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The Land Of The Unsustainable

17 March 2010 4 Comments

America… The land of the free unsustainable.  There was a good article recently on the length of unemployment benefits from the Washington Post.  Incredibly, you can now collect unemployment benefits for just under 2 years.  Yes, 2 years.  Through a number of extensions (no thanks to that rich, hateful Jim Bunning from Kentucky of course!), the government has made it easier to be without a job for up to 99 weeks.

The morality of the legisation can be debated.  The sustainability (along with the numerous other government programs these days that continue to grow) of the legislation cannot.  Simply put, the government is facing widening deficits as far as the eye can see.  For those of you who don’t know what that means, it means the revenues aren’t enough to fund the programs that are in place. To make up for the gap, we sell Treasuries or borrow money.  Unfortunately, not enough people want to lend us the money to fill the entire gap.  So, as a result, we print money to make up the last gap (called quantitative easing).

We don’t need to get into a whole shouting match here about not caring about those are in need, because frankly, I actually do care about those who are in need while at the same time I think that most people who think they are in need aren’t really in need.  I don’t feel that bad for people who are losing their 4000 sq. ft. home.  I’m sorry, but you can live in a smaller house or an apartment.  In fact, I am pissed that my tax dollars are being used to help you keep your giant McMansion while you still go out to eat a few times a week and drive a $20,000 car.  There are greater tragedies in life.

The problem is that the extended unemployment benefits will actually do more harm than good.  These benefits will cause people to avoid making the necessary changes in life.  Additionally, it allows the economy as a whole to avoid making the necessary changes it needs to make in order to get back on a sound foundation.  An example of such a change is the  following:

  • Propped up consumer spending keeps companies in business that should go out of business – Why would I want businesses to go out of business?  I want businesses that can’t survive on their own to go out of business because it unwinds the misallocation of resources (people + money) and allocates them towards actual productive uses that will benefit our economy for years to come.

We’re more and more becoming a nation of people dependent on the Federal government.  More people are on food stamps, unemployment benefits and other assistance than ever before in this country.  Is this a stat that we are proud of?

Did you know China has no welfare?  I’m not saying this is the solution, but I would guess that in China, families take care of eachother much more than in this country.

The harsh reality is that the standard of living is going to move lower for many, many people in the United States.  Eventually, even government programs will fail to prop people up.  The market forces always have and always will eventually overwhelm even the most fierce government intervention.  The government can move our economy against the current for a short time, but eventually the current becomes too strong.  Whether a currency crisis, or a double-dip recession, or a deflationary death spiral, eventually this thing will reverse.  It doesn’t matter exactly what it looks like.  What matters is that reality will set in and for people who are unprepared, it will be ugly.  Unemployment benefits can last indefinitely, and it won’t matter.

Although it will still be painful, these economic realities can be faced on our own terms.  Yet, our path is clear.  We refuse to acknowledge the flawed economy that we continue to prop up.  Eventually, we will have to face the reality, but not on our own terms.  Until then, I will prepare for that day.  What are you doing?

4 Comments »

  • Darwin's Finance said:

    This essential perpetual unemployment gravy train is surely persuading able-bodied workers to continue to hold out for that "old salary" instead of getting them back to work (and off the tax-payers' backs). I understand unemployment benefits and I think something like 6 months or even 9 months during the latest recession was reasonable. But the recession's over and the economy may not spring back like it usually does. We may see a similar employment picture for years. So, people need to get back to work with new expectations, not old expectations.

  • Darwin's Finance said:

    (continued. your site only allows 1 PP comments?) I've seen this first hand. We have a high earner friend from Wall Street who was laid off over a year ago. Based on statements he's made about jobs he's passed on, he was making probably ~250-300K. He had multiple 6 figure offers along that way but continued to pass on them because they weren't in the ballpark of his old salary. Without going into the 600K mortgage, the 2 new cars, all the home improvements they did (while he was out of work!) and basically a complete lack of a "new normal", he continued to pass on jobs that paid a very high salary. He finally landed something 10 months later at a discount to his old salary so we hear that complaint now.

  • 20smoney said:

    Great comments. Interestingly, I think we'll see "job growth" over the next few months with all the Census workers being hired. I think I read that over a million MORE workers are being used for this census compared to 2000. So the surface level employment numbers will improve, CNBC will cheer it and stocks will rally. I'm trusting "official" numbers less and less these days. Proceed with caution!

  • 20smoney said:

    That would make too much sense for DC and be too straight to the point. For an example of NOT getting straight to the point, go listen to Kucinich's speech today when he announced he would be voting for health care. Thanks for the comment.

  • Blake said:

    It has been proven that extending benefits inflates unemployment number when jobs are available, but this is not the case at the moment. Check out this article.

    http://www.politifact.com/truth-o-meter/statement

    Also, a real fear is that if unemployment benefits are discontinued, more people will try to get SS disability and never get off.