Oddbean

The Nationalization of the Work Force ————————— The economic numbers, like unemployment, inflation and GDP, are getting gamed. Layoffs are being offset by government hiring. Slowdown in the economy is being offset by government spending. No one in the actual economy wants to spend, so the government is counter-balancing it with spending of its own. As interest rates rise and all the economic health indicators look increasingly horrible, the short-term Keynesian band-aids are being applied. After all, politicians have to *do something*, lest they be accused of not caring. This is, of course, an excellent example of high time preference behavior. Politicians really only worry about the next election and long-term consequences be damned! So what if government keeps growing? So what if inflation destroys peoples' savings? So what if the private sector mal-investment never has a chance to clear out? The game is to keep things the same so that they can get re-elected and they can always dip into the cookie jar of inflation to fund it. In the short term, this is a very understandable strategy. Creating government jobs not only makes the unemployment numbers look better, but it also has the nice side effect of making those that get these jobs way more statist. These are not people that are going to vote for a reduction of government, they have strong financial incentives to never do that. And spending on unnecessary wars to prop up defense contractors? You think those people would ever vote for less spending? The divide right now is not between liberals and conservatives. The divide is between the rent-seekers and productive people. And as currently comprised, it's about 50/50. And it's not who you think that's on the productive side. Sure, obvious groups like government employees, media and even the military, educational and health care industrial complexes are very obviously on the rent-seeking side, but there are others that you may think are productive but are not. Big tech, for example, is overwhelmingly on the rent-seeking statist side. The war-mongerers are on the statist side. The productive people are the middle and lower class people that haul away your garbage and fix your AC and deliver your packages. And as the populace re-aligns, the productive people are correctly calling out the uniparty as the party that wants to keep the rent-seeking going. There's only so much you can steal from the productive people before there's a revolution. But this is where the infinite pool of money that the central bank can draw from becomes the tool to tip the balance. You can co-opt the productive people by giving them government jobs. And make no mistake, that's exactly the strategy being executed right now. The public sector is growing fast, even as the private sector shrinks. They are nationalizing the work force so that voters are dependent on the state. And honestly, it's not that far from socialism. If 100% employment by the state is socialism, then we're about half-way there, roughly speaking. But this strategy has consequences. As more people come on the government payroll, either through direct payment, as with government employees, or through subsidization of industries, the money to pay them has to come from somewhere. If it's explicit taxes, that will get the politicians voted out real quick, so it's not really an option. Inflation, on the other hand, is great because it's a stealth tax and there's plausible deniability by blaming greedy corporations and so forth. But inflation debases savings and soon, people can't afford to live on their old salary. Not least of this is the bloating public sector, whose salaries tend to adjust last. Thus, there quickly becomes a large and powerful lobby of government workers who will demand raises. And this creates a major dilemma for those in power. Do you give them raises and exacerbate inflation, or do you deny them raises and get voted out of power? The high time preference nature of politicians almost guarantees the former outcome. But then, that extra money adds inflationary pressure to the economy. This may hold things off for a bit, but the bigger the public sector, the faster prices in the rest of the economy increase. Inflation becomes a problem again. Soon, the government employees, stronger now, perhaps as a larger constituency and having a precedent to work with, will again demand raises. Raises -> Inflation -> Raises -> Inflation -> … The only end here is hyperinflation and that's not pretty. I'm not going to suggest that it's around the corner, but as Caesar once said, "aleta iacta est" or "the die has been cast." The expansion of the public sector is inevitable and thus, so is inflation and eventually hyperinflation.