Monday, February 1, 2010

In which the mad emperor’s bow sounds a sour, populist note

You have probably seen this national debt graph somewhere:

obamadebt 

After years of profligacy under Republican rule, President Obama and congressional Democrats have, shall we say, upped the ante in the debt department.

In response, a bunch of stupid idiots have participated in rallies called “Tea Parties” under the notion that we are “Taxed Enough Already.”  Here is a picture of some of them:

tea party

Now, politicians are falling all over themselves to promise “fiscal responsibility,” lest they be Scott Browned in mid-term elections.

While the politicians obviate about tax cuts and discretionary spending freezes, mayhap it is time for Wiggles, the fat pink elephant--who has been sitting quietly in the corner of the room since the Johnson administration--to have his say.  Were this mad fantasy to actually play out, I imagine Wiggles might address us in the following manner:

Dear Gentle Masters,

You must kill your darlings or they will kill you.  When first Wise Lyndon gave them to you as a present they were sweet and kind and small and full of promise.  The little darlings nestled up against you and made you feel as if you were a kinder sort for you, in your benevolence, nursed them at no great cost.  But darlings grow up.  And these particular darlings have turned into something more like lions and tigers and bears than housecats.  Please kill them now, or they will turn on you, and claw us all—even poor, poor Wiggles—to ribbons.

Yes, massive unfunded entitlement programs (Social Security and Medicare especially) need to end.  By 2030 the ratio of payer to payee will be 3.4 to 1.  Literally every four US taxpayers will be responsible for the health care of one aging citizen.  That is the definition of unsustainable.  In California, unfunded pensions for state union workers are totally out of control with no viable plan in sight.

But we can’t just end these programs.  We can’t tell an entire generation of seniors to piss off and die.  We can’t just take the poor, retired fireman’s pension away.

There are, it seems, two options.

(1) Massively and permanently increase taxes.  Europe has a more or less working model for this.  By instituting a very steep graduated tax law, the rich can fund the life and death of the rest of us.  This would really be the dreaded socialism Americans seem to enjoy complaining loudly about.

(2) Gen Y deliberately self-immolates, paying for the entitlements of our forbears, but stopping the buck now.  We pay for the death of the baby boomers and the Xs, but also do the hard work of providing for our own eventual passing, permanently lowering the entitlement burden for subsequent generations.

Option (1) is the way of permanent class war and the end of the American experiment.  For a short period in history, human beings really found out what free men could do.  In every arena of human life amazing leaps took place; children grew up believing that literally anything was possible, that they might cure the incurable or become president or just pack up and fly to the moon, because America was a place where you were set free to cultivate all that God gave you to the best of your ability. 

With option (1) that fades necessarily.  Few will be willing to try great things because the costs will be too high.  Life will be mediocre and bourgeois for all except a small, elite cadre, born into wealth and power and destined to practice the soft tyranny of noblesse oblige.  Human life will be reduced to meanness, in every sense of the word.

Option (2) is what the Greatest Generation might have done.  It is the noble choice, available only to men and women of superior virtue, who would rather choose their serfdom than suffer the indignity of having failed to lay a foundation for their children’s prosperity.  Yes, option (2) doesn’t seem fast, easy, or fun enough for a generation of spoiled children, so I guess we’ll have to settle for option (1).

Or maybe we could just fiddle the days away, and not do anything at all.

Ah.  Now that sounds more like the generation I know and love.

11 comments:

  1. 3.4 Americans to support 1? Perhaps the other way around? That doesn't sound to ridiculous. I mean, the newest americans are better than the oldest and can support them thuswise right?!

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  2. Well, think of it this way: 3.4 supporting one on HEALTH CARE. As in, oh that real world cost of $25-50,000 to get her through her *first* (and non-fatal!) round of cancer. This is the price she would pay sans insurance. But this doesn't include the hidden costs we never see. The real world estimate for beating cancer is much higher. A quick overview can be found here: http://www.winningcancer.com/txt/costs-of-cancer-treatments/ .

    I agree it wouldn't be so bad if health care costs themselves plummeted, but with so much new tech prolonging life, people are consuming more and more and the tech hasn't dropped much in real world price yet.

    In a hundred years or so, it may be the case that the real world costs for preserving life are extremely low, and at that point it really won't be problematic, but we're not there yet, and the only way to get there is to keep innovating and to finding new ways to manufacture newly-invented life-preserving tech. And that is just expensive.

    Somebody has to bite the bullet.

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  3. The smart plan is talk about 'saving' SS and Medicare, while cutting benefits and raising eligibility standards. This is the Fabian approach, by which we slowly but steadily decrease the constituency that is tied to these handouts. Once they are a small enough part of the voting public, a serious push can be made to do away with the programs. Indeed, when the current generation looks at the costs they bear and compares them to the new, elevated eligibility standards, they will demand that such a push be made.

    Also, medical spending increases are almost entirely the result of our idiotic model of using health insurance to pay for all health care costs. This model is completely at odds with what a free market would dictate and, as you may guess, entirely the result of government policies and programs.

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  4. I agree with the protestor on the left...student loans [insert large amount] bailout please! ;-)

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  5. There are a few semi-bailout provisions for student loans in Obama's proposed tax changes. Forgiveness and payment caps are both present.

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  6. Really? That is awesome. You get a house, I get my loans forgiven.

    I win.

    How do I cash in on this massive bailout?

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  7. Basically, the two core proposals are extensions of a 2007 law. First, all public (not private) student loans are forgiven after 10 years of public service. I'm not totally sure what counts there, but I know when I was looking at law school that even working as an attorney at the IRS would count, despite having a decent income. Working as a professor at a public university might count, too.

    Second, public student loan payments would be capped at 10% of income above and beyond an establishment minimum. So, the government says you need, say, 30 grand to live on, you make 70 grand, so your public loan payments would be capped at ((.1 * 40,000)/12), or 333 a month.

    Lastly, and this is still just a proposal, I have heard talk of forgiving all public student debt after 20 years. That may not sound great, but if you can extend your payments to 30 years, it's a decent chunk of change.

    Here's some more info, much of which is already law, and most of which will probably be extended as is, at very least:

    http://www.finaid.org/loans/publicservice.phtml

    It's very possible that you could get a job that qualifies.

    More detail:

    http://theaggie.org/article/obama-calls-for-lower-student-loan-bills

    Note that this article doesn't distinguish between public and private loans, a distinction that will almost certainly exist in any actual laws.

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  8. Here is a very detailed analysis of current law. The Obama proposals are significantly more generous, but this gives a baseline:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1014622##

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  9. Option (3) is to stop extracting SS and Medicare taxes from the youth of the country, and fund the programs through completion (i.e. through the death of those people who have been brought up to expect these benefits) by scaling back our oversea's empire. End the wars, close most of our oversea's military bases, and use the roughly ~40% of our national budget which goes to "Defense" spending to round out SS and Medicare. Once those programs have run their course, then we cut taxes for everyone. Or maybe send humans to Mars. *sigh*

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  10. Discretionary defense is NOT 40% of the federal budget:

    http://en.wikipedia.org/wiki/2010_United_States_federal_budget

    Defense spending - 633 billion
    Total budget - 3.55 trillion

    Simple division gives defense as about 18%. If we cut out military presence in half, it would barely dent the deficit, and wouldn't touch the actual outstanding debt. Even spending zero dollars on our military and other defense measures would leave us with a 1 trillion dollar deficit this year alone.

    The war in Iraq currently costs about 10 billion a month, or 120 billion a year. Medicaid, which is mostly a state-based program, still costs the feds almost double that.

    Entitlements are the key; everything else is a distraction.

    An interesting thought experiment:

    Social Security taxes the employee at 6.2, but also the employer at 6.2. Now, imagine for a second that, instead of SS, all employees were given that 14.4% as pre-tax income and allowed to invest in bonds, stocks, t-bills, munis, whatever. I already save about 11% (counting employer cont. and profit sharing) in a 401k. The proposed change would mean a total pre-tax savings rate of 25.4%, without reducing my salary or changing the cost of employing me at all.

    Assuming a totally mediocre rate of return (5%), and some other very conservative figures (3% annual raise, etc.), by age 65 I would have saved 1.6 million dollars, without changing my lifestyle or current salary one iota. A quick search reveals that a 1.6 million dollar joint life income annuity purchased at age 65 would pay over 8 grand a month to my wife and I until we are both dead. If I'm dead, and it's just my wife, she collects $9,100 a month until death.

    In addition, all the money saved would have been in bonds or stocks, thereby providing capital for economic growth, rather than being used as a slush fund for government pork projects.

    In other words, Social Security is a terrible program. People who oppose privatization generally have not done the math.

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  11. All helpful stuff. @J.J.: I've heard the 40% defense spending figure too. Where does that come from? If it's right (or close to right), (3) makes some sense and doesn't require massive sacrifice on our part (yay!), but if it isn't, (3) is DOA.

    @Dan: Okay. Let's assume I'm a bleeding heart and I want everyone to have this great retirement. I come across your little thought experiment. What am I going to think? Well, I figure my big issue is going to be, "How does this effect the poor?" Does socsec currently artificially inflate the retirement lifestyle of the lower classes? Because if so, your argument gets villified as putting Robin Hood to death.

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