But I submit that if they were honest, the vast majority of politicians, intellectuals and political activists would have to say just that.

Fascism is the system of government that cartelizes the private sector, centrally plans the economy to subsidize producers, exalts the police state as the source of order, denies fundamental rights and liberties to individuals and makes the executive state the unlimited master of society.

This describes mainstream politics in America today. And not just in America. It’s true in Europe, too. It is so much part of the mainstream that it is hardly noticed anymore.

It is true that fascism has no overarching theoretical apparatus. There is no grand theorist like Marx. That makes it no less real and distinct as a social, economic and political system. Fascism also thrives as a distinct style of social and economic management. And it is as much or more of a threat to civilization than full-blown socialism.

This is because its traits are so much a part of life — and have been for so long — that they are nearly invisible to us.

If fascism is invisible to us, it is truly the silent killer. It fastens a huge, violent, lumbering state on the free market that drains its capital and productivity like a deadly parasite on a host. This is why the fascist state has been called the vampire economy. It sucks the economic life out of a nation and brings about a slow death of a once-thriving economy.

Let me just provide a recent example.

The Decline

The papers last week were filled with the first sets of data from the 2010 U.S. Census. The headline story concerned the huge increase in the poverty rate. It is the largest increase in 20 years, and now up to 15%.

But most people hear this and dismiss it, probably for good reason. The poor in this country are not poor by any historical standard. They have cell phones, cable TV, cars, lots of food and plenty of disposable income. What’s more, there is no such thing as a fixed class called the poor. People come and go, depending on age and life circumstances. Plus, in American politics, when you hear kvetching about the poor, everyone knows what you’re supposed to do: Hand the government your wallet.

Buried in the report is another fact that has much more profound significance. It concerns median household income in real terms.

What the data have revealed is devastating. Since 1999, median household income has fallen 7.1%. Since 1989, median family income is largely flat. And since 1973 and the end of the gold standard, it has hardly risen at all. The great wealth-generating machine that was once America is failing.

No longer can one generation expect to live a better life than the previous one. The fascist economic model has killed what was once called the American Dream. And the truth is, of course, even worse than the statistic reveals. You have to consider how many incomes exist within a single household to make up the total income. After World War II, the single-income family became the norm. Then the money was destroyed, and American savings were wiped out, and the capital base of the economy was devastated.

It was at this point that households began to struggle to stay above water. The year 1985 was the turning point. This was the year that it became more common than not for a household to have two incomes, rather than one. Mothers entered the work force to keep family income floating.

The intellectuals cheered this trend, as if it represented liberation, shouting hosannas that all women everywhere are now added to the tax rolls as valuable contributors to the state’s coffers. The real cause is the rise of fiat money that depreciated the currency, robbed savings and shoved people into the work force as taxpayers.

This story is not told in the data alone. You have to look at the demographics to discover it.

This huge demographic shift, essentially, bought the American household another 20 years of seeming prosperity, though it is hard to call it that, since there was no longer any choice about the matter. If you wanted to keep living the dream, the household could no longer get by on a single income.

But this huge shift was merely an escape hatch. It bought 20 years of slight increases before the income trend flattened again. Over the last decade, we are back to falling. Today, median family income is only slightly above where it was when Nixon wrecked the dollar, put on price and wage controls, created the EPA and the whole apparatus of the parasitic welfare-warfare state came to be entrenched and made universal.

Yes, this is fascism, and we are paying the price. The dream is being destroyed.

The talk in Washington about reform, whether from Democrats or Republicans, is like a bad joke. They talk of small changes, small cuts, commissions they will establish, curbs they will make in 10 years. It is all white noise. None of this will fix the problem. Not even close.

The problem is more fundamental. It is the quality of the money. It is the very existence of 10,000 regulatory agencies. It is the whole assumption that you have to pay the state for the privilege to work. It is the presumption that the government must manage every aspect of the capitalist economic order. In short, it is the total state that is the problem, and the suffering and decline will continue so long as the total state exists.

Regards,

Lew Rockwell

How Fascism Kills the American Dream was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The problem with households not saving is that over the long run, it ruins the economy.

Lack of savings means there are not enough long-term private bank reserves. Broadly, it translates into lack of investment in new business capital. Over time, that runs down the capital base of the economy. And improving business capital is, of course, the key to increasing productivity within an economy.

If productivity doesn’t increase, wages and living standards will stagnate – at best. Eventually, living standards decline. Don’t believe me? Have you been to Detroit lately?

Decades-Long Trends

Last year’s lack of savings was not a short-term phenomenon. The savings deficit was part of a long-term cultural phenomenon. The low savings rate in 2008 was one more data point in a string of many bad years for savings.

The personal savings rate in the U.S. makes for an interesting chart (see below, for 1930 to the present). The first thing that pops out is that savings were very high (near 25%) during World War II, when there were few consumer goods available to purchase.

All that wartime saving had much to do with kick-starting the U.S. economic explosion after the war ended. While the war was raging, many economists expected a postwar crash. That’s what had happened all the way back to the days of Napoleon.

In fact, the prospect of postwar mass unemployment, involving millions of demobilized soldiers, was one of the key drivers behind creating the G.I. Bill of Rights. It was better to send former soldiers off to college for a few years than to have them sitting around with no jobs, muttering into their beer mugs.

Instead of a postwar crash, however, the large pool of U.S. aggregate savings aligned with pent-up demand to spark a historic economic revival. In the 1950s and into the 1960s, the World War II generation settled down to raise its baby boom offspring. While savings rates cooled down, they still averaged a very respectable 8.5%. And this was in an era of very low inflation.

The national savings rate actually increased toward 10% during the 1970s and early 1980s. But from the mid-1980s onward, the national savings rate declined steadily. The rate was in the low single digits – and falling – by the early 2000s, and went negative in 2006 and 2007. For the U.S., these recent numbers were the lowest savings rate since the Great Depression.

What Was Going On?

Let’s review some large-scale trends that occurred during the past four decades. Starting in the 1970s, many women entered the U.S. labor force. More accurately, women exited the unpaid world of homemaking and entered the paid labor force.

The demographic shift of women into the labor force started as a trickle, but turned into a flood. Indeed, over the past 30 years, many traditionally male-dominated occupations and professions opened wide for women to pursue careers. Enrollments in U.S. law and medical schools, for example, are now well over 50% women. Just this year, over 50% of undergraduates majoring in earth sciences in the U.S. are women.

More women in the work force led to a fast-growing number of two-income households. But as pointed out by Elizabeth Warren, a professor and bankruptcy specialist at Harvard Law School, those extra paychecks often went to consumption, rather than savings.

For example, working couples took the second paycheck and bought a second car, if not a second house or condo. Working couples took more high-end vacations, as you can observe by driving past the cruise ship terminals at most major U.S. port cities. And the average size of new homes has increased during the past 25 years, even as average family size declined from over three to about 2.1 children per couple.

In short, Americans saved less over the past 35 years. But U.S. consumer spending took off and grew faster than the broad economy. Consumption accounted for 62% of gross domestic product (GDP) in the 1960s. But consumption grew to 70% of GDP between 2000-2007.

Looking at the numbers another way, “investment” in the economy plummeted from 38% of GDP to 30% – a drop of over 21% from the 1960s baseline. So it makes sense that much of the increase in consumption in recent years was of imported goods. Thus did high consumption and low savings help to decapitalize the nation, as trillions of dollars wound up in foreign accounts.

And Then What Happened?

With high consumption and low savings, when the current recession hit, it hit hard. In fact, the effects of the recession were aggravated by the national pattern of high consumption and low savings over the past decades.

Let’s begin with the fact that many households spent every dollar that came in. Then they borrowed against the so-called “equity” in their house (often as not, the equity was mostly a product of inflation) to finance further consumption. But there’s a funny thing about borrowing money. Usually, the lender wants it paid back.

As Harvard’s professor Warren has pointed out, many two-income households painted themselves into a “two-income trap.” That is, when both wage-earners devote their entire paycheck to consumption, with nothing going into savings, the loss of one job can be a financial catastrophe. A household at the margin almost instantly goes underwater.

Also, it’s becoming clear that in the past year, many job losses in the U.S. economy are permanent. Instead of temporary layoffs, many jobs are being eliminated as part of a structural retrenchment of the U.S. economy. Think about the job losses in the auto and auto parts industries, in banking and finance, or in real estate. Many of these jobs are just plain history. These industries will never recover to the glory days of old.

Along these lines, a recent survey conducted by The Wall Street Journal reveals that 52% of companies polled expect to employ fewer people over the next five years. That can hardly be reassuring to the rapidly expanding ranks of the unemployed in large states like California, Michigan, Illinois and others. Big states with large numbers of jobless people make for big, long-term, intractable social and political issues.

The “Recovery-Less Recovery”

So the job cuts, and long-term unemployment, are here to stay. Much of this has to do with the previous lack of savings and long-term investment. After two decades of falling savings, and related underinvestment in new business capital, there is not enough momentum within the job-creation engine of the U.S. economy. The machine is stalled.

It’s not like you can accelerate the process of job creation, either. Sure, government can spend a lot of money (borrowed money, as it turns out) in a hurry on so-called “stimulus” programs. But what will that accomplish? People still can’t find long-term employment – let alone careers and employment security – in industries that don’t exist or never took root. Nobody gets hired in a firm or factory that never got built. So now we’re experiencing what many economists are calling a “jobless recovery.”

Jobless recovery? That might be whistling past the graveyard. Indeed, the lack of job creation going forward could also lead to a “recovery-less recovery.” Or to paraphrase former President Richard Nixon, speaking of the idea of Keynesian economics, we’re all living in the Rust Belt now.

Some Households Are Saving Again

There is some good news from the savings front, however. As 2009 unfolds, it appears that debt-burdened American households are desperately beginning to save. In April 2009, the national savings rate jumped to 5.7%, the highest level in 14 years.

Still, savings has to come out of something else. Households “saved,” but the other side of the coin is that “consumers” ratcheted down their spending – and did so even faster than aggregate incomes fell. That means empty shopping malls and auto lots. It’s a vicious cycle.

“Americans have learned a cruel, cold, hard lesson,” according to Bernard Baumohl, an economist for the Economic Outlook Group of Princeton, N.J. “People are scared. And that’s led them to replenish their savings because they now realize that their retirement nest eggs will no longer increase on automatic pilot.”

There’s no disputing the extraordinary shock to household wealth in the U.S. From mid-2007-March 2009, according to the Federal Reserve, household net worth plunged $14 trillion, or 21.5%. Just during the second half of 2008, household net worth plummeted nearly $8 trillion – with an eye-popping $4.9 trillion dip in the fourth quarter.

Meanwhile, the broad-based Standard & Poor’s 500-stock index shed 57% of value between October 2007-March 2009. While the S&P 500 has increased 36% since its March low, it is still 41% below its 2007 peak.

According to Mr. Baumohl, the economist, “There has been a fundamental shift in the behavior of American households.” That is, savings are now a priority of financial planning. Mr. Baumohl believes that we’ll continue to see the savings rate increase to between 7-9%, where it will likely hold steady for at least several years. Many of the 75 million baby boomers are now revising their retirement plans, figuring out how to work longer, save more and spend less. (Meanwhile, the federal government is working to figure out how to pay lower Social Security and Medicare benefits to those baby boomers.)

All in all, we should expect to see U.S. consumer spending grow more slowly than GDP over the next decade. As a percent of GDP, investment will increase as some fortunate households replenish savings. But any recovery will be slower than most observers expect – particularly the politicians, who cannot abide large numbers of unemployed people near Election Day.

Rooting for the Savers

The good news is that over the long-term, more savings will translate into more business investment. That should create new jobs and raise productivity, which are the basic building blocks for a rising standard of living.

Of course, there are problems with any significant shift in the direction of capital flow in the U.S. economy. But despite any issues, the unemployed of the U.S. need to root for the savers. And the politicians, of course, need to respect the process of saving. Because without those savings, the economy will continue to wind down.

And what if the political rhetoric descends into class warfare? What if the savers of the nation become objects of ridicule, subject to punitive levels of taxation and regulation? In that case, we get back to the idea that capital is portable.

If savings cannot find a safe harbor in the U.S., then the capital flows will keep moving offshore. And if that happens, all bets are off for the U.S. economy. We can just sit back and listen as the band plays “Nearer, My God, to Thee.”

Until we meet again,
Byron King

July 2, 2009

Too Much Spending, Not Enough Savings: Destruction of an Economy was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.