The following appears in the February 24-March 1, 2012 issue of the Long Island Business News:
In a remarkable essay titled “The Once and Future Liberalism,” historian Walter Russell Mead explains why “the core institutions, ideas and expectations that shaped American life for the 60 years after the New Deal don’t work anymore.”
In the post-World War II era, the United States was the world’s richest, most powerful and most productive nation. We possessed half the world’s wealth and produced two-thirds of the world’s machinery. British historian Robert Payne, after touring the United States in 1949, rightfully concluded “the rest of the world lies in the shadow of American industry.”
To secure their slice of the American dream, the “Greatest Generation,” World War II veterans, embraced what liberal economist John Kenneth Galbraith called the “Iron Triangle”: Big Government, Big Business and Big Labor Unions. Taken together this “blue model,” as Mead calls it, permitted both blue-collar and white-collar workers to procure lifetime industrial and government jobs that provided defined benefit pensions, shorter work hours, more leisure time and earlier retirement.
In the “halcyon days of the blue model,” American industries, utilities, insurance companies and banks were so mighty and so protected by federal regulators they could easily afford the expense of these higher labor costs by simply passing them on to their captive customer base.
By the 1970s, however, the industrial blue model began to decay and today it is financially in extremis. New communication models, foreign competition, offshore financial markets and the environmental movement were the death knells for Ma Bell, the Detroit auto industry, regulated airlines and banks, and scores of manufacturing plants.
Private sector managers and their trade labor union employees that clung to the blue model (i.e., steel industry) experienced shrinking market shares and profitability, and eventually went out of business.
The few blue companies that have continued to limp along have needed government trade protection or direct subsidies to survive. In Mead’s judgment, however, “neither works very well or for very long. Both are unsustainably expensive given current levels of national debt … and using public resources to try to prop up the old system is a waste of those resources and a hurtful diversion from the need to figure out what we need to do next.”
The great American crisis today, Mead argues, “is the accelerating collapse of blue government, not blue private industry, which is a phenomenon largely behind us.” The costs of the blue system social contract – retirement and other social benefits – are exploding and it is unlikely that federal, state and local governments, “the last true blue employers,” will be able to fund these obligations at some future point. Voters, particularly those with insecure private-sector jobs, defined-contribution pension plans and incomes below public-sector workers, will refuse to be taxed to pay for the costs of blue government.
Concluding that most politicians and bureaucrats have refused to face fiscal realities, Mead gives this gloomy prognosis:
As long as the federal government can print money and find lenders to buy its bonds, it can bleed slowly. … But state and local governments increasingly need vast transfers of cash from the federal government to keep their blue noses above the rising tide. The stock market declines after September 2008 wiped out huge chunks of the wealth that state pension systems needed to have even a hope of paying the pensions promised to government retirees. … California and New York are headed over the cliff without federal bailouts, and others are following close behind. That is why a substantial share of the Obama administration “stimulus” spending was targeted less at New Deal-era infrastructure projects than at simply keeping unsustainable state bureaucracies and systems afloat for a few months or years longer.
Mead’s trenchant essay on the need to get beyond the dysfunctional and outdated ideas of 20th century liberalism is a must read particularly for delusional Long Island politicians who strive to “retrieve the irretrievable” blue government model.