Rep. Sander Levin, D-MI., giving the Democrat’s weekly Saturday radio address, said that President Bush is out of touch with the American people on Social Security reform, but Democrats would work with him.
Just how would you and your colleagues work with the president Mr. Levin? Give me just one example. Come on, give me at least one!
Guess what? They can’t.
I haven’t heard one alternate idea from the Democrats. Not one. Their solution is to do nothing. Don’t touch it, don’t even sit by yourself and think thoughts that might be about changing Social Security. Instead, the Left points to polls that say Americans don’t support the president and they think they’ve got a revolution on their hands. Hah.
The Democrats are poll driven. They lost the Presidency, both houses of Congress, majority of state governorships by allegiance to will’o the wisp polls. Now the real polls don’t tell them what they want to hear, so they do their own polls, skew the questions to get the results they want and follow them as though it’s two minutes to midnight and a coup is underway.
Mr. Levin, a good idea is a good idea. Come up with some (or even one) and we’ll listen. Continue complaining and push a “do nothing” agenda and we’ll go our own way.
Lead, or be led.
He is right. The President is out of touch with Americans. But it does not matter because he will plow on with his ideas anyway. What does need to be done is lift the cap from social security deductions. That in and of itself will take care of the social security problems.
The reality of this morass is that the Social Security Trust Fund (“SSTF”) insolvency crisis is but a symptom of a much larger problem – the mandatory spending that federal entitlement programs take out of the federal budget that cannot be slowed because these programs utilize taxation to support the goal of wealth redistribution (to one degree or another).
In a country that conducts commerce under a free market system, the introduction of wealth redistribution thru taxation of income is a doomed choice that has no basis as a sustainable social policy due to the laws of mathematics and business economics. This is no longer a question of theoreticals, but a simple matter of reviewing the historical outcome of these modern day policies to see what they have in fact produced in outcomes for the resources they swallow up.
First, let us look at the most dramatic result – the rise in mandatory spending as a percentage of the total federal budget. In 1964, this amount was 26% of the total federal budget. By 1984, it had risen to 42% of the total federal budget. Last year it was an astonishing 54% of the federal budget. It’s the monster hovering at the edge of reason that continues to grow like the blob and consume every resource available and still need more.
If you don’t like the Department of the Interior, or Homeland Security, or Defense, or any other governmental unit that is not part of mandatory social spending – you’re in luck. Starting in 2018, you’re going to get your wish as they are forced to cut these programs an average of 12% per annum to balance the budget. In 2028 we will have the military capacity of Mexico and the homeland security capacity of present day Iraq. You envrionmentalists will just be SOL because there will be no EPA and our kids will get to experience the kind of schooling that was available to the average person in the 19th century.
Next, let us take a hard look at what we have gained for this unprecedented level of taxation for the sake of wealth redistribution:
a) Social Security is broke. We have finally (maybe) come to the point in the road where we have begun to realize that political rhetoric cannot change the outcome of a program that is governed by the laws of mathematics and business economics. When FDR first signed it into law, the program was to only be voluntary and would tax the first 1.0% of taxpayer earnings up to $1,400 per annum. Since 1935, the taxation rate has increased at an average annual rate of over 17% – a rate that is a MULTIPLE of inflation, yet the program is broke.
b) Medicare and Medicaid are also broke. Yet we have poor people who cannot get access to health care, have no health care at all, or cannot afford health care – 40 years after the program was introduced. The same problems that brought these programs into place are still “unfunded federal mandates” some 40 years later.
c) Education remains a fiscal and service quality mess. You can’t find any reasonable person who believes the quality of a public education is as good as that in a private school, yet we spend almost double per pupil/per annum on public education and we still have dumb kids, useless education workers and a refusal to accept the fact that public education is a total and complete failure for the American people.
If you want to know why these programs must fail from a purely mathematical or economic viewpoint, it comes down to two (2) things:
1. Competition.
The federal entitlement programs set forth above operate outside the free market system and the most confounding and direct negative impact of this approach to the funding and delivery of these entitlement programs is a lack of competition. Without competition, there is no efficient allocation of investment capital for capital expense, so the federal government (even though it is the biggest fish in the pond) gets a continuing raw deal for the investment of each of its capital dollars. Because there is no competition, worker productivity gains are non-existent and there are no competitive pressures placed on revenues, so costs spiral out of control. Now the math works against you because IT HAS TO WORK THIS WAY – THERE IS NO WAY TO STOP IT. Period. The end.
2. Inflation.
A little inflation is great because it provides a counter-balance to worker productivity efforts and thereby effectively awards competition, but in the case of these quasi-command economic structures under which our federal entitlement programs operate, the impact of inflation only ensures that it is impossible to control spending. Inflation eats at tax revenues, so it places pressure on the government to raise tax rates to gain the same inherent revenue value (“bang for your buck”). In turn, this means the government has to raise interest rates and this creates a negative pressure on capital investment as more and more money is taken out of the economy to service the programs. This isn’t a merry-go-round. This is a vicious cycle that cannot be stopped because it creates a negative impact on the economy on a continuing basis – BY ITS VERY DESIGN.
So what does this mean to the average American out there? What can be done? What do we really have left to work with to fix this?
All you have is about $80 billion in SSTF surplus investment income the SSTF will receive until around 2018 when the income is then needed to start paying benefits that revenues won’t cover.
A reasonable person would conclude that you must then come up with a fix that addresses the SSTF insolvency crisis based upon this $80 billion in proceeds (such that it is) – and fix it now.
This means the only solution will be to actually create wealth where none existed and have the government act as a co-investor in the program instead of a drag on the growth. In other words, the only fix for the government is to invest in the private economic sector and use its returns to pay down its obligations because it is already bankrupt (I should know, I’m a corporate bankruptcy consultant and I can assure you the federal government is indeed broke by every business accounting measure there is in existence today).
But the doom also carries within it a seed of hope. A single chance. A light at the end of the tunnel that has been heretofore ignored – INSTICERT.
INSTICERT is a proposed new electronic capital market exchange that is similar in concept to the existing NASDAQ. It won’t trade stocks in corporations, or bonds, or futures. No, those are too risky my friends and we need risk-proof investing to solve this crisis, if we are to solve it for good and leave this world as good as we found it (at the very least).
INSTICERT will allow institutional, governmental, and public investors to trade a new class of securities in a special kind of business organization (that any business can use) that is inherently bankruptcy-proof and tort-proof so that the investment has less total investment risk than those cheesy Treasuries the Trustees now purchase on behalf of us (supposedly). Yes, there is a kind of business organizational approach that will make a company bankrupty-proof and tort-proof: it’s called a “Royalty-Based Structured Finance Business Combination”. The most common construction is known as a “Royalty Limited Partnership” (please visit our corporate website for whitepapers and further information on this matter).
The funny thing about Royalty Limited Partnership (or “RLP”) constructions is that they are THE most cost-efficient stewards of capital investment because they are not capitalized (financed) with any debt capital (no debt means no liabilities and that means you CANNOT go bankrupt)- just cold, hard cash. This arrangement creates a massive competitive edge for the business and it creates the highest amount of financial investment leverage possible for the investors resulting in long-term earnings in the range of a 12% per annum IRR to over 20% per annum IRR – consistently.
Now back to our $80 billion question and INSTICERT…
If the federal government took its $80 billion per annum and invested it into companies listed on INSTICERT and reinvested its gains back into the system – in 10 years it would be able to completely defease (cancel out) the $11 trillion in SSTF borrowings that are now missing.
Guess what that will do for taxpayers?
Now here’s the killer part – Republicans in Congress and the White House want nothing to do with INSTICERT because they are more interested in beating the Democrats to death over the failure of social security which they believe they can hang around the liberal’s necks as the millstone to prevent them from making an electoral comeback.
Smart politics? Maybe. Smart policy? Nope. Never. No better than the Democrats who say and do nothing.
First tell me what George Bush’s plan is for social security; I heard him say he didn’t have one.