Many years ago the girl I was dating told me her friend had just got her MBA. So I asked this new MBA who was going to be a clothing buyer what she would do in her first meeting with a supplier wanting to sell to her. She proceeded into a technical explanation of how she evaluated and I told her no. She shifted to another technical explanation and again I said no. After the third rejection she asked me exasperated what I would do. I said simply I would look the person in the eye, size them up and decide if I could trust them. It’s pretty simple. If you are involved in complex dealings with someone you cannot trust you’re going to get screwed. Not having an MBA I learned this in the school of hard knocks.
Yesterday on Fox Business Network John Stossel did a show on entitlements and generational theft. At several points he was sitting with young children playing with toys and taking them from them saying he needed them. It was an entertaining illustration of generational theft, especially with the looks on the children’s faces. In classic Stossel form he started out showing Bernie Madeoff and talking about social security being a Ponzi scheme. He even had a guest attorney on who helped people with net worth exceeding half a million dollars get medicaid. I have a few points about how bad things are, but my primary point is that we establish trust based on prior history. As such I would say Bernie Madeoff has a better chance of reform than congress.
Of course the first point of all this is that the programs of social security, medicare, medicaid, unemployment and such are social welfare. No one can argue against the compassionate reasons for these programs, though it could be argued that like income tax they really should have been done with constitutional amendments as there doesn’t seem to be anything in congress’ enumerated powers to support them. Am I arguing against them? I think it best to remain silent and instead hear from Benjamin Franklin, one of our most respected founders and the man who gave us the post office, the library and the fire department.
I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I traveled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.
I think that says it nicely. Currently many people are saying that the individual mandate in the health care take over is unconstitutional. I agree, but we have this odd judicial habit of ignoring the constitution if we can show precedence for having violated it previously. As a self employed person I have to pay unemployment insurance on myself. People who do road construction get laid off and collect unemployment during the winter and think nothing of getting their money back. Should I be mandated to insure my employment and should the government be the insurer? Ironically there is also precedent for getting out of government programs. The Amish are exempted from social security. They don’t participate because they are conscientious objectors. You only need to show your personal beliefs are in conflict to get exempted, but you probably need to convince a judge in court. You see if everyone who wanted to exempted themselves from these social welfare programs… well it seems moot because we can’t. However I say there is another problem.
This year social security will need to borrow money from China to pay. That’s nine years ahead of when the president’s OMB (office of management and budget) predicted. Oops! Orzag scores again. He also made a trillion dollar error on the 10 year budget. Hey, that’s only a million million. Here’s the point. When you review government spending you will see 3 of the last 40 years that we spent less than we took in but we also have been taking in surpluses in social security for decades. Where is that surplus money? It is in the form of IOUs from congress in a filing cabinet in the capital that we thought was a lock box. I don’t know the exact number if it is into the trillions but does it matter? Currently there is only one way for congress to cope with the $1.5T deficits and $60T liability in in unfunded mandates… monetize the debt. Know what that means? Simple. Let’s say we owe $100 trillion. We crank up the printing presses and print that $100 trillion to pay it off. Brilliant, right? I mean we could pay it off without even taxing anyone. The problem is that afterward our currency is devalued. Gas could go to $100 a gallon not from scarcity, but from inflation of currency. Monetizing the debt is an attractive solution for congress. They don’t have to raise taxes and they can blame Wall Street bankers. It’s a win win for them as they vote their pay up to several million dollars a year. The big problem is that if congress raises taxes to keep up with spending they end up with tax rates from 25% on the low end to 85% on the high end.
Let’s get back to what congress has done with the money we sent them for social security. Initially when FDR introduced it there was no other way to pay other than direct transfer of wealth from the working young to the old. However not only did this not change into something more like a legitimate legal private sector retirement plan, virtually all excess has been spent. If any private sector business did this their executives in charge would be bunking with Bernie Madeoff. With 435 representatives and 100 senators plus a few presidents signing off on this for over 70 years several things are clear. First we note that as law makers somehow they appear to be exempt from any law sending their asses to jail for what is clearly unethical theft, illegal for anyone else to do. Another thing that is clear is that trusting congress with our money is like asking a heroin addict to watch your house while you go on vacation. Good luck keeping any wealth.
However the really significant aspect of all this goes back to what Ben Franklin said. If people have to take care of themselves they do better. Remember the question if you would take a penny doubled every day for 30 days or a million dollars. Do the math. Only a fool would take the million dollars. Likewise if you were 20 years old and invested $1,000 if you could double it every four years you would have a million dollars from only a thousand when you were 60. Imagine if you put $1,000 a year into investments or even savings before we got to this wacky ultra low interest trying to avert financial disaster. There are two spheres our money can go to, public and private sectors. in the private sector it finances business growth and creates jobs. It creates wealth and raises our standard of living. In the public sector they have no ability to create wealth so all their money is siphoned off the private sector. Therein lies the problem. The more money taken from the productive economy the less it creates and produces.
Let me put this in contrast. If we were taking Ben Franklin’s view then our government would not be risking bankruptcy, our taxes would be lower, more money would be flowing into the private sector, a booming economy would make investments pay handsomely and anyone who had invested a fraction of their entitlement taxes wisely would retire wealthy. Instead we keep giving money to a government who will make our money worthless and impoverish us in order to give us cradle to grave social benefits. Have we really become such a nation of suckers?
Am I against all social welfare programs? Pretty much, but I can’t bring myself to take the tough stand that as a nation we cannot provide some assistance. However statistically unemployment goes up whenever it is extended. It seems counter intuitive people would stay on longer just because they can, but some do. My point is any assistance from the government would need to be means tested, limited and have an expiration. In the end I think charity does that best and even in these difficult economic times we are seeing $300 billion a year going to charity. Imagine if our economy were to explode and out taxes go down.
Now of course we have a new entitlement that is scheduled to have over 100 new agencies, dictatorial control from Washington by the HHS secretary on what we must buy and 16,500 new IRS agents to make sure we are in compliance. When we set up medicare we projected the cost in 1990 and it turned out to only cost nine times as much. In fact the total fraud in the system is close to the projected cost at a whopping 10% or so. Just another reason to distrust a congress who is fiscally answerable to no one and as law makers will never indict themselves for their criminal activities. Congress truly fits the bill as crooks and nannies. Today congressmen and presidents look to get their name on landmark legislation with far more concern to their egotistical vision of their place in history than whether we will have a future or how horrible their legislation is. The best thing we could do as a nation is to observe and reflect Franklin’s thoughts and roll back our welfare state.