Tag Archives: Social Security

Friedman: The fallacy of the welfare state

As we approach another birthday of Milton Friedman, here’s an insightful passage from the book he wrote with his wife Rose: Free to Choose: A Personal Statement. It explains why government spending is wasteful, how it leads to corruption, how it often does not benefit the people it was intended, and how the pressure for more spending is always present.

A simple classification of spending shows why that process leads to undesirable results. When you spend, you may spend your own money or someone else’s; and you may spend for the benefit of yourself or someone else. Combining these two pairs of alternatives gives four possibilities summarized in the following simple table:

friedman-spending-categories-2013-07

Category I in the table refers to your spending your own money on yourself. You shop in a supermarket, for example. You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend.

Category II refers to your spending your own money on someone else. You shop for Christmas or birthday presents. You have the same incentive to economize as in Category I but not the same incentive to get full value for your money, at least as judged by the tastes of the recipient. You will, of course, want to get something the recipient will like — provided that it also makes the right impression and does not take too much time and effort. (If, indeed, your main objective were to enable the recipient to get as much value as possible per dollar, you would give him cash, converting your Category II spending to Category I spending by him.)

Category III refers to your spending someone else’s money on yourself — lunching on an expense account, for instance. You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money’s worth.

Category IV refers to your spending someone else’s money on still another person. You are paying for someone else’s lunch out of an expense account. You have little incentive either to economize or to try to get your guest the lunch that he will value most highly. However, if you are having lunch with him, so that the lunch is a mixture of Category III and Category IV, you do have a strong incentive to satisfy your own tastes at the sacrifice of his, if necessary.

All welfare programs fall into either Category III — for example, Social Security which involves cash payments that the recipient is free to spend as he may wish; or Category IV — for example, public housing; except that even Category IV programs share one feature of Category III, namely, that the bureaucrats administering the program partake of the lunch; and all Category III programs have bureaucrats among their recipients.

In our opinion these characteristics of welfare spending are the main source of their defects.

Continue reading Friedman: The fallacy of the welfare state

WichitaLiberty.TV: Arts funding, property taxes, uninformed officials, tax increment financing, and social security

In this episode of WichitaLiberty.TV: Is Wichita risking a Soviet-style future? A look at Wichita property taxes, uninformed and misinformed elected officials, tax increment financing, and social security. View below, or click here to view on YouTube. Episode 86, broadcast June 7, 2015.

The Reagan legacy on spending

As time passes, it may be possible for widespread critical evaluation of Ronald Reagan, both the good things he did, and the bad. Nick Gillespie of Reason reports some facts about the Reagan record and on Senator Rand Paul’s speaking accurately about it, concluding: “Take on Reagan’s legacy and you’re playing with fire. Especially if you’re right about Reagan’s terrible record on spending, which Rand Paul absolutely is.”

After trimming some programs early in his presidency, Reagan came around to pushing massive increases on just about everything, including education (a newly formed federal department he promised to kill upon taking office), Medicare (which he had denounced as “socialized medicine” in the early 1960s), and Social Security (before championing massive hikes in payroll taxes in his second term, he had once called for making Social Security voluntary).

In many ways, Reagan’s late-life embrace of old-age entitlements may have been his worst spending legacy. Created to address very different times and a very different workforce, Social Security and Medicare were in dire straits by the 1980s and had Reagan tried, he might have been able to replace these fundamentally unsustainable and unfair transfer programs into more effective and lower-cost safety net programs. Instead he called saving Social Security and Medicare—a feat accomplished through massive increases in FICA rates—”the highest priority of my administration.” By the end of his presidency, the combined employee-employer rate was 15 percent, up from 9.35 percent in 1981 (and more income was subjected to Social Security tax to boot).

As I argued the other day at The Daily Beast, Reagan is the “Godfather of Groupon Government,” of huge and ongoing discounts to current taxpayers. Just as Groupon makes purchases more attractive by offering major price breaks, Groupon Goverment makes government goods and services more attractive by charging taxpayers much less than the retail price.

The full story is Rand Paul Is Right: Carter Was Thriftier Than Reagan.

Medicaid expansion: The impact on the federal budget and deficit

From Kansas Policy Institute.

Medicaid Expansion: The Impact on the Federal Budget and Deficit

By Steve Anderson

Medicaid.gov Keeping America HealthyThe problem with the uninsured is not going to be solved by expanding Medicaid. Even amongst Medicaid’s staunchest proponents you’ll be hard pressed to find any who will claim it to be the equivalent of high quality private health insurance coverage. The number of federal senators and representatives that choose to exclude their staffers from Obamacare shows that many Washington politicians understand the quality of government insurance plans Medicaid and Obamacare represent. The simple fact is, that health insurance is not to be confused with health care.

Medicaid’s proponents can only claim anecdotal claims of improving health outcomes of recipients. Even in pre-ObamaCare Medicaid, beneficiaries largely do not access available preventable care services. In fact, a Harvard University study shows that emergency room visits actually increased by 40 percent for Medicaid recipients in Oregon after their expansion. Citizens would do well to remember, a “decrease in ER visits” was a key selling point of ObamaCare generally and Medicaid expansion specifically. ER visits are the most expensive form of care. When these increased visits are paid for by Medicaid, the taxpayers are picking up BOTH the state and federal portion of the high cost of emergency room visits. This flies in the face of the Obama Administration’s claim that Medicaid expansion would actually save money by limiting this sort of behavior.

It doesn’t stop there and this is the part that hardly anyone has mentioned, and what the Obama Administration would rather you not know — a staggering number of those enrolling in ObamaCare will actually be sent to Medicaid and not be in the private market. And by “private market” we mean one established and controlled by government.

The following charts are the pre-Medicaid expansion projection of revenues versus expenditures from the Congressional Budget Office. They were completed before the decision by 25 states and the District of Columbia to expand eligibility.i

The three lines with the steepest slopes and therefore the fastest growing expenditures are Medicaid, Unemployment payments (called Income Security) and Other Programs. The U.S. House of Representatives has addressed the unemployment expense growth by bringing the program back to its original intent – to provide a safety net between jobs. Other Programs will be largely controlled if current trends hold and extension of the various “stimulus” programs are curtailed. However, the one that is going to accelerate with expansion and is larger than the other two combined in total state and federal expenditures is Medicaid. At least 3.9 million of Obamacare participants are expected to be enrolled in Medicaid and 19 million nationwide overall will be added to Medicaid in the next year. A 35 percent increase in Medicaid participants.ii Picture these two charts with 35 percent greater additional costs for the Medicaid entitlement and you have an idea how problematic this is for the federal budget and deficit. Is it any wonder that President Obama has started to back track from the claim that the federal government—which let’s not forget, is funded by you the taxpayer — will pay all the costs for 3 years and 90 percent thereafter. Instead, his administration and he himself talk about blended rates that will transfer a sizeable portion of the cost to state budgets.iii Despite his promises to the contrary.

The Impact on the Kansas State Budget

Even the leftist Center on Budget and Policy Priorities, which typically finds spending citizens’ tax dollars an event to celebrate, is cautioning that the “blended rate” shift by the President will “likely prompt states to cut payments to health care providers and to scale back the health services that Medicaid covers for low-income children, parents, people with disabilities, and/or senior citizens (including those in nursing homes). Reductions in provider payments would likely exacerbate the problem that Medicaid beneficiaries already face regarding access to physician care, particularly from specialists.”iv This analysis actually left out the administrative cost of expansion that is largely being absorbed by the states. If anything, this suggests that reality will be more dire than CBPP’s predictions.

KPI’s own cost study of Medicaid expansion, conducted by a sitting member of the Social Security Advisory Board and former chief economist at the Federal Reserve in Cleveland, shows that Kansas taxpayers can expect to pick a $600 million tab if Medicaid is expanded. Hardly the “free money” that the Kansas Hospital Association has tried to foist on your family. They’ve even hired a former George W. Bush cabinet secretary to aggressively lobby for this “free money.” They’ve also yet to explain what services they recommend the state cut to fund the expansion and if their members are willing to pick up the additional costs when “blended rates” almost certainly take effect.

As a taxpayer you are going to pay for this on both the federal and state level and you deserve answers when any special interest groups come asking for more of your money.

http://directorblue.blogspot.com/2011/01/liberals-democrat-party-will-split-if.html
ii http://www.bloomberg.com/news/2014-01-02/obamacare-s-medicaid-expansion-may-create-oregon-like-er-strain.htm
iii http://www.cbpp.org/cms/index.cfm?fa=view&id=3521
iv Ibid

Friedman: The fallacy of the welfare state

As we approach another birthday of Milton Friedman, here’s an insightful passage from the book he wrote with his wife Rose: Free to Choose: A Personal Statement. It explains why government spending is wasteful, how it leads to corruption, how it often does not benefit the people it was intended, and how the pressure for more spending is always present.

A simple classification of spending shows why that process leads to undesirable results. When you spend, you may spend your own money or someone else’s; and you may spend for the benefit of yourself or someone else. Combining these two pairs of alternatives gives four possibilities summarized in the following simple table:

friedman-spending-categories-2013-07

Category I in the table refers to your spending your own money on yourself. You shop in a supermarket, for example. You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend.

Category II refers to your spending your own money on someone else. You shop for Christmas or birthday presents. You have the same incentive to economize as in Category I but not the same incentive to get full value for your money, at least as judged by the tastes of the recipient. You will, of course, want to get something the recipient will like — provided that it also makes the right impression and does not take too much time and effort. (If, indeed, your main objective were to enable the recipient to get as much value as possible per dollar, you would give him cash, converting your Category II spending to Category I spending by him.)

Category III refers to your spending someone else’s money on yourself — lunching on an expense account, for instance. You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money’s worth.

Category IV refers to your spending someone else’s money on still another person. You are paying for someone else’s lunch out of an expense account. You have little incentive either to economize or to try to get your guest the lunch that he will value most highly. However, if you are having lunch with him, so that the lunch is a mixture of Category III and Category IV, you do have a strong incentive to satisfy your own tastes at the sacrifice of his, if necessary.

All welfare programs fall into either Category III — for example, Social Security which involves cash payments that the recipient is free to spend as he may wish; or Category IV — for example, public housing; except that even Category IV programs share one feature of Category III, namely, that the bureaucrats administering the program partake of the lunch; and all Category III programs have bureaucrats among their recipients.

In our opinion these characteristics of welfare spending are the main source of their defects.

Legislators vote to spend someone else’s money. The voters who elect the legislators are in one sense voting to spend their own money on themselves, but not in the direct sense of Category I spending. The connection between the taxes any individual pays and the spending he votes for is exceedingly loose. In practice, voters, like legislators, are inclined to regard someone else as paying for the programs the legislator votes for directly and the voter votes for indirectly. Bureaucrats who administer the programs are also spending someone else’s money. Little wonder that the amount spent explodes.

The bureaucrats spend someone else’s money on someone else. Only human kindness, not the much stronger and more dependable spur of self-interest, assures that they will spend the money in the way most beneficial to the recipients. Hence the wastefulness and ineffectiveness of the spending.

But that is not all. The lure of getting someone else’s money is strong. Many, including the bureaucrats administering the programs, will try to get it for themselves rather than have it go to someone else. The temptation to engage in corruption, to cheat, is strong and will not always be resisted or frustrated. People who resist the temptation to cheat will use legitimate means to direct the money to themselves. They will lobby for legislation favorable to themselves, for rules from which they can benefit. The bureaucrats administering the programs will press for better pay and perquisites for themselves — an outcome that larger programs will facilitate.

The attempt by people to divert government expenditures to themselves has two consequences that may not be obvious. First, it explains why so many programs tend to benefit middle- and upper-income groups rather than the poor for whom they are supposedly intended. The poor tend to lack not only the skills valued in the market, but also the skills required to be successful in the political scramble for funds. Indeed, their disadvantage in the political market is likely to be greater than in the economic. Once well-meaning reformers who may have helped to get a welfare measure enacted have gone on to their next reform, the poor are left to fend for themselves and they will almost always he overpowered by the groups that have already demonstrated a greater capacity to take advantage of available opportunities.

The second consequence is that the net gain to the recipients of the transfer will be less than the total amount transferred. If $100 of somebody else’s money is up for grabs, it pays to spend up to $100 of your own money to get it. The costs incurred to lobby legislators and regulatory authorities, for contributions to political campaigns, and for myriad other items are a pure waste — harming the taxpayer who pays and benefiting no one. They must be subtracted from the gross transfer to get the net gain — and may, of course, at times exceed the gross transfer, leaving a net loss, not gain.

These consequences of subsidy seeking also help to explain the pressure for more and more spending, more and more programs. The initial measures fail to achieve the objectives of the well-meaning reformers who sponsored them. They conclude that not enough has been done and seek additional programs. They gain as allies both people who envision careers as bureaucrats administering the programs and people who believe that they can tap the money to be spent.

Category IV spending tends also to corrupt the people involved. All such programs put some people in a position to decide what is good for other people. The effect is to instill in the one group a feeling of almost God-like power; in the other, a feeling of childlike dependence. The capacity of the beneficiaries for independence, for making their own decisions, atrophies through disuse. In addition to the waste of money, in addition to the failure to achieve the intended objectives, the end result is to rot the moral fabric that holds a decent society together.

Another by-product of Category III or IV spending has the same effect. Voluntary gifts aside, you can spend someone else’s money only by taking it away as government does. The use of force is therefore at the very heart of the welfare state — a bad means that tends to corrupt the good ends. That is also the reason why the welfare state threatens our freedom so seriously.

Things have changed at Social Security Administration

Remember when your Social Security card stated that it was not to be used for identification purposes?

You’d have to be of at least a certain age to remember this, according to SSA: “The first Social Security cards were issued starting in 1936, they did not have this legend. Beginning with the sixth design version of the card, issued starting in 1946, SSA added a legend to the bottom of the card reading “FOR SOCIAL SECURITY PURPOSES — NOT FOR IDENTIFICATION.” This legend was removed as part of the design changes for the 18th version of the card, issued beginning in 1972. The legend has not been on any new cards issued since 1972.”

As with many government programs, Social Security has grown exponentially, and its identification number has become a de facto national identity number. It’s so important and used in so many ways that it is the prime target for thieves who would steal your identity.

Social security card

Government interventionism ensnares us all

Are those who call for an end to government subsidy programs hypocrites for accepting those same subsidies? This is a common criticism, said to undermine the argument for ending government subsidy programs.

Rather, the existence of this debate is evidence of the growing pervasiveness of government involvement not only in business, but in our personal lives as well.

Recently the Wichita Eagle printed an op-ed critical of Charles G. Koch, chairman of the board and CEO of Wichita-based Koch Industries. The target of the criticism was Koch’s recent article in the Wall Street Journal titled “Corporate Cronyism Harms America” with the subtitle “When businesses feed at the federal trough, they threaten public support for business and free markets.”

Koch stated one of the problems as this: “Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”

Even those who are opposed to government interventions in markets find themselves forced to participate in government subsidy programs. Referring to a recent Wichita incentive program for commercial real estate, Wichita developer Steve Clark said: “Once you condition the market to accept these incentives, there’s nothing someone else can do to remain competitive but accept them yourself. Like the things we’re working on with the city, now we have to accept incentives or we’re out of business.”

Koch Industries, as a refiner of oil, blends ethanol with the gasoline it produces in order to meet federal mandates that require ethanol usage. Even though Koch opposes subsidies for ethanol — as it opposes all subsidies — Koch accepted the subsidies. A company newsletter explained “Once a law is enacted, we are not going to place our company and our employees at a competitive disadvantage by not participating in programs that are available to our competitors.” (The tax credit subsidy program for ethanol has ended, but there is still the mandate for its use.)

Walter Williams, as he often does, recognizes the core of the problem: “Once legalized theft begins, it pays for everybody to participate.” The swelling ranks of bureaucrats preside over this.

So should people who have built businesses — large or small — sit idle as government props up a competitor that could put them out of business?

While Williams says not only does it pay to participate, the reality is that it is often necessary to participate in order to stay in business. This is part of the insidious nature of government interventionism: A business can be humming along, earning a profit by meeting the needs of its customers, when a government-backed competitor enters the market. What is the existing business to do? Consent to be driven out of business, just to prove a point?

So existing firms are often compelled to participate in the government program, accepting not only subsidy but the strings that accompany. This creates an environment where government intervention spirals, feeding on itself. It’s what we have today.

Not only does this happen in business, it also happens in personal life. I am opposed to the existence of the Social Security Administration and being forced to participate in a government retirement plan. Will I, then, forgo my social security payments when I become eligible to receive them?

If the government hadn’t been taking a large share of my earnings for many years, I’d be in a better position to provide for my own retirement. So as a practical matter, many people need their benefits, and rightly are entitled to them as a way to get back at least some of what they paid. The harmful effect is that government, by taking away some of our capacity — and reducing the initiative — to save for ourselves, creates more dependents.

(It might be a little different if our FICA contributions were in individual “lock boxes,” invested on our behalf. But that isn’t the case.)

Often those who advocate for reduced government spending are criticized when they may be awarded government contracts. But if the contracts are awarded competitively and not based on cronyism, the winning company is saving taxpayer money by providing products or services inexpensively. This is true even when the government spending is ill-advised or wasteful: If government is going to waste money, it should waste it efficiently, I suppose.

Contrast this behavior with that of some Wichita businesses and politicians. They make generous campaign contributions to city council members, and then receive millions in subsidy and overpriced no-bid contracts that bleed taxpayers. In Wichita this is called “economic development.”

As Koch Industries’ Melissa Cohlmia notes in a letter to the Wichita Eagle, Charles Koch, along with David Koch, are examples of an unfortunately small group of businessmen and women who are willing to stand up and fight for capitalism and economic freedom. It’s an important fight. As Charles Koch wrote in his recent article: “This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.” The danger, he writes, is “Put simply, cronyism is remaking American business to be more like government. It is taking our most productive sectors and making them some of our least.”

Koch favors ending all subsidies

By Melissa Cohlmia, Corporate communication director, Koch Companies Public Sector

Kevin Horrigan’s commentary was misleading and a disservice to readers (“GOP acts as bellhop for corporations, Kochs,” Sept. 21 Opinion).

Yes, Koch Industries benefits from subsidies — a fact Charles Koch stated in his Wall Street Journal commentary. This is not hypocrisy, as Horrigan claimed. Rather, where subsidies exist, any company that opts out will be at a disadvantage and often driven out of business by competitors with the artificial advantage. This perverse incentive drives out companies that are in favor of sound fiscal policy and opposed to subsidies, and favors inefficient companies that are dependent on subsidies.

Koch’s long-standing position is to end to all subsidies, which distort the market and ultimately cost taxpayers billions of dollars.

Horrigan faulted Koch for not mentioning the company’s lawful contributions to “conservative politicians and causes.” Charles Koch has publicly advocated for and supported free-market causes for decades. This is a First Amendment right that people and groups across the political spectrum also exercise.

The columnist falsely claimed that Koch has funded anti-labor organizations. About 15,000 of our 50,000 U.S employees are represented by labor unions. We have long-standing, mutually beneficial relationships with these unions.

In this time when far too few speak up for economic freedom, Charles Koch challenges out-of-control government spending and rampant cronyism that undermines our economy, political system and culture. For this, he should be lauded, not vilified.

Pompeo: No debt ceiling hike without structural changes

In a press conference held yesterday, U.S. Representative Mike Pompeo, a Wichita Republican, said the country can’t risk continuing to spend at the present rate. There should be no agreement to raise the debt ceiling absent structural changes, he added.

He called for “real short term savings” in 2012 and spending limitations. He also said he supported an amendment to the Constitution requiring a balanced budget.

On federal spending, Pompeo said “I’ve been here six months now. If there’s one thing that’s become very clear, this town is a place that is addicted to spending.” He described the direction of spending as a “one-way ratchet,” saying the trend has accelerated in the last 24 months. The federal government should do what every state must do, which is to live on a balanced budget. The balanced budget amendment, Pompeo said, would require this.

He criticized President Barack Obama for his “class warfare argument” against the corporate jet industry. Pompeo said the airplanes built in Wichita are business tools used by businesses all over the world. Two-thirds are sold outside of North America, he added.

Pompeo characterized the president’s criticisms as a political statement. The tax provisions Obama criticizes have a cost of two to three billion dollars over ten years. Pompeo compared this to the current deficit for this year and for future years according to the president’s budget, which he said is $1.5 trillion each year.

Pompeo said he sent the president a letter (text of the letter is here) inviting him to Kansas to see our aircraft manufacturing industry, noting that many of the workers are union workers. He added that if the president continues to talk down the industry, “making it politically incorrect to fly in a Kansas-built airplane, we’ll sell fewer all over the world, and we’ll build fewer in America.”

On the possibility of Social Security checks not being sent if the debt ceiling is not raised, Pompeo said that there is money to pay the benefits, and the president has authority to pay. Obama is trying to scare seniors and Americans as a tactic to get the debt ceiling raised, he said.

On the failure of H.R. 2417: Better Use of Light Bulbs Act to pass, Pompeo said he hopes this measure will come back in a form that requires only a simple majority to pass. This bill, which would overturn legislation that essentially outlaws ordinary incandescent light bulbs, was brought to the floor under suspension of the rules, and therefore required a two-thirds majority to pass. The bill received a simple majority, but failed to reach the two-thirds level.

President Obama: Just cash in the Social Security Trust Fund

Speaking about Social Security, President Barack Obama told CBS news today that “I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.” The issue he refers to is raising the federal debt ceiling.

That’s a very curious statement for the president to make. Because liberals, he included, refer to the $2.6 trillion Social Security Trust Fund as money socked away, available to pay benefits for a long time.

So couldn’t the president simply cash in a few of the bonds held by the trust fund to pay benefits in August?

The answer is: Of course he can’t do that. The money represented by those bonds in the trust fund has already been spent. The only way for government agencies to pay them back is through some source of income of their own such as taxes or fees, more debt (which the debt ceiling would prevent), or providing fewer services.

Social Security Trust Fund: Why no truth?

Regardless of one’s attitude towards the Social Security system, the refusal by liberals to admit the fraud of the system’s trust fund remains an obstacle to honest discussion of the system’s future.

Here’s an example from a prominent defender of the myth of the Social Security Trust Fund, Sen. Bernie Sanders of Vermont. In an editorial from earlier this year, Sanders said those who tell the truth about the Social Security Trust Fund are a “barrage of misinformation.” He went on to describe the trust fund: “Social Security invests its surpluses, as it should, in U.S Treasury bonds, the safest interest-bearing securities in the world. These are the same bonds that wealthy investors and China and other foreign countries have purchased. The bonds are backed by the full faith and credit of the U.S. government, which in our long history has never defaulted on its debt obligations. In other words, Social Security investments are safe.”

Closer to home, and typical of many hometown newspapers, a recent letter in the Wichita Eagle read: “There is $2.5 trillion in the trust fund as U.S. Treasury bonds. These bonds are just as real as those held by mutual funds and foreign banks.”

The debate over the nature of the trust fund is important. It strikes at the trust we should have — or not have — in government.

So: Is there $2.6 trillion in treasury bonds in the trust fund, and will the bonds be repaid?

Yes, I believe it is true. These bonds, all $2.6 trillion, will be repaid.

That simple belief, however, is an example of what economist Thomas Sowell calls “stage one” thinking. This mode of thinking looks at only the immediate effects or implications of something. It doesn’t ask the question: “And then what will happen?”

Simple as this seems — “What happens next?” — we find this to be an afterthought in politics. Writes Sowell: “Most thinking stops at stage one. In recent years, former economic advisers to presidents of the United States — from both political parties — have commented publicly on how little thinking ahead about economic consequences went into decisions made at the highest level. This is not to say that there was no thinking ahead about political consequences. Each of the presidents they served (Nixon and Clinton) was so successful politically that he was re-elected by a wider margin than the vote that first put him in office.”

In the case of the Social Security Trust Fund, the bonds it holds will be repaid. But we need to ask the “stage two” question: “What must the government do to pay back the bonds in the trust fund?” First, we must recognize that the federal agencies that received the proceeds of these bonds promptly spent the money. They didn’t spend it on income-producing assets that might generate a stream of cash flows that could be used to pay off the bonds. Instead, the money was spent on the day-to-day-operations of the federal government. This represents money that Congress and the president spent without specifically raising taxes or borrowing through the normal process.

At some time when the Social Security Administration wants to redeem the bonds, there are three choices: Raise taxes, reduce services, or create new money through the Federal Reserve System. Each robs us of wealth — either by paying more taxes, paying the same taxes for fewer services, or having the value of our money stolen through inflation.

It’s not just me who says this. Here’s a cautionary note from the Social Security Administration Performance and Accountability Report (PAR), fiscal year 2010, page 111: (OASI and DI trust funds are the two major components of Social Security that are financed by the payroll tax deduction.)

The U.S. Treasury does not set aside financial assets to cover its liabilities associated with the OASI and DI Trust Funds. The cash received from the OASI and DI Trust Funds for investment in these securities is used by the U.S. Treasury for general Government purposes. Treasury special securities provide the OASI and DI Trust Funds with authority to draw upon the U.S. Treasury to make future benefit payments or other expenditures. When the OASI and DI Trust Funds require redemption of these securities to make expenditures, the Government finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures. This is the same way that the Government finances all other expenditures.

There it is: “This is the same way that the Government finances all other expenditures.” There are no economically valuable assets in the trust fund. There is simply the realization that the U.S. government will tax more, provide less, or inflate the currency in order to make good on its promises. If you need any other proof, here’s another passage from the same report:

Treasury special securities are an asset to the OASI and DI Trust Funds and a liability to the U.S. Treasury. Because the OASI and DI Trust Funds and the U.S. Treasury are both part of the Government, these assets and liabilities offset each other for consolidation purposes in the U.S. Govemmentwide financial statements. For this reason, they do not represent a net asset or a net liability in the U.S. Govemmentwide financial statements.

It is as if I lend my wife $20 and accept her promise to repay. The financial position of my family has not changed.

The question is: Why do so many not want to face the facts about the Social Security Trust Fund?

The reason is that we’ve been lied to by politicians of both parties, and by politicians both conservative and liberal. Politicians like Sanders are still lying to us. The sham of the trust fund is an indication of the failure of government, and politicians of all parties do not want to admit this.

We must realize that no matter how bad the behavior of past politicians, the reality of the Social Security Trust Fund is the hand we’ve been dealt, and the basis on which decisions about the future must be made. The continuing refusal by most liberal politicians, starting with President Barack Obama, to accept this reality is harmful and is an obstacle to forging a solution.

Kansas and Wichita quick takes: Monday June 27, 2011

Wichita city council. This week the Wichita City Council considers consent agenda items only, and then has a workshop. Among the consent agenda items are a resolution declaring the city’s intent to use debt financing in the amount of $40 million for the new parking facility at the airport. A companion resolution declares intent to use $160 million in debt financing for the new terminal. Interestingly, these resolutions contain this language: “That a public necessity exists for, and that the public safety, service and welfare will be advanced by …” followed by a description of each project. Really, the city should not lie in this way. … Consent agendas are handy for hiding items like this item: “Authorize payment of $13,025 as a full settlement for all claims arising out of an automobile accident. … This claim arose from a May 31, 2011 automobile accident involving an OCI inspector employed by the City.” … Of interest in the workshop session is an item titled “WSU Economic Development Fiscal Impact Analysis Model.” Here, undoubtedly, analysts from Wichita State University Center for Economic Development and Business Research will tell the council how government spending has a magical power not found in private sector spending.

Huelskamp on spending as driving economic growth. Speaking of the magical power of government spending, in his questioning (video below) of Congressional Budget Office (CBO) Director Douglas Elmendorf last week, U.S. Representative Tim Huelskamp, who represents the Kansas first district asked if reducing spending is not the best way to grow the economy. Elmendorf replied that there are trade-offs; that higher marginal tax rates do reduce economic activity to some extent. But, he added, that certain forms of government spending are important for economic growth. Huelskamp pressed the director, noting that in his recent report, higher marginal tax rates and more government borrowing are negative factors on growth, asking “So explain to me why reducing spending is not the only alternative?” Director Elmendorf explained cutting spending “that was not itself an investment in economic growth, that would be better for the economy than if one raised [marginal tax rates].” … Huelskamp asked if Medicare and Social Security spending were economic growth drivers. The answers were no, they are not important economic growth drivers in the long term. Some pieces of the defense budget have been, he said. Huelskamp noted we’ve just eliminated a huge chunk of the federal budget as being important to economic growth. … Elmendorf said he did not have a list of the types of federal spending that have been important to economic growth, and he admitted that “we are not good at modeling those effects.” … Huelskamp asked Elmendorf if he could, as follow-up, provide examples of federal government spending that are drivers of economic growth, saying that Ben Bernanke, the Chairman of the Federal Reserve System refuses to identify those. … We’ll have to wait and see how the CBO responds. The report Huelskamp referred to is CBO’s 2011 Long-Term Budget Outlook.

No Wichita Pachyderm this week. Because of the holiday, the Wichita Pachyderm Club will not meet this week. Upcoming speakers: On July 8, Dave Trabert, President, Kansas Policy Institute, on “Stabilizing the Kansas Budget.” On July 15, Jon Hauxwell, MD, speaking on “Medicinal Cannabis.” On July 22, U.S. Representative Mike Pompeo of Wichita on “An update from Washington.” On July 29, Dennis Taylor, Secretary, Kansas Department of Administration and “The Repealer” on “An Overview of the Office of the Repealer.”

Government spending secrets. Erick Erickson, RedState: “How bad is Washington spending? Well, there is a new website that’s up called Dirty Spending Secrets with a Q&A format to uncover some of Washington’s dirtiest spending secrets. Several friends of mine have emailed it to me. It’s actually pretty easy to figure out, but also horribly shocking — in the Q&A multiple choice, just go for the worst answer and you’ll probably be right. With the debt ceiling vote coming up, it’s just another reminder of how unserious Washington is when it comes to spending.”

Wichita city budget input. It’s budget time in Wichita, and the city will take questions and public input this Wednesday (June 29) in a 6:00 pm session in the city council chambers. The event will be broadcast live on the city’s network on Cox cable television channel 7, and questions may be emailed to budgetquestions@wichita.gov

Fracking facts. The Wall Street Journal has a run-down of the facts about the risks involved in fracking. This is a new technology that has greatly increased the amount of natural gas available in the U.S. and has caused the price (per million British thermal units) to decline from $15 to $4. For example, opponents of fracking claim that the process, in which water and chemicals are injected underground to free gas from confinement in shale formations, contaminates groundwater. Counters the Journal: “The problem with this argument is that the average shale formation is thousands of feet underground, while the average drinking well or aquifer is a few hundred feet deep. Separating the two is solid rock. This geological reality explains why EPA administrator Lisa Jackson, a determined enemy of fossil fuels, recently told Congress that there have been no ‘proven cases where the fracking process itself has affected water.'” … There are risks, of course, to any undertaking like this, and in conclusion the Journal recommends: “Amid this political scrutiny, the industry will have to take great drilling care while better making its public case. In this age of saturation media, a single serious example of water contamination could lead to a political panic that would jeopardize tens of billions of dollars of investment. The industry needs to establish best practices and blow the whistle on drillers that dodge the rules. The question for the rest of us is whether we are serious about domestic energy production. All forms of energy have risks and environmental costs, not least wind (noise and dead birds and bats) and solar (vast expanses of land). Yet renewables are nowhere close to supplying enough energy, even with large subsidies, to maintain America’s standard of living. The shale gas and oil boom is the result of U.S. business innovation and risk-taking. If we let the fear of undocumented pollution kill this boom, we will deserve our fate as a second-class industrial power.”

Even quicker. Gallup: Americans Regain Some Confidence in Newspapers, TV News: “Americans’ confidence in newspapers and television news rebounded slightly in the past year, having been stuck at record lows since 2007. The 28% of Americans who express a great deal or quite a lot of confidence in newspapers and the 27% who say the same about television news still lag significantly behind the levels of trust seen through much of the 1990s and into 2003.” … Rasmussen on health care: 55% favor health care repeal, just 17 percent say new law will improve quality of care. … Politico: 2012 contenders shun Hill support: “Across Capitol Hill, Republican lawmakers report scant interaction with presidential hopefuls. The chase for congressional backing has been moving at a snail’s pace this year compared with the previous election cycle, a reflection of the slowly forming presidential field, concern in Congress about the strength of the candidates and a desire by White House hopefuls to keep their distance from an unpopular Washington.” … Picket: Bozells look to grow conservative ‘social media army’: “Mr. [Brent Bozell, president of Media Research Center] explained, ‘We looked across the landscape and then across conservatism and we thought that was one thing that was lacking. We weren’t taking advantage of the tools that the Left was taking advantage of with good success and what we found was that there was hunger out there.'” He should have been at AFP’s RightOnline conference in Minneapolis last week. MRC was represented, though. … Investor’s Business Daily Editorial: How Big Government Strangles The Job Creators: “The secretary of the Treasury says taxes must be raised on small business so the federal government can stay big. With that breathtaking statement, he helpfully mapped out the key difference between the parties. … ‘If you don’t touch revenues,’ Geithner said, ‘you have to shrink the overall size of government programs, things like education, to levels that we could not accept as a country.'”

Greenwald and Sanders try to defend Social Security, slam Charles and David Koch

Are the free market critics of Social Security a shadowy “echo chamber” seeking to end the system for the benefit of the rich, or sounding a fact-based alarm that government and its supporters dispute and don’t want you to hear?

According to a short video by Robert Greenwald, it’s the first choice. But examination of the claims made will lead us to the opposite conclusion, and you’ll wonder why Greenwald has any credibility.

The video features U.S. Senator from Vermont Bernie Sanders, who describes himself as a democratic socialist. He describes Social Security as a federal program that has been “enormously successful,” so right away we need to take issue with Sanders. Social Security a success? If creating a system where millions of people are dependent on government for their retirement income is a successful program, the government has done just that. What has been the result? As George Reisman recently wrote: “Not surprisingly, in the conviction that the government was now providing for people’s old age, the rate of saving in the United States has declined precipitously over the years, falling all the way to zero in some years.”

We’ve transitioned from savers to government dependents. For a socialist like Sanders, that may very well have been his goal. He certainly can’t be unhappy with the results.

Right after this, the video shows images and names of think tank organizations that are funded in part by Charles Koch and/or David Koch, with Sanders claiming these organizations spread “disinformation” about Social Security. The information generated by these think tanks is truthful, however, and an important antidote to a huge whopper of a lie Sanders will spread later on.

(At this point one might be tempted to ask: What is the interest of the Charles and David Koch in reforming Social Security? John Hinderaker in his Powerline article A Less Than Magnificent Obsession answers this question when he writes: “… does it make any difference to the Kochs’ company, Koch Industries, whether the retirement age is 65 or 68? I can’t imagine why it would. Likewise, the brothers themselves are both billionaires. Whether Social Security is or is not reformed makes zero difference to them personally.” I would say, however, that Charles and David Koch have long advocated for liberty and economic freedom for everyone, and since Social Security is contrary to that, this could explain their interest.)

A huge focus of the video is raising the retirement age. It’s repeated over and over — so as to scare viewers. As John Hinderaker notes at Powerline, it’s been done before: “proposals to raise the age of Social Security eligibility have been a bipartisan staple of reform proposals for decades. … The bipartisan Bowles-Simpson Commission, which was appointed by President Obama, recommended increasing the age of eligibility.”

It’s important to note that the Social Security retirement age is simply the age at which one can begin receiving benefits. Contrary to the claims of Sanders in this video, it doesn’t mean that everyone has to keep working until that age. Over the course of a working career, isn’t it possible for someone to save enough to cover the several years between when they decide to quit working and when they’re eligible for Social Security? Or will we let the government — people like Sanders — tell us how long we must work?

Sanders also says that older people need to retire and get out of the workforce to make way for younger workers to take their jobs. This is an example of the fallacy — followed by nearly all on the political Left, it seems — of believing that the economy is a fixed size, and that one person can have income only if someone else gives up theirs.

Perhaps the most dangerous lie of Sanders is his claim that Social Security has a $2.6 trillion surplus available to pay future benefits. He’s referring to the Social Security trust fund. Here, Sanders is correct one on level: The system has collected that much more than it has needed to pay benefits, forming the balance referred to in the trust fund. That money has been lent to other federal government agencies, and they spent it all. So while Federal Agency X may owe the trust fund $50 billion, the only way that agency can repay the trust fund is by borrowing or increasing taxes. (Less spending might be another way, but that’s a difficult goal, and we’d be taxed the same for a lower level of services — a tax increase by another name.) See Social Security trust fund: a problem in disguise.

Sanders dismisses private retirement accounts as risky and dangerous: “You may lose all your retirement savings when you get old.” While true, any reasonable investment strategy designed for the long term has little chance of that happening. Unless, of course, one gets greedy and invests everything in a company like Enron — greed of that type being something Sanders rails against.

Saving on one’s own, however, isn’t what leftists like Bernie Sanders have in mind. Far better for him, Democrats, and big-government Republicans that people remain dependent on government for their retirement security. Once people save and gain some wealth of their own, they find that they can thrive very nicely without a nanny state government. They find themselves wishing they could have saved more throughout their working lives, rather than making forced contributions to a government retirement plan that’s now broke. Even if not broke, most people would be in a much better position if they could have kept their own and their employers’ payroll tax contributions for their own investment.

Finally, Sanders makes a major point of “huge campaign contributions” made to advance the interests of Charles and David Koch. Hinderaker chases down some of the actual numbers, and finds that contributions from Koch Industries PAC are sometimes less than what a single labor union has contributed.

In the end, I’m sure that Sanders said something that’s true in this video. But I can’t bear to watch it again to try and spot it.

Here’s my video response:

Pompeo updates constituents on spending, debt, government interventionism

This week provided an opportunity to catch up with U.S. Representative Mike Pompeo as he conducted a public forum in Andover Monday evening, and on Wednesday at a meeting in his east Wichita office. Pompeo, a Wichita Republican, is in his first term representing the Kansas fourth congressional district, which includes the Wichita metropolitan area and surrounding counties.

As has been the case with his other forums or town hall meetings I’ve observed, it’s standing room only, and popular topics are federal spending and debt. At the forum in Andover, Pompeo presented charts showing the course of federal spending and debt under President Barack Obama’s plans, and under alternatives proposed by Republicans, specifically Paul Ryan, the Wisconsin representative who is chair of the House Budget Committee and architect of the budget that recently passed the House of Representatives, but not the Senate.

Historically, the U.S. government has spent about 18 to 19 percent of the country’s gross domestic product (GDP). But the Obama budget calls for that percentage to rise, and that’s what causes the projected increase in debt, he said. Republicans have proposed a budget that gets the country back to historical levels of spending.

On raising the federal debt limit, Pompeo said he voted against it once, and “I will vote no absent radical change in our spending behavior.” A questioner pressed him to vote no under any circumstance. Pompeo said that there is money that has been obligated but not yet been actually spent, so the only option is default if the debt limit is not raised at some time. “We have to acknowledge that the Congresses before us and the folks who voted them in have put us in this place.” To get us off our spending addiction, Pompeo said we need significant and real short-term spending cuts, real spending caps (he recommended 18 percent of GDP), and a balanced budget amendment to the Constitution.

In telling the audience how the country got to this position, Pompeo said there has been a culture of “yes” in Washington. When someone walked into a Congressman’s office over the last 70 years and said I’ve got a good program, the answer was yes.

On Medicare, Pompeo said that the president’s plan for fixing health care costs is to have a board of “really smart people” (the Independent Payment Advisory Board) be in charge of prices. But “price control isn’t cost control,” he said. Costs can’t be forced down by law, and if we try this, we’ll have worse access to care and lower quality care, he said.

On Social Security, a questioner asked if Pompeo would support removing or increasing the limit on income which is subject to the FICA payroll tax. Currently that limit is $106,000, and income earned beyond that is not taxed under FICA. Pompeo would not agree to that, telling the audience that Social Security, as a program, has grown far beyond the original intent. It was originally designed as an anti-poverty insurance program, but now has grown to become a much larger portion of people’s retirement income. He said that this is because people have already been taxed too much, leaving them with less resources of their own for their retirement.

Although the Republicans have not yet presented a plan for Social Security, Pompeo said he thought the plan would include no change to the present system for those 55 and over, a rise in the age at which benefits start for those presently under 55, and a change in the way cost of living adjustments are calculated. He said he would support such a plan.

Pompeo told the audience that the practice of earmarking — allocating money to be spent on specific projects and the source of much “pork barrel” spending — is over. But he warned of a “clever creature” back in Washington, which he said is using the tax code to spend money: “Instead of earmarking money for someone, you give them a tax credit. Same effect, but different mechanism.” Pompeo said he has been at the forefront of pushing back on this practice. Engaging in social policy through taxes is disastrous, he said, because the people who will win are those with the best lobbyists, and that success in business should not depend on a benefit gained through government tax policy. He said that something like the FairTax (a tax on consumption spending rather than income) or lower marginal income tax rates with far fewer exceptions would boost the economy. Pompeo has introduced a resolution declaring that it is the “sense of the House” that no new energy subsidies or credits should be created, and that all existing should be repealed.

In an interview in his office on Wednesday, he said that he twice voted against tax credits for ethanol production, even though ethanol is fairly important to his district. Also, he said he would vote against the tax credits for wind energy production. (Wichita Mayor Carl Brewer is courting wind power equipment manufacturers to locate in Wichita. Without the wind power production credit, industry representatives have said its future would be much smaller.)

On natural gas, a product for which energy investor T. Boone Pickens is seeking to obtain federal subsidies to boost its use as a transportation fuel, Pompeo said that government should not pick that — or any other fuel — as a winner with taxpayer dollars. Consumers, he said, will be able to decide on which fuels are best.

In his office, he said that what he found most disturbing about the scandal involving Representative Anthony Weiner is he did not tell the truth to the American public. Had Weiner admitted his behavior early on, events might have taken a different course, he said.

I asked about the level of knowledge of civics among citizens today, and Pompeo said he thought that people are paying a lot of attention to what elected officials are doing, with a significant number of citizens are very well informed. Today, he said that the Internet has greatly reduced the cost of obtaining information about government, which he said is an important change in our political process.

On the legislative process, Pompeo said that over the last 25 or 30 years Congress has been unwilling to create “substantive markers” in legislation. Instead, it creates vague laws and funds administrative agencies to implement them. These agencies are less accountable than elected officials, and Congress has handed over much authority to them.

I asked about the deficit, which is a topic of much current interest, but also about the existing federal debt: Are we talking about paying off that debt as a goal, or is getting to a balanced budget a tough enough goal for now? Pompeo said that the debt-to-GDP ratio is the most important debt measure, and we must work to bring that down to sustainable levels.

(According to a recent U.S. Treasury report, the debt-to-GDP ratio is now expected to rise to 1.02 this year, meaning that in order to pay off the debt, it would require all the income earned by Americans working for one year and seven days.)

The only way to pay down the debt is to run surpluses — “and we’re not there,” Pompeo said, noting that the deficit this year is $1.5 trillion. The Ryan budget plan, which he said he voted for, still has deficits in the hundreds of billions. Growing the economy — the other part of the equation — will help get the debt-to-GDP ratio under control, and he said we need to work on both spending reduction and economic growth.

Talking about a budget surplus brings back memories of the last time there was a budget surplus, which was the final years of the Clinton administration. Since Clinton raised income taxes during his term, liberals often argue that we should do the same now as a way to cut the deficit. But Pompeo said the foundation for the prosperity of the Clinton years — which lead to the surplus — was built during the Reagan and the first Bush presidencies. Also, Clinton faced a Republican Congress, which applied some restraint on the growth of spending. We also forget that some of the Clinton-area prosperity was due to the Internet dot-com bubble, which, like the housing bubble later on, proved to a false and unsustainable prosperity.

On the current housing crisis, Pompeo laid its blame on many years of bad federal government policy, including the government’s goal of increased home ownership as an “article of faith,” without recognition of the economics of home ownership. He said he believes that the federal government is still propping up home prices in certain markets, so the problems with the housing market are not behind us, as markets have not been able to discover the correct prices for homes.

Federal debt limit seen as test of resolve

Cato Institute video: “Will raising the debt limit signal to markets what we want? Or will it signal an unwillingness to deal with tough decisions on spending and debt in the near term? Cato Institute Senior Fellow Jagadeesh Gokhale suggests that refusing to raise the debt limit (until programs like Medicare, Medicaid and Social Security are reformed) could signal to markets a greater willingness to deal with long-term fiscal issues sooner rather than later.”

Kansas and Wichita quick takes: Monday May 16, 2011

Wichita City Council this week. This week the Wichita City Council handles several important issues. One is approval of the policies regarding incentives for downtown development. Then, the council will consider approval of the city’s portion of the Hawker Beechcraft deal. In order to persuade Hawker to stay in Kansas rather than move to Louisiana, the State of Kansas offered $40,000 in various form of incentive and subsidy, and it was proposed at the time that the City of Wichita and Sedgwick County each add $2.5 million. Of note is the fact that Hawker’s campus in east Wichita … oops, wait a moment — their campus is not within the boundaries of the city. Like Eastborough, Hawker is surrounded on all four sides by Wichita, but is not part of the city itself. I don’t know if this should have any consideration as to whether the city should give Hawker this grant. … Then, there’s approval of the Industrial Revenue Bonds for the Fairfield Inn in downtown at WaterWalk. The agenda material says that the hotel is now complete, so the construction loan is being refinanced with the IRBs, “which will be initially purchased by the construction loan lender and then later redeemed with the proceeds of a permanent commercial loan insured by the Small Business Administration.” The benefit of the bonds is that the hotel escapes paying $328,945 in sales tax on its furnishings, etc. The city has already issued a letter of intent to do this, so it’s likely this item will pass and someone else will have to pay the sales tax this hotel is escaping. … The complete agenda packet is at Wichita City Council May 17, 2011.

Wichita as art curator. The controversy over spending $350,000 on a large sculpture at WaterWalk promoted one reader to write and remind me of the city’s past experience as custodian of fine art. In 2004, the city mistakenly sold a sculpture by James Rosati as scrap metal. Realizing its mistake, the city refused to complete the transaction. The buyer sued, the city lost and appealed, losing again. Estimates of the sculpture’s worth ranged up to $30,000. Editorialized Randy Scholfield at the time in The Wichita Eagle: “That the sculpture ended up in an auction of surplus junk in the first place says something about how much the city valued it or exercised proper stewardship.”

Legislature fails to confront KPERS. This year the Kansas Legislature failed to confront the looming problem of the Kansas Public Employees Retirement System, or KPERS. A small revision was made to the program, and a study commission was created. Neither action comes anywhere near to solving this very serious problem, as described in Economist: KPERS must undergo serious reform.

Over 30 major news organizations linked to George Soros. Business and Media Institute: “When liberal investor George Soros gave $1.8 million to National Public Radio, it became part of the firestorm of controversy that jeopardized NPR’s federal funding. But that gift only hints at the widespread influence the controversial billionaire has on the mainstream media. Soros, who spent $27 million trying to defeat President Bush in 2004, has ties to more than 30 mainstream news outlets — including The New York Times, Washington Post, the Associated Press, NBC and ABC.” … This is from the first of a four part series.

Romney seen as candidate of business, not capitalism. Timothy P. Carney in To Mitt Romney, big government is good for business: “Mitt Romney has the strongest business backing of any Republican presidential hopeful, and he carries himself as a technocratic problem solver. … Examine Romney’s dalliances with big government that have caused him such grief, and you’ll see a trend: They all are described as ‘pro-business,’ they all amount to corporate welfare, and they all reflect the technocratic mind-set you’d expect of a business consultant. Romney’s record and rhetoric show how managerialism veers away from the free market and into corporatism.” … Carney discusses Romney’s disastrous health care program in Massachusetts — which is seen as a prototype for Obamacare, his efforts to lure business to the state with subsidies, his support of ethanol subsidies, a national catastrophic insurance fund, and the Troubled Asset Relief Program.

Programs for elderly must be cut. Robert Samuelson in The Washington Post: “When House Speaker John Boehner calls for trillions of dollars of spending cuts, the message is clear. Any deal to raise the federal debt ceiling must include significant savings in Social Security and Medicare benefits. Subsidizing the elderly is the biggest piece of federal spending (more than two-fifths of the total), but trimming benefits for well-off seniors isn’t just budget arithmetic. It’s also the right thing to do. I have been urging higher eligibility ages and more means-testing for Social Security and Medicare for so long that I forget that many Americans still accept the outdated and propagandistic notion that old age automatically impoverishes people.” … Samuelson goes on to show that many are doing quite well in old age and gets to the heart of the problem: “The blanket defense of existing Social Security and Medicare isn’t ‘liberal’ or ‘progressive.’ It’s simply a political expedient with ruinous consequences. It enlarges budget deficits and forces an unfair share of adjustment — higher taxes, lower spending — on workers and other government programs. This is the morality of the ballot box.” In other words, the elderly, which are a powerful voting bloc, have found they can vote themselves money. Concluding, he writes “Social Security was intended to prevent poverty, not finance recipients’ extra cable channels.”

Social Security seen as unwise, financially. A video from LearnLiberty.org, a project of Institute for Humane Studies, explains that apart from the political issues, Social Security is a bad system from a purely financial view. Explained in the video is that 22 year-olds can expect to earn a 1.6 percent rate of return on their “investment” in Social Security contributions. Further, the “investment” is subject to a “100 percent estate tax.”

Market development in Wichita. From Wichita downtown planning, not trash, is real threat: “While the downtown Wichita planners promote their plan as market-based development, the fact is that we already have market-based development happening all over Wichita. But because this development may not be taking place where some people want it to — downtown is where the visionaries say development should be — they declare a ‘market failure.’ But just because people make decisions that visionaries don’t approve of, that’s not market failure. And this is one of the most important reasons why Wichitans should oppose the downtown plan. It proposes to direct public investment away from where free people trading in free markets want public investment to be. The public investment component of the downtown plan says that people who decided not to live or work downtown are wrong, and they must now pay for others to be downtown. … We have market-based development in Wichita. We don’t need a government plan to have market-based development.”

Reisman: Social Security, Medicare must end

Last week George Reisman published an article that should be required reading for all who care about the future of our country. Titled How to Eliminate Social Security and Medicare, it will take more than a few minutes to read, but it holds the type of information we need to know as we consider reform of government entitlements. Reisman is the author of the monumental work Capitalism: A Treatise on Economics.

Reisman lays out a plan that would gradually, over time, end the Social Security and Medicare systems. It’s a detailed plan, and I don’t pretend to know enough to tell if the plan would work. But it seems like it would, and the important thing is that Reisman’s plan calls for an end to these programs. Most plans call for merely bringing these programs “under control” — whatever that means. And for all the courage attributed to House Budget Committee chair Paul Ryan and his Path to Prosperity Plan, he left the Social Security program for solution some other day.

What’s important about Reisman’s article is his explanation of the harm that these two programs have caused. Here I take the liberty of rewriting two sentences of his into one: Many of the elderly and infirm are incapable of caring for themselves in large measure simply because they had been promised that the government would care for them and thus that it was not necessary for them to save.

Social Security has reduced the need to save for one’s old age, Reisman writes: “The effect of Social Security and Medicare has been to remove the apparent need for much of that saving. Not surprisingly, in the conviction that the government was now providing for people’s old age, the rate of saving in the United States has declined precipitously over the years, falling all the way to zero in some years.”

The saving of individuals for their retirement would greatly increase our capital stock, which is vital for economic competitiveness. In fact, Reisman writes that if American industry had access to greater capital, it would be able to operate with lower costs, allowing it to compete more effectively with foreign countries that pay lower wages. But because government diverted Social Security taxes into consumption rather than saving, that capital has not been accumulated. Instead, our capital stock is becoming depleted.

It will become worse as young people learn they must pay off the national debt — not only the debt figures we see reported in the media, but the debt implicit in the promise of Social Security and Medicare. This debt, as we see, has been accumulated over the decades as politicians of all stripe have carried out what Reisman accurately calls embezzlement:

Two major lessons to be learned from the financial disaster constituted by Social Security/Medicare are that the government should be prohibited from incurring any significant national debt and that a governmental promise of pensions or provision of future medical care is a category of national debt. All levels of government should be constitutionally prohibited from incurring significant amounts of debt beyond a very short term, including, above all, pension obligations of any kind.

Hopefully, there is a special place in Hell reserved for all the political con-men and intellectual shysters of the last generations who endlessly dismissed the significance of national debts with such glib phrases as “we owe it to ourselves” and asserted that national debts need never be paid. These, of course, were the same con-men and shysters who again and again ignorantly denounced saving as cash hoarding and the cause of depressions and mass unemployment.

And in the case of all the government officials who over a period of decades and decades knowingly used the proceeds of Social Security taxes to finance current government spending, these con-men and shysters descended to the status of major criminals, guilty of the crime of embezzlement on a scale unprecedented in all of human history. They diverted literally trillions of dollars of what people were led to believe were their savings, set aside for their future benefit, into current government spending. The spending was for projects desired by these officials and designed to keep them in office by fostering the illusion that the officials had performed the miracle of providing seemingly valuable current benefits at no corresponding cost. Of course, the reason for the apparent lack of cost was that the costs were covered by the proceeds of embezzlement.

Besides dim prospects for the young, the mass of old people faces a grim future, too. While it is the individual who has the greatest motivation to see for their provision in old age, government has assured us that it will care for us in our old age. The individual versus the collective, in other words. While nearly every politician insists that the elderly will be cared for (“we’re not going to throw Grandma under the bus”), the political reality may become different some day as demographics shift towards a country with a higher proportion of elderly and fewer young people:

The actual fact is that while the lives of the elderly are of inestimable value, when taken one at a time, to the individual elderly person concerned, they are of no actual value to politicians and government officials. Indeed, from the perspective of the self-interest of all-powerful officials, contemplating the land and the people of their country as their personal possessions, existing for no purpose other than their — the officials’ — glorification, the existence of the elderly stands as an actual impediment. For the elderly consume substantial amounts of the resources of the collective that the officials control, and at the same time they produce little or nothing, and no longer have any prospect of ever doing so. If they ceased to exist, the officials would have resources available to put to other uses that they would certainly judge to be more important.

Could this lead to the “death panels” that some fear but ObamaCare supporters deny? Reisman cites a recent New York Times article titled When Ailments Pile Up, Asking Patients to Rethink Free Dialysis. The title is almost self-explanatory.

This is just scratching the surface of Professor Reisman’s article. Reading it and understanding what government has done under the guise of caring for us, I alternate between anger and depression. For me, the saddest realization is that Social Security and Medicare have not only reduced the motivation of Americans to save, their taxes have reduced the ability of people to save, even if they want. I recommend a full reading so that all may understand what the future looks like.

Kansas and Wichita quick takes: Monday April 11, 2011

Social security entitlement. In today’s Wichita Eagle Opinion Line, this comment was left: “Please stop calling my Social Security an ‘entitlement.’ I paid into it all my working life, and I just want my money back.” Two points: The writer seems to believe that just because people pay into Social Security, they’re entitled to benefits as through there was a contract in place. But there is no contract. Social Security benefits are what Congress says they are, and Congress can make changes at any time. … Second, the writer wants his money back, as though the money was paid onto some sort of investment account and has been working there earning interest. Unfortunately, the Social Security trust fund money has been spent. There’s nothing for the writer to get back except the future taxes to be paid by future workers.

New York Times may be offended. “The New York Times is carrying out a vendetta against Charles and David Koch, two of the very few rich people who support conservative and libertarian causes. The Times is offended, apparently, that the Left does not quite have a monopoly on big money. The paper’s editorialists flat-out lied about the Koch brothers, and had to issue a retraction.” … Referring to author David Callahan and a recent op-ed: “What is most striking about Callahan’s piece is its rampant hypocrisy. He himself is an employee of a left-wing organization that prefers not to abide by the transparency standards that Callahan advocates.” From Powerline: The Times Vendetta Continues.

Kansas Legislature website. Kansas Reporter writes: “Most hurdles now behind legislative website update.” The major problems I experience now are reliability issues, where many times clicking on a document produces the dreaded “Error 500 Internal Server Error” message. … The cost of the work, plus a new system for preparing legislative text, is some $11 million.

General Electric tax bill. The Washington Post looks at the New York Times and its reporting on General Electric and its taxes: “Unfortunately, for all its good work, the article has created at least one major misperception: that GE paid no U.S. income taxes last year and is getting a $3.2 billion refund from the Treasury. … The company says it’s not getting any refund for 2010 — validating [accounting professor Ed] Outslay’s analysis. Its 2010 tax situation? ‘We expect to have a small U.S. income tax liability for 2010,’ said Gary Sheffer, GE’s chief spokesman. How big is small? GE declined to say. The number is unlikely to be disclosed unless GE goes public with it or is forced to do so. One reason the Times was ensnared — and that it took us a while to sort this out — is that the material is confusing. Outslay drew up 10 GE tax metrics for us and could have given us at least six more. None shows what GE’s U.S. income tax bill is for a given year.”

Sweet deal for big sugar. Senator Dick Lugar, writing in the Washington Times, explains the harm to U.S. consumers from a tariff that benefits a few: “The collapse of communism brought an end to many of the world’s command-and-control economic systems and central planning by government bureaucrats. But a notable exception is the United States government’s sugar program. A complicated system of marketing allotments, price supports, purchase guarantees, quotas and tariffs that only a Soviet apparatchik could love, the U.S. sugar program has actually lasted longer than the Soviet Union itself.” The idea is that by keeping prices high and insulating domestic sugar produces from the world market, jobs are saved. Counters Lugar: “But in 2006, the Commerce Department calculated that for every sugar-growing job saved by artificially high prices, three manufacturing jobs in the confectionery industry are lost. Overall, from 1997 to 2009, more than 111,000 jobs were lost in the sugar-using food sector, according to Commerce data.” This is always the case with protectionist trade tariffs: a small number of highly-visible jobs are saved, at the cost of great economic harm spread across the economy, harm that is difficult to see. Sugar protectionism is only one such example. President Bush’s tax hike and Obama’s tax increase on tires are other examples.

Williams on role of government. A short lecture by Walter E. WIlliams. “Almost every group in our country has come to feel that the government owes them a special privilege or favor.” Conservatives too, he says. Williams highlights the contradictions of conservatives, who “don’t have a moral leg to stand on,” he says. “They merely prove that it’s a matter of whose ox is being gored.” He quotes H.L. Mencken: “Government is a broker in pillage” and “Every election is an advance auction on the sale of stolen property.” Williams says not to blame the elected officials we send to Washington and local centers of government. They, he says, are doing precisely what we send them there to do: “Namely, to use the power of their office to confiscate the property of one American and bring it back to another American to whom it does not belong.” Politician who say they would not do this — of course, they do not speak so bluntly on the campaign trail — would not be elected.

Social Security trust fund: a problem in disguise

A situation that must be resolved soon first requires some understanding and an honest assessment of the facts: Social Security and its trust fund.

Over the years, the Social Security Administration has collected more in payroll taxes than it has needed to spend on benefits. (Last year that wasn’t the case.) The surplus represents the trust fund.

But there is disagreement as to the economic meaning of the trust fund. From a naive and uncritical accounting perspective, there seems to be no problem. SSA purchases a special series of bonds from the U.S. Treasury, and these bonds make up the investments of the trust fund. What could go wrong with holding government bonds?

To answer that question, we have to look at what the government did with the proceeds of selling the bonds. The answer is that government spent the money. There are no bills in a vault. There are no bank deposits. There is only the promise of the U.S. Government to repay the bonds when the SSA needs them. A recent publication by Veronique de Rugy and Jason J. Fichtner of the Mercatus Center (Can We Trust the Social Security Trust Funds?) explains:

However, the way the federal government accounts for the trust funds masks the true size of costs passing on to future generations. While bonds are real assets to the private market, future generations of taxpayers or borrowers will have to cover the future redemptions of bonds issued today because the federal government has used the money it has received from Social Security to pay for education, wars, and other items. In other words, the government has already spent the money it received in exchange for the IOUs. This is explained in the president’s 2011 federal budget: “The existence of large trust fund balances, therefore, does not, by itself, increase the government’s ability to pay benefits.” (emphasis added)

But not everyone believes or understands the meaning of having spent the money in the trust fund. The SSA itself seems to, at least a little bit. A document titled Trust Fund FAQs produced by the SSA states: “As stated above, money flowing into the trust funds is invested in U.S. Government securities. Because the government spends this borrowed cash, some people see the current increase in the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future.” So here we have the U.S. Government admitting that the money in the trust fund has been spent.

So is this a problem? No, says the SSA as it continues: “Far from being ‘worthless IOUs,’ the investments held by the trust funds are backed by the full faith and credit of the U.S. Government.” What the SSA doesn’t tell us here — and it’s not really its job to do so — is that the way these investments will be repaid is by one of three means: more taxes, less spending, or more borrowing.

It’s good to see the federal government at least starting to recognize the truth behind the trust fund, even if it can’t bring itself to recognize its implication. Most liberal — “progressive,” excuse me — organizations refuse to see the truth. An example is The Center for American Progress, which produced a 72-page report last December titled Building It Up, Not Tearing It Down: A Progressive Approach to Strengthening Social Security. The document mentions the trust fund many times and that the fund is invested in safe government bonds. Never does the report mention that these funds have already been spent on something other than Social Security benefits.

I can understand how CAP doesn’t want to mention this. The funds have been spent — under both Republican and Democratic administrations — to support the government spending programs that CAP supports. The fact that the spent funds in the trust fund will have to be paid back, possibly through higher taxes? High taxes and progressive taxation don’t bother CAP — that’s its platform.

Paul Krugman of the New York Times also doesn’t think the trust fund presents a problem: “The Social Security system won’t be in trouble: it will, in fact, still have a growing trust fund, because of the interest that the trust earns on its accumulated surplus. The only way Social Security gets in trouble is if Congress votes not to honor U.S. government bonds held by Social Security. That’s not going to happen.”

And how does Congress honor the bonds? More taxes, less spending, or more borrowing. Or some combination.

This is the future we face if we don’t recognize the problem and take steps to start reform now.

Federal spending on autopilot

Federal spending trends

Many people know that a large portion of the federal budget is effectively out of lawmakers’ hands. Together Social Security, Medicare, Medicaid, and interest on the debt presently consume about 48 percent of federal spending. But if nothing changes, these programs will grow to consume 90 percent of federal spending by 2084.

This is the conclusion of Mercatus Center Senior Research Fellow Veronique de Rugy. Her analysis is based on data from the Congressional Budget Office, which makes forecasts in its Long-Term Budget and Economic Outlook. Her report is Defense and Non-Defense Spending Programs Squeezed as Autopilot Programs and Debt Interest Explode.

The key is this is a forecast if nothing changes. The spending on entitlement programs that drive this forecast are under federal legislators’ control. They can act to make changes over the long term, if they wish to.

But before last year’s elections, few politicians, even Republicans, were willing to confront the problem head-on. One of the few officeholders willing to do so is Wisconsin Congressman Paul Ryan, who is now chair of the House Budget Committee. His Roadmap for America’s future is a plan that recognizes the seriousness of the current situation, not only with Social Security, but in other areas of the federal budget.

His recommendations, specific as they are, cause consternation among some Republicans who would rather talk about problems in general terms rather than specifics. A recent Washington Post profile of Ryan referred to “… many Republican colleagues, who, even as they praise Ryan for his doggedness, privately consider the Roadmap a path to electoral disaster. Unlike most politicians of either party, he doesn’t speak generically about reducing spending, but he does acknowledge the very real cuts in popular programs that will be required to bring down the debt.”

Many of the new members of Congress are eager to take on the long-term problem illustrated in de Rugy’s chart. Let’s hope they have success.

Charles G. Koch: Why Koch Industries is speaking out

In today’s Wall Street Journal, Charles G. Koch, who is chairman of the board and CEO of Koch Industries, writes that economic freedom — not government spending and intervention — leads to prosperity and economic well-being for all, even for our poorest citizens.

Koch describes an “economic crisis” of increased spending and debt, at both the federal and state levels. The spending cuts currently being considered by Congress, he says, are “relatively minor,” with few proposals for necessary cuts to military and entitlement programs. He describes Wisconsin Governor Scott Walker as someone who takes seriously the challenge of controlling government spending.

Mismanagement of our finances by both Democrats and Republicans, along with their and President Obama’s refusal to tackle the problem of existing debt and the unfunded liabilities of Social Security, Medicare and Medicaid, means we are looking at “looming bankruptcy,” Koch writes.

On the relationship between government and business, Koch writes that too many business firms have practiced “crony capitalism”: lobbying for special favors, subsidies, and regulations to keep competitors — who may be more efficient — out of the way.

While it’s more difficult than practicing cronyism, competing in open markets assures that firms that efficiently provide goods and services that consumers demand are the companies that thrive, Koch writes. It is these efficient firms that raise our standard of living. When politically-favored firms are propped up and bailed out, our economy is weakened: “Subsidizing inefficient jobs is costly, wastes resources, and weakens our economy.”

He concludes: “I am confident that businesses like ours will hire more people and invest in more equipment when our country’s financial future looks more promising. Laying the groundwork for smaller, smarter government, especially at the federal level, is going to be tough. But it is essential for getting us back on the path to long-term prosperity.”

Why Koch Industries Is Speaking Out

Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people’s lives better.

By Charles G. Koch

Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year — double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year’s projected budget deficit is more than $1.6 trillion.

Several trillions more in debt have been accumulated by state and local governments. States are looking at a combined total of more than $130 billion in budget shortfalls this year. Next year, they will be in even worse shape as most so-called stimulus payments end.

For many years, I, my family and our company have contributed to a variety of intellectual and political causes working to solve these problems. Because of our activism, we’ve been vilified by various groups. Despite this criticism, we’re determined to keep contributing and standing up for those politicians, like Wisconsin Gov. Scott Walker, who are taking these challenges seriously.

Both Democrats and Republicans have done a poor job of managing our finances. They’ve raised debt ceilings, floated bond issues, and delayed tough decisions.

Continue reading at The Wall Street Journal (subscription not required)