Monday, March 30, 2015

Choices and Their Consequences

David P. Goldman tries to answer the question of "How should America compete with China?" To get there, he first addresses the naysayers that suggest that China's economy will crash for financial and/or political reasons. (While I don't disagree that China will weather its problems, I think that the debt load of its local governments and over inflated real estate market means that China will be hard pressed to avoid Japan's "lost decade"). Goldman also rejects a notion that China seeks world domination, which, I suppose, depend on whether its leadership has abandoned the expansionist policies of Communism.

However, that is not the part of his article that interests me. Rather, it is Goldman's overview of China's infrastructure development versus that in the U.S. He writes:
... American infrastructure is miserable compared to Asia’s newly built roads, trains and bridges, as any traveler who has the misfortune to land at JFK or O’Hare will attest. There is a reason for this: A journeyman bricklayer working on any federally-supported building project in Essex Country, New Jersey is expected to earn $67.26 an hour under the Davis-Bacon Act. That’s $134,520 a year without overtime. American public works projects cost the moon and take forever because they are run for the benefit of the construction unions. American politicians are as terrified to touch this torpedo as their French and Italian counterparts are terrified to amend protective labor laws in their countries. New York City expects to complete its Second Avenue subway line by 2029 at a cost of $17 billion, or 22 years after ground was broken. China builds whole subway systems for cities the size of New York in a year. 
Infrastructure is one of China’s great achievements. As the New York Times observed in a Sept. 13, 2013 report, China’s high-speed rail system already serves more passengers than the 54 million Americans who board domestic flights every day, and has transformed China’s economy. With 600 million Chinese migrating from the low-productivity countryside to higher-productivity employment in urban areas, the high-speed rail network has made business ventures possible that were not conceivable before.
It didn't have to be this way. At one time, America had a very bright future, best summed up in the song "IGY" by Donald Fagen, released as part of The Nightfly album.

The title of song refers to the International Geophysical Year which marked a high mark of Americans' expectations toward scientific and technological advancement and what life would be like by the end of the 20th Century. Fagen's song was released in 1982, and was probably intended to be ironic since we were, at the point, seemingly no nearer the ideals in 1982 than in 1958.

But it is worth examining why America did not achieve the dreams of the late 1950's and early 1960's. Certainly, as the wealthiest and most technologically advanced nation in the world we could have achieved much in the way of space travel and advanced infrastructure projects. As the moon missions and Skylab showed, it wasn't for want of technical ability. So what happened?

There are piddling little things that can be pointed to, such as the seemingly grossly inflated wages of the union workers mentioned in Goldman's article. But in reality, overpaid union workers were probably more common in the 1960s when we put men on the moon than they are now.

I would suggest that the difference was in spending priorities, and, in particular, the so-called "war on poverty." Last year there were several articles that examined the cost and results of 5 decades of intense social spending programs as part of the war on poverty, including a report authored by Robert Rector and Rachel Sheffield, published by the Heritage Foundation. From the abstract:
In the 50 years since that time, U.S. taxpayers have spent over $22 trillion on anti-poverty programs. Adjusted for inflation, this spending (which does not include Social Security or Medicare) is three times the cost of all U.S. military wars since the American Revolution. Yet progress against poverty, as measured by the U.S. Census Bureau, has been minimal, and in terms of President Johnson’s main goal of reducing the “causes” rather than the mere “consequences” of poverty, the War on Poverty has failed completely. In fact, a significant portion of the population is now less capable of self-sufficiency than it was when the War on Poverty began.
 (See also Louis Woodhill's article at Forbes entitled "The War on Poverty Wasn't A Failure -- It Was A Catastrophe." (Given the downward trajectory of poverty prior to 1965, and the violence that welfare has committed on the family structure, it seems ludicrous that poverty would have been substantially higher today without welfare programs, when poverty rates have remained steady since the mid-1960's).

Recter and Sheffield discuss why the war the poverty was a failure. I want to discuss the cost--$22 trillion, not including Social Security and Medicare, that essentially went to fund expensive and largely useless bureaucracies, the real goal of which was to buy votes. Adjusted for inflation, the Apollo program (inception to end) was approximately $100 billion (2010 dollars), while the total amount spent on manned space flight over 57 years (in 2010) was $486 billion. Imagine where we would be if even half the $22 trillion had been spent on space and infrastructure and the other half had remained in taxpayer's hands. What new businesses and scientific advances would have been achieved? I was not able to find any real analysis of this issue in my brief search of the internet. Perhaps somewhere someone has attempted to answer this question. But it is significant to remember that until only a few years ago, many of the expanding economies in Asia (including China) did not have extensive welfare systems. Would China have had the money into building its infrastructure if it had a welfare system comparable to the United States? I think not.

It has been said that Europe committed suicide with World War I. I would say that the United States committed suicide when it decided to flush trillions down the toilet of welfare programs.

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