Tuesday, August 26, 2008

This Week's Theme: The Next Revolution

The Moral Center of Revolution

Every revolution has a moral dilemma at its center. Put another way, every revolution seeks to resolve a moral contradiction at the heart of the society. Chairman Mao famously said, "political power comes from the barrel of a gun," but what motivates people to pick up a gun, pitchfork or cobblestone after decades of enduring oppression and misery is not so easily described.

It appears rising food prices--and the hunger they cause--can pull the trigger on an explosive setting in a fragile, devolving nation-state. Historian David Hackett Fischer pointed out in his masterful work The Great Wave: Price Revolutions and the Rhythm of History (recommended to me by reader Cheryl A.) that the price of bread in Paris peaked on the very day a crowd spontaneously arose and tore down the Bastille prison stone by stone.

While it is interesting and important that price peaks correlate to political turmoil and transformation, clearly the moral contradictions at the heart of Royalist France were glaring and growing--contradictions which set the charge, so to speak, for some financial crisis to light the fuse.

Not every financial panic or price spike triggers a political and social revolution; the conditions and contradictions must have reached some unstable perfection of readiness.

The contradictions which will rise over the next two decades are resource and demographic-based. Oil is in its depletion cycle, and the world will either have to develop sustainable energy sources equivalent to 100 million barrels of oil per day or suffer a disorderly decline in energy consumption even as the price increases act as a global tax on spending. Beyond Oil: The View from Hubbert's Peak The Party's Over: Oil, War and the Fate of Industrial Societies
Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy
The End of Oil: On the Edge of a Perilous New World

This is likely to be wrenching because rising energy consumption has been a hallmark of "growth" and prosperity. While it is certainly possible to do more with less, that sort of quantum step up in efficiency requires massive inputs of energy, innovation, and labor.

Demographically speaking, our entire retirement (Social Security) and elderly healthcare models (Medicare) were founded on the premise that a ratio of 10 workers for every retiree would be an enduring feature of the economy. Alas, the ratio has shrunk to 3-to-1 even as the costs of healthcare and the number of elderly have both exploded far beyond what the planners of 1933 and the policy wonks of 1965 expected.

For more on the iron grip of demographics, please read While America Aged: the Next Financial Crisis
Fewer: How the New Demography of Depopulation Will Shape Our Future The Coming Generational Storm: What You Need to Know about America's Economic Future.

Yesterday I mentioned the political obstacle to any viable solution: when the number of voters receiving benefits exceeds the number of voters who are paying taxes but not (yet) receiving benefits, then any reduction in entitlements will be stymied. This is the moral dilemma at the heart of the coming era of turmoil/crisis: will the current generation (the Baby Boom) make the necessary sacrifices to right the bankrupt ship of government finance or will they cling to a debt-based demand for "what was promised to me"?

The U.S. is not alone in facing this demographic challenge. Correspondent Isabelle Q. in France sent in this highly relevant report on how France is addressing the impossibility of funding "what was promised to me":
Somebody belonging to an ethical committee recently said : "« L’individualisme a vécu (…) Nos ressources n’étant pas illimitées, il faut essayer de les répartir de façon plus rationnelle. Aujourd’hui on est bien obligé d’admettre que si la santé n’a pas de prix elle a un coût. Et les médecins doivent désormais tenir compte du prix des médicaments dans leur décision. Notre vision va devenir sacrificielle : il vaut mieux correctement prendre en charge un père de famille de 40 ans, qui est rentable pour la société qu’une personne de 80 ans qui n’a pas toute sa tête »."
"Individualism is over (…) Our resources not being unlimited, it is necessary to try to distribute them in a more rational way. Today we are obliged to admit that if health has no price, it has a cost. And doctors henceforth have to take into account the price of medicines/drugs in their decision. Our vision is going to become sacrificial: it is better to take correct care of a 40-year-old head of family who is profitable for society than take care of a 80-year-old person who no longer has all of his/her mind".

Here in France, doctors are going to do what they are told because their retirement will have to be complemented by the State in a few years.

One anecdote : a Baby Boomer I know, after having drunk too much and taken too much cocaine (coke), had to undergo a liver transplant. Quite expensive for society, he paid nothing. Well, after getting better he immediately looked for a way to cheat on his taxes and found one! After a while, necrosis attacked his new liver. And he began to have the jitters because he was afraid Social Security would not pay for a new transplantation after he turned sixty...

This report rather keenly illustrates the two moral issues at the heart of the coming financial crisis/bankruptcy of State promises: the need for "triage" (prioritizing healthcare) we have avoided by borrowing trillions, and the incentives for individuals to "game the system" for their own benefit.

If you know Medicare has ceased to exist and no one will pay for a new heart valve, defibrillator, hip, knee, etc. for you, what will be your response? I can't say what most people's response will be, but mine will be to start saving up cash and researching which hospitals in India, China, Thailand and Mexico have the lowest cost and best safety record for the surgery I may need. And I would do what I could to forestall surgery via diet, exercise, etc.

In point of fact I am preparing to receive none of the entitlements "I paid taxes for" and none of "what was promised to me." Reality has changed, so let's face it straight up instead of forcing insolvency on the nation.

The unnamed ethics committee member phrased the solution very well: Our vision is going to become sacrificial. The generation which came of age in World War II will be gone by 2020, and thus it falls to the Baby Boom generation to either shoulder the responsibility and forego "what I was promised" or cling to what is not affordable and drive the nation to bankruptcy--at which point this generation will most certainly not receive "what was promised to me."
There are no promises or security in life, there is only reality and opportunity.

Bonus Mini-Essay on Military Spending/Waste

Several readers (Paul T.'s thought-provoking essay is linked below) challenged the position that U.S. military ("Defense") spending was less than social entitlement spending. Clearly, the wars in Iraq and Afghanistan are largely hidden "off-budget" in a sleight-of-hand which fools no one.
But let's cut to the chase, shall we? The only way "cutting the Pentagon" will change anything is if you eliminate the U.S. Military entirely. Come on, folks--cutting $100 billion or even $200 billion out of a minimum $500 billion deficit--and more realistically, a $1 trillion deficit when all the bailouts of "too big to fail" firms are added in--is chump change. Trimming the military budget and exiting Iraq (which appears to be in progress) does not resolve the entitlements problem.

As I have covered here ad nauseum, Medicare alone is growing at a pace which will soon exceed the Pentagon's stupendous spending--and then keep on growing. There is no "Medicare Trust Fund," folks--it's paid out of tax revenues. Even if we "fix" Social Security's coming insolvency, Medicare alone will bankrupt the nation.

If you believe diplomacy can resolve every conflict, then consistency requires you abolish the U.S. Military except for the Coast Guard. I have no problem with that position, as long as the believers accept the consequences of not having a military when diplomacy fails to work its "soft power" magic. If you're ready to accept the consequences, then fine--at least that position is internally consistent and based on principles.

What I object to is a half-assed Military which places the citizens who volunteered to serve at greater risk due to crappy second-rate equipment, training and support. In other words, either don't have a military, or provide its personnel with the best you can get. We tried the crappy second-rate equipment routine before World War II, and as a result thousands lost their lives due to inadequate equipment, tactics, etc. Those of you who know your history know the drill--torpedoes that didn't expode, tanks that blew up, aircraft that were sitting ducks for Japanese Zeroes, 50% loss rates in bomber squadrons, and so on.

"Cut the Military budget" sure sounds easy--especially if you're not the one who's supposed to trust your life flying the cut-rate aircraft, etc. OK, fair enough--go over the budget yourself and see where the money goes. Dig deep. Hmm, mostly people costs, just like any other "business" in the U.S. How about those weapons systems the Pentagon wanted to cancel but Congress funded anyway, to lard some "pork" spending on their districts? How about the Naval facilities in West Virginia (no offense to residents of West Virginia, but the sea is not exactly nearby), placed there by a "liberal" (and powerful) congressperson?

How about all the other make-work/waste-money requirements stuck on by Congress? A significant percentage of Pentagon "waste" was intentionally put there by Congress as "pork" spending.

And let's not forget that it's civilians who send the Military off to war. I personally believe not one active-duty person should move an inch unless Congress formally declares war: no more of these half-assed "resolutions" which empower the President to wage open war without a declaration of war and without any sacrifices from the civilian populace at large.

OK, let's dig into that Pentagon budget. What do you want to cut, other than the Iraq war? New generation of nuclear weapons? Fine. That'll save a few tens of billions--about a week or two of Medicare's tab. How about the DDX destroyer? Well, what with labor costs being a big part of the Pentagon budget, the idea behind the DDX is to shrink the crew size drastically--I mean by half or even two-thirds. Over the 40-year life of a ship, that adds up to quite a substantial savings.

Hmm. Well, how about that tanker fleet we keep hearing about? Fine, but then you might as well get rid of the fighters and bombers, too, and in fact all aircraft, because they need to refuel in the air.

I find the "just cut the Military budget" line tiresome because it is based on a level of ignorance which would be unacceptable if applied to any other central responsibility of our government. Prioritizing is a constant process in Congressional committees and the services, and there have been good-faith efforts to reform pentagon budgeting for several decades now, for instance the Goldwater-Nichols ACt of 1986. The deeper you dig, the more "waste" can be traced directly to civilians, not the Military.

Meanwhile, academic studies have found that about 50% of Medicare spending is waste and fraud--and yet where are the pundits calling for Medicare funding to be cut in half? The reason there are so few voices calling for the eviceration of Medicare's stupendous waste is that everyone's hoping to tap the system for their own benefit.

In other words, let's be brutually honest: we're all for "cutting Pentagon waste" because so few of us are directly impacted. But cutting Medicare would require making very tough triage decisions which will very likely impact our own so-very-valuable selves. So that 50% waste--some $3 trillion a decade--is left untouched.

Which brings up another sore topic: the widening gap between those who serve in the Military and those who have little understanding of the Military, i.e. the average congressperson and citizen. I am not saying everyone should serve, only that we who did not should at least make an effort to understand that the Pentagon budget is not made and spent on some distant planet--it directly impacts those who serve in every way and every day. It's not just some line item.

I was a conscientious objector, and would have served in that capacity had the draft called me up. My stepfather was career Air Force. What joined us was that we each acted on our core beliefs. My sense of those who carp about "Pentagon waste" is that ultimately they'd rather not get involved with anything messy like actually understanding the Pentagon budget, demanding accountability from the civilian and military leaders or finding out what all those "easy cuts" would do to people who volunteered.

Yes, there is Pentagon contractor fraud and waste, and Congressional pork aplenty in the Pentagon budget, and billions in supplies lost and tossed due to lack of oversight, poor planning and fraud. The sums of money wasted in Iraq beggar the imagination. But where is the citizenry in all this? Everyone's too busy to care, it seems.

When the money runs out and we can't keep borrowing trillions from our international "friends," and an ever-larger sum is spent on interest paid to the trillions we so breezily borrowed during our false "guns and butter debt-based prosperity," then we'll have to start caring and have to get involved in the messy political business of prioritizing government spending, demanding accountability and healthcare triage. The sooner we start, the better off we'll be.

New must-read Readers Journals essay by Chris Sullins and Paul T.: Dust and Shadow (part 1 of his tour of duty in Iraq)

I mentally went through all my gear I had just prepared. I was wearing part of it which included body armor with front and back ceramic plates, helmet, ballistic goggles lifted over the front lip of the helmet, a holstered pistol with spare mags, a Mossberg shotgun dangled by its sling from a carabiner clipped on my right shoulder strap, and pouches holding shotgun shells nested firmly to my front.

If we somehow got separated from the convoy or ended up on foot the most important piece of gear, my GPS unit, was also in a pouch. Sergeant H stood nearby checking out the gear of the two young specialists we were rotating in for their first mission outside the wire. It was 0400 and we would be lining up for the convoy at 0500. This moment in my memory was from sometime early in my deployment. It held great anticipation for me at the time. Now when I wake up at the same time I look back at it and wonder to myself “WTF was I thinking.”

I Rise to Object (Paul T.)

Well, I disagree with some of your discussion in "The Next Revolution". You will note that many prosperous OECD countries have a much higher safety net of benefits for the lowest quintile of their citizens than does the USA, so that has to raise some questions regarding what this country can afford. I believe that you were much more on the money on an earlier essay that opined that the US was horribly mis-managed.

New Book Notes: My new "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99.

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