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#BTColumn – Thoughts on the passing scene

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by Adrian Sobers

“We use the proceeds of a gross income tax on labor, raised in the pious name of social security, to cushion the General Treasury.” – (Senator Arthur Vandenberg, 1937)

It is unfortunate that the chickens of this generation are coming home to roost in one fell swoop: the monetary policy chickens are still running (and ruining) the roost, but the social “security” program chickens have been here for a while. Whatever you do, don’t think “solutions”, but trade-offs. In case you haven’t noticed, we are destroying the world one “solution” at a time.

The title of John F. Cogan’s history of U.S. federal entitlement programs is instructive and doubles as an explanation of what this generation is paying: The High Cost of Good Intentions. Readers can substitute their country in the following quote and it will still resonate: “How did America arrive at this point? How were noble and well-intentioned ideals distorted into unaffordable programs that now threaten U.S. economic prosperity and harm many of those individuals whom entitlement programs seek to help?”

In tracing the answer to this question Cogan mentions Robert J. Myers, the long-time and highly respected former chief actuary of Social Security who had been evaluating the financial impact of Social Security legislation for Congress since 1949. Mr. Myers called the new methodology, introduced at the time to justify a 20 percent benefit increase, an “unsound actuarial procedure.”

Myers said it equated to “borrowing from the next generation to pay the current generations’ benefits, in the hope that inflation of wages would make this possible.” (That observation is even more distressing given the equally unsound turn monetary policy took.) Cogan says Myers’ “argument fell on deaf ears”. The U.S. (and other countries) are, in many respects, still paying the price in the broad sense for what the former chief actuary pointed out in that specific context.

Thomas Sowell has written plenty about the woes of the U.S. social security system and his analysis applies generally to other countries. If you prefer fairy-tales and old wives tales about how the world should work, look away now. In, Redirect Your Social Security Anger, Sowell pens advice to American seniors carrying signs that read: “Hands off my Social Security” and “Hands off my Medicare.”

“Their anger”, says Sowell, “should be directed instead against those politicians who were irresponsible enough to set up these costly programs without putting aside the money to pay for the promises that were made—promises that now cannot be kept, regardless of which political party controls the government.” (Read that again.)

Sowell continues, “Many retired people remember the money that was taken out of their paychecks for years and feel that they are now entitled to receive Social Security benefits as a right. But the way Social Security was set up was so financially shaky that anyone who set up a similar retirement scheme in the private sector could be sent to federal prison for fraud.”

Sowell laments that we can’t send a whole Congress to prison, “however much they may deserve it.” Amen; and even more so now given the “wutlessness” that is going on in the monetary policy space, which in turn rubs salt in the social security wound. The two are inextricably linked, but now is not the time for that.

Sowell’s conclusion from another piece is the trade-off countries will eventually have to live with after all the talk about “solutions” cool and reality sets in: “We can be both realistic enough and decent enough to rescue older people who have been victimized by political fantasies.
We can pay higher taxes temporarily to rescue them. But, there is no reason to bankrupt the country by keeping the fraud going forever.”

“Younger people can be allowed to opt out and arrange their own pension plans in the private sector, where the kind of irresponsible pyramid schemes that politicians set up are illegal. But we don’t need to ruin the whole economy in order to preserve the illusions created by toxic words like ‘entitlement.’”

The Carnegie unit, assembly line (clock is king) industrial era mentality on which our education system is still grounded will ensure this doesn’t happen. The world has changed so much since 1966, but we behave like it is still 1966 in so many ways. Well, “worlds are colliding”, to use a phrase from Seinfeld; and it’s not going to be pretty for countries that stubbornly cling to the past. Remembering and reflecting can be helpful; clinging not so much. Time and reality will work this one out. Get in good.

Adrian Sobers is a prolific letter writer and commentator on matters of social interest.

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