate, free people to build it. From George Washington to George Washington Carver to millions of other Americans, the United States was carved out a continent of forests that seemed to go on forever, fertile plains, vast mountain ranges and scorching hot deserts.  Over time American frontiersmen and settlers forged a country that seemed to have all of God’s blessings in abundance.

Conditions were rarely easy for most Americans throughout most of our history. Coal miners spent 12 – 16 hour shifts in dangerous coal mines in which they sometimes couldn’t even stand. Frontiersmen built a homestead and a farm out of a thick Appalachian forest while fighting brutal winters and a tenacious Indian population. Slaves toiled for years at backbreaking work during freezing winters and boiling summers. At the end of the 19th century over 50% of Americans still lived and worked as farmers, a far more dangerous job than most people understand. The industrial revolution brought sweatshops and drove a thirst for steel, trains and petroleum.

One sometimes has to marvel that America survived long enough to challenge the British for independence and then go on to grow and prosper (mostly) for over 200 years as it changed the world. Were the Americans who carved a nation out of a continent somehow so different than Americans today? Were the Americans who crisscrossed a continent with railroads, telephone lines and highways so different than Americans today? Were the Americans who won two world wars and sent a man to the moon so different than Americans today? Were the Americans who invented the mechanical reaper, air conditioning, vulcanized rubber and the microchip any different than Americans today? Not based on DNA they weren’t. But that doesn’t mean they were the same. While the DNA of the American people today is no different than that of the people who invented the elevator or the light bulb, the American people writ large certainly appear to be.

Go back a little more than one generation ago and it seems like Americans were something of another species. They appear to be relative supermen. In 1970 there were 78 million people working in the United States. At the same time there were 1.5 million people on Disability Insurance. That means that one person out of every 53 workers was on Disability. Fast forward 4 decades and it seems as if the world has turned on its side. By 2012 the number of Americans working had risen by 82% to 143 million people. During that same period however, workers receiving disability insurance skyrocketed up 491% to 8.8 million. Today, instead of one out of every 53 workers being on disability, it’s one in sixteen! That number is particularly interesting because the United States of 1970 was a far grittier place than the United States of 2013.

First off, the United States in 2012 is a much different workplace than the one that existed in 1970. In 1970 fully 25% of the American workforce worked in manufacturing while only 30% of employees worked in the service industry. Today, less than 10% of the American workforce works in manufacturing while over 50% of workers work in the service industry. Given that designing a website, taking an order at Red Lobster or greeting a guest at the front desk of a Marriott is generally less dangerous than welding together various pieces of a Lincoln Town Car or operating a blast furnace at a USX steel plant, America should be a safer place to work. And indeed it is. The death rate for American workers in 1970 was 18 per every 100,000 workers. By 2010 that rate had dropped to 3.6 deaths per every 100,000 workers, a decline of 80%.

But of course work is not the only place where one gets hurt. Today, virtually everywhere Americans go everything seems safer. Cars have seatbelts, antilock breaking systems and a plethora of airbag options. Houses have GFCI circuit breakers in bathrooms and kitchens and smoke detectors in almost every room. Lawn darts are but a distant memory and towns across the country require helmets for bicycle riding and virtually every appliance and medicine comes plastered with book length warning label. At the end of the day, America has become a far safer place to live and work than it has been at any time in its history.

Somehow, however, despite that much safer America, the number and percentage of people listed as disabled and receiving disability payments has skyrocketed.

“ Since the economy began its slow, slow recovery in late 2009, we’ve been averaging about 150,000 jobs created per month… In that same period every month, almost 250,000 people have been applying for disability.” So the world has changed so much that Americans are now seeking disability benefits at a 60% faster rate than they are getting new jobs! That is a staggering statistic.

How is that even possible? Have Americans become weaklings, unable to stay healthy. Has some unknown affliction made us incapable of working? No. There is an affliction, but it’s not biological. It’s called the nanny state. From judges who rubberstamp virtually every claim they ever see to 34% of applicants who have musculoskeletal injuries, which conveniently enough cannot be detected by doctors, to outright fraud (more)(more)(more) and states seeking to shift costs to the federal government, the program is a symbol of much of what is wrong in America in 2013. Indeed, in some places 1 out of 4 workers (or former as the case might be) is on disability.  The worst thing about this dysfunctional program is that the fraud keeps people who are in real need of help waiting in line, sometimes to die.

When government decides to play the role of caretaker and redistribute wealth from workers to everyone else, it should come as no surprise that many people will choose to jump from the working pool to the everyone else pool. For more proof just look at the food stamp program over the same 40 year period. While the population increased by about 30%, workers by 82% and disability by 491%, food stamp recipients grew by 1,000%!

The economics of the welfare state, including the “disability industrial complex” cannot be sustained. If the record of the last 40 years were to be repeated over the next 40, in 2050 the country would have 260 million workers supporting 43 million people on disability and 450 million people on food stamps. Those numbers are simply not sustainable, but you wouldn’t know it by the administration’s push to get more people to apply for benefits.

American workers and entrepreneurs have together created the greatest wealth and prosperity the world has ever seen. At some point the spirit that helped forge a nation out of a continent and dot it with jewels like the Empire State Building, the Hoover Dam and the Golden Gate Bridge will reemerge and shout “I’ve had it and I’m not going to take it anymore!” American shoulders may indeed be broad, but the head which sits above them is not suicidal. At some point Atlas will shrug, the question is will it be in time to save the country…

Obamacare - What good is health insurance if you lose the freedom to live your life as you choose?

One of the many reasons conservatives dislike government overreach is because government is so often wrong about so much. And what’s worse, regardless of the magnitude of the government’s failures, citizens are stuck with the consequences of those policies, in most cases forever.

This is not a new phenomenon. This has been going on for decades. Upon its establishment in 1965 the House Ways and Means Committee estimated that the cost of Medicare would rise to $12 billion by 1990. Unfortunately for American taxpayers that prediction was off by a power of nine, coming in at $110 billion. And things haven’t gotten any better since then. By 2011 Medicare costs ballooned to over $550 billion, having grown by 8.3% in a year when inflation was 3.2%.

But of course Medicare is but one example. Medicaid had a similar experience. The same House committee estimated that Medicaid’s first-year costs would be $238 million. Instead it came in more like $1 billion. It was projected to cost $9 billion by 1990 and, surprise, it came in at $67 billion. By 2011 the federal share of the program tipped the scales at $299 billion!

Tellingly, before government set its claws into healthcare it tracked very close to overall inflation. Since 1965 however, healthcare costs have increased by 2.3 times the rate of general inflation. To put that in perspective, inflation would have made something that cost $100 dollars in 1965 cost $718 dollars in 2012. That’s a pretty big jump, but if that $100 dollar item had increased at the rate of healthcare inflation since government got involved it would cost 2.3 times as much, or $1,651. At the same time, healthcare costs went from 5.1% of GDP in 1960 to approximately 18% today.

This record of financial incompetence (nevermind operational incompetence and malfeasance) could never survive for five decades in the private sector. But in government, no problem, and it’s not just healthcare. Think of Solyndra. Think of General Motors. Ethanol mandates. School lunches. The fact of the matter is, bureaucrats sitting in the otherworldly universe of Washington have a long history of making decisions about which they are unqualified and ill-informed, and more importantly, disconnected from the consequences of those decisions.

Now however we are about to embark on a journey that will make even the economic disaster of Medicare look like child’s play. Of course we’re talking about Obamacare. Although there were many warnings that Obamacare would be a disaster of epic proportions before it became law, today, less than a year from its true implementation, we are seeing the actual consequences begin to materialize.

Millions of jobs will be lost, one small company at a time. People will have a difficult time finding a full time job. Healthcare premiums will be going up. There will be a doctor shortage. Obamacare will become a regulatory anvil around the neck of American prosperity. Luckily though the Obama administration is on the job seeking to ensure that it doesn't become a "third world experience". Which, it's looking like it just might become. And to put a cherry on top, with our practically no existent GDP growth, apparently we can look forward to China overtaking the United States by 2016.

As bad as those things are, it actually gets worse. Your individual liberty is simply going to disappear. Many employees are now going to have to begin reveling to employers their weight, body fat measures, cholesterol levels and more. Pharmacy giant CVS states that all its employees will now have to either quit smoking or enroll in an addiction program by 2014. That is of course because smokers generally have higher healthcare costs than do nonsmokers, and since CVS is paying for that healthcare, they get to make the rules. Don’t like it? Then quit.

But then it’s not only smokers who cost more. Fat people generally cost more than thin people. Does that mean that a company can dictate that employees must be Oreo or Doritos or Coke free by the end of the year or enroll in an addiction program? How about motorcycle riders? They are 5 times more likely to be involved in a traffic accident than are car drivers. Does that mean that companies can tell you what you what kind of vehicle you can drive? How about unmarried women having sex out of wedlock, particularly minority women, where 77% of black births and 53% of Hispanic births are to unwed mothers? Given that sick children inflict an increased financial & healthcare burden on unwed mothers than they do on married mothers, can a company demand that unmarried female employees purchase and utilize birth control? (If so, how would they ensure compliance with usage?) Sure, all of this sounds farfetched, but so too once did the idea of schools telling moms what they can put in their children’s lunchboxes, cities banning Happy Meals and soft drinks and companies actually firing employees for being smokers.

At the end of the day, Obamacare may very well be the last stake in the coffin of individual liberty and American prosperity. Think of it this way… through the tax code the government already exercises a tremendous amount of influence on your life by deciding how much of your money you can keep. It’s pretty personal, but it’s largely financial, even if it impacts much of the rest of your life. Through the EPA the government influences your life, although thankfully for most of us it’s at an arm’s length, via regulation of the companies we work for and the firms we buy from. With Obamacare that scant remaining barrier between government and individual choice will disappear. Government is indirectly harnessing employers to expand its power over every aspect of your life, including the most intimate parts of it. And you can be sure it will stay indirect for only so long. Once government mandates can decide what you can eat, how much you have to exercise, the kind of transportation you choose and how you have sex, what is left of liberty? Not much… Add to that the evisceration of the greatest economic engine the world has ever known and you wonder how long before it all comes crumbling down. Now where does one go to get insurance to protect against that?

Regulation vs. Prosperity... America goes gently into that good night

Thanks to the Founding Fathers, in 2013 the United States has built the wealthiest nation in history on free markets and the rule of law. (And thanks to their more recent successors, we’re simultaneously the poorest… but that’s another discussion.) While the Founding Fathers were remarkable for much, what is perhaps their greatest legacy is their recognition that Americans, like all men, are imperfect.

In 1787 after almost a decade of the greatly flawed Articles of Confederation, the 2nd Continental Congress was formed and would eventually produce the Constitution we have today. What was so amazing about the document was the fact that it had built into a wide variety of it limitations and strictures intended to both delineate and restrict power. The overarching idea that powered the construct of the Constitution was the fact that an unfettered government would become tyrannical. The founders understood that limited government was supposed to act only in those areas that citizens could not on their own – think national defense, courts, treaties – and, importantly, only based on the powers granted to it under the Constitution.

Fast forward to today where their work has proven itself well placed with a prodigious American prosperity been built on its foundations of free markets and the rule of law. More than any nation in history, we have benefited from the fact that virtually any American citizen or resident has had the opportunity to start a business. Sometimes they invest their money in a neighbor’s plan to start a sandwich shop and other times they roll up their sleeves and start something on their own. More than anything in the world, that freedom of opportunity has set America up for success and driven us to achieve the greatest level of wealth ever created.

Unfortunately, that freedom of opportunity is rapidly disappearing… In an effort to ameliorate every problem that might befall a citizen, the federal government has passed laws and created regulations that touch virtually every aspect of our lives. This Sisyphean exercise has not only failed, but it has laid the foundation for the undermining of the freedom and opportunity that made America the wealthiest nation in the world.

Economic growth comes largely from small businesses. 70% of all new jobs come from small businesses. Small businesses are where innovation begins. Think about it. You’re probably not surprised that the PC revolution was not driven by the behemoth IBM but rather by two upstart companies named Apple and Microsoft. You’d probably not be surprised to discover that ESPN was founded by an unemployed sportscaster rather than one of the three major networks. You’re also probably not surprised that it was Google, a company started by two college students, that figured out how to effectively harness the opportunity in online advertising while America’s mega media companies stumbled from one failed business model to the next. Big companies always start out as small ones.

Small business is where new ideas get to play themselves out and figure out what works. This is because small companies are typically nimble, they don’t have legacy products or services they are concerned with undermining, and perhaps most importantly, owners and investors are usually very close to the action. They normally are right in the mix of where everything is happening so they can observe and react quickly to the needs of markets. Big lumbering, billion dollar companies with tens of thousands of employees and multiple levels of hierarchy rarely have the insights or quickness to see opportunities ahead.

And of course starting a business is risky. You never know if customers are going to like your product or service. Suppliers can be unyielding in their financial terms. Employees can be fickle and unreliable. Competitors abound. And of course it can be incredibly expensive. Nonetheless, some intrepid Americans do venture forth to hang out their shingle and pursue the dream of turning an idea into a flourishing business. They might get rich, but they might go broke too… but to them it’s worth the risk.

And as if it were not hard enough to find success as a small business, it’s becoming far more difficult in one respect that the entrepreneur has very little control over: Regulation.

The nearby chart shows the growth in federal regulations over the last 60 years. That growth is set against a GDP growth chart for the same period – measured by average rate of growth over the decade. The correlation is crystal clear, and painful to behold.

Each page of the Federal Register represents dozens of byzantine regulations that must be administered by millions of bureaucrats, often with draconian consequences for violations. For small businesses such regulations are nothing short of a nightmare. Not only do they have to navigate the equally challenging state and local government regulations, but they must increasingly deal with mandates crafted in Washington by bureaucrats who are professional pencil pushers with no experience in actually running a business, nevermind an awareness of the unique challenges faced by small businesses.

The Federal Register is the catalog of all federal regulations. In the 1950's it would see an average of 10,400 pages per year published.  During the decade the US economy grew at an average rate of 4.2% a year (inflation adjusted). In the 60's it would see 16,800 pages per year on average while GDP would average 4.44% growth per year. That was the last decade of treading water. By the 70's Register pages would be 48,000 per year GDP growth dropped to an average of 3.75% per year. The first decade of the new millenia there would be 77,000 pages published per year and as one might expect, the decade’s growth was an anemic 1.73% per year on average.

As regulation has increased GDP growth has decreased. That is no coincidence. Perhaps the greatest way regulation cuts growth and hinders prosperity is that it smothers small businesses and benefits large ones. Unlike big businesses, small businesses can’t generally afford lobbyists to influence legislation nor armies of lawyers and accountants to figure out how to minimize its impact. The result is less innovation, fewer jobs and at the end of the day, smaller GDP growth and less prosperity.

And if you think this discussion of the correlation between GDP and regulation is just a game of semantics, think about it this way. Take your income… How would you like to double it? At the 4.4% average annual growth rate the experienced in the 1960’s, it would take you 16 years to double it. Not quick, but not horrible. At the 1.7% rate experienced during the first decade of the 21st century, it would take you 41.6 years. And that’s not an anomaly, it’s 50 year trend. More regulation means less growth, which means less prosperity.

With the regulations spawned by Obamacare only now making their way onto the books we can expect even more slowing to come. This is not a Democrat vs. Republican issue… this is a conservative vs. liberal issue. As the liberal progressives have sought to use the force of government to create a perfect world where everyone lives in a state of bliss unencumbered by the sometimes harsh vagaries of life and protected from the consequences of choices, they have in fact destroyed the fount from which emerged the American prosperity that allowed them to focus on frivolous things in the first place. Here’s an analogy: In order to guarantee every passenger is comfortable and that a plane could never crash, liberals have loaded the plane up with so many pillows and so much safety equipment that it can’t get off of the ground in the first place. As anyone stranded on the tarmac for seven hours inside a JetBlue plane could probably tell you it doesn’t take long for dystopian conditions to begin to emerge.

Just as aerodynamics of flight can’t support a plane that can’t get off the ground, free market economics can’t drive an economy that is so constricted by regulation that it can no longer be called a free market in the first place. Welcome the America of the 21st century, where prosperity becomes but a distant memory and a once great people go gently into that good night…

Barackalypse Now, the story of one man's destruction of the American Dream

By now you have figured out that Armageddon did not occur on Friday and the dire warnings from the White House that the nation would essentially collapse were, shall we say, somewhat overstated.

That doesn’t mean however that the nation and American prosperity is in any less danger. Barackalypse Now is indeed upon us, and it has nothing to do with the Sequester. It has everything to do with the deranged economic policies of the Obama administration.

Virtually every American would like to be a little better off tomorrow than he or she is today. It makes no difference whether they are rich or poor, or whether they are happy with their current circumstances. Most of us would simply like to be a little better off next year and the years after than we are today.  Most of us don't mind working to make that a reality, but the question is, how we can accomplish it.

One way many people have chosen to pursue the American Dream has been to start their own businesses. The goal of entrepreneurs is often a mix of trying to become wealthy and doing something about which they are passionate. Every single company you know the name of or have interacted with started out at some point as just an idea that someone sought to do something with. Two such companies are Subway, the largest sub sandwich restaurant chain in the world and Home Depot, America’s largest home improvement chain. Both have thousands of locations, do billions of dollars a year in revenue and employ hundreds of thousands of people. Both companies started out with one unit each and grew into the 800 lb gorillas they are today. Interestingly, the founders of both companies say that if they started their companies today they could never have succeeded. And it has nothing to do with the recession, indeed Home Depot was founded in 1978 in the midst of the worst economic recession since the Great Depression.

Both founders cite government regulations for the reason that they could not succeed. Fred Deluca, the founder of Subway says:

It's continuously gotten worse because there's more and more regulations and it's tougher for people to get into business, especially a small business. I tell you, if I started Subway today, Subway would not exist, because I had an easy time of it in the '60s when I started and I just see a continuous increase in regulation.

Bernie Marcus, co-founder of Home Depot says this when asked why more businesses don’t complain about the regulatory burdens:

They are frightened to death — frightened that they will have the IRS or SEC on them. In my 50 years in business, I have never seen executives of major companies who were more intimidated by an administration.

Although overregulation has been getting worse for decades, the Obama administration has put the regulatory apparatus on steroids and uses the coercive power of government to intimidate businesses into submission. The result is that large companies like Home Depot, Subway, Google, Wal-Mart and others can hire armies of lawyers to bring them into compliance or find loopholes through which they can maneuver. Small businesses however, the fount of jobs, with their limited resources and bandwidth simply can’t compete. The result is that big companies get bigger and fewer competitors emerge as success as an entrepreneur becomes less possible.  It’s ironic that the administration that was so quick to embrace Occupy Wall Street’s disdain for big business has actually helped big business by suppressing potential competitors.

Another way Americans seek to improve their lives is to find a good paying job. Here too the Obama administration has punched the average American in the solar plexus. Perhaps no single regulation has had more negative impact on jobs in the economy than has Obamacare. The regulations are not yet fully implemented but they are already causing a disaster in job creation. Across the country employers are shifting employees from full time (defined as 30 hours or more a week) to part time status so that they can avoid the taxes associated with Obamacare. The result is that fewer people will have full time jobs and must take two or three part time jobs to make what they would have at one full time job. That is the definition of inefficiency. From a quality of life perspective Obamacare is going to result in parents spending more time out of the house as they work their two six hour jobs with two hours in between or they work seven days to earn a full time equivalent paycheck. Even without families, everyone is going to have less leisure time to do everything from go to restaurants, the movies, the beach, play sports, read books or whatever it is they love to do.   The small businesses lose out as well. While they may avoid paying the Obamacare taxes for a while, they now have to provide the training, scheduling, management and administration support for more employees than they would if they could fill their jobs with full time employees.  Obamacare is a job killing machine, and with it goes the dreams of millions of Americans who were hoping that a job would help them achieve their life's goals.  

With a flawed government focused mindset, his administration has already accomplished what Barack Obama suggested it would take two terms to finish: “Fundamentally transforming the United States of America”. Unfortunately for those seeking to pursue the American Dream, the Barackalypse he has created has little resemblance to the dynamic America whose engine drove our own and the world’s prosperity for a century. At some point in the future when anthropologists discover the ruins of what was once America they will wonder what kind of Apocalypse could have destroyed such a great and powerful nation. One wonders what curious artifacts will remain that indicate the damage was self inflicted when the citizens twice elevated to their presidency a self aggrandizing man with no understanding of how the world actually works beyond the chimerical fantasy created in his mind and perpetuated by a cabal of empowering sycophants. Perhaps the story the write will be "Barackalypse Now, the story of one man's destruction of the American Dream".