The 2008 financial crash originated with a housing bubble. Not long ago, the cheap money policies of the Federal Reserve, the infusion of trillions of dollars in new foreign investment, and the misguided policies of Freddie Mac and Fannie Mae all conspired to extend to millions of Americans lots of easy cash for inflated houses that they could hardly afford. Owning a house was seen as a "right" rather than the just rewards of household sacrifice, delayed gratification and budgetary discipline.
Builders, lenders, realtors and bureaucrats all got in on the easy-money Ponzi scheme -- until a few noticed that the emperor had no clothes and that rather pedestrian homes were hardly worth what unqualified purchasers had paid for them. Financial hysteria followed when shaky borrowers began to miss exorbitant mortgage payments, walked away, and lenders panicked. The subsequent meltdown is history.
There is a similar pension bubble rising as well. There is perhaps as much as $6 trillion owed in retirement pledges to Americans, $500 billion in California alone. That tab under present conditions simply cannot be met. For the last 30 years, politicians outbid each other to offer more lavish retirement packages to union members and public employees -- more eager for their votes than for ensuring the payment of what they had promised. Receiving a generous retirement package was considered a right rather than an investment predicated on past savings coupled with modest interest and dividends.
There may already be an immediate $1 trillion shortfall in meeting what is owed current retirees. Pensioners on the receiving end are becoming more numerous, older and more affluent, while the younger workers on the paying end are becoming less numerous and poorer. At some point, a city, a state or perhaps the Social Security system itself is going to announce there is no more money. Then, if there is not another financial crisis and Wall Street meltdown, the fantasy will end with workers paying higher contributions, retiring later and receiving less.
Then there is the higher-education bubble, as collective student debt nears $1 trillion with no guarantee that it will be paid back. Lots of poor college students and their strapped parents are floating huge government-subsidized student loans to pay for ever more costly bachelor's degrees that no longer ensure that the recipients are either well educated, will find a job upon graduation or, if employed, will be better-paid than the vocationally trained. Going to college has somehow become seen as a national right rather than a privilege predicated on superior academic achievement, financial sacrifice and continued academic discipline.
There are disturbing commonalities to these expanding bubbles -- and others like the recently enacted health care entitlement on the way. The rich and connected seem exempt from the impending reckoning, and the poor assume government will offer them debt relief. Those in between are on their own and will have to pay more for receiving less.
America is not creating enough wealth to justify the notion that everyone should go to college, get a higher-paying job than their parents, buy a nice, affordable house, and retire earlier and with more money than did prior generations.
We have forgotten what wealth is -- and how tenuous the good life is. Riches are created by educated and skilled workers who directly translate natural resources into commodities that make life easier. The nonproductive sector in government, law and banking must facilitate that process with efficient and transparent financial and political systems.
Instead, we are failing to provide our college graduates with unique skills that make them rare assets in the global competitive arena. Meanwhile, our more talented and better-trained workers are suing, subsidizing and regulating more than ever -- instead of searching for more oil and gas, supplying more water to productive farmland, fast-tracking nuclear power plants, manufacturing machines and consumer goods, or devising new and more efficient ways to help others to produce such food, fuel and products. In other words, we are living the good life in the abstract that we have not quite earned in the concrete.
America is a naturally rich country. Unlike Russia, China, Egypt or Greece, it is stable, transparent, tolerant and free of civil strife. The result is that we are not doomed to see these bubbles expand and burst with the attendant social unrest. We need only return to our old American creed that wealth is created only with hard work and delayed gratification. In other words, America must get back to producing real, rather than imaginary, riches and ignore pleasing rhetoric that masks unpleasant reality -- the faster the better.
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