• Tonight's Show: Road to Serfdom

       That’s the topic of my FBN show tonight.  It’s a look back at how Frederick Hayek predicted that the West was on a road to serfdom, and that aptly describes today’s financial problems, Greek riots, California going broke, and a host of other things.

       Today in the WSJ, my former Economics professor, who was the only Econ professor that I remember who wasn’t boring, offers a modest suggestion on how to start America on a more sustainable road:

       “Risk aversion is rising ... a feeling of malaise has spread throughout the world ... strong economic growth is unlikely on either side of the Atlantic.”

       Why?  Well, we know why.

       “Western governments have made entitlement promises that are increasingly difficult to keep. As populations age (and Europe is in far worse shape than the U.S. on that score as well), strains on federal budgets become increasingly grave. Ratios of debt to GDP have risen to levels where Greek-style solvency crises are likely to proliferate.”

      Malkiel's remedy?

       “The only viable solution is reform of entitlement programs. What frightens investors most is that political processes seem incapable of dealing with long-run budget deficits before an economic crisis forces action.

       In the U.S., Social Security provides an apt example of an entitlement program that must be reformed. While it's not the biggest part of our long-run budgetary shortfall, it is the easiest to fix.”

       He proposes raising retirement ages, revising the CPI formula, and other tinkering.

       “Obviously, the devil is in the details. But some reasonable combination of all three of these measures could close the 75-year Social Security deficit. Almost more important than the progress that would be made in bringing the long-run fiscal deficit under control would be the psychological message that our political process is actually capable of tackling entitlements. Markets everywhere would celebrate our return to fiscal sanity on at least one entitlement program.  Higher prices for stocks could lower the cost of equity capital and enhance the long-run growth outlook considerably.”

       I’d rather tackle them all, including the biggest bankruptcy threat: Medicare.  But maybe I’m not practical.