The estimated future burden of the unfunded liability grows like cancer day by day. Because of this, the Federal government does not officially report on this figure — at least not where the media can get at it. (Because of this, one publisher spotted an opportunity.). There are various private estimates, several of them in excess of $50 trillion.
How will this be paid off? It won’t be.
I was warned in the spring of 1959 that the Social Security system would go bankrupt in my lifetime. My high school civics teacher made that statement. I believed him.
He did not tell us that our generation would impose a massive debt burden on our own children. He said the system would go bankrupt — not our children.
He was a very perceptive man.
I hear about the terrible burden that we are placing on our children — tens of trillions of dollars of additional debt. I have read that every two American workers in 2020 will be required to support a retiree.
To which I answer, “So the gray heads think.”
All this talk about our overburdened children would be amusing if it were not so personally suicidal — but not for them.
This idea of an imposed debt burden comes from a naive view of politics. It assumes that people do not vote their own self-interest when they step into the voting booth. It assumes that voters are woefully ignorant about the extent of the state’s extraction of wealth from them. It assumes that they can’t count.
So, let’s talk about our overburdened children.
THE PRESENT BURDEN
People under age 65 constitute the overwhelming majority of voters. It is true they are not organized nearly so well as the old folks are. But when voting machine push comes to lobbyist shove, the geezers are about as safe as the old person on the chunk of floating ice that the tribe has placed him on, along with two days of blubber.
Let us conduct an experiment in self-realization. I have a two-choice question. Think about the present tax costs of Social Security/Medicare. You are paying around 15% of your income below $94,200. That’s most of your income, right? Also, unlike the income tax, you get no deduction from your gross income for any charitable donations.
When you pay this money every paycheck, what thought comes to mind? (You don’t need to raise your hand.)
I am doing this for the sake of the old folks, who would starve without my contribution. (That’s what the FICA tax is called — a contribution.)I am doing this, so that I will get my fair share of the loot when I move into the special-interest age group called “senior citizens.”
Of course, you chose answer #1. But you suspect that 99.9% of all those other taxpaying, money-grubbing voters would choose #2.
Your suspicions are correct.
The reason why this albatross is still firmly tied around our necks is that we like it there. No politician comes to us with this offer:
Vote for me, and I will vote to cancel all of your Social Security/Medicare taxes, next year and forever.
Why not? Because he knows his constituents have made a cost-benefit analysis regarding their own self-interest. They have figured out that, at the margin, what they will have to pay between now and their retirement is a lot less than what they will receive after they enter the ranks of voters with catheters.
Of course, his opponent will never mention this cost-benefit analysis. Instead, he will run on this slogan:
My opponent wishes to hurt all Americans over age 64. A vote for him is a vote for organized cruelty.
This slogan will appeal greatly to the self-interested, calculating majority, who will dutifully vote for the caring politician who speaks on behalf of the doddering, drooling oldsters. Also, the doddering, drooling oldsters will also take time off from the air-conditioned nineteenth hole to go down and vote for him.
Social Security/Medicare is the supreme example in American life of the politics of plunder. It has an enormous constituency.
The Social Security system is called the third rail of American politics. “Touch it, and you die.” It is the third rail because of well-organized self-interest.
THE THIRD RAIL
Every year or so, some statistician dutifully comes before a Congressional committee and reports his grim findings on the estimated unfunded liability of Social Security and Medicare. Then he goes home.
Congress of course does nothing. Well, not quite. It may vote to increase the unfunded liability, as it did with the Medicare prescription drug bill. But as for seeking actuarially rational solutions to the problem of the unfunded liability, Congress does nothing. So, the number continues to grow.
The politicians do occasionally do a little grandstanding for the folks back home who are still on wages-earning payrolls. They say something like this:
We must be aware of the burden that we are placing on our children. We must not destroy the American way of life through of unrestrained government debt.
Well, they don’t actually say this. They know the risk: They might break out into the giggles. So, they have their speech writer insert the phrase into one of those long speeches that are printed in the Congressional Record — speeches that are never actually delivered on the floor of Congress. Then, when printed the next day, another staffer sends a clipping of the speech to the district’s throwaway weekly newspaper, to be printed there. Nobody is expected to read the speech. But, just like the Congressional Record, it fills space.
The politician can then quote from the speech in some future campaign brochure.
Everyone is happy. The oldsters, their snouts deep into the age-specific benefits trough, raise their heads for a few moments to say, “It sure will be tough on future generations. Something ought to be done about it.” Then, still famished, their snouts go back into the trough.
Middle-aged taxpayers, hoping that their place at the side of the trough is secure, proclaim: “It’s good to keep the younger generation appraised of the problem.”
Members of the younger generation, mentally exhausted from an afternoon of watching MTV or the Cartoon Channel, do not read campaign brochures, let alone a throwaway newspaper. They are unconcerned. They do not think ahead ten years, let alone thirty.
Why should they? They have been taught that “deficits don’t matter.” They have been taught that savers are losers. They have been taught that the key to economic growth is consumer spending, and they are doing their best to give the economy a shot in the arm.
They have the one thing that oldsters don’t have: life expectancy. When they finally do a cost-benefit analysis on what it is costing them to secure their place at the trough, and it comes out negative, they will find a politician who has spotted that rare but crucial event: the cutting of the high-voltage current to the existing third rail and its re-routing to another.
Those who control a majority of the handles in the voting booths control the crucial handle that distributes the flow of political voltage. It determines a society’s third rail.
“I SHALL LAY MY BURDEN DOWN!”
The burden, so called, is a burden only for as long as the person carrying it decides that it is worth carrying. If he and those like him ever decide to vote as a bloc to have the burden transferred elsewhere, Congress will respond.
Where can it be transferred? To the oldsters. This process has already begun. I was guaranteed that at age 65, I would be entitled to full retirement benefits. Then the law was changed. Now I must be 65 and eleven months.
This is what political scientists call “a broken social contract.” It is what politicians call “responding to the will of the people.” I call it “stiffing the geezers.”
What can be done once without political repercussions can be done again. And again. And again.
The third rail has already been touched. No one died.
Of course, the entrenched special interest groups will resist. They will say that this burden is too great to bear for older people. To which the younger generation will respond, “Stuff it, granny. The gravy train is over.”
When the middle-aged workers see that their time to get at the trough is being extended, they will do their cost-benefit analysis. There will be a move toward the exits.
There will be a great reversal. Each extension of the date of full retirement, each reduction in benefits, will lead to additional defections in the ranks of the still-employed trough-seekers. Each increase in time paying into the system, and each reduction of the time spent at the trough, will scare off the pigs at the margin. The welfare state’s spiral upward, which culminated with Bush’s prescription drug benefit, seems to have reversed course. That unfunded liability hike was in all likelihood the last hurrah of the catheter set.
There are other ways to lay down this burden. Monetary inflation is one way. But won’t that trigger increases in the government’s cost-of-living index? Not if the government declares price and wage controls, thereby freezing the official cost-of-living index. That will create shortages, but they can be blamed on hoarders.
We should not feel too sorry for our children and grandchildren. They will learn what makes politicians jump. The fear of voter retaliation is always there. When a new issue arrives, the politicians will take polls of public sentiment. They will count noses. This is the politicians’ version of the sacraments.
There is a burden, and it is massive. It consists of estimates based on laws that can be changed. They are based on promises that can easily be broken. They are based on assumptions that are naïve. They are based on a welfare state morality that is no more secure than a cost-benefit analysis by a few million taxpaying voters.
Those aging voters who think the government owes them for past payments are like workers who believe that companies will pay retirement benefits even though the numbers tell managers that a strategic declaration of bankruptcy would lay their burdens down. As Seemless put it in that great old blues song (2005),
I work my fingers to the bone.And you know I’m slipping down so low.Getting down on my knees praying for release.Lord, won’t you help me?And I feel the weight dragging down on me.There’s redemption coming.That I seek.I close my eyes.Close my eyes to see this is what it means to bleed.
Corporate managers, like politicians, impose bleeding rather than suffer it. Their redemption draweth nigh. Not granny’s, however.
Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 17-volume series, An Economic Commentary on the Bible.
Copyright © 2006 LewRockwell.com