by Thomas Sowell
by Thomas Sowell: Voting
With Their Feet
gives you a check and the bank informs you that there are insufficient
funds, who do you get mad at? In your own life, you get mad at the
guy who gave you a check that bounced, not at the bank. But, in
politics, you get mad at whoever tells you that there is no money.
One of the
secrets of the growth of the welfare state is that politicians get
a lot of mileage out of making promises, without setting aside enough
money to fulfill those promises.
votes for all sorts of benefits, without voting for enough taxes
to pay for them, they get the support of those who have been promised
the benefits, without getting grief from the taxpayers. It's strictly
win-win as far as the welfare-state politicians are concerned. But
it is strictly lose-lose, big-time, for the country, as deficits
says that we don't have the money to pay what was promised is accused
of trying to destroy Social Security, Medicare or Obamacare – or
whatever other unfunded promises have been made. It is like blaming
the bank for saying that the check bounced.
It is the
same story at the state level as in Washington. The lavish pensions
promised to members of public sector unions cannot continue to be
paid because the money is just not there. But who are the unions
mad at? Those who say that the money is not there.
How far short
are the states? It varies from one state to another. It also varies
with how large a rate of return the state gets on its investments
with the inadequate amount of money that has been set aside to cover
its promised pensions.
A front page
story on the March 28th issue of Investor's Business Daily showed
plainly, with bar graphs, how big Florida's shortfall is under various
rates of return on that state's investments. Florida's own estimate
of its pension fund's shortfall is based on assuming that they will
receive a rate of return of 7.75 percent. But what if it turns out
that they don't get that high a return?
A 6 percent
rate of return would more than triple the size of Florida's unfunded
liability for its employees' pension. The actual rate of return
that Florida has received over the past decade has been only 2.6
percent. In other words, by simply assuming a far higher future
rate of return on their investments than they have received in the
past, Florida politicians can deceive the public as to how deep
a hole the state's finances are in.
like this are not confined to Florida. State budgets and federal
budgets are not records of facts. They are projections based on
assumptions. Just by manipulating a few assumptions, politicians
can create a scenario that bears no resemblance to reality.
to be made by instituting Obamacare is a product of this kind of
manipulation of assumptions. Even when the people who turn out the
budget projections do an honest job, they are working with the assumptions
given to them by the politicians.
The fact that
the end results carry the imprimatur of the Congressional Budget
Office – or of some comparable state agency or reputable private
accounting firm – means absolutely nothing.
arbitrarily assumes that it is going to get a future rate of return
on its pension fund investment that is roughly three times what
its past returns have been, that is the same nonsense as when the
feds assume that Congress will cut half a billion dollars out of
Medicare to finance ObamaCare.
would probably be better off if there were no Congressional Budget
Office to lend its credibility to data based on hopelessly unrealistic
assumptions fed to them by politicians.
One of the
reasons why a federal "balanced budget" amendment is unlikely to
do what many of its advocates claim is that a budget is just a plan
for the future. It does not have to bear any resemblance to the
realities of either the past or the future.
We do not
need reassurances that do not reassure, whether these reassurances
are in numbers or in words. No small part of the reason for the
economic collapse we have been through is that federally designated
rating agencies reassured investors that many mortgage-backed securities
were safe, when they were not.
Not only investors,
but the whole economy, would have been better off without these
reassurances. "Caveat emptor" would be better advice for both investors
Sowell is a senior fellow at the Hoover Institution at Stanford
University. His Web site is www.tsowell.com.
To find out more about Thomas Sowell and read features by other
Creators Syndicate columnists and cartoonists, visit the Creators
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