"A Silver Lining Amid the Darkness of Fiscal Turbulence?"
Sydney M. Williams
“The Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” The quote, allegedly by Winston Churchill following the United States’ entry into the war against Germany in 1941, is one we can only hope is applicable to America today.
In the years since World War II, politicians have found personal success in making promises to the electorate that they know are meaningless. If one can define a Ponzi scheme as an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors, then our entitlement programs are nothing more than giant Ponzi schemes. Nobody knows the full unfunded liability for Social Security, Medicare, Medicaid and now the President’s new healthcare plan (Obamacare), but it is estimated to be in the $100 trillion range. States have similar problems. California’s generous payouts to public unions have created about $500 billion just in unfunded pension liabilities.
The difference is that Charles Ponzi served ten and a half years in jail and Bernard Madoff is serving multiple life sentences in North Carolina, while those in Congress who foisted similar plans on the electorate have been honored and usually re-elected.
Politicians have not been alone in promoting this Walter Mitty world. They have been aided by public employee union leaders who have been equally extravagant (and fraudulent) in their promises. (Private sector unions have largely lost their clout, as the companies they did not bankrupt have largely forsaken defined benefit plans for defined contribution plans.) Nevertheless, yesterday’s Wall Street Journal had an article about $20 billion in underfunded benefit accounts for 820,000 United Auto Worker retirees. Of course, the auto companies were only saved from bankruptcy by the President and Congress, acting on behalf of unknowing taxpayers, who put union workers ahead of bondholders – a violation of fiduciary responsibility, according to most definitions.
In Washington, the addressing of this problem has been exasperated by Democrats who refuse to budge on entitlements for seniors, and Republicans who will not consider increases in tax rates. The President’s divisive speeches are no help to Congressional Democrats, as they work to resolve a looming financial crisis. While my sympathies lie distinctly with those who would curtail spending, Republican intransigence, understandable in elections, does little for cooperation. Hyperbole is drowning out attempts at progress. Most proposals, even from the most conservative, leave existing retirees alone, and Republicans are against raising tax rates, but they are not against increasing revenues, which they believe lower, flatter and broader tax rates will do. In public, both Parties would be better off acknowledging those areas where they have found common ground and deemphasizing those where differences persist.
The sliver of silver in this ominous sky can be seen in a group of about 100 members of Congress – sixty Democrats and forty Republicans – who have joined forces to show support for the Super Committee whose report is due out on November 23rd. They have sent them a letter urging the Committee to go “big.” Two of them, Heath Shuler (D-NC) and Mike Simpson (R-ID), were interviewed by Chris Wallace on Fox News Sunday. They were remarkably complementary and spoke of the need to look for $4-6 trillion in program cuts and revenue increases over the next ten years, substantially above the $1.2 trillion the Super Committee is charged with finding. As Congressman Simpson put it, “You know, the markets will correct the situation if we don’t.”
Several state governors and legislators have provided a model for the President and Congress. Indiana, New Jersey, Wisconsin, Illinois and Ohio have addressed (or are addressing) the problems of unfunded liabilities. (There is an initiative today on Ohio’s ballot to repeal legislation recently signed by Governor Kasich that limits collective bargaining. While the vote is expected to be close, early calls are that the legislation will be repealed setting reform back.) New York’s Governor Cuomo, in introducing pension reform legislation in June, said, “The numbers speak for themselves – the pension system as we know it is unsustainable.” None of the provisions are draconian: The retirement age would go from 62 to 65; employees would have to contribute 6% of their salary; vesting would come after 12 years, not 10, and overtime would be excluded from determining final average salaries.
The crisis provides an opportunity to debate the size of government we want. Since the days of Johnson’s Great Society, federal spending has generally been between 18% and 20% of GDP; revenues have usually been about one percent less. Currently, spending is about 25% and revenues are just under 15%, which should suggest cuts in spending and increases in revenues. But, as we debate, we should never forget the trade off between dependence on government and personal responsibility that derives from independence. In that regard, I urge people read an op-ed in today’s Wall Street Journal by Mario Vargas Llosa, a seventy-five year-old Peruvian winner of the 2010 Nobel laureate in literature.
The crisis should also be a reminder that political leaders serve at the pleasure of voters and that their spending does not increase productivity. They should never forget that they are stewards of our money. Despite the anti-business rhetoric from the “Occupiers” and their supporters in Washington and Hollywood, it is only because of the private sector that taxes are paid so the public sector can exists. It is because of our fundamental freedoms that allow the “Occupiers” to protest in the first place. Municipal, state and federal workers need to be reminded that without tax receipts they would be jobless, and that they work for us.
It would be irresponsible to assume the group of 100 is necessarily a barometer of change in Washington, but neither should one dismiss them or the letter they sent the Super Committee. As an indication of the bilateral composition of the group, it includes Congressman Emanuel Cleaver II (D-MO), chairman of the Congressional Black Caucus and Congresswoman Cynthia Lummis (R-WY), a member of the conservative Republican Study Group. We can only hope the group will expand to include all 435 Congressional members, but 100 is a pretty good start. At the end of the day, it is a simple question of math. There is not enough money. While the President has thus far been absent from any discussions, if this silver lining brightens, one can rest assured that another hockey stick will be thrust skyward.
Thought of the Day
“A Silver Lining Amid the Darkness of Fiscal Turbulence?”
November 8, 2011“The Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” The quote, allegedly by Winston Churchill following the United States’ entry into the war against Germany in 1941, is one we can only hope is applicable to America today.
In the years since World War II, politicians have found personal success in making promises to the electorate that they know are meaningless. If one can define a Ponzi scheme as an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors, then our entitlement programs are nothing more than giant Ponzi schemes. Nobody knows the full unfunded liability for Social Security, Medicare, Medicaid and now the President’s new healthcare plan (Obamacare), but it is estimated to be in the $100 trillion range. States have similar problems. California’s generous payouts to public unions have created about $500 billion just in unfunded pension liabilities.
The difference is that Charles Ponzi served ten and a half years in jail and Bernard Madoff is serving multiple life sentences in North Carolina, while those in Congress who foisted similar plans on the electorate have been honored and usually re-elected.
Politicians have not been alone in promoting this Walter Mitty world. They have been aided by public employee union leaders who have been equally extravagant (and fraudulent) in their promises. (Private sector unions have largely lost their clout, as the companies they did not bankrupt have largely forsaken defined benefit plans for defined contribution plans.) Nevertheless, yesterday’s Wall Street Journal had an article about $20 billion in underfunded benefit accounts for 820,000 United Auto Worker retirees. Of course, the auto companies were only saved from bankruptcy by the President and Congress, acting on behalf of unknowing taxpayers, who put union workers ahead of bondholders – a violation of fiduciary responsibility, according to most definitions.
In Washington, the addressing of this problem has been exasperated by Democrats who refuse to budge on entitlements for seniors, and Republicans who will not consider increases in tax rates. The President’s divisive speeches are no help to Congressional Democrats, as they work to resolve a looming financial crisis. While my sympathies lie distinctly with those who would curtail spending, Republican intransigence, understandable in elections, does little for cooperation. Hyperbole is drowning out attempts at progress. Most proposals, even from the most conservative, leave existing retirees alone, and Republicans are against raising tax rates, but they are not against increasing revenues, which they believe lower, flatter and broader tax rates will do. In public, both Parties would be better off acknowledging those areas where they have found common ground and deemphasizing those where differences persist.
The sliver of silver in this ominous sky can be seen in a group of about 100 members of Congress – sixty Democrats and forty Republicans – who have joined forces to show support for the Super Committee whose report is due out on November 23rd. They have sent them a letter urging the Committee to go “big.” Two of them, Heath Shuler (D-NC) and Mike Simpson (R-ID), were interviewed by Chris Wallace on Fox News Sunday. They were remarkably complementary and spoke of the need to look for $4-6 trillion in program cuts and revenue increases over the next ten years, substantially above the $1.2 trillion the Super Committee is charged with finding. As Congressman Simpson put it, “You know, the markets will correct the situation if we don’t.”
Several state governors and legislators have provided a model for the President and Congress. Indiana, New Jersey, Wisconsin, Illinois and Ohio have addressed (or are addressing) the problems of unfunded liabilities. (There is an initiative today on Ohio’s ballot to repeal legislation recently signed by Governor Kasich that limits collective bargaining. While the vote is expected to be close, early calls are that the legislation will be repealed setting reform back.) New York’s Governor Cuomo, in introducing pension reform legislation in June, said, “The numbers speak for themselves – the pension system as we know it is unsustainable.” None of the provisions are draconian: The retirement age would go from 62 to 65; employees would have to contribute 6% of their salary; vesting would come after 12 years, not 10, and overtime would be excluded from determining final average salaries.
The crisis provides an opportunity to debate the size of government we want. Since the days of Johnson’s Great Society, federal spending has generally been between 18% and 20% of GDP; revenues have usually been about one percent less. Currently, spending is about 25% and revenues are just under 15%, which should suggest cuts in spending and increases in revenues. But, as we debate, we should never forget the trade off between dependence on government and personal responsibility that derives from independence. In that regard, I urge people read an op-ed in today’s Wall Street Journal by Mario Vargas Llosa, a seventy-five year-old Peruvian winner of the 2010 Nobel laureate in literature.
The crisis should also be a reminder that political leaders serve at the pleasure of voters and that their spending does not increase productivity. They should never forget that they are stewards of our money. Despite the anti-business rhetoric from the “Occupiers” and their supporters in Washington and Hollywood, it is only because of the private sector that taxes are paid so the public sector can exists. It is because of our fundamental freedoms that allow the “Occupiers” to protest in the first place. Municipal, state and federal workers need to be reminded that without tax receipts they would be jobless, and that they work for us.
It would be irresponsible to assume the group of 100 is necessarily a barometer of change in Washington, but neither should one dismiss them or the letter they sent the Super Committee. As an indication of the bilateral composition of the group, it includes Congressman Emanuel Cleaver II (D-MO), chairman of the Congressional Black Caucus and Congresswoman Cynthia Lummis (R-WY), a member of the conservative Republican Study Group. We can only hope the group will expand to include all 435 Congressional members, but 100 is a pretty good start. At the end of the day, it is a simple question of math. There is not enough money. While the President has thus far been absent from any discussions, if this silver lining brightens, one can rest assured that another hockey stick will be thrust skyward.
Labels: TOTD
posted by Thought of the Day @ 5:35 AM
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