Recently in a comment I mentioned that, while I don't draw on Social Security, I feed at the public trough by other means--my Civil Service annuity. In this way you readers support my life of relative leisure, devoted to discussing moot matters. In my defense, I work hard at this, but that doesn't change the fact that the general public doesn't get a choice--even if the individual contributions to my annuity are miniscule.
Call it belated pangs of conscience--I never thought of these things when I was in my 20s and I'm not sure what I could or would have done differently. I think these considerations first came home to me when the federal government switched retirement systems from CSRS to FERS and tried to talk legacy folks like myself into making the switch voluntarily. Without running the numbers I knew that the switch would not be a good deal for me--even though I was nearly buried under mortgage and private educations expenses at the time.
At any rate, my comment "triggered" a reader to write a lengthy and thoughtful email that addresses these matters in a big picture way. I've brooded on these issues in a disorganized way over the years, as I'm sure the rest of you have as well. It's about our children and grandchildren.
Here is that email, with some slight editing:
As an amateur student of demographics, and economic history, I've often thought about writing a Michael Crichton sort of book on how society would deal with the matter of unfunded promises made in the cradle to grave, nanny State system we've constructed in the U.S. As I am approaching my own retirement, without the benefit of a Civil Service pension ..., I am going through the Medicare labyrinth now. How do you "knock off" a bunch of aging beneficiaries of the current, bankrupt system, without them knowing it is happening?
If you're not already aware of Steven Greenhut, I suggest you start reading some of his work product. He wrote a book, back in 2009 entitled "Plunder! How Public Employee Unions are Raiding Treasuries, Controlling our Lives and Bankrupting the Nation". As he is based in California, most of his examples involve the California pension system and public employee unions. The overriding theme is how the political class, used promises of ever more generous pensions to buy support in current elections. Simply put, they used the taxpayer credit card to buy votes today, knowing they'd have moved on, or be gone, when the bill came due. We're seeing that all over the country with the underfunding of all sorts of pension systems.
Where the Crichton-"ish" novel comes to mind is how society deals with the past due bill of fulfilling all those promises. We either have to inflate our way out, re-neg on the promises, or......reduce the number of expected beneficiaries (to your blog entry of today). I've suspected that was the unspoken motive behind Andrew Cuomo's handling of the Covid "crisis" in New York.
Where this really came home was while my wife and I were sitting with a young (like younger than my adult children - 20 something) "Senior Health Insurance" agent, discussing Medicare Part D plans. I figured out a long time ago that the massive, inter-generational transfer of wealth is a system that is unsustainable. We subsidize the health care costs of the most affluent generation, by taxing the least affluent. Grandma may be living on a few thousand dollars of monthly income from Social Security, but she's living in a house that is worth several 100s of thousands. Meanwhile, her grandson is struggling to pay his rent, car payment, etc., and save money to buy his own home. Once the generation of the grandson figure out how they are being screwed, it will change. I guess that means the "Progressive experiment" will finally come to a close.
An excellent description of the "compassion" of socialism, that ends up impoverishing all but the rulers, until ...
The rulers, as we are now seeing with the Russia Hoax, Election 2020, the Zhou Regime, and--far from least--Covid, believe they now have the tools at hand to keep this thing going.
One thing that should concern all of us, of every generation, is what the FEDs policies of low interest rates is doing to those institutions with actuarial obligations to meet, such as pension funds, and insurance companies. If they can't meet those obligations using traditional methods (low risk bond portfolios), they get forced further and further out on the risk spectrum. I liken it to the finger in the dike story, of trying to stop leaks, until there are more leaks in the dike than one has fingers to plug them with. We are there and the FED is rapidly running out of policy choices.
A couple of more suggests, as you seem open to them. You should read Danielle DiMartino-Booth's 2017 book, "Fed-Up". You can look up her biography so I won't clutter this message with that. She worked for Richard Fisher, the now retired President of the Dallas Regional Federal Reserve Bank, who was the only Regional FED Presidents to NOT possess a PhD in Economics. Rather, he had an MBA, and practical, Wall Street experience. He was often the only dissenting vote in the FOMC meetings, bucking Bernanke and the rest of the Fed Governors on policy matters during the Great Financial Crisis.
The point in sharing that documentary is to understand that we may be in a very similar situation that the Japanese put themselves in, albeit for different reasons. We're there, with ridiculous valuations in stocks, interest rates detached from reality, and real estate values completely out of sync with the utility of that property. This, too, will end badly. It is just a question of when, and what the "trigger" will be. In my 40 years of doing this, it has been my experience that asset bubbles, funded with ever expanding credit, always ends poorly. As commercial banks are responsible for creating 97% of our money supply, they must continue to expand credit to protect the collateral value of the existing loan base they have. It is a vicious, cyclonic spiral that must be maintained at all costs.....until some extraneous forces causes it to collapse.
The documentary that my correspondent refers to above is: Princes of the Yen, based on a book by Richard Werner. He also recommended to me a blog that combines economics with demography--Econimica. The most recent post there: Federal Reserve Induced Inflation Has Resulted in Collapsed US Births...Twice. The relevance of that post to our current situation--if a non-economist may be permitted to take a stab at it--is that it illustrates the vicious circle of socialism. On the one hand, the older generation needs an expanding population to fund its own lifestyle in retirement, on the other hand, the burdens of current expenditures--as politicians seek to buy the votes of ever younger voters--become increasingly unbearable by society at large.
Excellent letter. I'm sure you know this, but in one of Biden's trillion dollar spending bills, I forget which one, some $500 billion is directed to blue states whose pension plans are facing bankruptcy. I believe that Illinois was number one.
ReplyDeleteIllinois is an interesting case, one you would know a lot more about than me, since retirees were given the option, at one point, to take less money in retirement and attempt to keep the plans above water, or fight like hell in court, keep benefits at unsustainable levels, and take the risk of blowing it all to pieces.
They picked explosion. I believe they won in court, although I could be wrong. One has to remember, as your correspondent pointed out (I paraphrase), a politician who goes up against the public sector is a former politician.
Big issue in my own small town, slight O/T, was teacher salaries. The Dems running the place were whining about low teacher salaries--they're not low--but no one wanted to talk about how teachers, if they can stick it out for 20 or so years, get to retire at 80% of their final year's salary, most of which is paid annually by taxpayer property tax.
I may be wrong, but I believe all public sector workers have defined benefit retirement plans. The private sector did away with them decades ago.
Two quick thoughts:
ReplyDelete1) Probably everyone here is familiar with that line from Hemingway's "The Sun Also Rises," i.e.,
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually, then suddenly.”
I've long worried this “Gradually, then suddenly” phrase is destined to become common knowledge in the U.S. - once we can no longer borrow cheaply and the stuff really starts hitting the fan in our public finances. Hope I'm wrong.
2) Re your words about "the older generation needs an expanding population to fund its own lifestyle in retirement," I think the pressure for importing ever more immigrants to maintain this needed population growth should always be kept in mind. We all know the public pension plans are collectively one giant Ponzi Scheme, and the need to maximize both legal and illegal immigration to keep the scheme going as long as possible is every bit as damaging to our national health as the purely financial aspects.
Immigrants let in because the nation's voters freely, knowingly and democratically decide they'd like to let them in, on the voters' own terms, are wonderful. What we have is anything but that, of course, and it makes the vicious cycle you mention more vicious still.
Pensions exist for votes and nothing more....there is NO feasible reason that every working person does not contribute to social security...AND there should be NO cut off on Soc Sec...you make a million then you pony up to that level. Why should my 45 years of private work pay less in SS than someone in the public sector with a pension.....many here in CA made and make more than I ever did.
ReplyDeleteI’m eagerly awaiting Zeke Emanuel’s 75th birthday — of course he could lead by example and expedite his policy prescription.
ReplyDeleteWay back in 2007, Christopher Buckley wrote a satiric novel called Boomsday, soon to be overtaken by events.
Danielle DiMartino-Booth recently interviewed Richard Werner, the economist whose work formed the basis of the Princes of the Yen documentary. I found what he said in the interview even more revealing than the message of the documentary. The interview lasts for more than an hour, but every minute is riveting as Werner demystifies and indicts the central banksters. Another Red Pill for sure. Here’s the link:
ReplyDeletehttps://youtu.be/u8j51XZegsk
Werner is pretty articulate, which helps when you're trying to demystify things.
DeleteThe Herb Stein Rule will play out ("If something cannot go on forever, it will stop"). It is axiomatic--but often ignored by denizens of the public sector--that the private sector pays for EVERYTHING produced in this country. A old friend of mine (a public administrator) and I once drove up to the Lawrence Hall of Science in the Berkeley hills after a football game at our alma mater. While we waited for the traffic to recede far below, we fell into our long-running debate about government and economics. As we looked out over the SF Bay Area, I said (paraphrasing): "Look down there. Every bridge, building, sidewalk, street, sewer, car, train, ship, bus, truck--literally everything you see was paid for by taxes (or debt secured by taxes) on the private sector. Government pays for nothing. In fact, YOU pay for nothing. Everyone in the public sector is a free rider on the private sector because you do not pay taxes—you are PAID BY TAXES. You get your $120K salary from our taxes and then go through an annual Kabuki dance in April where you give some of it back.”
ReplyDeleteIt is too late to stop what is going on by any incremental mechanism because man’s propensity for evil and corruption will ensure that any corrective action will be undermined by somebody taking a payoff to subvert the corrective. They know that the complexity of bureaucracy will conceal their perfidy until they are long gone and they also know that too few people are paying attention. And even fewer care. Mark, your piece above on Sovietism is dead on. 70-80 percent of people are not decent. They wolf down cultural offal that may as well have come from Satan’s workshops. They take the easy way out whenever offered a hard choice. How could the DoJ and FBI do what they have done unless there were a large majority of corrupt and weak actors? We have been taught—literally—to ignore our personal agency and to fob off the blame for our actions onto others. We are all fallen and the founders knew that our form of government required moral, God-fearing citizens and was wholly inadequate otherwise. Our fall began in earnest in the early 1900’s (income tax, Federal Reserve, Wilson’s administrative state) and was accelerated by FDR. The final nail was my Baby Boomer generation’s capture of the critical cultural institutions and the release of the demons of libertinism and pride. We are the Worst Generation and those who follow will heap deserved calumny upon us. The Evil One smiles upon his handiwork.
@PDQuig
DeleteNicely stated. Fits well into the mosaic of our growing understanding of what has gone desperately wrong in this country.
I think this is the best thing about Mark's blog.