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A Summary of Mega-trends
- - along a road to serfdom ?
(updated Dec. 2007)
by Michael Hodges -email
- a chapter of the Grandfather Economic Reports -

Adding a new principle of government not intended by our founders,
which is all-consuming and weakening America's families and national security,
has caused a huge shift from small to all-consuming government-dependence
and to a nation where households and business are more debt-dependent than ever before
and more dependent on foreign products and financing than ever before.

- a legacy to the next generation - a cross-road - a wish -

(this page is a part of the Grandfather Economic Report series, a review of economic trends revealing threats facing young families and youth, compared to prior generations - displaying hard data evidence from reliable sources in color graphic form on subjects such as debt, government, family incomes, social security, international trade, regulations, inflation, productivity, energy, national security and education quality. The page you are now visiting is one of the summary pages documenting mega-trends)

Is the path now followed a road to serfdom
and reduced individual freedom and security?

"The decline of great powers is caused by
simple economic over extension" (quotes)


A cross-road and our legacy to the next generation:

A review of economic data trends, from my childhood to the present, clearly reveals several mega-trend changes in the economic functioning of America - - major departures from the past, by actions not intended by our nation's founding forefathers - which have placed economic, social and security threats on the backs of many - AND, the 'chickens have come home to roost' to face our children and grandchildren - and, generations to follow. Such data confirms the warning by 1974 Nobel Laureate Friedrich A. Hayek (1899-1992) in his classic, 'The Road to Serfdom,' warning of government interference with the economy.


NOTE: this survey was prepared prior to the September 11, 2001 terrorist attacks on America - - and the start of a new global war called the 'War on Terrorism.'

guarding our forefather's original intentAmerica is now at a 'cross-road'. Options include - continuing to increase the socialization and debt-dependency of our economy driven by large, dominant government, retaining the status quo, or re-structuring to return our nation closer to the core root principles envisioned by our forefathers of small, non-intrusive government with concentration on national security and an aversion of debt, both government and private. Do we wish government to be restrained to the four main principles outlined by our founding forefathers, which were: national defense, preservation of public peace (civil war, riots), regulation of trade between states & with other nations, and international relations - - as they envisioned? Or, do we wish to continue with a 5th dimension, not envisioned - - one which converts most of our people and economy to a dependence on big government for their social needs, and on debt, instead of on themselves?


SUGGESTION to Reader
Before clicking any of the following links, read the full page to understand the Mega Trends
- - then return to the link of choice


As stated above (from the Federalist Papers of 1787, Alexander Hamilton, etc. - see famous quotes), the framers of our Constitution outlined but four (4) core reasons for forming a federal government: (1) national defense, (2) preservation of peace between states (civil wars, riots), (3) regulation of trade between states & with other nations, and (4) international relations. (note > 'national defense' was listed as #1 - - thereby being the priority).

If successful in carrying out those principles, it was believed the 'welfare' of citizens would be assured. (note - this was their meaning of the word 'welfare', not income redistribution and entitlements). As further evidence of original intent, for the following 1 centuries the federal government stuck by those principled reasons, and by the late 1920s was still consuming/controlling only about 3% of national income (the economic pie). Taxation was used only to pay those bills. Such principles did not include such items as social welfare, entitlements and income re-distribution functions. We were a nation that used government primarily only for those 4 principles, relying on ourselves for all other needs.

Additionally, the founders were against debt. At the writing of the constitution they were concerned about debt incurred to finance the Revolutionary War; and it was their intention to pay off debt, using excise taxes on imports. Alexander Hamilton (federalist #7) called for the 'extinguishment of all debt'. Later, Jefferson wrote ""I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared."


40 years after the Federalist Papers, in 1825, we have evidence that some wanted to alter the core principles - - but they received a strong warning from one of American's most respected presidents. "Aided by a little sophistry on the words 'general welfare', [they claim] a right to do not only the acts to effect that which are specifically enumerated and permitted, but whatsoever they shall think or pretend will be for the general welfare." --- Thomas Jefferson 1825 to W. Giles. Such warnings as Jefferson's were effective for the next 105 years, as evidenced by spending continuing in the area of but 3% of the economy - - until, as we shall see - - came the "New Deal" of the 1930's.

"We can pinpoint a time - the late 1800s to early 1900s - when America rose to world dominance, as the balance of power shifted from the Old World to the New World, a period of small government, no income tax and strong constitutional support for free enterprise - when market entrepreneurs (Dow, Gerber, Ford, Kellogg, etc.) succeed by creating better products at lower cost and out-performed political entrepreneurs of the Old World who used government to gain an unfair advantage. The 1920s was the last decade when such could be built without major interference from government." (historian Burton Folsom, Jr. - senior fellow, Mackinac Center in Imprimis, 12/97). If federal social programs were nearly non-existent for the first 150 years of our republic - - why was such allowed to be invented out of thin air later on - at about the time of my birth?

Following is a short review of mega-trends during my life-time, to highlight the road traveled and some consequences experienced:

In the 1920s, a decade before my birth, "America's fundamentals were strong - - nevertheless, it was about to enter the Great Depression - a financial collapse brought on by disastrous macro-economic policies of the government - followed soon after by the worst world war in history" (The Economist, 12/20/97, pg. 15). Researchers (see "The Bubble That Broke the World" by Garet Garret, 1932) place prime blame for the Great Depression on the new Federal Reserve Bank and its undisciplined creation of 'money' (debt) out of thin air, which created a huge bubble and the 'roaring 1920s, followed by the eventual collapse.

"The 1929 stock market crash didn't cause The Depression.The Depression, contrary to popular belief, was caused by a collapse in the bond market, which resulted when The Government attempted to step in and prevent the (downward) correction in (over-extended) asset prices that was taking place as the speculative air came out of the bubbles blown in the1920s.The bond market collapse caused an instantaneous ramp in borrowing costs (interest rates and borrowing terms) which shut off the flow of capital at the precise time that market participants needed access (to more borrowing to roll over and refinance their excessive debts)." Karl Denninger, 4/7/2008.

Note also: this calamity was not generated by free enterprise. While pro-government forces began tinkering, free-enterprise auto sales zoomed from 181,000 in 1910 to 5,000,000 by 1929, and private truck freight out-performed the railroad industry (with its price fixing and government controls) - - mothers were able to buy Gerber's baby food and low cost bleach (as Dow defeated the European cartels).

With the Great Depression came the invention of a 'justification' for a collectivized rapid expansion of centralized federal powers in the 1930s - - called the New Deal - - as America's leaders imported certain big-government ideas invented in Europe (from socialist Russia under dictator Joseph Stalin and from Italy under dictator Benito Mussolini, according to historian Amity Shlaes). At the time those advocating socialization of the economy and centralized government took charge of our nation, unnatural to its history, at variance with the consitituion and the intent of our nation's founders.

This resulted in an explosive 4 fold expansion of the federal government's share of the economy (from 3% of national income to 13%, see chart below).


(The chapter on famous quotes proves our nation's founders intended the Federal Government NOT be involved in social issues concerning citizens, such as: social security, Medicare, Medicaid, health, welfare, education, income redistribution, entitlements, unemployment insurance, farm subsidies, housing, flood insurance, etc.

And, it is amazing that any true believer in the  core principles of our founders would discard their wisdom and intent and, instead, listen to 'ideas from Europe,' especially recognizing that much of our nation was populated by those fleeing European history and its reliance on big-government and centralized power.)

The U.S. economy was driven by certain forces away from dependence on individuals and families as in the past, toward more and more dependence upon centralized government. Many labels were given to government encroachment: President Roosevelt's National Recovery Administration (NRA), which included pressuring auto firms and others to produce artificially high wages, prices, work hours, etc. - although Auto already led industry in high wages, the Smoot-Hawley Tariff (the most restrictive tariff in history), the Reconstruction Finance Corp.(government financing banks, railroads and other industries), The Agricultural Adjustment Act (regulate farm production), the National Industrial Recovery Act (regulating the others, the Wagner Act (shifting balance of power from entrepreneurs to labor union bosses), etc. Tax revenues needed to pay for such government expansion soared. Additionally about making government bigger, read > Failure to Learn From FDR's New Deal.


GOVERNMENT GROWTH: Let's take a look at government growth in America, as measured by its spending as a share of the economy's total national income. Did it expand faster than the economy, or slower?

Federal spending surges: new deal and after WW II1. As recorded by this chart > For a many, many years prior to the 1930s (the New Deal) the Federal Government's spending consumed about 3% of national income. With the New Deal the federal government expanded its control of the economy from the prior 3% of national income - - up to a 13% share of the economy during the 1930s before World War II. As the chart shows, after the war it continued its upward march to higher and higher shares of our economic pie, reaching today's 26% of same - - an 8 fold expansion in economic control and federal government-dependence of our economy - - shown in the Federal Government Spending Report.

2. If we add federal government spending of 26% of the economy plus the spending of state & local government of 17% of the economy (much of which was caused by federal government mandates), the sum total now consumes/controls 43% of the total economy - - up from 12% for combined spending - - indicating total government has grown faster than the economy - much faster. (see the long-term trend chart on Government spending).

  1. 3. This reduced the pure private sector (that part of the economy not dependent upon government) from an 88% share of the economic pie - - down to a 57% share. That's a 31 point reduction in the private sector's share,  and said reduced share was further eroded another 13 points by mandated regulation compliance costs created and imposed by increased government at all levels.
  2. 4. America has become much more a socialistic economy, and less a free-market one - - as more and more power and control was transferred to government at federal and other levels - - away from individual and family control. Basically, the movement was to one of centralized government 'knows best', compared to individuals - and government is a 'wiser & better parent', than natural parents.
  3. This 31 point move in government dominance (from a 12% to a 43% share) included 23 extra points controlled at the federal level and 8 extra points at the state & local government level. As stated above, the federal government sector increased its share of the economy 8 times higher than before - from 3% of the national income economic pie to 26% of same. Currently, 68% of the federal budget is consumed by social spending and interest on the debt resulting therefrom. (the author blames all interest on social spending since that was the primary growth area of the government). In addition, state & local government tripled its share after WW II (from 6% to 17% of national income), much in response to social mandates from the expanded federal sector. All such government increases came by subtracting parts of the economic pie that is non-government spending dependent - - called the pure free-market private sector.
  4. Looking at the movement from federal + state/local government control of 12% of the economy to a 43% share, the overwhelming driving new item was Social Spending - - a function not included by the founding forefathers as one of the four core functions of government - at the framing of our constitution in 1787. (see Federalist Papers, James Madison and Alexander Hamilton)
  5. In addition, this expansion in the social arena was to a great part financed by debt with zero plan to pay it off - authorize and spend now, let future generations carry the debt burden - and, act like a 'free lunch' has been created out of thin air. Peacetime debt moved from about 10% of the economy's GDP to the current historic peace-time record six times higher - - or, 6 times faster than the economy expanded.
  6. This expansion, or increased centralized control and dependence on government, took various dimensions, with several specific surge points (a color graphic showing several federal surge points is at the top of this page):
  7. Such major changes to the past, as government increasing its share of the economy by 30 points as measured by spending, further laid the groundwork for an expansion in economic costs not shown in government spending - - accelerating government regulations mandated on the private sector without compensation - - which further eroded the effective share of the economy of the pure private sector, compared to prior generations. Larger government does not make less regulations than smaller government - it mandates more , now consuming 14% of the economy. Larger government does not result in less tax drain on families - - the Tax Report shows federal and state/local government consume on average 5.3 months of a persons income to cover all taxes, 4 times more months than prior generations - with current tax revenues now at the highest peace-time ratio to economy size in history.
  8. The results of social experiments is that the nation has become so government spending-dependent, partly fueled by calling everyone a 'victim' with some lack of social right yet to be guaranteed and financed by government at the expense of others, that a frame of mind has been entrenched in many citizens that they have a 'right' to being taken care of socially by 'big brother', instead of being responsible for their own lives and well-being - - as were their forefathers. America had become a socialistic society, a government-dependent society, a collectivist society, an irresponsible society, and an overly consumptive, demanding and greedy society. As a result, tremendous pressure has been built by vested interests of the many dependents (government employees and recipients of said spending, plus organizations such as the teacher's union and AARP) to fight against any reduction or taking of their new rights - as such would mean they must learn to become dependent upon themselves.
  9. It appears to this observer that God and Family has been replaced by Government and its created Dependents. Citizens have been 'conned' into accepting that there is a 'free lunch', if only they will trust in government power as their 'Father' instead of in themselves and their Maker. America has become a government-dependent 'socialized junkie', and as with any addiction and dependence created during a lifetime it is very difficult to break. We know it must be done, but will not require our leaders to do it for us (if it affects us today, even if our children must pay the price) and feel powerless or unwilling to do it ourselves.
  10. A solution: Like any 'junkie', we need a dry-out period for our own sake, and for that of the young generation. We need a 'bite-the-bullet' plan that calls for a steady reduction in the share of the economy represented by government spending, its regulations, and its debt - implemented in a fashion where any burden therefrom is shared equitably by all. We will bite whatever 'bullet' to do our part to meet a noble plan which we believe will benefit those to follow us. While Europe, with its even higher government spending ratios, march to even higher levels of allegiance to a super-European bureaucracy in Brussels, American can move in the opposite direction - - to lower spending ratios, by reducing support to that 5th 'principle ' (social spending), which was not one of the 4 original principles of government by our founders - - but which was created out of thin air. We owe it to ourselves to become responsible as individuals again, especially to our children and the generations to follow - and as a salute to our nation's wise founding fathers. "The best government governs least."
  11. The New Millennium, Legacy and Cross-road: Forces are in place moving America away from its glorious strength and independence of the past - - toward a centralization of many nations into a higher level of government - - a type of global government. Today we are witnessing the prototype of such a global government in the construction of the European Union and its single currency (see The EURO), and with such broader organizations as expanded NATO, and the World Trade Organization. As America has become more and more dependent on government, debt and foreign entities, and less so on individualism, family, religion, and a large pure free market society - - and less so compared to the main principles outlined by the framers of our Constitution - - its entire independence is threatened to be merged into something further from the reach of citizens - - a form of government of which our nation's founders attempted to circumvent. This sets us up for a potential step-up in government control at a higher level.
  12. Today America's economy is faltering under the load of historic debt of the government, household, business and financial sectors. The various chapters of these Grandfather Economic Reports contain significant evidence of many long-term negative trends that require correction - - especially government spending in areas not contemplated by our nation's founders which dilutes their intent and our focus, more reliance on the historic ratios of private sector debt and government debt, and a shrunken manufacturing base with the lowest savings in history and highest houshold debt ever, and more dependence on importing from others instead of producing needed goods ourselves. The Energy Report shows that America, which used to be self-sufficient regarding energy supplies, is more dependent on foreign supply than ever before. We must remember the top of this page, in the 1920s when America was booming - - and, then the Great Depression loomed - - which provided the 'justification' for accelerated dominance of big government. The unsettled nature of the world's monetary and debt situation in the late 1990s may signal trouble ahead. With today's government spending in American now consuming 44% of the economy, with record debt ratios to economy size for government, the financial sector and households - - there can be little doubt that another major financial crisis would result in those justifying big government to grow same to even higher shares of our economy - - as evidenced by history.
  13. Defense of our nation is the first of four core reasons for a federal government, as outlined by our founders (see top of page). Prior to 9/11/01 we could be proud that we were a nation without war or pointing missiles as shown in the Celebration Report - - yet a clear warning was issued regarding the over-downsizing our military to finance spending on items not in the four founding principles, especially in the face of a history of major surprises, the concern for which was recently expressed by the Chairman of the Joint Chiefs of Staff. We may be placing our young generation's national security at risk, compared to the past - due to spending in areas not contemplated by our founders - - which significantly reduced the economic surge potential that won World War II - - and in the 1990s halved our military - -and which reduced our federal government's focus on the prime reason for a federal government (see National Security Report).
  14. Regarding America's increased dependance upon foreign entities for its energy and for the financing of its economny and supply of goods as evidenced by its huge trade deficits - - brings to mind the arguments for and against so-called 'free trade' and the march of globalism to some sort of new world order (or, as some say, to a world government and currancy), one needs to study the writing of Joseph Schumpeter, economist and political scientist, who said that while 'free trade is economically efficient, national independence is even more fundamental. He wrote, "[If] we have got to live in a mercantilist, nationalist, bellicose world dominated by a few great empires, on the one hand, and if the domestic policy of this country is to remain free to shape its own destiny, on the other hand, I do not see the possibility, and I should very much doubt the wisdom, of any major deviation from the policy of protection.” More thought, much deeper thought,  needs to be applied to thinking this issue and better defining America's best goals toward the future to best protect its children and grandchildren.
  15. America is at a cross-roads. We have seen the creation (out of 'thin air') of a function of government (social welfare and large, dominating government) not contained within our constitution, or intended by its framers or intended by our elected officials for the following 150 years - - has grown to consume many times more of our budget than the funding of the original 4 core principles. (the 2nd chart in the Federal Spending Report shows it all). Former British prime minister Margaret Thatcher warned that we must invoke our "national pride and offer our people a genuine identity in a world of cardboard cut-outs, an anchor against the pull of bureaucratic internationalism and cultural globalization." Will we re-affirm our independence and the ultimate power of the individual free-man instead of the State, and cause trust in government to reach new highs instead of new lows, as envisioned by our founding fore-fathers, by reducing our internal dependence on big government, by reducing the impact of same along the lines of item 12 above - - and will be stop the 'drug' of ever increasing dependence on private sector and government debt owed domestically and foreign leading to national "decline by simple economic over-extension" as shown in history - -  or, will America succumb to the death of our economic independence and individual freedom as she is pulled along the road to bureaucratic internationalism and indebtedness - - continuing a march along the Road to Serfdom - - for her citizens of future generations?
the march of government control of our economy

ITEM: when someone says, "The Era of Big Government is Over"

You should respond, "Compared to What?"

Then ask them to tell you, "to what lower shares of our economy will federal and state & local government be reduced - and by when?" Then, show them real history in the 3 - charts of Government Growth

And - - also ask them if the new war on terrorism, which came about because America was not using its federal government to focus on its prime mission (National Security) as intended, will further expand the share of the economy consumed by government even beyond that showed in this graphic - - instead of reducing the non-national security spending areas.

This author is hopeful these reports will serve to assist a better outcome.

THIS IS MY WISH FOR MY CHILDREN AND GRANDCHILDREN -

a better economic future with more freedom and self-reliance and less government-dependence - than indicated

That's why the Grandfather Economic Report series was created - -

- - to pass on to others the findings of this study such that they may have better data from which to reflect and assist the healing of America, as well as preparing actions to protect their loved ones. This report series covers various subjects, from family incomes to debt to social security, using hard data from reliable sources presented in color-graphic form. The author hopes it will be informative to many, and may assist one small step in an improved direction - - such that our young generation may experience more freedom and economic well-being than ever before.

The author pays a Tribute to Milton Friedman, who, along with the innocence of my new grandchildren, was an original motivating force resulting in these Grandfather Economic Reports, which are summarized by 5 core threats in Summary Report page 1.

A tribute is also paid to the WISE WORDS FROM A FOUNDING FATHER OF OUR GREAT NATION

"There is in the nature of government an impatience of control that disposes those invested with power to look with an evil eye upon all external attempts to restrain or direct its operations. This has its origin in the love of power. Representatives of the people are not superior to the people themselves." Alexander Hamilton - Federalist Papers, 1787. (see other pertinent quotes)

RETURN To HOME PAGE & INDEX of Mini-Reports of dramatic pictures reviewing economic threats facing young families and their children, compared to the past. (this is a listing by subject of each mini-report in the Grandfather Economic Report series - - the Summary Page you have just reviewed).

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Copyright 1997-2008 Michael W. Hodges. The Grandfather Economic Report series is the intellectual property of its author; all rights reserved under Copyright Conventions. Permission to redistribute all or part of this series for non commercial purposes is granted by the author, provided the associated web page address is included and full credit given to the Grandfather Economic Report and the author, Michael Hodges. Notice appreciated via email.

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