Tuesday, March 17, 2009

The Return of Big Government and the (de facto) Welfare State
March 17, 2009

Bill Clinton famously declared the end of big government and "ended welfare." Now as the U.S. economy rumbles down the path to Depression, the return of Big Government will be followed by a new de facto Welfare State.

The Return of Big Government is not exactly news. As one region after another in the U.S. slouches toward either Recession or Depression, the only Sugar Daddy capable of printing money and spreading it far and wide is Big Government. Nominally "small government" governors and mayors are scrambling over one another to get their share of the largesse, and of course the befouled financial sector continues its stupendous siphoning of Federal swag as well.

All hail the return of Big Government (as long as I get my share).

But while Big Finance and local governments are gorging at the trough, precious little is being said about the millions of unemployed scraping by on unemployment insurance scheduled to end, and the millions more who face layoffs as the economy spirals down.

Record 31.8 million on food stamps: Government shows increase of 700,000 food stamp recipients in a single month.

Last summer food stamps were renamed the Supplemental Nutrition Assistance Program, or SNAP.
The average food stamp benefit is $115 a month for individuals and $255 a month per household.
Enrollment for food stamps in December was up 2.2% from the previous month with increases in all but three states. Ohio had the largest increase among large states, up 3.4%, to 1.26 million people. Texas had the largest enrollment, 3.05 million, up 1.8%.
The previous record for food stamp enrollment was 31.6 million last September, which included "disaster" stamps for states hit by hurricanes and floods.
In April, food stamp benefits will increase temporarily by 13% under provisions of the recently enacted economic stimulus law. Ellen Vollenger of the Food Research and Action Center said some families will see increases of $80 a month.

If there are no jobs to be had, then how are these millions of households expected to get by? As correspondent Richard Metzger and I have discussed over the past few months, is there really any option to a de facto welfare state?

In a society based on free expression and high expectations, is it really plausible to expect millions, if not tens of millions, of unemployed to slink off into a hopeless, quiet poverty? The MSM propaganda machine is already ceaselessly pumping out stories about how the "recovery" will begin in 2010; but they never answer the key question: "based on what?"

The vagueness of the "recovery" talk is the giveaway: there is no basis for a recovery of the job market. Yes, stocks might rise as companies slash payroll and overhead enough to return to profitability, but the self-reinforcing cycle of less borrowing, more debt renunciation/paydown, drastically lower income and sales taxes, further declines in the housing market, etc. all suggest there is simply no rational basis for the MSM's expectation that a new credit-housing bubble will create millions of new jobs in 2010.

By early next year, all the current unemployment extensions will have expired. By early next year, the Federal government's ability to borrow another $800 billion at low interest rates to fund 3 million jobs will be gone; paying $100,000 or more per job is simply unaffordable. These realities will leave us and policy makers no alternative to a much cheaper social safety net.

As of March, approximately 5.3 million people are drawing unemployment benefits ( Record number of Americans on unemployment) and virtually no one claims this is the bottom of the recession. Given that there are about 133 million formal jobs in the U.S., it's plausible to estimate another 5 million wage earners will be laid off. As monthly layoffs hit 700,000, it won't take many months to reach 10 million officially unemployed and millons more officially "discouraged" or "underemployed" workers.

By my own rough accounting ( Endgame 3: The End of (Paying) Work, January 21, 2009), as many as 30 million jobs are at risk of vanishing in this Depression.

Here's how de facto welfare might work. Let's say 10 million people will soon be collecting unemployment benefits. This is not "welfare," as the funds in the state coffers were paid by employers. But these state coffers are being drawn down to zero, which means Federal money will be needed to pay the unemployment benefits to those who can't find work.
Currently, unemployment benefits last six months; they've been extended in various states for obvious reasons.

But what happens when the extension runs out? It's not like the economy is capable of creating 10 million jobs in the next six months. With the credit and housing bubbles irrevocably popped, it s difficult to see how the economy can generate 10 million jobs over the next six years, never mind six months.

The possibility that few are willing to discuss is that 20+ million workers will be unemployed for years, not months. As the Bob Marley song has it, "a hungry mob is an angry mob," and while food stamps, oops, excuse me SNAP script, will buy a goodly amount of real food (that is, not frozen pizza, potato chips, etc. but broccoli, bread, milk, etc.) they won't pay the rent.

Maybe my math is off, but it seems that paying 10 million laid-off workers $10,000 each a year works out to a mere $100 billion--chump change when you consider TARP, TARF, BARF and all the other financial sector bailouts/loans. (OK, BARF was a joke, but just barely.) The point is that paying 20 million unemployed people with slim-to-none chances of finding another job $800 a month in unemployment (roughly $10,000 a year) works out to $200 billion a year--far cheaper than the $787 billion "stimulis bill" which is supposed to save or create a paltry 3 million jobs.

Is extending unemployment benefits indefinitely "welfare"? I would say it is a de facto "social safety net" because if people can't find jobs and have no money, that's the foundation for anger, desperation and some flavor of insurrection, be it at the ballot box or the streets.

When you ponder an annual Federal deficit of $2 trillion, then $200 billion-- a mere 10% of the total deficit--seems like a real bargain to keep 20 million wage earners in some kind of shelter.
The other key to avoiding insurrection is to fully legalize marijuana and control it in the exact same fashion as tobacco is controlled. A crowd of stoners is not motivated or interested in rioting, while a drunken mob is positively primed to riot. If we want to minimize the risk of large-scale urban mayhem, the two most important steps we as a nation can take are:

1. Legalize marijuana, allow unlimited personal harvests and engage the big tobacco companies in packaging and marketing legal marijuana alongside their existing tobacco products. (The taxes generated will be most welcome, heh.)

2. Extend unemployment benefits indefinitely, until the job market can absorb the 20 million unemployed. (Please check back in 2012, 2015, and 2022.)

In past recessions, I received unemployment when laid off; when I was an employer, I paid thousands of dollars every year into the U.I. fund. It is a system which "works" during most recessions. But this is a Depression, and we need to think through solutions to mass semi-permanent unemployment. In the Great Depression, "relief" to families started as a box of basic foodstuffs; eventually this was replaced by a small cash stipend.

You can see the connection between today's subject and last week's topic of urban vs. suburban safety. Longtime correspondent Albert T. (who resides in New York City) and I have exchanged emails on these issues; here are his thought-provoking comments:

I am partially with you on the viability of some cities being safer then some suburbs. However, once the wonderful public pensions elephant hits the fan in most places the cities with the most aggressive bureaucracies trying to hunt for the last dollar standing will drive out the economic market makers in their prospective areas. Some cities will of course stoically/honorably go bankrupt and wipe out pension obligations or transfer them to PBGC which will minimize them, thus delivering themselves from the burden.

If the bureaucracies get too aggressive hunting the dollars that are still available in pockets of pockets of their constituency those cities will probably become warzones ones all economic life is destroyed. The shelves will be empty and the people will be hungry.

We must also take into account that wherever economic activity persists people from areas where nothing is happening will go and do any job for the sake of survival. Thus, any city that is viable by virtue of the presence of capital and entrepreneurial spirit will attract emigrants/immigrants from depressed areas to the point of excess. Desperation breeds contempt and no amount of eyes on the street will prevent crime, violence, etc... even amidst the brightness of a sunny day.

People will wait next to a check cashing place for people to come out and follow them to rob them or do it right outside. Pensioners in Russia got their money from the postal carrier (at least my grandma did) so they wouldn't have to be exposed with the whole sum on the street since they would be easy prey if they were seen getting out of a bank or a post office. A lot of things you thought people would never do they will, and even if cops catch some others will be even bolder.

I still think it is far better to be on the sidelines (ergo a small farm next to a city outside the taxing reach of the bureaucracy) than in the cauldron. The problems will never be uniform, in some places they will be worse in others better, but on the whole the ability to grow your own food and be in a sparsely populated area where people of desperate means won't be because they will be trying to either compete in cities or get help from city agencies.

The main problem is psychological. I agree that a lot of entitlement issues will come up, and my guess will wither away once people hit the bottom and go into survival mode. The problem is what kind of "survival mode" they will go into. I am not encouraged to believe in honorable accommodation in the time of necessity.

(People in a crowd or a Mob always feel whatever they do is justified by the exuberance of their emotion as they regress into a mindless beast fueled by emotion. *paraphrasing I am sure this was read somewhere. So far we had no real protests over unemployment urging the gov't to do yet more stuff that will harm us. My guess is once cops get overzealous at stopping petty crime like store thefts they will shoot instead of do their job and stop the criminal. This will most likely set off the powder keg events.)
Cleveland eviction riots below:
Cleveland eviction riot of 1933 bears similarities to current woes.
My biggest fear is if food prices go up during this depression which is possible, while all the other things go down. This will create food riots and complete disintegration of society.
1931 February entry:
{February -- "Food riots" begin to break out in parts of the U.S. In Minneapolis, several hundred men and women smashed the windows of a grocery market and made off with fruit, canned goods, bacon, and ham. One of the store's owners pulled out a gun to stop the looters, but was leapt upon and had his arm broken. The "riot" was brought under control by 100 policemen. Seven people were arrested.

Albert added these comments after I suggested food stamps and unemployment would provide a social safety net:

The problem is that foodstamps will buy you nothing other than bread and maybe milk. In Russia people were paid similar wages but those who had access to food or tradable goods did better because you either got part of those as wages or they got stolen and traded.

People in Russia never attacked stores (was no point to do so since either they were empty or you had to get in line and wait for hours). No one is insane enough to try to rob a store with a mob queued outside. Usually you could get stuff outback for bribes, but that was accepted.

Welfare states are temporary because it implies division of produce through rationalization. Once you do not have enough things produced and shortages occur, no amount of government redistribution will work. It won't make sense for a baker to bake more than he can trade so that the gov't doesn't appropriate for those that produce nothing. If gov't tries violence or coercion this will only make the shortages worse.

The most dangerous thing the gov't can do is impose export tarrifs on foodstuffs. Best case is Argentina at this point. With food shortages in a country that is a major food exporter. If farmers are devastated in an attempt to manage prices there wont be food whose prices will be managed.
Food shortages worsen amid Argentine farm strike (June 2008)
There is a shortage of a lot of foods like milk and dairy-based products, of which there are practically none," Yolanda Durin, the head of an association of small grocery stores in Buenos Aires, told a local radio station. "There's no chicken ... and there is a shortage of flour and cooking oil," she said.

I highly recommend this article:

Catastrophic Fall in 2009 Global Food Production (Global Research)

Correspondent Ishabaka, M.D. checked in with these interesting comments on living in a small rural town, the acme of survivability in many minds:

After having lived in a city with multiple riots, that was once under martial law (sandbagged machine gun nests on every major city intersection!), I'll tell you where I'd like to be in case of T.E.O.T.W.A.W.K.I.
- small town in the northwest.
- I spent some time as the only doc in a small town in central Montana. First - everyone knew EVERYONE (and everyone's vehicles). A stranger was IMMEDIATELY noticed. This doesn't happen in a city. More likely in a suburb, but all you need is a van with a "cable TV installation" sticker or whatever.
- because of the above, everyone looked out for and trusted everyone - nobody locked their car or house doors - this was in the 1990's!
- every home was armed - and not with .22's either, with scoped elk rifles - these fire magnum rifle bullets, FAR more powerful than the 5.56mm rounds our current military AR-14 series of weapons use. These rifles will shoot through ALL ballistic vests, and some light armor. Dynamite is readily available, for blowing stumps, rocks in fields, and a few one-man gold mines.
- because the place got snowed in and lost power regularly every winter, every house was stocked for an emergency. Everyone owned a 4 wheel drive vehicle because they NEEDED them. Everybody had CB radio and many had ham radio as well.
- finally - when you're the only doc in a 75 mile radius, people take GOOD CARE OF YOU!
- the city was Montreal, Canada - under martial law under Prime Minister Pierre Trudeau when the terrorists of the Federation Pour Le Liberation Du Quebec kidnapped two cabinet ministers, killing one, and went on a terror bombing spree.
- also spent some time in Atikokan, Ontario - 5,000 person mining/timber town in northeast Ontario, Canada, nearest major medical center 100 miles away - same deal.
One thing about living in the city - you ARE exposed, at least occasionally, to violence, drug dealers, hookers, and other dangerous folks so you stay AWARE. People in the suburbs have blinders on.

I almost stayed in central Montana, it's a long story. I was literally treated like a king. Their only doctor had died. The nearest one was 75 miles away, which was eternity when they were snowed in. A very wealthy rancher woman in her 90's had donated millions of dollars to build a beautiful, state of the art doctor's office, 12 bed hospital and 24 bed nursing home, all in one facility, so no driving. Right behind the hospital there was a bluff overlooking a huge valley with the Rockies in the background - I saw a herd of I believe 144 antelope - the rancher who owned it offered to give me the land to build a house on - it was no good for grazing - I could have walked to the hospital in 2 minutes - even in a blizzard.

This was around '95. The cost to have a VERY nice house built would have been 60-80k. A four wheel drive vehicle, a snow machine, and I'd have been set.

Interestingly enough Montana has the highest suicide rate in the U.S. Someone even mentions suicide you hospitalize them - involuntarily if need be. I met a nice guy there with a nice 14-year old son, - a month after I left the son blew his head off with a rifle because he crashed his dad's pickup. The downside to every home owning a powerful gun. One miner sat on a case of dynamite, drank a bottle of whiskey, smoked a cigar, then dropped the lit cigar into the case of dynamite....

Thank you, Albert and Ishabaka, for these thoughtful commentaries.

Note new recipe and Operation SERF installment posted below.

What's for dinner at your house? has been updated with a new recipe: Eggplant Parmesan . This a mouthwatering photo-illustrated PDF from longtime contributor Bill Murath.

NOTE: The serialization of my new ebook "Survival +" starts March 21. Of Two Minds reader forum (hosted offsite, reader moderated)

New Operation SERF Installment:
Operation SERF, Part 12
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.

Thank you, Scott C. ($60) for your outrageous generosity and special tokens of appreciation from your active duty in the Pacific theater. I am greatly honored by your support and readership.

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