grammatically correct question, "Whom do you trust?" is
the crucial question in life. It is a deeply religious question.
Trust is an inescapable concept. We have to trust something, even
if this is only our own good judgment. It is never a question of
trust vs. no trust. It’s a question of what or whom to trust. In
its most significant forms, trust involves vows: marriage, citizenship,
and church membership.
Carson’s first big break on national television was an ABC daytime
game show, "Who Do You Trust?" He took over from Edgar
Bergen in 1957 and hosted the show until he took over "The
Tonight Show" from Jack Paar in 1962. "Who Do You
Trust?" became very popular. Like a lounge show performer in
Las Vegas, Carson had to make a choice: continue hosting a lucrative
daytime program with a familiar format or accept the uncertainty
of moving to the big time, where he might fall flat.
had to choose. He had to exercise trust. Did he trust his own talents?
Did he trust the talk show format? Would "The Tonight Show"
be a career stepping stone, as Steve Allen had regarded it, or a
final career move, as Jack Paar had regarded it? He made the right
choice, and he took Ed McMahon with him.
is strewn with failed careers of performers who made the wrong choice.
Shelly Long quit "Cheers," for which Kirstie Alley is
grateful. Denise Crosby quit "Star
Trek: The Next Generation," for which Michael Dorn is grateful.
There is great uncertainty in life. Other than death, taxes, and
re-runs of "I
Love Lucy," nothing is certain.
only song I really liked on the Beatles’ "Sergeant
Pepper" album was "When I’m Sixty-Four." I was
26 at the time I bought the album in 1968. "Will you still
need me, will you still feed me, when I’m sixty-four?" I don’t
think I have listened to that album once since 1970, but those lyrics
have stayed with me. Soon I will be 63. Lennon didn’t make it to
64. Neither did Harrison. If Ringo hadn’t joined AA, he might not
have made it, either.
is a question sociologists ask in order to determine the degree
of loyalty: "Who would you be willing to take care of permanently
without being paid, or pay to have cared for permanently?"
They find that almost no one is willing to care for anyone who is
not a member of the immediate family. Basically, the person doing
the caring must be next of kin of the cared for.
nuclear family has restricted the number of people with access to
"the circle of care." Part of this development is cultural.
Extended families have not survived the effects of urbanization
and mobility. But a large part of this transformation in my day
has been political: the substitution of Social Security and Medicare
for family responsibility.
certain non-urban subcultures in the United States, the older pattern
of family responsibility long resisted the corrosive effects of
the welfare State — even, amazingly, inside the original social
laboratories of the American welfare State: Indian reservations.
five decades ago, my father-in-law was a Presbyterian missionary
to the Western Shoshone tribe in the Idaho-Nevada border region.
My wife was born on the reservation. Years later, he made this observation
regarding the family structure of Indians in his region.
Among the Paiute and Shoshone Indians of the 1940s and early
1950s, when I was a missionary among them, there were no homeless
children, even though in more than a few cases both parents had
died. The children were taken into the homes of relatives, or
sometimes neighbors, and, despite the fact that this meant a family
of eight or ten in a small cabin, no one was unhappy. Indian society
was exercising a function not yet seized by the state.
went on to cite from a detailed 1975 report on rural black families
in Alabama. The same phenomenon existed. Very few black rural children
were put up for adoption. (R.
J. Rudshdoony, Law and Society , pp. 232—33)
urban areas, the emotional links bonding family members have weakened
dramatically since the end of World War II. Part of this has to
do with geographical mobility, a uniquely American cultural phenomenon,
one based on free or very cheap land. Children do not merely move
out; they move on. The automobile, the highway system, and the advent
of federally insured home loans in the 1930s have accelerated this
early American tradition.
more important, the expansion of promised old age care by the State
has reduced the level of commitment from adult children to parents.
This is reflected in the savings rate. American families do not
save for a day when aged parents will move in with them. Yet throughout
most human history, and in rural societies today, it has been assumed
that aged parents will eventually become an economic burden on adult
can see where most people place their trust regarding care in their
old age: the State. They say, "We don’t want to become a burden
on our children." But this necessarily means they will probably
become a burden on other people’s children: taxpaying workers. They
are willing to do this. Worse; they insist on doing this. This has
moved the issue of old age care from the family to politics. What
was always seen as a right of parents, meaning a duty of sons, has
become an entitlement: a legal claim on the output of strangers.
It has transformed a form of family responsibility based on love
and mutual obligation into a matter to be solved by political conflict.
IN STATISTICAL FANTASIES
generations, parents have trusted sons to care for them. If a son
was a wastrel, they might hesitate to trust in his ability to care
for them, but generally, parents have trusted their children. Society
reinforced this trust by placing informal but effective sanctions
on children who broke faith with parents by abandoning them.
parents don’t trust their children as primary care-suppliers. They
trust politicians instead. The trust that naturally extends from
parents to children has been replaced by trust that also extends
to politicians. Voters say that they don’t trust politicians, but
they are not telling the truth. Family budgets indicate the extent
to which voters really do trust politicians. A national personal
savings rate of under 1% of disposable income indicates the degree
of this trust.
trust politicians. In major issues, where politicians commit the
wealth, safety, and even survival of the social order to a particular
policy, voters cannot easily be swayed from their faith prior to
a disaster. Consider war. It is correctly said that the first casualty
of war is truth. During wartime, dissidents are ostracized and even
imprisoned. News media are fed lies by the government, which are
dutifully passed on to the public. This process is so familiar that
every society revises its wartime news accounts after the hostilities
cease. Nevertheless, the day the shooting starts, governments, media,
and voters conclude, "This time, it’s different."
trust political representatives to act wisely behalf of the general
public. But wisdom is not a zero-price good. Neither is self-sacrifice.
Voters should know better than to trust without verifying. But they
rarely verify the promises politicians make. The bigger the promise,
the more likely that the promising agent will be trusted. A big
promise makes voters dependent. Once the voters act in terms of
what has been promised, and thereby become dependent on the system,
they are unwilling to examine the economics of the promise. To discover
that the promise will not come true is to force a revision of long-term
plans. Such revisions are expensive. Economics teaches: "The
higher the price, the less demanded."
the voters in every industrial country trust the politicians, who
assure them that their future retirement payments and tax-funded
medical care are not threatened. Governments put together a blue-ribbon
commission, which then releases a report affirming the long-term
solvency of the program, "if we act now to make minor revisions
in the program." Then the report is shelved, and no action
is taken to revise the program — except perhaps to offer even
more promises, all unfunded. This goes on every decade.
Bush is promoting a revision of Social Security, in which younger
workers will be given the option of paying some of their compulsory
retirement money into private capital markets. This will supposedly
fund a portion of their retirement by means of future output and
capital gains. The problem is, the President is unwilling to discuss
this obvious statistical question: "How can the money that
will go into workers’ individual, private investment programs be
used to pay off existing retirees?"
system is pay-as-you-go, meaning that it is unfunded. Congress spends
every dime that is left over after existing retirees are paid each
month. If younger workers are allowed to opt out of the existing
pay-as-you-go program, who will make up the shortfall?
with any political power acknowledges the existence of the question,
let alone suggests an answer.
personal accounts does not add to the total costs that Social
Security faces. The obligation to pay Social Security benefits
is already there. While personal accounts affect the timing of
these costs, they do not add to the total amount obligated through
Social Security. In fact, every plan scored by the Social Security
Administration (SSA) that contains personal accounts would reduce
the costs of permanently fixing the system.
"Establishing personal accounts does not add to the total costs
that Social Security faces." Quite true. Unfortunately for
would-be recipients, establishing personal accounts will affect
the revenues flowing into the system. It will lower them. Money
that goes into investments can’t be used to pay off granny.
"In fact, every plan scored by the Social Security Administration
(SSA) that contains personal accounts would reduce the costs of
permanently fixing the system." Reduce costs by how much? Will
these costs fall as fast and as far as revenues will fall? Let’s
see the figures, guys.
statistical issues are not dealt with by the White House’s web site.
That’s because they are ultimately the single issue of taxation.
Who will pay? Who will make up the shortfall? Identify the targeted
group, and you create a highly motivated political pressure group.
A group large enough to make up the shortfall is large enough to
be a major swing bloc at the next election.
Don’t tax me.
Tax the guy behind the tree.
don’t think President Bush will get his reform passed by Congress.
People still trust the government. They still think that the system
is solvent, at least until they die. That’s all they care about:
outlasting the system. If they cared about the gun in the belly
of every voter, they would not vote for any politician who refused
to shut down the system. In fact, they vote against any politician
who says the system should be shut down.
says that some of the money will go into private investment markets,
meaning government-approved markets. The best I can say for that
idea is that it will keep Congress’s hands off the money. If a thug
sticks a gun in your belly and tells you to fork over your money,
you might as well let his accomplices have their share for investment
purposes on your (and their) behalf rather than fund boondoggles
that will never pay off.
vast majority of voters around the world are unaware of any of this.
They do not understand such statistical concepts as amortization.
They do not understand that a retirement program or a pension is
an annuity. They really don’t care. They do not understand what
most families have understood from the dawn of time: sons who support
their parents then inherit their parents’ capital at the death of
the parents. The family annuity is in part a capital-preservation
program. Assets that survive the death of the parents become the
property of the heirs.
annuity is different. It ends with the death of the annuitant/owner.
There is no inheritance. It’s pure capital consumption. It’s based
on statistics: the initial contribution, the investments’ rate of
return, and life expectancy. It’s a consumption program. The buyer
bets that he will beat the mortality table.
typical pension is an annuity. It ends with the death of the retired
worker or his spouse. There is no inheritance.
family whose sole retirement asset is a pension or an annuity has
disinherited the next generation. We don’t talk of these investments
as programs of deliberate disinheritance, but that is what they
are. Of course, if the income is supplemental to a person’s earned
income because the person refuses to retire, then the annuity income
can be used to accumulate an inheritance. But the short time available
for compounding minimizes its importance to the heirs.
Security is a compulsory, unfunded annuity program. Its lack of
funding would make it illegal if it weren’t a government program.
It is funded by future taxes. It is therefore an exercise in political
trust. The problem is, the program’s Trust Fund is nothing but unmarketable
government bonds: IOUs from known liars, who publicly refuse to
face statistical reality.
do you trust?
LETTER FROM SOCIAL SECURITY
got a letter from Social Security. It let me know how much I have
coming to me. I can retire early. That will cost me $6,000 a year
in lost income. Or I can wait three years and collect the full amount.
If I still decide to defer signing up, they will pay me 7% more
annually for each year that I delay. In a decade, that would almost
double my monthly income, assuming they don’t inflate the dollar.
don’t assume that.
the Federal Reserve inflates, then cost of living adjustments (COLA)
will raise the payment. But if the government declares price and
wage controls, the way Nixon did in 1971, then COLAs freeze. Shortages
begin, just as they did, 1971—73.
from a strictly actuarial standpoint, I should calculate what is
best for me. My parents are still alive. My grandfathers died at
81. My grandmothers survived to 83. I have taken care of myself.
I am in good health. So, I figure I’ll beat the actuarial table.
wife will get some money — $500/month — when she turns 67.
That’s over a decade away.
look at the promised income, and I ask myself: "What can I
do with the money that will hedge against inflation?" Here
is my answer: buy income-producing real estate. Use the income from
Social Security to pay the mortgage, insurance, and taxes. Then
I can raise rents if rents increase locally. The nominal value of
the property will rise. I may even make post-inflation capital gains.
point is, I can use the flow of money to repay debt — a perfectly
legal use of money. It is also a sound economic use of money, if
the debt is amortized by the renters’ payments. I must secure special
debt: long-term, fixed interest rate, and collateralized 100% by
the property. This is the Schaub
approach to real estate.
once committed, is hard to abandon. He who has committed his trust
doesn’t want to admit to himself that he has made a mistake. The
bigger the mistake, the less likely he is to admit that he was such
used to think that people learn from their mistakes. In private
matters, they may if the price of remaining blind is high enough,
but when it comes to trust in the State, I find that voters make
the same mistakes over and over, generation after generation.
every war, politicians tell voters that "defeat is not an option."
Yet all wars end either in defeat for one side or a compromise that
was not acceptable to either side when the war began. Won’t voters
finally figure out that defeat is always an option? Apparently not.
may not learn from mistakes, but they do have to pay for them. When
the mistake-maker is the government, there is no agency large enough
to pass on the bills to when they come due.
why you had better be preparing for two mistakes: (1) bills that
come due, contrary to official assurances to the contrary; (2) political
attempts to identify you as one of the guys behind the tree.