“WASHINGTON (AP) — It’s just about over for a special deficit-reduction supercommittee, which appears set to admit failure on Monday, in its quest to sop up at least $1.2 trillion in government red ink over the coming decade.

“‘There is one sticking divide. And that’s the issue of what I call shared sacrifice,’ said panel co-chair Sen. Patty Murray, D-Wash., on CNN’s State of the Union.

“‘The wealthiest Americans who earn over a million a year have to share, too. And that line in the sand, we haven’t seen Republicans willing to cross yet,’ she said.

“Republicans said Democrats’ demands on taxes were simply too great and weren’t accompanied by large-enough proposals to curb the explosive growth of so-called entitlement programs like Medicare and Medicaid.

“‘If you look at the Democrats’ position it was: “We have to raise taxes. We have to pass this jobs bill, which is another almost half-trillion dollars. And we’re not excited about entitlement reform,”‘ countered Republican Jon Kyl of Arizona on NBC’s Meet the Press.”

We haven’t been paying much attention to the Whiskey Bar. It seemed a nonissue to us.

The $1.2 billion per year they were supposed to cut was only a drop in the deficit bucket. It would be a tiny bit more difference than, say, a horse urinating in the ocean makes to sea levels. Yet the committee couldn’t even agree on the token amounts. Even as a dog and pony show, this has been a disappointment.

They could have just taken congressman Ron Paul’s advice about military adventurism. They could have wiped out about two-thirds of the deficit right there!

But that’s not politically possible right now. We’re not sure how many Americans, in their heart of hearts, truly believe that we’d be overrun with Islamic fundamentalists if the U.S. government pulled its forces out all the countries it’s currently occupying. But we imagine it’s a lot. Just about every politician aside from Dr. Paul seems to agree.

Military adventurism may be the main cause for the red ink that will, likely, lead to a central bank bailout of the U.S. government a la the printing press. But it’s not the only cause. As much as governments love the expensive business of pushing people around abroad, they love buying votes with welfare at home at least as much.

There’s no moral difference between corporate welfare and the more popular kind that includes the so-called entitlement programs. The thing is those measures to “help” and to provide for the aged, infirm and destitute require money from an increasingly impoverished private sector. And the help amounts to subsidization of nonproductive activity and some horrible decisions that other people will have to fund…

We’re home for the holidays, dear patrons. Our sister picked us up from Orlando International Airport last night. These drives from the airport take about an hour. The time and inherent isolation leave far too much room for discussions to turn political…which they often do.

With advancing age, however, your Whiskey Bar editor has learned to keep his big trap shut. When we were younger, we might have felt the need to punctuate every sentence from our driver with a correction. These days, we grunt noncommittally and nod imperceptibly.

Mostly, we just listen. We ask just enough to show interest and to keep the other person talking.

“I saw my old best friend Crystal at Wal-Mart the other day,” our sister was saying. “She looked pretty bad.”

“How so?” we asked. “Did she get really heavy or wrinkly?”

“No, just the opposite. She was so skinny that it looked unhealthy. And she got breast implants that look ridiculously out of place on her skinny, little body.”

“Is she a stripper?” we wondered aloud. “Spending money to look that way would be an investment if she works in a strip club.”

“No, she washes dishes at a restaurant.”

“Hm. Isn’t her husband an unemployed felon? And doesn’t she have (at least) two kids?”

“Yes and yes,” our sister replied.

“So where did she get the money for the implants (which will not earn a return on investment if she’s washing dishes for a living)?”

“She got $5,000 in tax returns last year.”

“OK. How do you get such a huge tax return on a dishwasher’s salary?”

“Oh, after the low income tax credits, she always gets back more than she pays out.”

“And she goes and buys breast implants with this money?!” we asked.

“Yeah, I know. Plus, she’s on public assistance. So she and her husband were at the store using a WIC card to pay $1 for a gallon of milk that would’ve cost me $4.”

“Seems like this attempt to help out the less fortunate is subsidizing some awfully bad decisions.”

Your editor’s sister was growing angrier with each sentence. She continued, “It’s not like Crystal came from a poor home, either. She even had a scholarship to the university. But she partied and didn’t finish school…

“Meanwhile, I sacrificed, finished school and got a good job. Yet I can only afford to raise one child properly, while my tax money goes to pay for her two children and for her breast augmentation. It’s just not right!”

“You’re not kidding!” we agreed.

“If the government is going to give people so much money,” our sister continued, “then the government should put restrictions on what that money may be used for.”

Here we had to part ways philosophically. But as we said earlier, we learned to keep our anti-nanny state opinions to ourselves when dealing with family. We don’t mind sharing them at the Whiskey Bar, however…

We don’t want government telling anyone how they can and can’t spend their money. But we also don’t want governments taking money from one set of people to dole out to another in the first place.

In short, we are against theft and all for personal freedom. (Markets like these things, too.)

The programs that the Democrats refuse to touch appeal to those who believe that there is some mystical collective village, defined by geopolitical borders, in which strangers are financially responsible for other strangers.

The trouble with this is that over time, the people who are being paid for have less and less incentive to work. Meanwhile, the people who pay for them have less and less money to spend on the things that make economies grow. The people in need end up with fewer ways to become less needy.

This is the essence of malinvestment. Some may find it unfair to underscore the point with the story of one white-trash girl frittering away other people’s money on breast implants (and her tax credit is, in the end, simply a transfer payment from net taxpayers to net tax recipients).

While this specific case of new boobs may be unusual, even the smaller and arguably necessary purchases represent malinvestment.

The WIC card she used to buy subsidized milk? That’s money being used to feed children she forfeited the ability to feed herself when she made her decision to drink, instead of making herself employable at a level that supports a family.

If it seems cruel to call any of her children a misallocation, think of the child or two that our hard-working, responsible sibling won’t have because she has to support the care and feeding of her friend’s children. (And for the best primer in unseen costs, please read Henry Hazlitt’s seminal Economics in One Lesson.)

“OK, fine, stop taking from the middle class,” a moderate redistributionista might counter. “But go ahead and take more from the rich. They can afford it!”

We fail to see how it is moral to take by force what someone has rightfully earned or even been bequeathed. We’ll just note that the rich (always denoted as those with some hilariously arbitrary level of income or wealth) tend to be the ones with the capital needed to provide investment and employment…

And in a free market with an inflation-resistant market-chosen currency, their capital investments end up causing goods to be produced and services to be provided more cheaply over time. As long as government doesn’t get in the way by protecting corporations from competition under the auspices of necessary regulation and patent and copyright protection.

This immoral system of stealing from some arbitrarily “rich” segment of society to pay for another segment actually hastens decline.

What about the entitlement which the entitled ostensibly paid for themselves? What about Social Security? A good patron sent us this note with an opinion on the matter we often hear…

“I take exception to a part of one line in your writings of today.

“You said,

‘Forced redistribution in the form of Social Security, Medicare, Medicaid and welfare breed dependence. Over time, takers overwhelm providers.’

“I take exception to you including Social Security in with the other things. Social Security is paid for by me, not the government. The Congress has actually robbed the Social Security funds and then said in effect, ‘Who, us?’

“Remember the discussions about privatizing Social Security? I am not in favor of making me invest my Social Security payments, because I might not be at all smart about the investing and end up with insufficient funds for retired years. (Well, I am a pretty good investor, but I speak of the average person.)

“But the fact is that if the Social Security tax funds were properly managed and invested, there would be plenty of money to pay the ones eligible for the payments. Perhaps the government is not at all capable of good management, and the Social Security funds that I paid in should be managed by an intelligent private nonprofit entity. Of course, getting government to turn loose of that system is probably never going to happen. At least not until we destroy the present Congress and the system that we laughingly call ‘Democracy.’

“Yes, I do collect Social Security payments!

“I worked hard until age 78, and from age 17, I paid a great deal of money in the form of Social Security taxes. I will very likely not survive long enough to get all my taxed payments back, much less collect extra amounts that come from some other source.

“When people who don’t know the facts talk about ‘reducing entitlements,’ I can get very angry when they include Social Security as one of those entitlements. I PAID FOR IT!”

Giving up control of your savings to government in the hopes that they’ll care more about it than you will, and that they have the smarts and incentive to handle it better…may not be such a solid plan.

[Editor's note: For a much more sensible approach to retirement -- and to have an entity a lot more reliable than government fund it -- just click here.]

In any case, Social Security could never be sustainable. Remember that the very first recipient only put in less than $25…but got back nearly $23,000…

If one really expected to get back only what one rightfully earned and contributed…then we have to ask…why bother giving it to the government in the first place?!

Of course, you can’t not give and expect to stay out of prison. So we turn from action to expectation.

In a recent article on older workers and their retirement prospects Dr. Gary North recently had this to say (emphasis ours):

“So here is their situation. They have no savings to speak of. Their houses are falling in price. The unemployment rate is 9%. The economy is flat-lining. The number of future competitors is increasing. The skills required just to stay even are getting more rigorous. Workers in India are able to compete in digital-based occupations. They work cheap. Price competition is increasing because of the Web. Profit margins are tightening.

“For the mass of salaried employees, their careers are based on relatively passive order-taking and repetitive operations. Both of these are being replaced by computerized systems.

“When the survey respondents were asked about their biggest retirement fear, 42% said, ‘I can do all the right things today and it still won’t be enough for tomorrow.’

“So they think the system is rigged against them. They have lost hope. They did not perceive early in life that things do not take care of themselves. They counted on Social Security, but they never looked at the numbers. The article says that 37% said they have no fear because “it will work itself out.” They have been saying this since age 18. They think the federal government will be there to make their golden years comfortable.

“Then we read this: ’29% of people in their 60s have saved less than $25,000 for retirement.’ This is the real world — not the world of those with $100,000 in investable capital.

“The journalistic reports on retirement are upbeat. They appear in popular media that sell advertising space for ‘investing for retirement.’ They cater to the 20% who do have assets of over $100,000 to invest.

“As it becomes clear to younger workers that the existing government-funded system is rigged against them, that the system really is a Ponzi scheme, they will revolt. They will vote for candidates who tell them that their futures are being sacrificed in the name of statistically doomed programs that will go bust when they retire. They will then vote in their own self-interest.

“The two big welfare systems still find political support because those on the dole or close to it vote in their own self-interest. They vote in higher percentages than younger workers do. But statistically speaking, they are in the minority. Those on the positive end of a Ponzi scheme always are. When the voters who pay the taxes finally realize that the Ponzi scheme really will go bust before they cash in, they will elect congressmen who turn off the spigot in the financial bathtub.”

The sad truth is that Social Security has always been just another transfer payment. It’s a bit harder to see because we all have to actually pay something into it. Unlike other transfer payments that occur in the present, Social Security was set up as a transfer payment from the future to the present and past.

Either way, it’s as unsustainable as the transfer payments of the working to the unproductive. As unsustainable as the military adventures. What we have is a government that has long since run out of money to pay for things that only destroy capital, no matter how politically popular they may be.

Eventually, our government — along with the rest of the Western World — will lean on the central bank to ease the deficits…to become the buyer of the government’s bad debts when no one else will.

Understand that that day is coming. The U.S. government’s credit card will be cut. Then the central bank will step up and set the currency ablaze. It will bail out the government and sink the rest of the economy.

Regards,

Gary Gibson

Did Anyone Really Think the Supercommittee Would Make a Difference? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I truly do enjoy your insights on the Whiskey & Gunpowder posts. These ideas are very much in tune with what is going on. But why do you and others insist that Social Security is somehow an entitlement? No matter what the immoral politicians did in stealing our contributions to the Social Security Trust funds, the fact of the matter is that I paid in all of my working life. And furthermore, so did my employers and this too distorted what I should have earned. This money, well over $300,000, was paid in and now I expect it to be returned, even if it is way more worthless now. You act like somehow this should be ignored and the State owes me nothing for my contributions. Bull shit, my man!

Dear patron, those funds you put in aren’t just “stolen into” the Social Security. They’ve been stolen out as well.

They’ve been used to pay earlier “investors.” That’s why we keep referring to this scam as one of the Ponzi sort.

If you were an early contributor, congratulations! You’re going to do a lot better than anyone coming after you. But you still probably won’t do as well as Ida May Fuller, the very first recipient of a Social Security check in the U.S. She received her first check for $22.54 on January 31, 1940. She continued to receive checks till her death in 1975.

Ida May only had to pay into the newly minted system for a mere three years. Her total payments came to a scant $24.75. (To be fair, her employer had to match that amount.)

Here’s the chart of her contributions and covered earnings as prepared by one Larry DeWitt for the SSA.

By the time of her death in 1975, however, Ida May had collected $22,888.92 from Social Security monthly benefits. Now THAT is an investment strategy. Warren Buffet, eat your tax-shilling heart out!

Like most successful investment strategies, however, it required some timing. In fact, since it’s a Ponzi scheme, the only real way to win was to be first in line or as close to it as possible.

In the case of Social Security, aside from being early to the party, it also helps tremendously to refuse to die so you can collect as long as possible. Ida May lived to be 100 years old and managed to collect monthly paychecks for 36 years.

Let’s review. Ida May put in $24.75. Ida May collected $22,888.92.

Total amount invested: $24.75

Total return on investment: $22,888.92

She got that money because a lot of other people were forced to “pay it forward” by means of their own involuntary contributions. They were forced to fund Ida May with the “contributions” (handed over on pain of imprisonment) ostensibly being put aside for their own Social Security payouts later on.

This is the very definition of a Ponzi scheme. Returns of earlier investors are paid for with funds from later investors. And this Ponzi scheme has a twist: It’s an offer you can’t refuse. You can’t opt out (unless you’re Amish). Contribute or go to jail.

Again, your Social Security funds are gone. They have already been handed over to your parents and grandparents. There is nothing there for you. The money you expect to collect from this scheme will have to come from your children and grandchildren.

Two wrongs don’t make a right last time we checked. The government stole your money. Would you have them steal from your children’s money…and your children’s children’s money to make up for it? Do you subscribe to the Warren Buffett school of morality wherein more theft is a fine way to cover up past theft and misallocation?

Not to put too fine a point on it, but I really don’t think you’re going to make out with this federally-instituted transfer scheme as well as dear Ida.

Ponzi Social Security Pays It Ever Forward was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Just since 1960, the percentage of men over 65 still working has dropped by half. And the average retirement age keeps falling. It’s down to 62, which gives the average man 18 years to be retired in its current meaning. It is not unusual to see people ending their careers in their mid-fifties.

This is one of the monumental changes in the fabric of society wrought by the government that has so altered the integrity of the people.

As someone on a payroll until the age of 79, and now employed on a non-compensated basis, I came to see that I was regarded as something of a freak. Was I trying to set some sort of record? Had I failed to accumulate a large enough estate?

There seemed to be some feelings too that I was somehow un-American, and a poor reflection on a generation that is supposed to be enjoying the good life.

Observing my generation opt for leisure, I see all sorts of adaptations. One described his life in Florida as meeting the same three golfers on the first tee at the same time each day for nine holes, then lunch in the clubhouse, nine holes after lunch, shower, gin and tonic, and then back to the condo to dress for dinner. When asked if this was the routine for every day, he said, “No, I help my wife clean on Tuesday.”

This is what I’m supposed to aspire to?

Another friend, in answer, said, “I sleep as late as I can because I don’t know what to do when I get up.”

The remark heard most frequently is “I’ve been so busy since I retired, I don’t know how I ever had time for my job” or “Retirement is so wonderful, I should have retired sooner.”

At this point it might be in order to ask — “Busy doing what?”

Many of those who retire at 55, 60, 65, or 70 are some of the most experienced, knowledgeable, and capable people in the workforce. Rather than occupying positions that might be available to younger people, they could be creating and expanding job opportunities for others.

There is a sense of self-worth that comes from working to a purpose that is essential to well-being, whether the task involves major responsibility or physical exertion, as both require diligence and daily attendance.

How did we come to this slough of despondency? Like so many of our present disorders, it was the siren call of the great white father in Washington: “Come unto me all ye who labor and are heavy laden and I will give you rest.”

With Social Security, Medicare, and public pensions, the government has created a large new class of dependents who see no necessity to save or to accept responsibility for themselves, their offspring, or their parents.

As this fatally flawed scheme proceeds toward disaster, the beneficiaries are so insistent that their benefits be maintained and are such a strong political force, that few congressmen have the temerity to say publicly what everyone knows: payments cannot be sustained. Those who are working are paying benefits that will not be available to themselves.

Buddha on his deathbed admonished his followers to, above all, observe strenuousness. How strange that sounds in today’s world. Our culture denies this essential virtue to our seniors, who have become dilettantes.

As we observe able-bodied citizens hiking the malls or sampling the midnight buffets on the cruise ships, we are struck by their purposelessness, and the overwhelming boredom they manifest. There is no need to arise in the morning, or any necessity to go to bed on time. Their reason for existence has ceased. They have lost the respect of those who support them, and lost their self-respect in the process.

A story is told of one who had led a long and eventful life. When the time came to cross the deep lake, he was pleased with the skiff and the oarsman as well as his welcome and the accommodations furnished him. The surroundings were beautiful, the weather pleasant, and the food more than adequate. After a few weeks, he wanted to try his hand at gardening again, but that could not be arranged. After repeated requests to work in the dining hall or on the grounds, he cried in exasperation, “This is no better than Hell.” The reply came from above, “Where did you think you were?”

Irving Babbitt reflected on the nature of work, how it was seen in the past as a God-given calling, and indeed served to define a person. With the loss of vocation has come a loss of identification.

To remedy this loss does not require legislation or public awareness. The solution is within the grasp of everyone who has decided to continue to be productive. It often means a change in occupation. It may mean giving up benefits and accepting a lower wage, or no wage at all. But a reason for living, and a retention of identity, are surely sufficient remuneration.

Regards,
William Diehl
Whiskey & Gunpowder

March 14, 2011

Never Retire was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The commission added the current budget trend is a disaster “that will destroy the country from within” unless checked by tough action in Washington. The tough action required is spending cuts in programs, including the so-called nondiscretionary, eating most of the federal revenues.

Federal tax receipts for 2009 totaled $2.1 trillion. The largest items in the federal budget were Social Security ($710 billion), national defense ($689 billion), Medicare ($456 billion) and Medicaid ($327 billion). The primary recipients of federal spending are seniors. Many of my readers have written me to argue that it’s unfair to characterize what seniors are getting as handouts because they worked all their lives and paid into Social Security and Medicare.

Jagadeesh Gokhale, senior economic adviser, Federal Reserve Bank of Cleveland; and Laurence J. Kotlikoff, professor of Economics at Boston University document the looming Social Security and Medicare crises in “Is War Between Generations Inevitable?”. They report that “A male reaching 65 years of age today (in 2000, the year of their study) can expect to receive $71,000 more in government ‘transfer’ benefits (of all kinds at both the federal and state levels, but mainly from Social Security and Medicare) than he will pay in taxes (of all kinds at both the federal and state levels) before he dies. A 65-year-old female can expect a net gain of more than twice that amount; she can expect $163,000 more in benefits than she will pay in taxes.”

The picture is not so rosy for people who entered the labor force in 2000. They will pay far more in taxes than they will receive from transfer programs. Expansion of elderly handouts, such as prescription drugs, will make things worse. “For example: A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime. The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will ever receive in benefits.”

Why is Social Security a better deal for today’s seniors? Just look at what they paid in. From 1937 to 1949, the maximum annual Social Security tax was $60. It remained under $200 until 1956. After 1956, Old Age, Survivors and Disability Insurance was added and in 1966, Medicare was added. It wasn’t until 1969 that maximum Social Security taxes exceeded $2,000. Today, the maximum annual Social Security tax is $13,000 and the maximum annual benefit is $25,000.

As with any Ponzi scheme, the people who get on board early make out. This is pointed out by Geoffrey Kollmann and Dawn Nuschler of the Congressional Research Service in their report “Social Security Reform” (October 2002) They say, “Until recent years, Social Security recipients received more, often far more, than the value of the Social Security taxes they paid. … For example, for workers who earned average wages and retired in 1980 at age 65, it took 2.8 years to recover the value of the retirement portion of the combined employee and employer shares of their Social Security taxes plus interest. For their counterparts who retired at age 65 in 2002, it will take 16.9 years. For those retiring in 2020, it will take 20.9 years.” My question is: How can anyone who draws out every penny he’s put into Social Security in a few years say that he’s not living at the expense of another?

It takes a special form of callousness and disregard for the welfare of future generations of Americans for today’s senior citizens to fight against reform. Nobody’s talking about abolition of federal senior programs. We must accept that serious mistakes were made and we must take compassionate corrective action. But what the heck! Both today’s politicians and seniors will be dead so why should they make sacrifices now to prevent an economic calamity decades off into the future?

Regards,
Walter E. Williams
LewRockwell.com
for Whiskey & Gunpowder

August 25, 2010

Avoiding the Looming Disaster of Social Security was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

One of those bad decisions, Social Security, still haunts America today like the grim reaper waiting to take his harvest. It’s strange to think the same men who courageously stormed the beaches of Normandy didn’t have the political courage to dismantle this ticking time bomb. If it wasn’t for WWII veterans, many believe that this article would be written in German. That might be true. But due to an exploding national debt and that generation’s failure with Social Security, we’ll be speaking Chinese sooner than German.

The lack of political will isn’t surprising since most past retirees were net gainers from Social Security while new retirees are net losers. Older folks love bemoaning runaway spending, welfare queens, and handouts. But often they don’t consider their own gains from the welfare state.

As Social Security taxes increased over time, so did the benefits. Essentially, previous generations paid into the system when taxes were low and retired when the benefits were high. A retiree’s maximum tax loss from Social Security in 1940 was $923 in today’s dollars. Compare this to the current maximum of $13,243.

To find the dividing line between net gainers and losers, we created a projection assuming an individual with a salary equaling the top taxable Social Security limit for 45 years (to get an idea of this amount, consider the limit was $3,000 dollars in 1940 and $106,800 in 2010 – both nice salaries). Our test dummy paid the maximum Social Security taxes every year.

On the other hand, upon retirement, he would receive maximum benefits. According to the Social Security Administration, maximum taxation is a prerequisite to maximum payouts. Next, we added Social Security benefits received over 13 years (derived from the average U.S. life expectancy of about 78). Finally, we calculated the difference between taxes paid over 45 years and the payouts received for 13. The results were shocking.

Before 2007, our projected retirees were net gainers from Social Security. 2007 retirees were the first net losers at -$411. By 2011, retirees will be -$40,403 in the red.

In the ‘80s, a Greatest Generation survivor retiring at 66 in 1985 received a net gain over his expected lifespan of $113,350 in 2010 dollars. Just a decade down the road, a 1995 retiree still profited by $67,982.

While welfare is often equated with public housing residents, perhaps nursing home residents should be considered too. These Social Security payments outweigh many welfare handouts. For example, California’s maximum TANF (welfare) payments for a family of three were $9,373 a year in 2005, inflation-adjusted for today. It takes over 12 years of welfare to equal the 1985 retirement net gain. (To be fair, if housing subsidies, food stamps, and other benefits were included, the number of years would be lower.)

So, are pre-2007 retired generations complete bums? Well, not exactly. It depends on how the money would have been spent otherwise. Suppose that instead of paying Social Security, the same amounts had been placed into an account earning five percent a year.

After 45 years starting in 1940 and ending in 1984, this account would have been worth over $297,000 in 2010 dollars. This is $44,000 more than 13 years of Social Security benefits starting in 1985.

Hence, older retirees are bums on a case-by-case basis. An investment-savvy penny-pincher would have lost from Social Security. Without the program, he could have invested privately. But spendthrift retirees benefitted enormously. The responsible saver is punished and the careless spender rewarded – the same old story of welfare retold for an older generation.

How Much Do You Really Pay for Social Security?

The government has pulled a fast one on most people. You pay half the Social Security tax and your employer pays the second half, right? No, wrong. You actually pay both.

Let’s go through this example to understand the point. Let’s say that a person earns $100,000 a year and pays $6,000 in Social Security taxes and the employer pays $6,000. In the eyes of the employer, the person’s services are worth $106,000 ($100,000 salary + $6,000 in Social Security taxes), that’s how much he costs the employer.

Now, imagine what would happen if Social Security taxes disappeared overnight. For a little while, the employer would profit by paying $100,000 for an employee worth $106,000. However, in a free market, prices move toward levels equaling the underlining value. Just like good underpriced stocks will eventually move up, so does the price for good undervalued employees – although, both may not be immediately appreciated.

Eventually, the person’s wages would be bid up in the market from $100,000 to $106,000. Because of this, the employer’s half is actually your half too. Without Social Security, your wages would be close to your value to the employer, in this case, $106,000. So, in reality, the person pays $6,000 in taxes and makes $6,000 less than he would in a completely free market, meaning that the real loss is $12,000 per year.

Regards,
Vedran Vuk
Whiskey & Gunpowder

April 8, 2010

When We Could Afford the Welfare Scheme of Social Security was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Muchas gracias, crew, for demonstrating vividly that I can be at least as dense as the next racist, homophobic, intolerant, Neanderthal, semi-literate redneck. (I am always fascinated by how quickly the Uber Left can come up with attacks that all good Statists adopt immediately, baying for what we thought was our 100% American red blood over what we consider traditional values.)

The cream of the jest is that Little Mrs. “I’m So Prepared” missed what we call “a real sitter” in the professional (Duplicate) Bridge world, something so “obvious” that a tyro shouldn’t overlook it. This is very good for my character, and not only am I ‘fessing up to the entire readership but I am truly grateful for the very kind correction. Real friends tell us when we’re wrong or have overlooked an important factor, and I sure was and did.

Let us get into the twenty-first century and consider the issue of when to begin drawing Social Security. I’m not making an excuse, but I had to make my decision in 2004, prior to the time when I realized the economy was going off the rails pretty permanently. I was thinking in terms of relative stability, low interest rates, and a very bad example set me by my mother, who took it into her head after her third bout with cancer that she was going to die young and was determined to recover some of what she had paid into the Social Security “trust fund.” Mother worked before we were born and Daddy was in the Navy and gone a lot, but other than that she worked only on contract after we were grown. At 62, Mother signed up at a time when she had no need for the money. In due course my father died, leaving Mother quite well off, but she made some spectacularly bad decisions, and the time came when she regretted bitterly what she had done. She lived to be eighty, and for the last several years even an additional $700/month would have been very comforting.

If we look at it in classic terms of amortizing, my decision was an excellent one at the time. (I really do feel so dumb!) I worked the figures out, and if I lived ten more years, until 2014, I would be far better off to take twenty-one hundred dollars two years later than fifteen hundred at the time. That was a good wager actuarially in ’04, but that, as we frequently say, was then. This is now, and it is high time to consider the probable future of Social Security, the declining dollar, the near certainty of rampant inflation, and a lot of factors we all expect to change both America and Social Security, probably in no more than the next eighteen months.

Social Security slipped over into the red this winter, six years ahead of schedule, due primarily to the decrease in tax revenues which were down over 17% the last time I looked.

The brouhaha over Obama “care” has brought the nonexistence of a valid Social Security “trust fund” to the attention of far more Americans, along with just how much Medicare and Medicaid are racking up deficits. It is now quite widely-known that the “non-negotiable” IOUs in the putative SS “trust fund” have no value at all, and that the 40 to 1 ratio between those paying taxes and those receiving checks is approaching 2:1 and expected to go negative in this decade. The thousands of dollars you have “invested” in a government pension have been embezzled from the very start, the “fund” is a chimera, and even politicians finally realize that the problem is serious. Consequently, Congress has lascivious eyes turned towards your private pension plans (IRA and 401(K) in particular), planning on looting some twelve trillion dollars–for which they will give you a “Guaranteed Retirement Account” backed by the “full faith and credit” of the US government. Feel free to laugh hysterically–at least, if you are already retired. There are plans for cutting increases, lengthening the time until SS can be initiated, and raising expenses and reducing services for mandatory Medicare. The most outrageous facet of all is the idea of levying an additional tax upon the more successful by “means testing.” The redistribute-the-wealth crowd intends to determine what means are “sufficient” for you and erase any pretense that SS taxes are a way of accumulating value which will be returned to you when you are too old to work. I have a very small pension from the Army which a grateful Congress CUT by 1/3 a couple of years after John died, demonstrating that no government promise is to be relied upon.

What’s the age requirement up to now, for most middle-aged and younger people? 67 1/2, or more? If the COLA increases remain frozen after three years, as they well might, the premiums and surcharges go up, the minimum age is raised, and “means testing” is initiated, no matter what happens to the economy it sounds like an excellent idea to run the numbers for your particular circumstances. One of the more appalling features of Obama “Care” is that it grants the government direct access to your personal bank accounts, and I can envision retroactive taxes or cuts being removed without your permission or even knowledge.

What I think particularly idiotic of me was not considering the value of money now compared to what I anticipate it to be in the future. It seems quite dim-witted to have made a deliberate policy of turning Federal Reserve Notes into items with intrinsic value at flank speed myself, but to have failed to consider that many of you have anticipated income which might well be worth more to you now than it will be in 2015. It would be advisable to consult a financial planner, and my first thought is to ask Gary North, since I have had some interesting experiences with interviewing and engaging financial experts after I was widowed. Those I am acquainted with tend to be a very sanguine bunch when recommending investments and anticipating brilliant success, but at least some of them jump ship without notice after sticking your nest egg in an arrangement that carried a hefty penalty to AIG–which I had never heard of, back then–for early withdrawal. It took me over two weeks to find out where my funds had gone, between two mergers, a sale, and four changes in account managers! (I was a lot more naive in 2004.)

I have yet another sin to atone for. I attributed something to Bill Bonner yesterday that was actually written by Taipan Daily’s Editor Justice Litle, another of my favorites and part of the home team. Justice wrote,

“No Money, No Problem

This reality is brought to mind by three alarming observations:

Many baby boomers (i.e. the bulk of U.S. consumers) have little or no savings.

They do not seem to care about this.

Rather than save, they have decided to spend what little they have left.

Every year, the Employee Benefit Research Institute issues its “Retirement Confidence Survey.” This survey measures the attitudes and financial positions of American workers in relation to retirement.

According to the survey’s findings released earlier this month, “the percentage of American workers with virtually no retirement savings grew for the third straight year.”

A whopping 43% of workers surveyed had less than $10,000 saved for retirement. A full 27% had less than $1,000 put aside.

Ah, but maybe home equity and defined benefit pension plans will save the day? Not when great swathes of homeowners are “underwater” or “upside down” on their mortgages. Not when pension shortfalls, both public and private, are the next multi-trillion-dollar time bomb waiting to explode.”

If you do not read TD I recommend it highly; if you drop an e- to taipan@taipanpublishinggroup.com probably some genial soul will start sending it to you. Justice is wise far beyond his roughly thirty years, as knowledgeable as one would expect of an Editor for Agora, and an excellent writer. He is also, in my opinion, an absolute darling, but that probably doesn’t count as a professional qualification. Forgive me, Justice. Does it help any that I attributed your words to the Big Boss?

Adam Hopkins (who handles getting my articles on W&G) asked me to check my source, and I was doubly humiliated when I discovered my statistics were off, as well, a faux pas in my profession so serious I may not recover for a year…and I have to admit to yet another error. Adam requested that I tell you that “Lights Out” is available to read on the Internet and the author styles himself “HalfFast.” (No comment.) William Forstchen is the author of the superb One Second After, which I wrote as “The Day After.” I have been a big fan of Forstchen’s for years, and think One Second After is an important work…no explanation.

Thanks for keeping me straight, Adam, and I’ll be scrupulously careful from now on instead of relying on my usually good memory for figures and authors.

No excuses, Shooters. You have a right to expect the very best analysis and most punctiliously correct statistics, and I dropped the ball into my idea of the Grand Canyon. I let both of us down, and I am deeply embarrassed and determined not to make another mistake, ever again.

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

April 2, 2010

I Stand Corrected! was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The first public retirement pension scheme was created by Otto von Bismarck in 1880 Germany. Fifty years later, during the Great Depression, Franklin Roosevelt followed suit in the United States. As we’ve seen, the number of people expected to reach the retirement age of 65 was not considered to pose a threat to future funding. Life expectancy in 1935, in the United States, for example, was 76.9 for men. Workers relying on the plan for retirement would not receive much each month and were not expected to live long enough to drain the system.

When Social Security was founded, the typical U.S. worker at age 65 could expect to live another 11.9 years. But if today’s official projections are right, by the year 2040 the typical 65-year-old worker can expect to live at least another 19.2 years. If the normal retirement age had been indexed to longevity since 1935, today’s worker would be waiting until age 73 to receive full benefits and tomorrow’s workers even longer.

In a report called “Demographics and Capital Markets Returns,” Robert Arnott and Anne Casscells argue that the crisis is not in Social Security, but in demographics. “When an entire society ages,” suggest Arnott and Casscells, “…the thing that matters most is the ratio between the workers to retirees. Unfortunately, the aging of the baby boom generation, which is a significant bulge in population, will cause a dramatic increase in the ratio between workers to retirees, one that will put enormous strain on society and cause friction between generations.”

In the United States, as in other developed countries, the unfunded benefit liability for public pensions amounts to 100 percent to 250 percent of GDP. It is a “ hidden debt ” far greater than official public debt. Unlike in the private sector, these debts are not amortized as expenses over 30 to 40 years. 21 And it may be worth pointing out that under normal conditions economies do not run such crushing deficits. They only do so in crisis mode.

The annual cost of Social Security benefits represented 4.4 percent of GDP in 2008 and is projected to increase to 6.2 percent of GDP in 2034, and then decline to about 5.8 percent of GDP by 2050 and remain at about that level.

A Bubble in Health Care

And to the retiring boomers’ other doubts and insecurities, we might add that U.S. health care costs are expected to rise by 7 percent of GDP over the next 40 years—a rate that is more than twice as fast as other developing nations. The “old old,”—those aged 80 and over—are predicted to rise sharply through 2050 and will dramatically increase long – term care costs as well as disability, dependence, and health care expenses.

In fact, by official projections, in 2030, the U.S. government will be spending more on nursing homes than it spends on Social Security today. “Although people justifiably worry about Social Security,” says Victor Fuchs, an economist who studies the health care industry, “paying for old folks’ health care is the real 800-pound gorilla facing the U.S. economy.” 23 Adding projections for Medicare and Medicaid ’s expenditures to those of Social Security could raise the total cost to more than 50 percent of payroll taxes.

The fiscal kickers of health cost inflation and political demand for more long-term care benefits threaten to raise public spending dramatically in the United States. Between 2005 and the fall of 2008, we spent two and a half years chronicling the efforts of David Walker, the former comptroller general of the United States, and Bob Bixby, executive director of the Concord Coalition, to reign in reform and shore up the Social Security and Medicare systems. The project yielded a feature length documentary film, which earned us a trip to the Sundance Film Festival in January of 2008 and another to the Critic’s Choice Awards in Los Angeles a year later. We published a best-selling companion book of the same title in late 2008. You’re encouraged to delve into the numbers we presented in the film and book. They’re truly mindboggling. But in many ways the project was dated the moment we released it to the public.

The credit crisis that reached a fever pitch developed in 2008 pushed the date of insolvency of these programs ever closer. On May 13, 2009, the Medicare Trustees warned that the fund they tap to pay for beneficiaries’ hospital care will be insolvent by 2017—two years earlier than trustees had predicted the year before. The program has been paying out more than it collects in taxes and interest since last year, in part due to a recession well underway. 25 Medicare would have to deposit $ 13.4 trillion—$ 1 trillion higher than last year’s estimate—into an interest-earning account today in order for the hospital fund to pay its scheduled benefits over the next 75 years. The program’s total unfunded obligation, which includes doctor and prescription drug benefits, is $37.8 trillion. The trustees estimated that in coming years, Medicare spending will rise faster than workers’earnings or the economy as a whole.

Trustees say that while the financial standing of Social Security decreased more sharply than Medicare last year, the health program remains at greater risk of insolvency. The financial difficulties facing Social Security and Medicare pose serious challenges, the report concluded.

For Social Security, the reform options are relatively well understood but the choices are difficult. Medicare is a bigger challenge. Its cost growth can be contained without sacrificing quality of care only if health care cost growth more generally is contained. But despite the difficulties—indeed, because of the difficulties—it is essential that action be taken soon, particularly to control health care costs.

After the revised Social Security and Medicare announcement the world began to wonder: Can the U.S. hold onto its AAA credit rating?

“The U.S. government has had a triple-A credit rating since 1917,” David Walker, now president and CEO of the Peterson G. Peterson Foundation, commented in the Financial Time s following the release of the Trustees report, “ but it is unclear how long this will continue to be the case. In my view, either one of two developments could be enough to cause us to lose our top rating.

“First, while comprehensive health care reform is needed, it must not further harm our nation ’ s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future.

“Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.”

Of course, we must note that the whole credit rating biz is…well…corrupt. The agencies that are responsible for dishing out sovereign credit ratings (S & P, Fitch, and Moody’s) are the same ones that left us all out to dry in 2007. (Of course, mortgage – backed securities get a AAA…housing prices never fall!) Rest assured, if Wall Street can buy its way into AAA, Uncle Sam surely can, too.

But even Moody’s is starting to hedge their bets. They’ve since created three subdivisions within their AAA rating: resistant, resilient, and vulnerable…a corporate way of saying the good, the bad, and the ugly. While the United States isn’t in the worst of the bunch, it’s certainly not the best.

Regards,
Bill Bonner and Addison Wiggin

August 6, 2009

Excerpt from “The Hard Math of Demography” was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Ponzi promised 50% profit in 45 days or 100% profit in 90 days; investor’s choice. He originally bought Postal Reply Coupons in other countries and then cashed them in the USA. Due to the foreign currencies exchange-rate differences, it was a form of arbitrage. But the paperwork to make this happen was so involved that there was just not enough profit to warrant all the work required. That didn’t slow-down Ponzi, however. He kept promoting his scheme despite the lack of actual Postal Reply Coupons in his vault.

So the concept of taking money from one person early-on and then repaying that early person with monies obtained from later investors has been called a “Ponzi Scheme” ever since. Sound like anything else in which you’re forced to participate?

It wasn’t even original to Ponzi. Charles Dickens described a similar scheme in “Little Dorrit” which was published before Ponzi was born. Speculation is that Ponzi actually learned of this concept from William F. Miller, a Brooklyn bookkeeper who used the same pyramid scheme in 1899 with which he took-in $1 million.

Charles Ponzi was always a ne’er-do-well throughout his life. Bernie Madoff by comparison, had developed an impeccable business reputation. Furthermore, Bernie kept within the realm of reasonable expectations; high though they may have been. Bernie also operated his scheme during a period of generally increasing stock prices.

So now that we’ve sentenced Madoff for “high crimes,” when are we going to sentence the SEC (the Swindler’s Encouragement Committee) for their crimes? After all, one Harry Markopolos sent letter after letter to the SEC over a 10-year period telling them that Madoff was doing something illegal. Markopolos even provided calculations to prove that Madoff couldn’t possibly have accomplished what he claimed. In their infinite wisdom, the SEC ignored Markopolos and allowed Madoff to continue his Ponzi scheme. Shouldn’t the SEC be held responsible? We’re told time and again that we needn’t worry – the SEC (read government) is here to protect us from financial fraud. Right! Most investors do rely on SEC oversight, and Madoff was right at the very top of their good-guy list. Now, the very agency that allowed this to happen right under their noses not only goes Scott-free but is being allocated still more money for their budget needs. Are you beginning to see the picture here? Talk about rot on the vine!

Just how unusually evil were Madoff’s actions? Not that unusual. In fact, the whole notion of paying off past investors with the funds of present investors is at the very core of our Social Security system. At least Madoff sought the consent of his investors who let him “invest” their money based on their own free volition. Do you have anything to say about the withholding of Social Security taxes from your paycheck? And at least Madoff didn’t attempt to then defend himself with the claim that he was conducting wise public policy.

It never ceases to amaze me that “the folks” continue to permit the government to play this charade. Invariably, the government messes-up some program and then says by way of excuse, “we were overworked, understaffed and didn’t have enough money to do it correctly.” And then they get even more money for that failed project, yet the project continues to fail. Many of FDR’s “programs” from the 1930s were later ruled unconstitutional yet they still exist in Washington, District of Criminals. Their excuse is that they are still “winding-down” those programs in preparation to then end them. Don’t forget that the Department of No-Energy created under the Carter Administration now employs over 100,000 bureaucrats, operates with a budget in excess of $100 Billion, and has yet to accomplish it stated objective – that of helping the USA become energy-independent.

Back in the 1980s, a “creative” teenager by the name of Barry Minkow, formed a company in Los Angeles called ZZZZBest. He took his company public in 1986 and was considered a real hot shot in the business world. Well, of course, it was a sham and Barry went to jail. But now Barry works for the government helping them ferret out other crooks. “It takes one to know one” seems to work. So why not put Madoff to work helping the government root-out all the other Wall Street crooks? Chances are he knows all of them on a first-name basis.

Sincerely,
Tex Norton

July 7, 2009

Bernie, Ponzi and Social Security was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Enough about animals; let’s examine how America has, and is being killed.  In the main by two methods:  (1) Currency destruction, and (2) Weakening the populace.  The currency destruction is inseparably linked to the second method.  Before FDR, people used to plan for their retirement, save in sound dollars, own a home, or in a hundred ways, plan for old age.  Americans were strong, intelligent, hard working, and knew that if they didn’t plan for retirement and old age, they might die early.  Did it work?  Of course!  Naturally, the weak and stupid didn’t plan for their old age, and guess what?  They died early, which is as it should have been.  Just like stupid animals, they couldn’t survive if they didn’t act and plan properly.  An animal has to find a place to live, build a nest, store food, and the like.  People had to pay their debts, pay off their home, save money, and PLAN.  If they did, all was OK.  If they didn’t, they died early.  The human strain was kept strong by this method, just like in the animal kingdom.

What stopped this necessity to plan and save?  Social Security, for one.  Government would take care of the oldsters, and remove their duty and necessity to care and plan for themselves.  Government would force a deduction from their paychecks, put it away for them, and then when they retired, all would be well.  This, of course, weakened the populace.  They no longer had to plan, save, sacrifice, and work hard for their old age.  The weak no longer failed and died.  They lived, and continued to live, when they should have, by all logical means, been dead and buried.  By staying alive, they became and become a burden on the rest of the populace and families.  Does this sound coarse, mean, crude, and ungodly?  Maybe it does to you, but it is so logical.  The Social Security scheme, like all other government “plans” and bureaucracies, have ruined the value of the dollar.  Forced, compulsory, Social Security, like all other government entitlements, has become a disaster.  There are far more retirees than workers, and the original 1% deduction, now is close to 20%, still not enough, thereby weakening all of us.  As if that weren’t bad enough, government continues to lie about inflation, which it causes, so the welfare checks are far less than they should be; thereby screwing the supposedly well cared for recipients.  No one can live on a Social Security check today, even though we have all been forced to pay through our noses to support it.  The entire American citizenry has been made weaker, made unable to care for itself, and at the same time been stolen from in a wholesale manner.  Government then, is killing its citizens and itself at the same time.

Originally, there were no public schools.  Everyone taught their kids at home.  Literally, or in a private or religious school. Caring, smart parents taught them well, and the kids succeeded. America, a hundred years ago was far more educated and cultured than now.  By knowledge and skills of reading, math and other subjects, the eighth grader of a hundred years ago compares equally with today’s college student or maybe even graduate. This was without any public schools.  The stupid parents who didn’t teach or show caring, demonstrated it in their kids who failed in life, probably died early, and didn’t become a burden on the rest of society.  Next, there were thousands of one-room schoolhouses, paid for by the local populace, and these schools did very well, but it was the beginning of large public schools, which seem to be not much more than baby sitters.  Home schooling has once again become the smart thing to do by caring parents, because they realize that government schools are a disaster, like every other government scheme and “program.”  Public schools now consume three quarters of all property taxes, and do a lousy, expensive job.  Catholic parents usually send their kids to parochial schools which are in no way “public” and not paid for by taxpayers.  Wealthy parents may have sent, and still do, send their kids to private schools, not paid for by taxes, and they always did and still do a fine job.

Government schools had to fail, like all “programs” fail, because of inefficiency and cost.  The failure and cost of public schools is partially responsible for populating the streets of America with thugs, criminals, druggies, shoplifters, burglars, rapists, and all sorts of riff-raff, which should be dead, and maybe not have been born in the first place, probably. Trash, uneducated, uncaring people seem to multiply at enormous rates and cause a lot of crime, don’t they?  Cruel, ungodly, and coarse?  Maybe, but picture America if there had never been a public school, and every child had been home-schooled or sent to a private school, paid for by its parents, with little or no property taxes, and no terrible, microscopic educating in failing public schools.  There would be thousands and thousands of private schools operating for profit, and competing with each other for achievement, being used by parents who chose not to home-school.  No teachers unions and inept teachers.  There couldn’t be because competition in the market wouldn’t allow for it.  There would be schools specializing in cooking, engineering, language, math, or whatever the parents chose for their kids.  There would be an abundance of religious schools, paid for by churches and parents of pupils, but no drain on taxpayers of any kind, and superb education.

The public school systems, even in small towns like the one I live in, have proved to be expensive disasters.  Homeowners are being taxed severely to pay for these incompetent, inefficient, poorly educating, sinkholes of fading dollars.  So ingrained have public schools and Social Security become in the American mind, that most will disagree with my thesis.  They will moan and groan about how, “We have to care for old people and educate the children,” even though facts and logic prove that the opposite has happened, and cost a fortune in dollars and crime.  America has inflicted wounds on itself over the last hundred years, because the general public opinion is that, “People need to be helped and taught,” regardless of the cost or lack of success at either.  Perhaps 1% of America will agree with me on this first part, because they are so mind-numbed by government propaganda, the media, and the garbage they themselves have learned in classrooms of public schools.  Government and “programs” always come out ahead, and are painted as glorious and wonderful by the media, schools, and bureaucrats.  They are the opposite, and are partly responsible for the killing of America.  Once something gets started, regardless of the total illogic of it, such as public schools and Social Security, there is a zero chance of obliterating it, because so many have become dependent, and thereby weak.  How can a nation survive if it is weak?

Regards,
Don Stott
www.ColoradoGold.com

December 08, 2008

Public Schools and Social Security: Killing America, Part I was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.