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| George Friedman |
While shopping for a car last weekend, we met TJ. He is one of those guys who really should be
a salesman. He is always happy to see
you and always has a smile on his face.
He’s the kind of guy everyone wants to be around. TJ has been selling cars for 30 years. “What did you do before that?” I asked. “I was an air traffic controller,” came the
reply with a chuckle.
Remembering my late 20th Century history, I
observed he must have been one of those guys put out of work by the PATCO strike. He was. “I bet you didn’t vote for Ronald Reagan in
84,” I said. Laughing again, he admitted
I was right.
TJ didn’t know it at the time but his plight was at the
leading edge of a strategic shift. Stratfor
founder, George Friedman, has observed that there have been four such shifts in
our history. Each was brought about by a
paradigm that had run its course and a crisis that brought about a failed presidency
that was followed by a seminal presidency.
These shifts have occurred approximately every 50 years. The failed presidency of John Quincy Adams
was followed by Andrew Jackson. A half
century later, Grant was followed by Hayes.
Then came Hoover and FDR and, one that many of us remember, Carter
followed by Reagan.
The conditions of the Great Depression made it politically
feasible for FDR to create programs that supported the poor, the elderly and
the working class. The term "social safety net" was coined by one of the most conservative economists of that time,
Friedrich Hayek. Social Security,
unemployment insurance and the Civilian Conservation Corps were seen by many as
a way of placating a wave of immigrants who were accustomed to socialist or
social-democratic governments. By
offering the safety net, the lower economic classes were less likely to join
truly socialist movements.
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| Friedrich Hayek |
During this half century phase, government was designed to
plan, regulate and control economic and social outcomes. The extremely high tax rates of the Truman
and Eisenhower years were necessary not only to pay off the debt accumulated by
WW II but also to support the regulatory state.
For two generations following the war, business, government
and organized labor worked in concert to create a domestic economy that served
our needs. Our schools and universities
turned out students who were well equipped for the economy of that time. Those who were fortunate enough to go to
college joined the management of big companies like AT&T, GM and IBM. The rest joined unions and worked in the
factories. Everyone expected to be
employed for life by the same company and many, if not most, were.
But, high tax rates took their toll on capital investment;
and, by the 1970’s, foreign competition was taking its toll on the union
model. Globalization meant American
companies needed to update their factories and had to compete with low labor
cost nations like Japan.
The Reagan revolution would not have happened if the economy
were not in shambles. He sold us on a
vision that undermined the model on which the populace had come to rely. He used the PATCO strike as a public
demonstration that the unions could be broken.
In the 30 years since, union membership has dropped from 30% of the
workforce to 7%.
I don’t remember Reagan ever announcing that he was changing
the social contract. But, it certainly changed
during his administration. Fixed benefit
pensions were replaced by 401K’s. To
compensate for rising healthcare costs, corporations introduced HMO’s to
replace traditional health insurance.
American corporations needed to become more nimble to compete on a
global stage. Lifetime unemployment was
out; flexible workforces were in.
Under this new paradigm, the American economy boomed for
three decades on the strength of the wealth effect from the establishment of
two income households, the stock market boom of the 1990’s and the rise of home
values in the 2000’s. But, just as FDR’s
model of government had started to fray by the 1970’s, the Reagan revolution
has started taking its toll on the middle class. Globalization has flattened incomes,
corporations pass on more of the cost of health and pension benefits to their
employees and the cost of a college education is skyrocketing.
The national political debate seems to be a continuation of
FDR vs. Reagan. But, would either of
those models work today?
The booming economy of the 1950’s was coincident with the
highest tax rates in our history. But, anyone
who has ever taken a course in logic knows that correlation is not causation. Perhaps if you could create all the other
factors at play in the 1950’s – lack of foreign competition, a balanced federal
budget, population growth – you could replicate the economic outcomes.
Similarly, the 1990’s boomed with improvements in corporate
efficiency, technological innovation, low tax rates and a balanced budget. Can we replicate those conditions again?
At their core, Americans want the same things no matter
their political beliefs. We want
security at a national and local level for our families and property. We want the opportunity to improve our
standard of living. And, we want to
fulfill our role on the global stage – international leadership.
There is an underlying need for financial stability that
will provide a platform for achieving our goals in these areas. And, there are significant challenges to
providing that stability.
Politicians at the local and state level are taking on those
challenges. Republicans like Scott
Walker of Wisconsin and the “love-him-or-hate-him” governor of NJ, Chris
Christie, make headlines because the media likes conflict. But, there are significant reforms being made
to pensions by Democratic governors in Rhode Island and New York and at the
local level in San Jose and San Diego, CA.
Beneficiaries have a moral right to say “hey, we had a deal,
didn’t we?” But, the hard reality is
that they will have to make a sacrifice in order to get something or run the
risk of getting nothing.
We have the same risk at a national level. Baby boomers will drain the coffers of Social
Security and Medicare. Rising healthcare
and education costs are undermining middle class standards of living. Our infrastructure needs a serious overhaul and
modernization. And, we are competing
with the rising economies of Brazil, China, India and others.
So, why are we still debating 1932 vs. 1982? Do we really think either of those solutions
sets would work today? The issues of today
are structural and strategic. Compromise
and sacrifice are called for. The
leaders who will get us out of this quagmire are those with the vision to craft
a solution, the charisma to get the public to embrace it and the political
skill to overcome the momentum of special interests.
So, I ask you… Who
will that person be? WHO WILL LEAD?
