HONOLULU, January 26, 2013 ― With national optimism now at a historical all-time low since the Carter Administration, many are wondering whether or not America’s best days are behind us. Scarce employment opportunities and rapidly rising costs of food and energy have made life increasingly difficult for young and old alike.
For a perspective on the declining fortunes of America and what’s next for an entire generation of young persons looking for both work and a sense of self-value in the middle of the worst “recovery” in U.S. history, I sought out economist and author Aaron Clarey.
Clarey, famously known to fans as “Captain Capitalism” from his highly popular blog, believes that there are “serious structural economic problems with the U.S. economy” and has published a new book entitled Enjoy the Decline which tells readers how to brace for the coming time of trouble. When I asked Clarey if he thought there was a D.C. policy solution to this crisis, he told me that would involve serious reform to entitlements such as Social Security, Medicare/Medicaid and constitutionally eliminating corporate taxes – a therapy seen by many contemporary legislators as so controversial that Clarey concedes “in other words, no, there’s no hope whatsoever.”
Nevertheless, though times may be dismal, Clarey assures readers however that one of the most important things to focus on right now is finding value in one’s family and friendships and committing one’s self to living life in spite of the fear of what is going on.
Danny de Gracia: Aaron, you’ve published several economics and finance books on contemporary topics like Worthless: A Young Person’s Indispensable Guide to Choosing the Right Major, and now you have a new book out, Enjoy the Decline, which talks about the collapse of the American system. Tell us a little bit about yourself and how you got interested in economics.
Aaron Clarey: My interest in economics had its origins in high school when I took my first economics course. I realized because of the mathematical and statistical nature of it, it was very much like math class and nothing like English class. It was empirical and there was no room for error or debate. Thus if you just studied a little bit of economics you would know more than most adults about not just the world of economics, but politics, sociology and all the other “amorphous” sciences.
DDG: Let’s talk a little bit about your newest book, Enjoy the Decline. There are a lot of people in office right now who are calling what we’re in a “recovery.” Do you think that a crash of the U.S. economy is inevitable? What’s on your radar for the future of America?
Clarey: If I knew the answer to that, I would be retired, drinking margaritas on a beach with Jennifer Aniston. Nobody can predict the economy, but to specifically address the question, by technical definition we are in a recovery. RGDP growth is positive, the unemployment rate is coming down. However, this is the weakest “recovery” in history and by most measures, it is a stagnation.
Income or GDP per capita has remained flat … yes, GDP is increasing, but so is our population. The unemployment rate is going down, but that is more a function of people leaving the labor force out of frustration and hopelessness than job creation. You also look at all the new entrants to the labor market and I would estimate only half of them are fully employed with the other half severely underemployed.
You throw in the massive amount of debt we’ve incurred in the past five years and the fact it was spent on stimulus, it not only shows you some serious structural economic problems with the U.S. economy, but that this Keynesian dream come true has become a spectacular failure.
As for what is in the future or if there is going to be a crash, I would say the U.S. is in decline, the rate at which is up to the future. There could be a slow decline much like France or Italy, or it could be a rapid collapse triggered by some unforeseen economic event, or something in-between a la Greece. Regardless, the statistics show a decline. Rolling average RGDP growth shows our economic growth rate going from 4.5 percent in the 1940s to 1960s to 2.2 percent for the past twenty years. This decreasing economic growth, with an increasing population and an increasingly unsupportable debt only ensures a decline, barring an economic miracle.
DDG: What was your take on the “solution” we saw earlier this month to the so-called fiscal cliff crisis?
Clarey: Band-Aid put on a cut aorta.
DDG: My concern is that inflation is distorting all levels of American society. For example, as prices skyrocket from monetary dilation at the Fed, we have this effect where as Rose Wilder Lane says, everything becomes increasingly more expensive and government starts creating laws and fines just for the purpose of revenue generation. So the formation of a police state and this loss of freedoms is in large part a result of government wanting to get more and more revenues to finance outlays that are being dilated as a result of the inflation they themselves are creating. What’s your take on this?
Clarey: I don’t know if it would be at the police state yet where the federal government comes in and confiscates wealth, as much as it is something much more clandestine. The government likes inflation in that it increases asset prices. Thus when somebody sells an asset – land, stocks, bonds, et cetera – they have to pay a capital gains tax.
Forget whether there was an actual real rate of return for the investor, the government gets to tax the real capital gains and the inflationary capital gains. Inflation also erodes the value of the federal debt, forcing the costs on US treasury holders. However, unless things change, the government will be forced [to cope with] with a simplified problem: Does it inflate its way out of its debts or does it confiscate wealth to pay for it?
I can’t read Paul Krugman and Barack Obama’s minds – if any exist – but I believe they will opt to go the inflationary route to solve the country’s debt problems. If they went the wealth-confiscation route, that would mean nationalizing people’s IRAs, 401(k)s and brokerage accounts much like they did in Argentina and Bulgaria. I fear however, because of their political ideology they have no problems doing both.
DDG: I think a lot of young people who are in high school right now either in their junior or senior year are looking at what’s going on right now and wondering what kind of future they’re about to step in. Isn’t there some policy course that can be taken to stop America from completely going into the gutter for future generations?
Clarey: Yes, it would be to increase the retirement age, cut Social Security, Medicare and Medicaid, and to pass a balanced budget amendment. Constitutionally eliminating corporate taxes would also help spur economic growth so these kids might have future employment prospects. So in other words, no, there’s no hope whatsoever.
DDG: What do you think the future of the world’s monetary system will look like?
I believe different currencies will vie for the title of “reserve currency” with no clear leader. The Chinese have their own often under-reported economic problems that I believe will prohibit the Yuan from achieving such a status. The Euro is plagued by problems about 1.3 times as bad as ours. Australia, Switzerland, Norway and so forth have great fundamentals for currencies, but their economies are too small to achieve reserve status. And Russia, India and Brazil are too corrupt to make an effort either. Sadly, simply because of the U.S. historical reputation and relative non-corruption, the dollar will probably remain the default reserve currency, in spite of the country’s economic fundamentals.
In terms of central banking, I believe the industrialized world will follow the path of Japan, where it is in a constant state of expansionary monetary policy, completely ignoring the fundamental of classical economics – [that is, giving] people an incentive to work and produce, not interest rate/borrowing monetary hocus pocus.
DDG: So do you think Ron Paul and Peter Schiff were right?
Clarey: Of course they were. There’s no opinion to be had about it. Economic reality has proven them correct.
DDG: Aaron, in closing is there any advice you’d like to give to our readers and the nation right now?
Clarey: Focus your efforts on enjoying your life, your family and your friends. These things are not under the control or influence of politicians, central bankers, lobbyists or international organizations. You get one life on this planet and you need to make the most of it, accepting what you do and do not control is the single best thing you can do to achieve that. I would say nearly half the book Enjoy the Decline is dedicated to that one topic: making you happy in this environment.
Danny de Gracia is a political scientist who lives in Hawaii. For more articles, interviews and to find out more about Danny, follow him on his official blog!
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Categories: Economics/Class Relations