Posted on 04/05/2011 8:39:10 PM PDT by sickoflibs
Once upon a time, I developed a theory that we have much lower expectations for public-sector performance than we do for private-sector performance.[1] We saw this in accounting standards that — when applied to Enron — resulted in market forces shutting that firm down, while the Department of Defense loses billions of dollars annually. The difference in terms of waste between the two sectors is exponential, but while Enron is held accountable for its ethics, the government gets a pass.
Or consider what we tolerate from the US Postal Service (USPS) as opposed what we tolerate from firms like FedEx Express or UPS. Again, if those private-sector firms incurred the costs and waste that the USPS institutionalizes, they would be long gone, and their assets would be transferred to other entities that market institutions believe would use those assets more efficiently and profitably.
The list could go on. Compare Amtrak to private transportation; the billions of dollars of taxpayer money wasted on producing the Chevy Volt (the only thing electric about this car is that it is shockingly bad) compared to its competitors;[2] the standards applied to public-school students as opposed to those demanded in private and home schools; or the massive waste we accept in those federal transportation and "farm" bills Congress passes every five years, regardless of the party in control.
Such examples are so universally accepted that they are not even worth citing. The result is a huge dichotomy in modern life, and those of us who point it out are often left to feel like the little boy who wondered why there was so much fuss about the emperor's obviously nonexistent clothes.
The result of this dichotomy is government growth, which is inversely related to those characteristics we associate with a free and virtuous society. The result is growing animosity in society between net taxpayers and net tax consumers — and chaos when the artificial institutions, on which so many have become dependent, fail. Consider the sad case of Social Security. If ever there were a showcase for the difference in popular expectations maintained between public and private performance, Social Security is it.
It began in the 1930s, a time of state-orchestrated uncertainty in the economy. Much like today, this uncertainty emanated from multiple, unprecedented, and unpredictable interventions in the market system. (The Great Depression itself would last 17 years, ending when the New Dealers, who were the source of many of these interventions, were repudiated soon after the death of Franklin Roosevelt.) Looking back, what's striking is how limited the program was when it began. It claimed a mere 2 percent of payrolls and provided supplementary old-age payments to retired workers at a time when most people died in their 60s and when the worker-to-retiree ratio was 16 to 1. (It is now 3 to 1, and falling.)
Therefore, Social Security is a good case study of government interventionism in general. Public-sector growth begins on a small scale and develops a dependent class. When the unintended consequences inevitably come about, public officials expand their programs to solve these problems while blaming "forces of greed" or "market failure." While the role of such crises (real or imagined) in instigating this cycle was spelled out by economist Robert Higgs in his modern classic Crisis and Leviathan, the general cycle of intervention leading to unintended consequences leading to broader intervention was explained by the classical liberal Ludwig von Mises in the 1920s.[3]
Roosevelt knew that Social Security was primarily a political triumph.[4] In a story related by historian Arthur Schlesinger, Roosevelt told a visitor warning about the program's economic inconsistencies,
I guess you're right on the economics, but those taxes were never a problem of economics. They were politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes, no damn politician can ever scrap my Social Security program.[5]
He was damn right, too. Whenever the laws of economics rose against the politics of Social Security, Congress consistently expanded its benefits and raised payroll taxes to create more dependency. Much of today's unemployment results from the increased costs this program places on the labor market.
Nobel laureate Edward Prescott has shown that while Social Security's legal burden is shared between the employer and the employee, the economic burden is placed largely on workers, who receive lower wages and fewer employment opportunities. As a consequence, Prescott argues that employees respond to decreases in wages by further decreasing labor supply. (In economic terms, Prescott is highlighting the consequences of a highly elastic labor supply.)[6]
Congress's management of this program over the decades can only persist in a world in which people hold lower expectations for public-sector performance. It reflects the dominant Keynesian bias for short-run adjustments, because (as Keynes argued) the long run never arrives anyway. In the long run, we are all dead. A truer aphorism would say that in the long run, we are all screwed.[7] In the case of Social Security, this has become an actuarial certainty.
The numbers do not look good. Social Security was in surplus when the 78 million baby boomers were at the height of their earning power, but it is now in deficit; retirees are increasing in number and starting to collect some of the wealth that was coercively transferred from them into this Ponzi-like scheme. Its unfunded obligations were listed in the tens of trillions well before the stresses of the 2008 financial crisis and the various expansions in government since then. Boston University economist Laurence Kotlikoff recently calculated that, due to decades of spending like this on Social Security and other entitlements, the difference between funded and unfunded liabilities totals $202 trillion.[8]
Adding insult to injury, the Congressional Budget Office ran more than 500 possible simulations reflecting different possible outcomes for the program, given its current fiscal health. The purpose was to measure which generation among the cohorts born in the 1940s, the 1960s, and the 1980s would not receive Social Security benefits.[9] The results, published in October 2010, were not promising, as recently spelled out by Bruce Krasting in Business Insider. Krasting writes,
If you were born in the 1940's the probability that you will receive 100% of your scheduled benefits is nearly 100%. The people in this age group will die before SS is forced to make cuts in scheduled benefits. If you were born in the Sixties things still do not look so bad. Depending on how long you will live the odds (76+%) are pretty good that you will get all of your scheduled benefits. However, if you were born in the Eighties you have a problem. The numbers fall off a cliff if you are between 30 and 40 years old today. In only 13% of the possible scenarios you will get what you are currently expecting from SS. If you were born after 1990 you simply have no statistical chance of getting what you are paying for.[10]
Krasting thinks the end result will be age warfare, as younger generations realize they are being forced to pay for the fiscal irresponsibility of previous generations. The youths with whom I come into contact are as mad as hell — at least those who have studied the issue. University of Nottingham economist Kevin Dowd, in a speech to young people about the welfare-state promises for which they will spend the rest of their working lives paying, asked the question, "Do you want a life of toil and slavery, followed by ultimate destitution, or do you want to stand up for yourselves and fight for the chance of a decent life? It's your choice."
Indeed it is. Social Security is a microcosm of politicians' tendency to let short-term political benefits blind them to the economic problems inherent in welfare and warfare programs. More importantly, this government program highlights the dichotomy between public and private expectations. Social Security only persists because we have been conditioned to approach public-sector performance with lower expectations. In the long run, we are forcing future generations — possibly including the one I find in my economics classes today — into an easy choice.
If you realize both parties in Washington think that our money is theirs and you trust them to do the wrong thing, this list is for you.
If you think there is a Santa Claus who is going to get elected in Washington and cut your taxes, spend a few trillion and that will jump-start the economy, this list is not for you.
You can read past posts by clicking on : schifflist , I try to tag all relevant threads with the keyword : schifflist.
Ping list pinged by sickoflibs.
To join the ping list: FReepmail sickoflibs with the subject line add Schifflist.
(Stop getting pings by sending the subject line drop Schifflist.)
The Austrian School’s Commandments plus :From : link
1) You cannot spend your way out of a recession
2) You cannot regulate the economy into oblivion and expect it to function
3) You cannot tax people and businesses to the point of near slavery and expect them to keep producing
4) You cannot create an abundance of money out of thin air without making all that paper worthless
5) The government cannot make up for rising unemployment by just hiring all the out of work people to be bureaucrats or send them unemployment checks forever
6) You cannot live beyond your means indefinitely
7) The economy must actually produce something others are willing to buy
8) Every government bureaucrat should keep the following motto in mind when attempting to influence the economy: “First, do no harm!”
9) Central bank-supported fractional reserve banking is an economically distorting, ethically questionable activity. In particular, no government should ever do anything to save any bank from the full consequences of a bank run, no matter what the short-term consequences.
10) Gold is God’s money.
Add mine:
1) Businesses don't hire workers just because of demand for products or services, they hire because it makes them money. Sorry to have to state the obvious.
2) Government spending without taxing is still redistribution
3) Taking one man's money and giving it to another is not a job.
4) Paul Krugman and Bernake have been wrong about everything, as well as the other best and brightest Keynesian's who have been fixing our economy for over a decade.
5) Republicans in the minority (esp out of the White House) act like Republicans, in the majority they act like Democrats .
Equity bubble rules:
1)If something goes up too fast, it is going down faster,
2) By the time it looks like everybody is getting rich, it’s too late, stay out!
3) To get rich you have to get in early start of recovery and get out at the first really 'bad' news, and ignore the experts that claim that they will stop the next crash(our buddy Bernake.).
4) Don't invest money you will probably need, or worse money you don't really have.
Since he is using SS as a grand example of a government failure, you should enjoy this:
Video debate : A Liberal Democrat explains the why the Social Security Trust Fund is safe
We aren’t forgiving in NJ, and apparently they aren’t in Wisconsin either.
The “age warfare” they refer to will take place when the survivors of abortion turn on their parents to avoid paying for a retirement lifestyle the young workers can’t afford working 60 hours per week; it has already occurred in Europe. Old people know better than to enter a hospital “unescorted”; the workers are employees of the state, and as such represent the interests of the state, not the patient. ObamaCare has brought the same system here; our healthcare workers will be Division of Motor Vehicles employees with 4 more years’ education.
So they set up this system where, effectively, each generation pays for (some of) the retirement of the previous generations. I’ve always wondered what happens when one generation says, “No, I didn’t sign on for that, I’ll pass”.
Lately I’ve been wondering what happens when one generation realizes that even if they don’t make that decision, their kids probably will.
That's me. The USPS service here is so piss poor I got a box at the UPS store. Problem solved. Yes, the box costs me money. But the lowered blood pressure and peace of mind is worth it.
SCREW THE USPS. MORONS!!
Bttt.
I wonder if Mr. Westley is offering himself up as an example of government failure.
While a topic of general social concern, the particular question posed by this article is somewhat silly, because the answer is as obvious as a brick wall.
Corporations can be sued.
The government has to agree to be sued.
So even when corporations lose relatively small amounts of money, they are vulnerable to shareholder suit.
But when the government wastes billions, or even trillions, it can simply refuse to be sued, by making sure Congress or the presidential administration looks the other way (because they’re involved in the waste).
No recourse is no recourse.
Kind of like having a mountain of evidence that the president is ineligible to be president, only to have the courts shrug and say, “well, we see no standing for you to present your mountain of evidence, so it’s never accepted, so it doesn’t officially exist, so we don’t have to rule on it.”
No recourse is no recourse.
I make it a practice to talk to new hires from college at work (Maryland) to see what they know; and for the most part :
1) They know nothing of economics
2) They know nothing of world history
3) They think the world's problems are all a simple problem like their college experiment that seemingly smart honest (generally liberal) presidents can fix
4) They have no idea what a hundreds of thousands of dollars taken from them over their lifetime will mean to them when they are 50-60 and the government still says to them:"It's not enough, we need more"
.
As long as the Republicans can blame it on the Democrats, and the Democrats can blame it on the Republicans , then everybody’s happy. To keep things interesting, the government will blame the private sector, especially big, evil corporations.
Ms Institute,
‘Cause they keep hoping, always hopin’.
Gotta hope in something, and nothing else
outside of religion which is passe now, isn’t it,
gives us hope, do it?
Ms Taken
Too many people believe the federal Government will and has taken care of them, most believe that it still is ( just ask the baby boomers with their guaranteed social security payment, look at how they kept the government accountable?), oh wait, another failed government program!
We just expect a certain amount of ineptitude from them.
Just wish he would educate himself about the USPS. They are not paid from taxpayer monies, and haven’t been for years. They may be a perceived failure, but they provide univeral service to every household in the US. My parcel delivered today started out FEDEX, but USPS delivered it.
>> But the lowered blood pressure and peace of mind is worth it.
LOL, you gotta’ keep your sanity. I try to avoid women (that’s a joke ladies)
Ironically, I’ve made overtures here at FR about my appreciation for USPS (predicated, of course, on its revenue being a solely a function of postal fees). Though I’ve had my suspicions about dumping some large mailers, I haven’t experienced any problems at my mailbox, or with the Express Mail service. I’m also fortunate to have friendly, courteous postal employees.
For some government is their god.
Good luck getting anything smarter out of high school grads.
Yep, An economist supported by the taxpayers is a fine one to talk about government failure.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.