Leaving the promise-making business

We have just witnessed the budget charade.

Not long ago, the Ryan plan was introduced with some fanfare. It promises lots of cuts… over decades. Few cuts of significance in the first year. When you hear someone say that they want to cut trillions over 10+ years, remember that budgets are redone every year. The shelf life is one year. The only part of the budget that matters is the first year. No one is basing the 2012 budget on what the 10-year outlook was in the 2003 budget.

One of the invariable parts of these plans is to oversee the slow privatization of retirement money by cutting benefits to those under a certain age. This is a good thing in that social security needs to be phased out.

The problem is how these things are sold. People are told that by privatizing they will get better returns at lower costs. True in the past. The problem is that the economy is headed down the tubes due to all the debt, and this promise will be empty (plus, 401K offerings usually provide little protection against inflationary forces since those are deemed “unsafe” investments by advisers living in the bubble past). So what’s going to happen when people see their “safe” bond funds getting killed and their money market funds losing purchasing power due to inflation? If it’s anything like I remember 2008, we’re going to hear a loud outcry. People believe that Wall Street is ripping them off (somewhat true, although the Fed is the far bigger culprit). People are going to want this corrected. It will be another outburst of what I call “stupid populism,” which asks good questions and proposes bad answers.

The gimmicks will fall apart from voter anger. Politicians will empathize but their inability to deliver the goodies will be more transparent. (If it were earlier in the Ponzi scheme, big government could ride to the rescue, but alas, the hour is late.)

I just finished Tom Wood’s book Rollback. Woods hammers away at historically false assumptions such as how the government saved us from sweatshops, or how the financial meltdown was caused by “deregulation.”

This questioning is what is needed with the Medicare and Social Security debate, too. The greatest assumption of all is that the government owes you a retirement. Instead of promising people increased returns through private/public gimmicks like subsidized 401Ks, the government should get out of the promise-making business altogether. The assumption that the government can protect our retirement “security” needs to be exploded. People need to be told that they are responsible for their own retirement. The entitlement mentality needs to be shamed. People need to buy their own insurance, work cooperatively with their churches or civic organizations, plan ahead, etc. There’s no free lunch.

It would help if the government would get out of the game of encouraging debt through low interest rates and backstopping loans, and spending massive amounts of money, but that is a topic for another post.

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