Cleaning Up After the New Deal

In the Wall Street Journal, Holman Jenkins contemplates the idea that Barack Obama may launch a second New Deal:

His friends advise Barack Obama to launch a “New” New Deal. Maybe that’s because the old New Deal is sinking fast.

Mr. Obama’s one deeply false note during the campaign was his harping on “deregulation” as if that were the source of current troubles. His real problem is the crack-up of the world FDR built.

Fannie Mae was a New Deal creation, subsidizing the securitization of mortgage debt. FDR’s successors piled on the subsidies for housing debt and incentives directed at low-income borrowers. Kaboom.

Then there’s the UAW, born in 1935. For decades the UAW steadily traded away domestic auto market-share to imports and transplants to keep its aging membership toiling away toward their golden pensions and collecting wages and benefits twice those of their competitors. It worked for a while . . .

Mr. Obama must be looking around and beginning to suspect he will be pouring his political capital, along with considerable taxpayer capital, down bottomless holes for the next four years. He won’t be building a legacy as the new FDR, but cleaning up after the last one.

Worst of all, of course, are Social Security and Medicare:

That Mr. Obama had been sent by history to assuage the insecurities of the middle class with a “New” New Deal was always a tad detached from reality anyway. The reason is those giant legacies of existing New Dealism known as Social Security and Medicare, about which he was careful to say nothing intelligible during the campaign. These programs worked for a while too, but now their expected revenues are (in present value) about $99.2 trillion short of the expected outlays required to assure present and future workers their promised comfort in retirement.

Bob Cunningham explains how Detroit’s Big Three fit in:

The real story is the frightening extent to which Detroit is just the New Deal U.S. in microcosm…the Big 3 became essentially private versions of the middle class welfare state…social agencies for providing non-market validated income, health and retirement benefits, with a sideline of making cars….and now the model is unsustainable. In part it is because of the burden of the retired UAW workforce, which now vastly outnumbers the actual working members. As of 2007, the UAW represented 180,681 members at Chrysler, Ford and General Motors; it also represented 419,621 retired members and 120,723 surviving spouses.

This is not dissimilar to Social Security and Medicare for the U.S. economy as a whole. Both of these entitlement programs are unfunded liabilities of the U.S. government, politically, if not legally, and, on a current basis, consume almost 50% of the $3 trillion federal budget. They were viable on a pay-as-you-go basis only at inception and as long as the ratio of workers to beneficiaries is high. Neither condition obtains today. So it becomes an interesting question and rather soon I think: when the U.S. government becomes like Detroit…who does the bailing out?

I’d say the Chinese, only I don’t think they can come up with $99 trillion, either.

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