The Great Pension Lie
“More than 3 million demonstrators – one in 20 of all French people – marched yesterday against the President’s plans to raise the standard retirement age from 60 to 62,” reported the UK Independent last week.
Strictly speaking, the protests are not really about France’s retirement age. After all, Frenchmen are perfectly free to retire at any age. There is nothing that holds them from quitting their jobs at 55 or 50 or even earlier should they be so inclined.
What the protests are really about is the desire of the French to begin state-sponsored retirement at one of the lowest retirement ages in Europe. For comparison, the retirement age in Germany and Denmark is 67. Britain is planning to increase pension eligibility to 68.
But the French have a problem: The government does not have the money to indulge the wishes of its citizenry. The French state is broke. France’s pension program is currently running a €32 billion deficit. With increasing life expectancy and fewer young people in the workforce, the figure is estimated to double within a couple of decades.
The fact is that the French government cannot afford to provide the kind of pensions demanded by the population. The French people, however, are apparently unimpressed by such excuses. They demand that the state provide anyway. And to get their way, they are prepared to turn their country upside down. This is how bad things stood last week:
Rail and air services were severely disrupted… Many schools and government offices, and even the Eiffel Tower, closed. Eleven out of the nation’s 12 oil refineries were wholly or partially closed in what local union branches threaten could become an indefinite stoppage to topple the pension reform. The state railway company, the SNCF, warned last night that it expected widespread cancellations…
This is a truly desperate situation: The impossible is demanded and social disorder is threatened if the impossible is not delivered. The state cannot make good on its promises and the citizens refuse to acknowledge that fact.
The coming on of this impasse was not unpredictable. It was, in fact, unavoidable. This is because no government can provide for the well-being of its citizens over the long run, be it through healthcare, employment or retirement. All such efforts inevitably culminate in fiscal calamity, which then morphs into social crisis.
Experience shows that all large-scale public retirement programs sooner or later turn into Ponzi schemes whereby pensions of current retirees are drawn from taxes paid in by the working population. Due to falling demographic trends that afflict welfare countries, there inevitably comes a point a point when the racket runs out of money. The citizens, however, do not easily relinquish the promised goodies. The politicians in charge have to give in if they want to stay in office. The enraged populace will accept nothing less. Kicking the can down the road is the pretty much the only option for politicians in modern western democracies where people have been conditioned to be taken care of by their government. But deficits and borrowing cannot go on forever. Things must eventually come crashing down, and in a bad kind of way.
This fatal dynamic is also playing itself out in the United States, where the government has promised to provide for citizens in their old age. This is a high-sounding notion, but one that can never be fulfilled. As in France, the US government is broke and in no position to deliver on its promises. Estimates of entitlement liabilities inherent in Social Security and Medicare range from $65 trillion to $200-plus trillion. Even the lower end estimate is completely out of the realm of fiscal possibility.
Nor will anything be done about it, since it is not for nothing that entitlements are called the third rail of American politics. Politicians just keep kicking the can down the road while contracting ever greater debts. Bad though they may be, it is wrong to blame the politicians for our woes, for they ultimately only do our bidding. The idea that Social Security needs to be scrapped would not go down well with the voting public.
We set out on the road to fiscal woe when we fell for that great lie: that the state will provide for our well-being and welfare. But this is an unaccomplishable task. Despite what we have been told, the state cannot provide education, retirement and job security over the long haul. The only way to have these things is to obtain them through our own efforts.
Self-reliance is not always be easy, but it can be done. Our ancestors showed us how. They managed to live in functioning civil society with almost no federal involvement. There was no Social Security or government healthcare then. It bears to keep in mind that they lived in a technologically far less advanced age, when life was much harder than it is today. And yet they did not look to the state to take care of their needs. They did what they had to do themselves.
Predatory Governance
There is a telling passage in the Biblical book of Nehemiah. Its author, the man whose name the book bears, served as governor of Judea in the 5th century BC. In the fifth chapter of the book, Nehemiah speaks of the rule of governors who served before him. This is how he puts it:
But the earlier governors – those preceding me – placed a heavy burden on the people and took forty shekels of silver from them in addition to food and wine. Their assistants also lorded it over the people.
In this short statement, Nehemiah inadvertently captured the nature and essence of the state: It lords it over the people. This is its universal characteristic. Be it the pharaoh in ancient Egypt or the caesar at Rome or a medieval king or the modern managerial bureaucracy – they all run roughshod over the citizenry. They all extract money from the people and destroy or kill anyone who dares to oppose them. This is as true in contemporary America as it was in the days of the Roman tax-collectors. The state oppresses and plunders regardless of its geographical location or time in history. The loot is then used to enhance the well-being, prestige and power of those who hold its reins.
Today this dynamic is playing out before our eyes in a truly striking way. Even as the economic situation keeps deteriorating and many Americans face joblessness and hardships of various kinds, our “governor” – the president – and his “assistants” surely live it up.
According to recent analysis by USA Today, government employees earn twice the compensation of their counterparts in the private sector. To work for the state is profitable indeed:
Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade… Federal compensation has grown 36.9% since 2000 after adjusting for inflation, compared with 8.8% for private workers.
Many elected politicians and their families lead extravagant life. It seems there is some party in the White House every other day. The president’s wife travels to foreign luxury resorts where she books sixty rooms in a trip that costs hundreds of thousands of dollars. She does this while ordinary Americans – whose taxes paid for the trip – struggle to make ends meet.
Economist Murray Rothbard called the State “a gang of thieves writ large.” Rothbard’s observation is no hyperbole. That is exactly what the state is. When stripped of the phoney aura of statesmanship, Charles Rangel, Barack Obama, Nancy Pelosi, Maxine Waters, Charles Schumer, Harry Reid, Dick Durbin, Christopher Dodd and their compadres are that gang of which Rothbard spoke. They scheme and plot and extract money from the productive and then give it to themselves and their armies of minions who keep them in power with their votes. The American federal government increasingly resembles a redistribution racket that is run by operatives who call themselves public servants.
Many of us have been blind to this, because we have been brainwashed by the decades of government propaganda dispensed through the public school system, universities and the media. But the behavior of the political class has recently become so brazen and outrageous that scales are falling from people’s eyes everywhere.
Continue reading at American Thinker
The Main Thing
That the world economy is in turmoil is quite obvious. But it is less obvious what the problem is and where it will lead. Neither are the wise men very helpful. Some of them tell us that things are getting better and we will pull through. Others lament that things are critical and all is lost. The President’s financial wizards assure us that the situation is under control.
They all offer erudite analyses to prove their point. Most of those analyses contain complicated concepts and data that are difficult to grasp. Very often they yield contradictory results.
So how does one know whom to believe? How are we to make sense of all his jungle of abstruse analysis and conflicting material?
As we try to cut through the confusion, we would do well to take a cue from Lee Iacocca, former President and CEO of the Chrysler Corporation, who once said: “The main thing is to keep the main thing, the main thing.”
Here is the thing: A number of western governments have contracted more fiscal obligations than they can conceivably cover. It is this immense burden of government debt that will drive global economic events in the years to come.
Strictly speaking, government debt is not an economic issue but a fiscal one. But fiscal excesses always have economic consequences. This is because they invariably weaken currencies by inflationary pressures.
Continue reading at American Thinker
Money and the State
In the introduction to What Has Government Done to Our Money, Murray Rothbard – one of last century’s most brilliant economists – made an incisive observation. Rothbard noticed that most people, including most of those who consider themselves free marketers, “never think of state control of money as interference in the free market.”
Rothbard’s point is almost universally applicable to those of us who call ourselves conservatives today.
Many of us believe that government cannot do things aright and that eventually it wreaks havoc on everything it puts its hand to. This is confirmed by endless empirical evidence as well as by theoretical analysis of how government works.
The inner dynamics and workings of bureaucracies are conducive neither to efficiency nor to wisdom. And even if they were, they would still be counterproductive because life is simply too complex to be run by technocrats. It is, therefore, no surprise that government agencies and departments do not solve problems. They only make existing problems worse and create new ones in the process.
Ronald Reagan got it exactly right when he remarked: “The nine most terrifying words in the English language are: I’m from the government and I’m here to help.”
In light of this, we need to ask this question: How is that we who hold such low view of government see nothing wrong with the the fact that it runs and controls the very lifeblood of our economy – money.
Think about it. We believe that government cannot do anything well, and yet we never question its ability to manage the currency. This issue is not even on our radar screen. In other words, we do not even see that there is a problem. But we most definitely need to see it, because it is a huge problem.
If our underlying view of government is correct, then the government will eventually destroy our money. Given our worldview, this is the inevitable consequence of the way things are at the moment. This notion can be expressed in the form of a simple propositional argument:
Government eventually ruins that which it controls and manages.
Government controls and manages our currency.
Therefore, government will eventually ruin our currency.
If the initial premise is true, sooner or later the dollar will be destroyed. The conclusion follows logically from the first premise.
Continue reading at Canada Free Press
The Death of the Dollar
Nothing can save our financial system in the long run. It is doomed to collapse. This is inevitable, because our government controls and manages its very foundation — the dollar.
The federal government began its takeover of the dollar in 1913 when it established the Federal Reserve Banking System. Prior to that the dollar was a real store of value. In the period from 1783 to 1913 there was a long period of currency stability with virtually no inflation. If you saved one dollar in 1800, your great grandchild could buy roughly the same amount of goods with the same dollar one century later.
Continue reading at American Thinker
Leviathan’s Loot
Last week the British government announced that the VAT tax – a form of a sales tax – will go up from 17.5 percent to 20 percent.
This is bad news for the Brits. It comes only two months after it was announced that the top income tax bracket would be 50 percent. That bracket includes everyone who makes more than £150,000 ($220,000) per year.
This means that every British citizen who earns more than £150,000 will see a half of his income confiscated by the government straight off. From what remains he will have to pay an additional 20 percent on most purchases.
There are also numerous other fees and duties – such as the local council tax – that must be paid to the government. The result is that some people will end up turning close to seventy percent of their income to the state.
Serfs throughout history were not ripped off to this degree. Pharaoh’s subjects in ancient Egypt were taxed at 20 percent. And even though tax collectors in that ancient land were as abundant as “the sands of the seas,” they were instructed not to be brutal. According to one of their manuals: “If a poor farmer is in trouble with his taxes, cut two-thirds of their taxes.” They were even told to “cheer up everyone and to place them into good humor.” When was the last time a friendly IRS agent made an effort to lift up your broke(n) spirit? The ancient Egyptians also had to donate a few weeks of their labor to Pharaoh each year. These days we work for the federal government almost four months out of the year.
It is revealing that the sales tax in Britain is being increased by conservatives. Both the Prime minister and the Chancellor of the Exchequer – the equivalent of our Treasury Secretary – call themselves such.
Continue reading at American Thinker
Greenspan’s Call of Despair
Last month I wrote a piece titled Greece: A Preview of Things to Come. It included this sentence:
What we are seeing now in Greece is a preview of what is eventually bound to transpire in the United States.
To some this claim seemed crazy. A few snickered. They could not imagine things in America would ever get so bad.
Last week Alan Greenspan, the former Chairman of the US Federal Reserve, wrote a piece for the Wall Street Journal.
Greenspan’s piece was titled U.S. Debt and the Greece Analogy.
I urge you to read it. Alan Greenspan clearly thinks things will get bad. This should not surprise, for the figures are depressing indeed.
Notes Greenspan: “Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008.” This, by the way, does not represent the full extent of America’s national debt, as it does not include the $4.5 trillion owed to federal trust funds. And we have not even mentioned yet a hundred trillion plus of unfunded liabilities.
After bemoaning our lack of fiscal restraint, Alan Greenspan makes a statement that should send a shudder down the spine of every American:
The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms.
We have said this repeatedly here, and now you can hear it from the wizard of finance himself: The US government has taken on more financial obligations that it can possibly make good on. In practical terms this means currency debasement. Why? Because the government will try to meet its payment schedules by creating new money.
Continue reading at American Thinker
Mad and Madder
So now it is Spain’s turn to be wracked by protests against “austerity” measures. Given the country’s fiscal condition, those measures are rather mild. One of them is to cut the salaries of public sector workers by five percent. This is really not that much given that most of those salaries should not even exist in the first place. Those who receive them should be instead encouraged to look for real work.
Said one outraged protestor:
We are very angry because this is not only an attack to our rights and to our salaries that there is an attack to the welfare. This is an attack to all the public services.
Like the Greeks, the Spaniards too do not like the idea of spending cuts and demand that their government keep giving them money. The problem is that the Spanish government does not have any money. It only has debts.
Spain’s budget deficit is more than 11 percent of the country’s gross national product. Its public debt is some 55 percent of GDP. It is likely, however, that these official figures are grossly understated. As most people know, governments lie about their debts. We saw this most recently with Greece. The more leftwing the government, the more likely it is to lie about its obligations. The previous Greek government lied big time and they were “conservatives.” One can imagine the kind of figure-fudging that is going on in the present Spanish government, which is socialist.
In any case, one thing is clear: Spain is broke. Yet the Spanish people still demand more money from their government.
This is Greece all over again. The Greek government was going bankrupt and had to be bailed out. The bailers required that it show a modicum of responsibility. So the government proposed some mild cuts. Then all hell broke loose. There was screaming, there were protests and there was rioting. People were killed. Parts of Athens resembled a war-zone.
The Greek people do not want any cuts. They want easy government jobs from which they can retire at 53. Then then want to enjoy their long retirement on one of the islands in the Aegean. I do not blame them. It is pretty there. One can find a solitary cove, sit on its rocky beach, look out into the sea and ponder. There is something about Greece that lends itself to contemplation and metaphysical speculation. It was there Western thought was born.
When one gets hungry from all the thinking, he can easily find a pretty little restaurant overlooking the water. Greek salad with olive oil and feta cheese and a piece of fish are the standard fare. A glass of white goes well with the simple feast. The food tastes great and it is healthy too. No wonder the Greeks have such a long life expectancy.
The Greeks want the good life, but they do not want to work for it. They want someone else to foot the bill. Obviously this cannot work in real life, not for very long anyway. If a people base their societal model on non-work, their society will eventually fall apart. It cannot be otherwise. If they are lucky and find someone stupid enough, they will bail you out. But this will give only a temporary reprieve. To have a prosperous society its members must work, and they must work hard. It is through hard work that good things come. Non-work only brings grief in the long run, which is what the Greeks are learning now.
Continue reading at American Thinker
Slaying Leviathan
After her victory in the California republican primary, Carly Fiorina said this to her supporters:
Together, we will replace Boxer, take Washington back, make it listen and make it work.
Even though well-intentioned, Fiorina’s statement reveals a serious flaw at the heart of present-day conservatism.
The flaw is this: We think that in order to solve our problems we need to win elections, get hold of government and fix it. But this is an impossibility, because government cannot be fixed.
Contrary to what Carly Fiorina says, you cannot make government listen to the people. It goes against its nature. Government preys on people. It takes away people’s money and it takes away their freedoms. This is what every government does. The bigger the government, the worse things are. The United States has the biggest and most intrusive government in its history, which is why things are so bad right now.
In his 1980 inaugural address Ronald Reagan said: “Government is not a solution to our problem, government is the problem.” Most conservatives agree in the abstract, but we have never fully internalized Reagan’s dictum. Deep down we still believe that government can work for us, if only we throw the bumps out.
This is a vain hope, which is why we always end up so frustrated. Conservatives prevailed in 1994, 2000 and in 2004. And what was the result? Those who replaced bums later became bumps themselves. This is because they became part of Leviathan and Leviathan loves to chew up its would-be reformers. It then spits them out as supporters.
We keep making the same error over and over again. “If only we get the right people into government, they will solve this country’s problems,” we say. Such people do not exist. Nobody can make government work. Government only creates problems. Everything government touches turns to ashes sooner or later. As Reagan said, government is the problem.
Boehner and Co. speak good now, but this is only because they are out of power. When they were in power they were spending like mad. Do you remember Medicare Plan D? We are paying through the nose for it now. It was the republicans’ idea. They grew government more than Bill Clinton did. Why should we trust them now to do the right thing? They have already showed us what they are made of. They have no principles as far as limited government is concerned.
This is not to say that they are bad men. They are just like the rest of us: weak and corruptible. I do not think most of us would fare much better if we were in their position. To resist Leviathan’s guile takes the strength of characters that only few have. This is why politicians should never hold great power. They should certainly not hold any power over the income and property of others. If they do, they invariably use it as a means for personal enrichment and empowerment. The Founding Fathers knew a thing or two about human fallibility. Hence their insistence on limited governmental powers.
We should not be sending people to Washington to fix America’s big government. We should be sending them there to dismantle it. We will never be well again until we realize that Leviathan cannot be tamed. It must be slain. You fix government by dismantling it, not be reforming it.
Continue reading at American Thinker
The World’s Money Problem
The euro is in big trouble, because there is too much debt behind it. So much that there is talk that it may fall apart. Jim Rogers, the legendary investor, thinks the euro may not be around in fifteen years. Others think it will not be around in fifteen months.
The fears are fully justified. It is hard to see how Germany and Greece can co-exist within one monetary framework. Germans work and save, Greeks party and spend. Such a marriage cannot last very long. Neither can one in which Germans are married to the French. The French have the 35-hour working week and take long lunch breaks. The German people will not subsidize that forever.
During their argument over the euro bailout, Sarkozy threatened to leave the common currency if Germany did not pay up. He shouted and got red in the face. Angela Merkel became alarmed and agreed to cough up billions. That was a mistake. She should have said “good riddance” instead.
Investors are now spooked and are dumping their euros as a result. Many are buying dollars instead. This is a case of desperation, since the dollar is in worse shape than the euro. The sovereign debt across the eurozone is about 80 percent. America’s is 10 percentage points higher. According to the Obama administration, America’s public debt will soon exceed 100 percent of GDP. Add to that more than $100 trillion in unfunded liabilities. There is no way this can ever be paid. In the long run the dollar is a dud.
So why are central banks and investors buying dollars now? The answer is simple. Doomed though it may be long-term, the dollar seems the best alternative at the moment.
It all boils down to this. Where do you store your excess wealth? Or to put it differently, what do you use as your store of value? In the past, the answer was simple. Kings and wealthy people had their liquid wealth primarily in gold. If you were rich you got yourself a pile of gold and that was that. Gold was where you kept your money, because gold was money.
After World War II governments ceased to use gold as money. Instead they agreed to use the US dollar as the anchor for their currencies. The value of national currency units was no longer set by the amount of gold for which it could be exchanged, but by their exchange rate against the dollar. The dollar itself could be redeemed for gold. This how the dollar became the world’s reserve currency.
Continue reading at American Thinker
America’s Public Debt Explained
I recently wrote an essay in which I argued that the dollar will eventually collapse due to the excessive debt burden of the American federal government. My conclusion was challenged by the writers Jon Hall who argued that I painted too dire a picture. In his article he challenged my assessment of both the national debt and unfunded entitlement liabilities.
In this piece I will address the former objection. I will try to do this in thorough fashion, because Mr. Hall’s reaction reflects a commonly held misconception.
Those who hold it believe that a substantial portion of our government’s debt does not represent genuine obligation. This is how Mr. Hall puts it:
[O]ne must understand that the “total public debt” figure cited consists of two parts: hard debt and soft debt. The hard debt is the real debt. And the soft debt consists of government “trust funds,” like the social security trust fund. The soft debt is money we “owe” ourselves, not Japan and China.
The idea that a part of the the government’s debt is somehow “soft” or less than real could not be further from the truth. To better grasp where this error comes from, let us start at the beginning and say something about how governments run their fiscal affairs.
As most people are aware, nearly all governments spend in some years more than they take in in revenues. When they do this, they incur what is called budget deficits. To cover these shortfalls, they must borrow money.
National governments usually borrow by issuing various debt instruments which are broadly referred to as sovereign bonds or government bonds. Generally speaking, a government bond is a debt investment vehicle by means of which an investor – be it a private individual, an organization or a financial institution – loans a national government an amount of money for a defined amount of time at a specified rate of interest.
The total outstanding amount of these securities makes up what is commonly referred to as a country’s national debt. There are a number of other terms that are used interchangeably – and often inaccurately and confusingly – to refer to the same thing. Some of them are “sovereign debt,” “government debt,” “public debt,” “total public debt,” “federal debt,” “gross debt” or just simply “the debt.”
Continue reading at Canada Free Press
Greece: A Preview of Things to Come
“Angry youths rampaged through the center of Athens, torching several businesses and vehicles and smashing shop windows. Protesters and police clashed in front of parliament and fought running street battles around the city,” reported the Wall Street Journal last week.
No, this is not a report from a war zone. It is merely a scene from anti-government protests that have engulfed the land of Hellas.
What’s happening in Greece is this: The Greek people are angry, because their government pledged to make cuts in social spending.
It is not that the Greek government is inherently stingy. Quote to the contrary, the Greek government has been one of the most generous when it came to paying for social goodies. So much so that for years it spent far more than it could really afford. Fox News correctly observed that:
“Greece lived for years beyond its means, borrowing money and spilling red ink to finance excessive government spending, offer socialized health care and provide lavish wages for federal workers.”
Things, however, came to a head last year when the country’s budget deficit reached 13 percent of GDP and its national debt ballooned to 113 percent of GDP. Faced with these figures investors lost faith in the government’s ability to service its debts. To compensate for the risk of further lending they began to demand high interest rates on Greek bonds. With the source of cheap funding dried up and unable to raise enough cash, the Greek government found itself on the brink of default.
Broke and humiliated, the Greek government applied for aid to other members of the eurozone. Not willing to let the whole monetary regime go into seizures, they promised a bail out of 110 billion euros. But the funds would only be disbursed if the Greeks agreed to bring spending under control. Not having any choice, the country’s officials agreed to a package of austerity measures. Then all hell broke loose. Reported the Wall Street Journal:
“[H]ooded protesters smashed the front window of Marfin Bank in central Athens and hurled a Molotov cocktail inside. The three victims died from asphyxiation from smoke inhalation, the Athens coroner’s office said. Four others were seriously injured there, fire department officials said.”
It is something of a paradox that the Greek people still demand money even though their government is flat-out broke. Even the blind among them should be able to see that the state simply does not have the funds to meet their demands. It only has debts which it cannot pay. After years of profligate spending it has gone bankrupt.
Continue reading at American Thinker
