Did Anyone Really Think the Supercommittee Would Make a Difference?

Stick a fork in the debt supercommittee. Because just in time for Thanksgiving, that dumb bird is done.

“WASHINGTON (AP) — It’s just about over for a special deficit-reduction supercommittee, which appears set to admit failure on Monday, in its quest to sop up at least $1.2 trillion in government red ink over the coming decade.

“‘There is one sticking divide. And that’s the issue of what I call shared sacrifice,’ said panel co-chair Sen. Patty Murray, D-Wash., on CNN’s State of the Union.

“‘The wealthiest Americans who earn over a million a year have to share, too. And that line in the sand, we haven’t seen Republicans willing to cross yet,’ she said.

“Republicans said Democrats’ demands on taxes were simply too great and weren’t accompanied by large-enough proposals to curb the explosive growth of so-called entitlement programs like Medicare and Medicaid.

“‘If you look at the Democrats’ position it was: “We have to raise taxes. We have to pass this jobs bill, which is another almost half-trillion dollars. And we’re not excited about entitlement reform,”‘ countered Republican Jon Kyl of Arizona on NBC’s Meet the Press.”

We haven’t been paying much attention to the Whiskey Bar. It seemed a nonissue to us.

The $1.2 billion per year they were supposed to cut was only a drop in the deficit bucket. It would be a tiny bit more difference than, say, a horse urinating in the ocean makes to sea levels. Yet the committee couldn’t even agree on the token amounts. Even as a dog and pony show, this has been a disappointment.

They could have just taken congressman Ron Paul’s advice about military adventurism. They could have wiped out about two-thirds of the deficit right there!

But that’s not politically possible right now. We’re not sure how many Americans, in their heart of hearts, truly believe that we’d be overrun with Islamic fundamentalists if the U.S. government pulled its forces out all the countries it’s currently occupying. But we imagine it’s a lot. Just about every politician aside from Dr. Paul seems to agree.

Military adventurism may be the main cause for the red ink that will, likely, lead to a central bank bailout of the U.S. government a la the printing press. But it’s not the only cause. As much as governments love the expensive business of pushing people around abroad, they love buying votes with welfare at home at least as much.

There’s no moral difference between corporate welfare and the more popular kind that includes the so-called entitlement programs. The thing is those measures to “help” and to provide for the aged, infirm and destitute require money from an increasingly impoverished private sector. And the help amounts to subsidization of nonproductive activity and some horrible decisions that other people will have to fund…

We’re home for the holidays, dear patrons. Our sister picked us up from Orlando International Airport last night. These drives from the airport take about an hour. The time and inherent isolation leave far too much room for discussions to turn political…which they often do.

With advancing age, however, your Whiskey Bar editor has learned to keep his big trap shut. When we were younger, we might have felt the need to punctuate every sentence from our driver with a correction. These days, we grunt noncommittally and nod imperceptibly.

Mostly, we just listen. We ask just enough to show interest and to keep the other person talking.

“I saw my old best friend Crystal at Wal-Mart the other day,” our sister was saying. “She looked pretty bad.”

“How so?” we asked. “Did she get really heavy or wrinkly?”

“No, just the opposite. She was so skinny that it looked unhealthy. And she got breast implants that look ridiculously out of place on her skinny, little body.”

“Is she a stripper?” we wondered aloud. “Spending money to look that way would be an investment if she works in a strip club.”

“No, she washes dishes at a restaurant.”

“Hm. Isn’t her husband an unemployed felon? And doesn’t she have (at least) two kids?”

“Yes and yes,” our sister replied.

“So where did she get the money for the implants (which will not earn a return on investment if she’s washing dishes for a living)?”

“She got $5,000 in tax returns last year.”

“OK. How do you get such a huge tax return on a dishwasher’s salary?”

“Oh, after the low income tax credits, she always gets back more than she pays out.”

“And she goes and buys breast implants with this money?!” we asked.

“Yeah, I know. Plus, she’s on public assistance. So she and her husband were at the store using a WIC card to pay $1 for a gallon of milk that would’ve cost me $4.”

“Seems like this attempt to help out the less fortunate is subsidizing some awfully bad decisions.”

Your editor’s sister was growing angrier with each sentence. She continued, “It’s not like Crystal came from a poor home, either. She even had a scholarship to the university. But she partied and didn’t finish school…

“Meanwhile, I sacrificed, finished school and got a good job. Yet I can only afford to raise one child properly, while my tax money goes to pay for her two children and for her breast augmentation. It’s just not right!”

“You’re not kidding!” we agreed.

“If the government is going to give people so much money,” our sister continued, “then the government should put restrictions on what that money may be used for.”

Here we had to part ways philosophically. But as we said earlier, we learned to keep our anti-nanny state opinions to ourselves when dealing with family. We don’t mind sharing them at the Whiskey Bar, however…

We don’t want government telling anyone how they can and can’t spend their money. But we also don’t want governments taking money from one set of people to dole out to another in the first place.

In short, we are against theft and all for personal freedom. (Markets like these things, too.)

The programs that the Democrats refuse to touch appeal to those who believe that there is some mystical collective village, defined by geopolitical borders, in which strangers are financially responsible for other strangers.

The trouble with this is that over time, the people who are being paid for have less and less incentive to work. Meanwhile, the people who pay for them have less and less money to spend on the things that make economies grow. The people in need end up with fewer ways to become less needy.

This is the essence of malinvestment. Some may find it unfair to underscore the point with the story of one white-trash girl frittering away other people’s money on breast implants (and her tax credit is, in the end, simply a transfer payment from net taxpayers to net tax recipients).

While this specific case of new boobs may be unusual, even the smaller and arguably necessary purchases represent malinvestment.

The WIC card she used to buy subsidized milk? That’s money being used to feed children she forfeited the ability to feed herself when she made her decision to drink, instead of making herself employable at a level that supports a family.

If it seems cruel to call any of her children a misallocation, think of the child or two that our hard-working, responsible sibling won’t have because she has to support the care and feeding of her friend’s children. (And for the best primer in unseen costs, please read Henry Hazlitt’s seminal Economics in One Lesson.)

“OK, fine, stop taking from the middle class,” a moderate redistributionista might counter. “But go ahead and take more from the rich. They can afford it!”

We fail to see how it is moral to take by force what someone has rightfully earned or even been bequeathed. We’ll just note that the rich (always denoted as those with some hilariously arbitrary level of income or wealth) tend to be the ones with the capital needed to provide investment and employment…

And in a free market with an inflation-resistant market-chosen currency, their capital investments end up causing goods to be produced and services to be provided more cheaply over time. As long as government doesn’t get in the way by protecting corporations from competition under the auspices of necessary regulation and patent and copyright protection.

This immoral system of stealing from some arbitrarily “rich” segment of society to pay for another segment actually hastens decline.

What about the entitlement which the entitled ostensibly paid for themselves? What about Social Security? A good patron sent us this note with an opinion on the matter we often hear…

“I take exception to a part of one line in your writings of today.

“You said,

‘Forced redistribution in the form of Social Security, Medicare, Medicaid and welfare breed dependence. Over time, takers overwhelm providers.’

“I take exception to you including Social Security in with the other things. Social Security is paid for by me, not the government. The Congress has actually robbed the Social Security funds and then said in effect, ‘Who, us?’

“Remember the discussions about privatizing Social Security? I am not in favor of making me invest my Social Security payments, because I might not be at all smart about the investing and end up with insufficient funds for retired years. (Well, I am a pretty good investor, but I speak of the average person.)

“But the fact is that if the Social Security tax funds were properly managed and invested, there would be plenty of money to pay the ones eligible for the payments. Perhaps the government is not at all capable of good management, and the Social Security funds that I paid in should be managed by an intelligent private nonprofit entity. Of course, getting government to turn loose of that system is probably never going to happen. At least not until we destroy the present Congress and the system that we laughingly call ‘Democracy.’

“Yes, I do collect Social Security payments!

“I worked hard until age 78, and from age 17, I paid a great deal of money in the form of Social Security taxes. I will very likely not survive long enough to get all my taxed payments back, much less collect extra amounts that come from some other source.

“When people who don’t know the facts talk about ‘reducing entitlements,’ I can get very angry when they include Social Security as one of those entitlements. I PAID FOR IT!”

Giving up control of your savings to government in the hopes that they’ll care more about it than you will, and that they have the smarts and incentive to handle it better…may not be such a solid plan.

[Editor’s note: For a much more sensible approach to retirement — and to have an entity a lot more reliable than government fund it — just click here.]

In any case, Social Security could never be sustainable. Remember that the very first recipient only put in less than $25…but got back nearly $23,000…

If one really expected to get back only what one rightfully earned and contributed…then we have to ask…why bother giving it to the government in the first place?!

Of course, you can’t not give and expect to stay out of prison. So we turn from action to expectation.

In a recent article on older workers and their retirement prospects Dr. Gary North recently had this to say (emphasis ours):

“So here is their situation. They have no savings to speak of. Their houses are falling in price. The unemployment rate is 9%. The economy is flat-lining. The number of future competitors is increasing. The skills required just to stay even are getting more rigorous. Workers in India are able to compete in digital-based occupations. They work cheap. Price competition is increasing because of the Web. Profit margins are tightening.

“For the mass of salaried employees, their careers are based on relatively passive order-taking and repetitive operations. Both of these are being replaced by computerized systems.

“When the survey respondents were asked about their biggest retirement fear, 42% said, ‘I can do all the right things today and it still won’t be enough for tomorrow.’

“So they think the system is rigged against them. They have lost hope. They did not perceive early in life that things do not take care of themselves. They counted on Social Security, but they never looked at the numbers. The article says that 37% said they have no fear because “it will work itself out.” They have been saying this since age 18. They think the federal government will be there to make their golden years comfortable.

“Then we read this: ‘29% of people in their 60s have saved less than $25,000 for retirement.’ This is the real world — not the world of those with $100,000 in investable capital.

“The journalistic reports on retirement are upbeat. They appear in popular media that sell advertising space for ‘investing for retirement.’ They cater to the 20% who do have assets of over $100,000 to invest.

“As it becomes clear to younger workers that the existing government-funded system is rigged against them, that the system really is a Ponzi scheme, they will revolt. They will vote for candidates who tell them that their futures are being sacrificed in the name of statistically doomed programs that will go bust when they retire. They will then vote in their own self-interest.

“The two big welfare systems still find political support because those on the dole or close to it vote in their own self-interest. They vote in higher percentages than younger workers do. But statistically speaking, they are in the minority. Those on the positive end of a Ponzi scheme always are. When the voters who pay the taxes finally realize that the Ponzi scheme really will go bust before they cash in, they will elect congressmen who turn off the spigot in the financial bathtub.”

The sad truth is that Social Security has always been just another transfer payment. It’s a bit harder to see because we all have to actually pay something into it. Unlike other transfer payments that occur in the present, Social Security was set up as a transfer payment from the future to the present and past.

Either way, it’s as unsustainable as the transfer payments of the working to the unproductive. As unsustainable as the military adventures. What we have is a government that has long since run out of money to pay for things that only destroy capital, no matter how politically popular they may be.

Eventually, our government — along with the rest of the Western World — will lean on the central bank to ease the deficits…to become the buyer of the government’s bad debts when no one else will.

Understand that that day is coming. The U.S. government’s credit card will be cut. Then the central bank will step up and set the currency ablaze. It will bail out the government and sink the rest of the economy.


Gary Gibson

The Daily Reckoning