Sunday, August 10, 2008

Update on Government Theft, 2008

Last year I posted an "Update on Government Theft." It was about a speech called "From Here to Eternity" by Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. He said:

According to official government trustee reports, the infinite-horizon discounted present value of our unfunded liability from Social Security and Medicare—in common language, the gap between what we will take in and what we have promised to pay—now stands at $83.9 trillion.

This staggering deficit portends conflict, chaos, and a Great Depression.

But now it's time to update the figures.

In a more recent speech (May 28, 2008), Fisher speaks of "Storms on the Horizon." I probably don't have to quote him; you know what he's going to say. But here it is anyway. A little context before we get to the new number:

Franklin Roosevelt originally conceived a social security system in which individuals would fund their own retirements through payroll-tax contributions. But Congress quickly realized that such a system could not put much money into the pockets of indigent elderly citizens ravaged by the Great Depression. Instead, a pay-as-you-go funding system was embraced, making each generation’s retirement the responsibility of its children.

Now, fast forward 70 or so years and ask this question: What is the mathematical predicament of Social Security today? Answer: The amount of money the Social Security system would need today to cover all unfunded liabilities from now on—what fiscal economists call the “infinite horizon discounted value” of what has already been promised recipients but has no funding mechanism currently in place—is $13.6 trillion, an amount slightly less than the annual gross domestic product of the United States.

Please sit tight while I walk you through the math of Medicare. As you may know, the program comes in three parts: Medicare Part A, which covers hospital stays; Medicare B, which covers doctor visits; and Medicare D, the drug benefit that went into effect just 29 months ago. The infinite-horizon present discounted value of the unfunded liability for Medicare A is $34.4 trillion. The unfunded liability of Medicare B is an additional $34 trillion. The shortfall for Medicare D adds another $17.2 trillion. The total? If you wanted to cover the unfunded liability of all three programs today, you would be stuck with an $85.6 trillion bill. That is more than six times as large as the bill for Social Security. It is more than six times the annual output of the entire U.S. economy.

Why is the Medicare figure so large? There is a mix of reasons, really. In part, it is due to the same birthrate and life-expectancy issues that affect Social Security. In part, it is due to ever-costlier advances in medical technology and the willingness of Medicare to pay for them. And in part, it is due to expanded benefits—the new drug benefit program’s unfunded liability is by itself one-third greater than all of Social Security’s.

Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion . . . . Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.

I want to remind you that I am only talking about the unfunded portions of Social Security and Medicare. It is what the current payment scheme of Social Security payroll taxes, Medicare payroll taxes, membership fees for Medicare B, copays, deductibles and all other revenue currently channeled to our entitlement system will not cover under current rules. These existing revenue streams must remain in place in perpetuity to handle the “funded” entitlement liabilities. Reduce or eliminate this income and the unfunded liability grows. Increase benefits and the liability grows as well.

Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income.

There are only two words that adequately describe Congressmen who vote for this kind of scheme. Pick one:



Now, how do you describe voters who keep voting for these promises? A guy promises to give you $330,000 for each and every member of your family, and every one of 300 million other Americans. Do you really believe him? Did you take math in your government-run school?

How will millions of people react when they find out that the money the government promised them isn't coming? "Oops! We don't have the money to cut your Social Security check. Sorry!" Will those people say, "Hey, that Wal-Mart has lots of food that should have been ours! Let's take it!" Will they say, "Hey, that house (pointing to your house) looks like it might have some food. Let's go in there!"

Or will government try to prevent riots and strikes by simply printing up lots of money, like Germany did, 1914-1923, when wheelbarrows full of Deutsch marks couldn't buy a loaf of bread, but eventually led to Adolph Hitler. Let's recall what the Social Security Commissioner said in Senate Hearings:

Senator William Proxmire: "...there are 37 million people, is that right, that get Social Security benefits?"
Social Security Commissioner James Cardwell: "Today between 32 and 34 million."
Proxmire: "I am a little high; 32 to 34 million people.
Almost all of them, or many of them, are voters. In my state, I figure there are 600,000 voters that receive Social Security. Can you imagine a senator or congressman under those circumstances saying, 'We are going to repudiate that high a proportion of the electorate?' No.
"Furthermore, we have the capacity under the Constitution, the Congress does, to coin money, as well as to regulate the value thereof. And therefore we have the power to provide that money. And we are going to do it. It may not be worth anything when the recipient gets it, but he is going to get his benefits paid."
Cardwell: "I tend to agree."
(The Social Security System, Hearings Before the Joint Economic Committee, Congress of the United States, 94th Cong., 2nd Session, May 26 and 27, 1976, pp. 27-28. Washington: Government Printing Office, 1977.)

Do you really feel more secure after voting for these people and these ponzi-scheme promises?

“Those who would give up Essential Liberty to purchase a little Social Security, deserve neither Liberty nor Security.”

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