The Government Is About To Jump The Shark

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In my last post, I wrote about “Fanniegate“, the scandalous goings on by well connected Democrats that trashed the nation’s financial system. It was not that Republicans didn’t join the fun or that Republican malefactors of great wealth weren’t abusing the public trust in other ways.  The moral and intellectual meltdown of the American elite is a robustly bipartisan affair and there is plenty of mud to throw at all sides.

But Fannie Mae represents a special problem for the Democratic Party and Democratic ideas.  It is not just a vitally important institution led by prominent Democratic figures and part of a broader Democratic patronage network; Fannie Mae is one of the original New Deal institutions and the vision it was intended to serve stands at the heart of the concerns of the Democratic Party of the 20th century.

The fall of Fannie Mae is bigger than just another politicos run wild scandal.  It stands as one of several signs that our current way of life is reaching its limits and that big changes are on the horizon.  The Fanniegate debacle tells us that the progressive ideal is in the process of jumping the shark.

Jumping the shark, as many readers know, is an expression from the wonderful world of TV.  When the original premise of a show has gone stale, producers try to recapture audience interest by putting familiar characters in outlandish settings where strange things happen to them — notoriously, when Fonzie literally jumped over a shark as Happy Days moved into its sunset years.  When something jumps the shark, the death spiral has become irretrievable; the show has nowhere to go but down.

The progressive ideal of the last 100 years is reaching that point.  In its day the progressive ideal was a revolutionary and even a noble one.  A bureaucratic and professional elite would mediate social conflict between rich and poor, improving the lives of the poor while engineering the best possible administrative solutions to pressing social problems.  Keynesian macroeconomic management would ensure lasting prosperity; progressive taxation would spread the benefits of prosperity as widely as possible.  Levels of education would rise as more and more Americans spent more and more years in school.

Progressivism held out the hope that capitalism, democracy and history itself could all be tamed by competent professional management.  Victorian capitalism had been brutal, disruptive, competitive.  Society became more unequal even as living standards gradually rose.  Democracy was irresistible, but the masses were uneducated.  The modern progressive era was born at times of great violence and upheaval.  World War One, the Russian Revolution, the Great Depression, the rise of fascism, World War Two, the invention of nuclear weapons and the start of the Cold War: it was against this background that progressives sought to turn modern life into something safe and tame.

I cannot blame four generations of progressive intellectuals for trying to make life a little less brutal and unpredictable, nor should we overlook the successes they had.  Nevertheless, the Fonz has left the building; the progressive paradigm today can no longer serve as the basis for sound national policy.

The life cycle of a governing political paradigm is different from the cycle of a TV sitcom.  It takes more to sink a way of life than to sink a sitcom, and the aftermath is much messier.  But to grasp what it means to say that progressivism is jumping the shark, let us look at the stages of life in a progressive government program.

In the first stage of a government program, there’s a terrible social problem that has people wringing their hands.  Not enough kids are going to college.  Middle class families can’t get home mortgages.  The river keeps flooding the town.  Sick old people who have worked all their lives are eating cat food in the hobo jungle.

The government offers a solution that will fix the problem at a relatively modest cost.  It is the hero cutting the heroine loose from the railroad tracks as the train approaches.  It is the Lone Ranger riding into town to fix the bad guys.  The government program in this early stage is the Great White Hope: once we get it up and running, people believe, life is going to get better.

Often it does, and a well established and functioning government program makes itself very popular in the next phase.  Retirees are cashing Social Security checks, and the cost to those still working is very low.  More creditworthy families are building homes because federal market makers are enabling banks to lend more; more homes make for more construction jobs.  Life is getting better — and as most people count them the benefits clearly outweigh the costs.  In this second stage of life, the Great White Hope becomes the Great White Father in Washington, benignly scattering benefits among an adoring population.

The government program addresses the need it was intended to fill, and the citizens look to their representatives with gratitude and affection.  Farmers pocket their subsidy checks, poor parents use their food stamps to feed the kids, first time homeowners get low rate mortgages for pennies down, and old people bask in the glow of Medicare.  All is well.

Unfortunately the cycle continues.

In the third stage, the law of diminishing returns sets in.  The Army Corps of Engineers has built all the really useful flood control dams, but there is a large bureaucracy committed to building more — and there is a large private sector lobby of dam construction firms that want new business.  Perversely, as the value of new projects diminishes, the political forces pushing new projects grow stronger.  Bureaucrats rewrite the guidelines, cost-benefit analysts start fudging the numbers to make bad projects look good, and the dam lobby pressures Congress to keep that money flowing regardless of those whiners and complainers mewling about environmental problems and other drawbacks.

At this point the program enters the third stage of life: it is now a Great White Elephant.  It is a large and expensive program that does less and less good at a higher and higher cost.  Fannie Mae stops helping creditworthy borrowers get affordable mortgages through simple and straightforward processes.  Federal housing policy becomes increasingly complex as new layers and levels of subsidy and promotion are tacked on.  As the incentives become increasingly misaligned, the country begins to over invest in housing; consumers start buying more house than they need  because government support makes housing an attractive investment.

The Elephant process takes place in many ways.  Health care programs become inflated with bells and whistles; programs originally intended to provide basic medical care gradually swell into huge and expensive monstrosities.  Shouldn’t chiropractic care be covered?  Psychiatric care?  Acupuncture?  And since government is paying for the care shouldn’t it regulate who provides the care through licensing procedures?  Costs go up, procedures become more complex; efforts to control costs lead to more red tape.

As life expectancy exploded in the last 60 years, Social Security has morphed from a modest little program aimed at helping people get through the last few years of life with a little bit of dignity into the idea that 20 years of healthy ease should be a social entitlement.  Medicare covers more and more treatments for more and more people over longer and longer stretches of time.

Little by little, mission creep sets in.  A powerful cluster of interests organizes around the government program.  The real estate lobby looks for ways to extend Fannie Mae’s guarantees to more people.  Programs and subsidies become steadily more complex, less comprehensible.  Successive waves of ‘reform’ generally make things worse as the special interests focus with increasing power and skill on warping the programs to meet their needs and goals.

The fourth stage of life comes when the Great White Elephant morphs into a Great White Shark: a man-eating terror of the deep that ruthlessly attacks anyone who gets in its way.  At this stage the government program has moved beyond being wasteful and has become unsustainable.  Fannie Mae goes from providing mortgages to creditworthy households to providing vast numbers of mortgages to uncreditworthy households, poisoning the financial system with bad loans.  Medicare is unsustainable in the medium term and hugely expensive day to day — even as the procedures and regulations of Medicare warp investment decisions across the entire health care system.

But even as these programs become unsustainable, they have become so powerful — there are so many interests and industries that grow rich on these programs, and so many families for whom these programs have become the cornerstone of what little financial security they have — that they cannot be touched.  One way to tell when an elephant has morphed into a shark: when pundits and politicians start describing a government program as a ‘third rail’: you touch it, you die.

The Great White Shark is a menace that cannot be controlled.  The program has gone rogue: the Army Corps of Engineers isn’t just building pointless dams.  It is building bad dams.  The agricultural subsidies aren’t just encouraging farmers to plant wasteful crops; by subsidizing corn ethanol they are contributing to food price inflation that threatens political stability in countries like Egypt.  But just as the programs are most in need of reform, reform becomes impossible.  If you try to stop Fannie Mae from tempting poor urbanites into ruinous mortgages that will leave them worse off than before while bringing the global economy to the edge of ruin, the race lobby (aided and abetted by the real estate lobby) will attack you as a racist and an enemy of the American Dream.

The problem today is that we are looking not just at one or two government programs that have succumbed to elephantiasis or turned into sharks; the progressive complex of social and economic policy as a whole has reached this point.  Today many of our New Deal and Great Society programs are either elephants or sharks.  They either lead us to misallocate scarce resources in ineffective ways or they threaten us with ruin by becoming politically untouchable budget busters.

Progressivism itself, and not simply the individual government programs it spawns, is moving through the same cycle of life.  The most urgent social problems that progressivism set out to solve have been dealt with.  Child labour and lynch mobs are no longer common in the United States.  The greatest natural and scenic treasures of the country are protected by the National Park system.  Food is much less dangerous, buildings are better built, cars are safer, the air and water is in better shape and the charismatic megafauna (big interesting animals) have been saved from extinction.  Many more people have much more access to education today than was true 100 years ago; ditto for lifesaving medical treatment.

The progressive vision morphed from Great White Hope and Great White Father into Great White Elephant over the years.  Early progressives picked the low-hanging fruit; they addressed the most important problems that were most susceptible to progressive interventions.  Increasingly they are left with more expensive, less effective approaches to big problems (like Obamacare) or the agenda moves from issues of great moral and political significance like equal rights for African-Americans to less consequential issues like wider social acceptance of the transgendered.  To raise the percentage of young Americans attending college from 2 per cent to 20 per cent is a significant achievement; to extend it from 40 per cent to 60 per cent will likely cost much more and accomplish much less in terms of raising social productivity.

We now see the progressive agenda dealing with issues like high speed rail, where the gains are so small and the rationale are so weak from the beginning that the program is a white elephant before it is fully set up.

The fierce commitment of progressive lobbies today to dysfunctional institutions and programs has brought matters to a crisis stage; the progressive legacy is morphing from white elephant to shark.  Fierce attacks on anyone seeking to reform dysfunctional institutions combine with unreasoning devotion to unsustainable entitlements.  “Progressives” today are too often grimly determined to achieve two incompatible ends: an indefinite expansion of entitlements and benefits on the one hand — and the preservation and even the extension of inefficient organisations and methods on the other.   Everyone must have a college education, but the archaic and inefficient organisation of universities cannot be touched.  Public services must be vastly expanded, but every effort to rein in pensions and benefits for government employees, or to trim the size of the public labour force through greater efficiency, must be fought to the bitter end.

Unfortunately, the process doesn’t stop here.  When enough progressive programs have become both unsustainable and untouchable, we move to the final stage.  It is bad enough when a government program becomes a shark; it is much, much worse when a social paradigm as a whole jumps past the shark stage.  A cluster of unsustainable but untouchable policies and institutions sooner or later reaches the point when it no longer threatens the country with ruin at some indefinite point in the future: imminent ruin stares us direct in the face.

That is part of what happened in Ireland, Greece and Portugal, and what may yet happen in Italy and Spain.  Disastrous government policies became more politically entrenched even as they became more unsustainable until quite suddenly, they could not be sustained and the whole system came crashing down.

When that happens, what crashes is not just one program.  A whole system, a whole social contract falls apart. And if the crashes in these peripheral European economies shook the EU and the world economy, a full scale meltdown in the United States would likely be a shock as profound as the 1929 meltdown.  It wouldn’t just be an economic disaster for the United States; it would likely be a historical disaster leading to crisis, upheaval and war around the world.

That fifth and final stage — which one hopes we will never see — takes the transformation one fateful step farther.  No longer just a great white shark, the progressive ideal would become a great destroyer, a mythical figure like the Great White Whale in Moby Dick.  To pursue the whale is madness; Captain Ahab, despite warnings and omens, persists on his insane pursuit of the uncatchable ideal, the untameable beast.  Disaster and bankruptcy loom on every side; still the captain continues inexorably on his course.  In the end, when something cannot go on for ever, it comes to a stop.  The whale turns on the ship and smashes it to pieces in the sea.

The Fonz could jump the shark and Happy Days would die a slow death as the air gradually leaked out of the show.  Much more dramatic things happen when a social paradigm jumps the shark.  We got a glimpse of what that looks like during the financial meltdown; we have seen other ships staved in by great whales around the world.

This must not happen in the United States.  We cannot throw away the hopes with which we have been entrusted in a futile effort to sustain insupportable programs under the shadow of bankruptcy and collapse.

We are approaching the time when the false promises can no longer be sustained.  There is a little time left.  We have not, I think, quite jumped the shark yet.  Reform is still possible, though the great white sharks thrashing around our boat are formidable — and hungry.

We can still act to conserve the essential accomplishments of the progressive era while preparing to move beyond it.  But only aggressive and accelerating reform can make that happen.  It needs to begin soon.  The money is running out.

The political battles to change course and to tame or kill the sharks gone rogue will be tough, but winning that battle is much better than losing it — or out of cowardice failing to fight it.  Jaws was a scary movie, but it had a much happier ending than Moby Dick.

The United States must tame and reform the programs and ideas gone rogue that hammer at the sides of our boat.  We must impose our will on the fiscal chaos before the chaos works its will upon us.

The American government must not jump the shark.

This post originally appeared at The American Interest.

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