We can’t afford the free lunch promises made by our wonderful politicians on our behalf beginning with FDR and his New Deal. One way or the other we will default. We are broke.
Social security might have been a wonderful enlightened idea when it was implemented by a bipartisan majority in Congress back in the day, same with medicare/medicade. Unfortunately, however, we put these programs on the country’s credit cards and the bill is coming due. Total unfunded liabilities for social security and medicare are in the tens of trillions of dollars the last number i saw was $20 trillion for social security and $40 trillion unfunded for medicare. Well, but, who cares about unfunded liabilities when bond markets will let us fund our utopian scheme at historic low interest rates?
We should all care because some day the market will wake up and realize it funded a ponzi scheme in the form of social welfare democracy and won't lend another nickel.
Everyone loves entitlement and safety net schemes when we implement them. The schemes always start modestly. But they also always grow ineluctably and predictably. When we first planned our entitlement "house" back in the 1940s it looked modest and affordable. But, when no one was looking the house and the mortgage for the house just got bigger and bigger and bigger. The same goes for the shiny new military industrial complex we built in the 1940s and 50s.
Every great civilization in the history of the world has eventually collapsed and disappeared (Sumerian, Greece, Rome, etc), In modern history we have seen the rise and inevitable fall of all global great powers (China, Spain, England, Dutch, etc). It is America’s turn. There are many theories for the rise and fall of civilization as well as for the rise and fall of global great powers.
I have just read a book arguing that the underlying determining factor in all of these cycles is the state’s success and then failure at managing fiscal affairs. State obligations always, inevitably outrun the state’s ability to fund these obligations via taxation.
I am not saying the state is evil or unnecessary or that taxes should be abolished. Society can’t function without a state. no great civilization grew up without a “state” structure funded by an efficient tax system. But, the state is a doulbe edged sword. Just like a standing army is a double edged sword for society. All great civilizations failed because revenue requirements for the “state” to maintain its operations outstripped society’s ability to fund these operations. Many times the crunch is caused by military expansion. But is equally common for the crunch to come frompublic welfare schemes. Welfare or warfare. or both. One way or the other, it always comes down to these two state functions that often grow like twin cancers and eventually destroy the host. Sometimes it is one or the other.
We have already hit this tipping point as evidenced by the tens of trillion of dollars we have in unfunded entitlement obligations. There only a few ways to solve our funding crisis and all of them require solutions that will inevitably lead to a self reinforcing cycle of social conflict, a slowing economy and increasingly stressed public finances. We can default on the obligations by raising retirement ages or cutting benefits, means testing, etc. These adjustment can only go so far in a democracy. Eventually no government can manage a big enough default to fix public finances without at the same time causing social instability/chaos. The other answer is higher taxes. And here politicians have as many options as stars in the sky. They’ll try them all and some will succeed. But taxing also necessarily hits a point of diminishing returns. This is the insight behind the Laffer curve. Progressives dismiss the Laffer curve. If you go through history, however, what you see is that successful tax schemes throughout history went from about 10% to 30%. When taxes got up to the 30% range, people got pissed and problems cropped up.
That is why the ultimate and inevitable tax politicians eventually turn to is inflation. inflation is the silent, insidious tax that is hard to blame on the government. it causes distortions in markets that are easily blamed on the market itself. before modern central banking made money printing possible, the old inflation tax was implemented by debasing the currency. the Roman Empire started to weaken when emperors after Cesar Augustus began debasing the coinage of the realm in order to pay for the warfare/welfare state. The great debasement occurred over about 70 years. we have just gone through a similar cycle thanks to the Federal Reserve established in 1913. One dollar in 1913 is worth less than 6 cents today. No society can survive without sound money. You will rarely hear liberals progressives talk about sound money; if they do talk about sound money will only be to assert (=dismiss out of hand with a condescending tone and/or gesture) that sound money is impossible in a modern democratic society. They usually throw in something about the Gold standard caused the Great Depression and also something like “and you can’t eat gold can you?” as if that ends the silly discussion.
If progressives are right about modern democracy being impossible with sound money, then modern democracy is impossible. Our modern society requires sound money more now than ever. If "democracy" can’t function with sound money, then democracy is wrong. not sound money.
our founding fathers designed a system that tried to solve the problems inherent in direct democracy. they builit a system of limited republican government, inlcuidng separation of powers, states rights and a focus on individual liberty protections. to call that a democracy is misleading.
Sound money does what nothing else can do. it provides the only practical check to state over-spending. Over-spending is inevitable law within any political system. We know from this by studying history. Progressive ideology assumes that the future will somehow be different from the past. Yes, the future will be different. But this different future can’t be planned by humans. After all, the future is uncertain. Right? progressives claim that conservatives are nutty. The truth is both sides are fundamentally wrong.
Higher taxes won’t fill the massive liabilities politicians have promised to ourselves. It seems like such a simple answer just to raise the retirement age or to reduce benefits. Or to design a
public system that will get rid of waste and thus deliver the same quality service at an “affordable” price to society. The last idea is the premise behind Obamacare. This is a utopian dream couched in digestible lies and distortions thanks to clever politicians and willing media agents.
Eventually, utopian promises of win/win welfare or entitlement schemes provided by the government always prove illusory. Always. If the state could really do anything better than private individuals, then the state should do everything. If healthcare is too important to trust to the greedy private sector. Then why not food and clothing as well? in fact, just about every major sector of the US economy is already heavly influenced, subsidized and regulated -- if not completely dominated -- by the state. in many sectors we have private enterprises that remain in private ownership. that is the capitalism part of our system that remains. But, there is no such thing as a free market. we don't have anything close to free exchange of goods and services in housing, education, food, drugs, healthcare … you name it … they are all heavily regulated, subsidized, influenced if not totally hijacked by the state. education. check. banking. Check. infrastructure. Check. housing. Check. food /arga-business. Check. healthcare. Check. telecom. Check. We blame the market for “failing” when in fact we have systematically demolished the market. The point is we shouldn’t have designed and promised a system that we could predict so easily would turn into massive unfunded liabilities to the tune of tens of trillions worth of benefits pledged to retirees.
Some people warn of the coming crisis of “Ageism” I think is called … the conflict between the funding needs of retirement safety net and our ability to fund with productive age households. This conflict or crisis is not necessary or natural. It is purely man-made. By creating open ended entitlement programs for retirees like we’ve done, we have artificially and inevitably pitted the old versus the young. We already have a class conflict for precisely the same reason. These conflicts are man made all thanks to well intended government intervention.
Eventually, utopian promises of win/win welfare or entitlement schemes provided by the government always prove illusory. Always. If the state could really do anything better than private individuals, then the state should do everything. If healthcare is too important to trust to the greedy private sector. Then why not food and clothing as well? in fact, just about every major sector of the US economy is already heavly influenced, subsidized and regulated -- if not completely dominated -- by the state. in many sectors we have private enterprises that remain in private ownership. that is the capitalism part of our system that remains. But, there is no such thing as a free market. we don't have anything close to free exchange of goods and services in housing, education, food, drugs, healthcare … you name it … they are all heavily regulated, subsidized, influenced if not totally hijacked by the state. education. check. banking. Check. infrastructure. Check. housing. Check. food /arga-business. Check. healthcare. Check. telecom. Check. We blame the market for “failing” when in fact we have systematically demolished the market. The point is we shouldn’t have designed and promised a system that we could predict so easily would turn into massive unfunded liabilities to the tune of tens of trillions worth of benefits pledged to retirees.
Some people warn of the coming crisis of “Ageism” I think is called … the conflict between the funding needs of retirement safety net and our ability to fund with productive age households. This conflict or crisis is not necessary or natural. It is purely man-made. By creating open ended entitlement programs for retirees like we’ve done, we have artificially and inevitably pitted the old versus the young. We already have a class conflict for precisely the same reason. These conflicts are man made all thanks to well intended government intervention.
Resolving unfunded liabilities we have promised to retirees will be our downfall, one way or the other. just like all bad habits, entitlement programs are easy to start but hard to end.
here is article that inspire this blog post:
\Updated November 23, 2012, 6:11 p.m. ET
Jenkins: None Dare Call It Default
A nicer term for what's about to sock the middle class is 'entitlement reform.'
· By HOLMAN W. JENKINS, JR.
To call Greece First World may be a stretch, but Greece has defaulted once already, and it is only a matter of time until Greece defaults again. Welcome to default-o-rama, the next chapter in the First World's struggle for fiscal sustainability.
Japan is piling up debt in the manner of a nation beyond hope. France, Belgium, Spain and Italy are defaults waiting to happen unless Europe can somehow generate the kind of growth that has eluded it for decades.
America's fiscal cliff is an artificial crisis. We have no trouble borrowing in the short term. But at some point the market will demand evidence that long-term balance is being restored. President Obama said in his first post-election press conference that he doesn't want any proposals that "sock it to the middle class." He knows better. A long-term socking is exactly what's coming to the middle class, which must pay for the benefits it consumes.
A few years ago, when the economy was humming, a common estimate held that federal taxes would have to rise 50% immediately to fully fund entitlement programs. Today, a 50% tax increase would be needed just to meet the government's current spending, never mind its future obligations.
One way or another, then, entitlements will be cut. Don't call it default. The correct term is entitlement reform.
You saw this day coming and saved for your own retirement. Don't call it default when Washington inevitably confiscates some of your savings, say, by raising taxes on dividends and capital gains. Taxpayers accept the risk of future tax hikes that may make the decision to save seem foolish in retrospect.
According to economists Robert Novy-Marx and Josh Rauh, state and local taxes would have to increase by $1,385 per household immediately to make good the pension promises to state and local workers, including firefighters and cops. That's not going to happen given all the other demands on taxpayers. Default, in this case, is the proper word for cities and states using bankruptcy to repudiate their pension obligations.
Prominent voices ask why the Treasury shouldn't just cancel the government bonds the Federal Reserve has been buying. It's money one part of the government owes the other. Dispensed with, of course, would be the idea that the Fed, in buying these bonds in the first place, was engaged in monetary policy. The Fed was printing money so Washington could spend it.
Now let it be said that inflation isn't fundamentally a solution to the entitlement problem, but the Federal Reserve is being led by increments to accommodate inflationary financing of future deficits. Don't call it default. Inflation is a risk savers are deemed to have accepted by putting their faith in the U.S. dollar.
Here's what you weren't told about Medicare during the presidential debates. Under the Paul Ryan plan, the affluent would pay more. Under the Obama plan, the affluent would flee Medicare to escape the waiting lists, shortages and deteriorating quality as Washington economizes by ratcheting down reimbursements to doctors and hospitals. Don't call either default. You don't have a legally enforceable right to the free care you imagined you were promised.
"Don't worry" was President Obama's implicit message during the campaign: If cutting subsidies for Big Bird is unthinkable, a joke, how much more so cutting benefits for middle-class voters?
Don't go running to a judge when this doesn't pan out. The courts do not overrule changes in government policy just because citizens find their promised free lunch isn't forthcoming. Nor will it be fruitful to appeal to politicians' sense of "fairness." Politicians can be relied on to do what will get them re-elected. And, believe it or not, that is the good news.
If politicians weren't eager to be re-elected, the trust necessary to be an investor would vanish altogether. While there is no escaping our challenges, there is a path in which the economy grows strongly and we don't savage each other, and there is the other path. For years the trustees of Social Security and Medicare were accused of exaggerating the programs' deficits by envisioning that America's long-run growth would become more like Europe's. Now who doesn't fret that America's growth is becoming permanently slower like Europe's?
Which brings us to President Obama. He knows cuts are necessary but seeks to position Democrats politically as the defender of all spending. Notice that, with ObamaCare, he is deliberately creating a constituency of the young to set against the old in future fights over the allocation of federal health care dollars.
Meanwhile, saving the dynamism of the U.S. economy, while still affording an entitlement state, naturally falls to the other party in a two-party system
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