WE HAVE TO FAIL TO SUCCEED

We are a reactive nation. To say we’re not proactive is an understatement. It goes well beyond apathy. If there were a psychological term for psychotic aversion to proactiveness, we’d be its poster child. Denial is the mechanism but doesn’t do justice to the heights we’ve achieved in the pursuit of avoidance and inaction.

Although this less-than-endearing trait permeates all facets of our social fabric, I’m ranting on our perennial economic/financial malfeasance. In 1973, so-called “discretionary” spending was 9.6 percent of GDP, with about 60 percent of that for defense. Today, discretionary spending is 6.6 percent of GDP—and included in these figures are defense spending (which, with the state of the world, I would hardly categorize as “discretionary”). The CBO says that discretionary spending is 35 percent of federal outlays (a pie chart from the CBO pegs it at 26 percent with 8 percent interest). The defense portion is 3-4 percent. The lion’s share, or two-thirds, of our non-discretionary spending is Medicare and Social Security. The Democrats don’t worry about spending, don’t worry about debt, and their entire political strategy revolves around steadily increasing spending and government welfare via dollar redistribution through taxation, borrowing, and printing (otherwise known as inflation). In service of recruiting to their party an ever-larger segment of an electorate nurtured on the government teat and no longer wedded to the concept of individual responsibility, this tactic handily buys votes for power. Now a majority of the electorate not only no longer looks upon government largess as demeaning, which was the norm just a few generations ago, but demands these handouts which inevitably morph into entitlements. Having been indoctrinated to believe that it comes from “rich” people who don’t “pay their fair share,” they are happy with the status quo. But it’s not really a status quo as the spending and size and intrusiveness of government are a moving target in one direction—up—and nary a voice calls for tit-for-tat reductions in spending in other areas; the idea of a balanced budget has long been abandoned. And Congress routinely abdicates its responsibility of even generating one by its mandated deadline; hence, the yearly threat of “government shutdown.” The Republicans as well are not blameless. While they at least play lip service to fiscal and budgetary responsibility, they’re junior varsity progressives, and also regularly overspend and grow government, albeit with less alacrity. There’s no shortage of economists that the Left can lean on to support “government assisted” economic policy. That history has time and again shown the disastrous consequences of this approach is no deterrent; musical chairs on a national level is only an unpalatable game to the one whose chair disappears, until all the chairs are gone. And people have an uncanny ability to ignore the missing chairs until it’s theirs.

Unfortunately, given the above circumstances, any talk of solutions by cutting discretionary spending are nothing more than a political smokescreen, You see, the American people have no appetite for cutting either Medicare or Social Security. In fact, any allusion to this is regarded as political suicide; hence the term, the “third rail” of politics. To her credit, Nikki Haley did discuss this issue early in her campaign; it seems to have taken a back seat, likely on the counsel of her political advisors. But who can blame her?

Medicare has been very good to me, covering the vast majority of my expenses for several chronic medical conditions. Personally, I’d hate to see it go, and I’ll likely pass on before it does. But it will; at least in its current form. Even now, physician have seen substantial cuts in reimbursement for decades, eaten away more aggressively lately by inflation, and something will have to give. In the short-term, I anticipate more monetary legerdemain to engineer some temporizing but inadequate reimbursement increases. But the end of the road exists for government-funded Medicine, Social Security, and our national debt in general. The unstated truth is that we’ve lived “higher on the hog” than the standard of living to which we’ve become accustomed, borrowing from generations to come, and the bill will come due. Those who think that “right wingers” have been singing this tune for years and no economic Armageddon has emerged are wise to remember the analogy of an earthquake fault: You can live near one for hundreds, or thousands of years while it builds tension, until it blows. And I see signs it will happen in my lifetime or shortly thereafter. But the reality is simply that it has to happen, whenever. And my heart goes out to those who will unwillingly bear the burden of our fiscal irresponsibility. Not that they are entirely blameless, for many have chosen to go along for the ride, but they were conditioned to accept this abnormal “norm” that benefited those that will soon be gone.

So Social Security, Medicare, and ultimately The System, will have to fail utterly before it’s fixed, like the junkie that must reach bottom. Keep an eye on states like mine, California, that are the most progressive, as they are the canaries in the coalmine. Will we, as a country, survive in recognizable form? Who knows, particularly in light of the deterioration of our social fabric on multiple fronts. But there is little doubt that the ogre, the second Great Depression, is peaking out from behind the money tree. Happy Halloween.

THE WHOLE ENCHILADA

As I did for the health care crisis, I’d like to take this opportunity to summarize all the elements presented in prior rants that I’ve laid out as necessary for a full and enduring economic recovery:

1. Close the tax loopholes with a flat tax; consider a consumption component to derail tax-avoidance though the underground economy.

2.  Limit CEO salaries to reflect performance and prevent abuse equivalent to racketeering.

3.  Strictly regulate credit default swaps.

4.  Ban high-risk no-money-down mortgages.

5.  Close the loopholes in our anti-monopoly laws to prevent the “too big to fail” conundrum.

6.  Ease the capital gain tax to fuel the economy’s engine.

7.  Cut spending to at lease 2008 levels, preferably 2005. A balanced budget amendment would be nice; in the long term, essential.

8.   Start whittling down the size of the federal government; start with the Departments of Energy and Education.

9.  Rethink the role and function of the Federal Reserve.

10.  End defined benefits. We need to all share in our own risk.

11.  Reform Social Security and make is self-sustaining.

12.  Reform Medicare and make it self-sustaining; physicians need to look to cleaning our own house, as well.

13.  Find ways to limit outsourcing of jobs—a difficult task in a global economy with widely disparate standards of living.

14.  Encourage a resurgence of the values that made this country great. Values instilled by family, community, and religion such as self-sufficiency, work ethic, and charity.

15.  Encourage a resurgence of the values that made this country great. It’s worth mentioning this twice since corruption of values is at the core of every other problem, and no sustained relief will ever be attained without attention to this.

And that’s my 2 (15 in this inflated economy) cent’s worth.

SAVING FOR A RAINY DAY

As I alluded to in a prior rant, Rick Perry recently made headlines by proclaiming something that should have been obvious, that Social Security is a Ponzi scheme. Because the government makes the rules, it can set aside for itself behaviors that would be illegal for the rest of us. This isn’t always a bad thing: Incarcerating prisoners is good; kidnapping isn’t. Killing Ben Laden is good, murder isn’t (let’s not get into the subject of capital punishment; it’s a long detour). Printing money is good, counterfeiting, bad (well, maybe this one needs reconsideration). Anyway, I think you get the idea that some activities on the institutional level serve a valid purpose but can destroy society if left unchecked at the personal level. Other behaviors, however, should be illegal for any entity, official or not, and when they occur should signal the “corruption alarm.”

Social Security is one of those things. Originally envisioned as a lifeline for the elderly (who, at the time, weren’t expected to live beyond 65 years in any large numbers), there were large numbers of workers paying for a small number of elderly (unfortunately, no longer the case). So the government, in its wisdom, decided it didn’t need to put aside the hard-earned cash for these future retirees, recklessly throwing the dollars in the general fund and spending it like it does all taxes. When it overspent, as it always does, it threw IOUs (the only thing we have a surplus of, these days) in the nonexistent box. Basically, it used the money of early investors to pay those that came in later. What does this sound like? (A hint: the first letter is a “P.”) Even as a teenager no one had to tell me this was unsustainable; as soon as I found out, I decided I could never depend on Social Security for retirement funding. As it turns out, I was wrong. The insolvency doesn’t occur until my children try to collect. Sorry, kids.

What should have been done, and still needs to be, is the establishment of a true lockbox. Allow people to invest tax-free dollars into truly protected (from government looting) accounts. I know the objections: you can’t guarantee they won’t lose money, some people won’t save, yadda, yadda. This is the usual nanny-state argument. The truth is, even the government can’t guarantee funding, as we’re learning, especially one that is as addicted to spending as ours. There will always be poor and irresponsible people unprepared for their future that we will have to decide how and when to help. I propose that there will be a lot fewer of these when we expect and allow them to invest their own money and plan for their own retirement. Maybe this will encourage a move back to charity at home and a resurgence of the family.

One can only hope.

Next: The root cause.

PUNTING THE TOUGH STUFF

Cynics say the government doesn’t do anything well, but they fail to give credit where credit is due: No one kicks the can down the road better than our ruling class. If we weren’t running out of road, they’d still be doing it. Lord knows,  at least half of them are still trying.

When it comes to cutting spending they’ve squirmed, squealed and squabbled. When they realized it was only a matter of time before the printing presses would run out of green ink, Congress abdicated its responsibility to a small committee of people that can fight in closer quarters. In fairness, we’ve enabled them; doing what they should do mandates major give-backs by us, things we’ve been granted in return for our sweet votes. Freebies our elected benefactors didn’t have the assets to offer in the first place. But the shiny printing presses were just too inviting. As I’ve said in prior rants, the government is addicted to spending.

The answer is simple, the consequences hard. Instead of endless, fruitless negotiations, we need to cut spending to 2008 levels. 2005 might even be better. There is a glimmer of hope that something dramatic may occur—people in  the electorate and in government are actually talking about the sacred cows, Social Security and Medicare, something that has been termed for decades the “third rail” of politics. Although they still gasp in horror when a presidential candidate refers to Social Security, a program that uses the money of relatively small numbers of players to pay for the burgeoning numbers of older participants, without putting aside a dime, as a “Ponzi scheme.” Oh, well, change comes slowly.

Cutting spending across the board doesn’t mean every governmental institution needs to remain sacrosanct. As crucial to our well-being as each and every agency may seem to the bureaucrats that nurture them, perhaps we can find a few modifications we can live with.

Next: Cutting the fat

A NEXUS IN OUR TIME

The most pivotal, life-altering vote in generations is about to be cast by the ruling class, our representatives in government. I will determine for the next decade, or longer, whether we face only hardship or calamity. The media is giving it play, although it’s arguable whether it has the intensity of exposure it deserves, and I’m unsure to what extent the grass-roots citizenry is aware of its importance. It harkens back to our values and moral fiber. This vote is whether to extend the federal debt limit.

On the one hand, we’re being told that failure to do so with downgrade our bond credit rating and lead to financial holocaust. Moody’s, the preeminent debt-rating company, has already threatened with a reduction of our triple-A rating should the vote to increase the limit fail. On the other hand, at least one commentator has remarked that this is precisely the opposite of the way this should work; i.e., if we raise the limit without spending cuts we should be downgraded. I’m inclined to agree with the latter assessment.

It seems psychotic to me to keep heading down the road we’ve been traveling. It’s closely aligned to the behavior of junkies who, knowing that they’re slowly killing themselves, nevertheless can’t resist that next dance with the needle. Out leaders, and by extension we, are addicted to spending. It should be self-evident that any increase in the debt ceiling must be accompanied by at least an equivalent, mandatory reduction in spending, and to truly heal, even more severe cuts.

There are those in the legislature that are displaying backbone and demanding this. To implement it, reductions in Social Security and Medicare benefits will undoubtedly follow. It’s a brave and necessary thing these individuals are doing, knowingly putting their head on the political chopping block. The response on the left has been, predictably, fear-mongering, pronouncements that the programs will be gutted. If the recipients of this largesse, you and I, fall for this, we will continue with the status quo. Since we can’t thwart the forces of nature and economics and the system is bankrupt, it will fail. And something new and more austere will emerge anyway. It’s just a question of whether we’re willing to swallow a small, bitter pill now or gag on a large one down the line.

It’s nice to have choice.

DOWNSIZING

Today I get to play Nostradamus and predict the future, always a hazardous enterprise. My method? A magical crystal ball I keep under my bed. Kidding aside, there is already enough “magical thinking” in Washington and even on Main Street for us all, so I’ll base my predictions on the fundamentals—and they don’t look good.

It seems to me that, with a few notable exceptions, conventional thinking still rules the day. There is talk of “recovery” and now “winning the future,” but I see only a glimmer of hope in terms of the mandatory, and difficult steps needed to effect such a change. A lot of rhetoric is out there about cutting spending, but when the President speaks to a “freeze” at current levels, I roll my eyes (actually curse under my breath; but this is a family-oriented blog) and realize nothing has changed. Freezing spending at current levels, while putting a lid on runaway increases, simply locks in the wanton behavior that helped get us into this mess (and no, I’m not laying it all at Obama’s feet). Other than a few voices, I’m waiting for a serious call for reducing spending to 2008 levels or, even better, 2005 or 2003. With the bloated government workforce, there will be a lot of economic pain, but only an echo of what is to come if we continue to head down the road we’ve built (with your hard-earned tax dollars).

I’ve mentioned before how I’ve heard that 1600 baby-boomers a month are entering Medicare. This week Neil Cavuto cited our national debt service at $4 billion a day—yes, a day! I hear that the “discretionary spending” that everyone’s so hot to reduce amounts to only 12% of our budget, with national defense, servicing the debt, and health care as well as social security making up the bulk of our obligations. Now, we can’t default on servicing the debt or we’ve declared bankruptcy as a nation. With the Islamic fundamentalist threat growing in the world and the U.S. in the crosshairs, there is only so much cutting we can do in that arena (although some could make cogent arguments for a very different U.S. role in the warzones). So it’s inevitable that cuts in medical care and social security are coming. Before that happens, I’d like to see, as a sign of sea change, some of the unnecessary programs in Washington cut, such as the Departments of Education and Energy, even if that is a drop in the bucket. It would send the message, “Yes, we know, we’re in crisis.” And we are: the greatest free nation the world has ever known is in debt to the largest dictatorship the world has ever seen—China. Ultimately, we’re selling our freedom for flatscreen T.V.s.

How will this all shake out? One acquaintance believes that when the collapse comes (assuming we don’t radically change course, and that appears less and less likely), we will evolve into a system of more local, micro-economies. Barring Armageddon, this seems a likely progression—a return to a  smaller, more personal world, still linked by the Internet. And maybe a return to the extended family?

One can only hope.

Next: More on the world of the future

WHITTLING HEALTH CARE DOWN TO SIZE—AGAIN

On September 30^th of last year I gave a list of 15 things that, in my opinion, needed to be implemented to have a hope of untangling the heath care mess. Instead, thousands of pages of proposed legislation rose like a miasma from the political swamp known as Capital Hill. So, on February 1^st I whittled it down to 5 things. Instead, the denizens of the swamp passed said legislation. So now, I’ll make it simpler.

In no particular order, since they must be implemented simultaneously, we need:

1. Tort reform. This is not included in the current bill.
2. Require interstate competition from insurers. As far as I’ve been able to determine, the only mandate for insurers  is that they reduce exclusions.
3. Change the current culture in the medical community toward diagnosis and treatment of disease. This isn’t addressed (except by me in my February post).

Anything that doesn’t tackle at least these three things is smoke and mirrors, and the old game of making promises (more people covered, no exclusions of pre-existing medical conditions, etc.), while laudable, are as empty as campaign promises unless there’s a real way to pay for it. (Witness the impending demise of Medicare and Social Security.) Right now, we do it by borrowing from paragons of freedom like China, and the unborn. I’m grateful that my children and their children are willing to support my future health care—they have more charity in them before drawing their first breaths than many of us who have produced more than our fair share of carbon dioxide.

The days of federal Ponzi scheming have to end. The American people will decide at the ballot box.