Quotulatiousness

November 5, 2010

Monty on the social security Ponzi scheme and Ireland’s coming crisis

Filed under: Economics, Europe, Politics — Tags: , , , — Nicholas @ 12:11

The always interesting Monty reminds everyone that social security won’t be there when you most need it:

Generational warfare is all but a certainty at this point as the lie that is Social Security festers and grows unchecked. All I can say is: reality will assert itself, sooner or later. Don’t get caught short — save enough of your own money to fund your own retirement, because Uncle Sugar is going to screw you just as surely as the sunrise. Pull quote:

There will be pain. The system will gore a lot of oxen. The obvious victims will be the oldsters who have become dependent on Federal handouts. They are a powerful swing vote today, but they are in the minority. When the majority of working citizens finally perceive that it is an inescapable choice between handouts to oldsters vs. their families’ solvency, they are going to vote away the oldsters’ handouts.

Social Security only survives at the suffrance of the taxpayers who fund it. Pay particular attention to the part where it’s explained in terrifyingly clear detail that it doesn’t matter how much you paid in: you were paying a tax, not a contribution to a savings account. Uncle Sam can legally stiff you at any time.

And on the Irish financial crisis:

That Irish austerity program just went from “painful” to “Oh my God I think I just barfed up a lung”. The problem in Ireland, as in Greece, is that you somehow have to convince your own citizens to accept dire reductions in their own quality-of-life to make sure that (mostly foreign) bondholders don’t have to take a haircut. I suspect that this strategy will fail, and end in default. Which, really, is probably the best course of action for the PIIGS — get off the Euro, go back to the old national currencies, and devalue. Yes, they will be shut out of the credit markets for a while, but not for all that long in relative terms. And the alternative — extreme civil unrest — is worse.

November 3, 2010

Monty: The flushing sound you just heard is California’s future

Filed under: Economics, Politics, USA — Tags: , , , , — Nicholas @ 08:57

Monty pronounces the final doom of California:

That sound you just heard was the State of California irretrievably flushing itself down the toilet.

[. . .]

California’s most dire problems right now are related to public-employee obligations (pensions and healthcare). The power of public-employee unions in California have held the State and local governments in thrall for years, and with the election of Jerry Brown as Governor, the people of California have opted to spray kerosene on a blaze that was already threatening to overwhelm them.

[. . .]

Well, the die has been cast, California. You have placed your fate into the hands of a political party and a governmental machine that cares for nothing except what it can squeeze out of you to keep the party-train rolling. There will come a time in the not-too-distant future when you will have cause to bitterly regret what happened last night, and to wonder when the disaster truly became unavoidable. Well, now you know: it happened last night when you elected Jerry Brown as your governor. You chose to kowtow to the labor unions; you chose to believe comforting lies rather than the horrible truth.

You will reap the whirlwind.

Update: A couple of Twitter updates from Iowahawk sum things up nicely.

10:28: Boxer, Brown, no on Prop 19: congrats, California. You have officially gone Full Retard.

11:05: And as if California wasn’t already full of idiots, lunatics, and drug abusers, I’m flying there this afternoon.

October 28, 2010

A significant indicator of social decline

Filed under: Economics, Government, Politics, USA — Tags: , , , , — Nicholas @ 12:04

Monty puts his finger on the biggest social change since the 1960’s and posits the likely results:

The recipe for the decline and fall of the American republic: most people who receive government benefits will not willingly give them up, or even allow them to be reduced. They’ve been told that these benefits are a right so often by the so-called “progressives” that they’ve come to believe it, and any attempt to reduce their benefits amounts, in their eyes, to a civil-rights violation. This is what the welfare state leads to — an entire class of dependents who insist upon receiving the sweat of your brow not as charity or payment for services rendered, but as a birthright not to be denied them. Class warfare (between public-sector workers and taxpayers) and generational warfare (between the recipients of Medicare and Social Security and those who must fund it) is the only possible outcome if things do not change soon. And I don’t mean that in rhetorical or symbolic terms; I mean in actual, bloody, street-fighting terms. It’s the culture of grievance, of victimhood, of moral equivalence playing out in real time. As I wrote in an essay a while back, look at what’s happening in England and France right now. That is our future — only more violent — if we don’t change our ways.

May 22, 2010

Another reason public service pensions are better than private ones

Filed under: Economics, Politics, USA — Tags: , , — Nicholas @ 12:03

Megan McArdle points out another key difference between “ordinary” pensions and US state government pensions:

Public employees rack up overtime in their last year of work, with the active encouragement of their supervisors and even local politicians, then they retire with inflated pensions that can be greater than their base salary.

New York is the understandable focus, but these problems are hardly unique to my home state. In fact, New York is among the better states on funding of pensions, because they actually have to do some. Other states kinda sorta haven’t really bothered — at least not at anywhere near the levels that would be needed. New York’s problem is notable only because its public sector unions are unusually powerful.

The problem is that these things are nearly impossible to change. People have worked for twenty years or more under the expectation of pensions that were calculated this way; you can’t just wait until they’re 58 and say “Ha, ha, just foolin’.”

<sarcasm>Of course, the money will always be there, right? No reason for anyone to change their expectations.</sarcasm>

May 21, 2010

California’s version of the Greek public service problem

Filed under: Economics, Politics, USA — Tags: , , , — Nicholas @ 09:54

David Crane shows why California’s public pension scheme has much in common with the Greek pension scheme, in the sense of a mind-boggling disconnect from economic reality:

In 1999 then California Governor Gray Davis signed into law a bill that represented the largest issuance of non-voter-approved debt in the state’s history. The bill SB 400 granted billions of dollars in retroactive pension boosts to state employees, allowing retirements as young as age 50 with lifetime pensions of up to 90% of final year salaries. The California Public Employees’ Retirement System sold the pension boost to the state legislature by promising that “no increase over current employer contributions is needed for these benefit improvements” and that Calpers would “remain fully funded.” They also claimed that enhanced pensions would not cost taxpayers “a dime” because investment bets would cover the expense.

What Calpers failed to disclose, however, was that (1) the state budget was on the hook for shortfalls should actual investment returns fall short of assumed investment returns, (2) those assumed investment returns implicitly projected the Dow Jones would reach roughly 25,000 by 2009 and 28,000,000 by 2099, unrealistic to say the least (3) shortfalls could turn out to be hundreds of billions of dollars, (4) Calpers’s own employees would benefit from the pension increases and (5) members of Calpers’s board had received contributions from the public employee unions who would benefit from the legislation. Had such a flagrant case of non-disclosure occurred in the private sector, even a sleepy SEC and US Attorney would have noticed.

Until very recently, public service pension schemes might as well have been listed in the dictionary under “soporific” — except for the beneficiaries, nobody paid much attention. Even so, you’d think that the breathtaking assumptions in the Calpers bill would have woken up at least a few politicians and reporters. Of course, no political body has an effective “Office of Realistic Assumptions” to run proposed legislation past (although it wouldn’t be a bad idea), so it might well be that nobody bothered to check the sums before the bill was passed.

Or, more likely, that nobody voting that day expected to be held accountable for the outcome.

Update: Good news! The state legislature just passed new regulations! That’s bound to fix the problem, right?

Oh, wait . . .

California’s public pension funds would have to report the ethnicity and gender of some of the outside investment managers they hire under a bill that passed the state Assembly on Thursday.

The bill states that businesses owned by women and minorities are not adequately represented in the state’s pension fund portfolios, compared to their proportion of California’s population. It passed on a 41-22 vote and now moves to the state Senate.

Well, that will certainly fix the funding issues in no time, won’t it? Your California state legislature, constantly working for you!

May 20, 2010

The root of the Greek economic crisis

Filed under: Economics, Europe, Government, Greece — Tags: , , , — Nicholas @ 12:07

No, it’s not the evil banks, the evil insurance companies, the evil oil companies, or even the evil manufacturing sector (take it as read that most media types think every corporation is, by definition, evil). No, in this case the reports are starting to identify the real culprit: the civil service. Mark Steyn summarizes handily:

They were not an “anti-government” mob, but a government mob, a mob comprised largely of civil servants. That they are highly uncivil and disinclined to serve should come as no surprise: they’re paid more and they retire earlier, and that’s how they want to keep it. So they’re objecting to austerity measures that would end, for example, the tradition of 14 monthly paycheques per annum. You read that right: the Greek public sector cannot be bound by anything so humdrum as temporal reality. So, when it was mooted that the “workers” might henceforth receive a mere 12 monthly paycheques per annum, they rioted. Their hapless victims — a man and two women — were a trio of clerks trapped in a bank when the mob set it alight and then obstructed emergency crews attempting to rescue them.

Unlovely as they are, the Greek rioters are the logical end point of the advanced social democratic state: not an oppressed underclass, but a pampered overclass, rioting in defence of its privileges and insisting on more subsidy, more benefits, more featherbedding, more government.

We’ve already seen that employees in the public sector have been outpacing their private sector equivalents handsomely, but the Greek civil service has it even better than most:

Greek public sector employees are entitled not only to 14 monthly paycheques per annum during their “working” lives, but also 14 monthly retirement cheques per annum till death.

Nice. I wonder how they got into that interesting arrangement? No matter, the private sector will ride to the rescue, right? Not likely:

According to the World Bank, when it comes to the ease of doing business, Greece ranks 109th out of 183 countries. If they were dramatically to liberate their business-killing economy, they might overtake Lebanon at big hit position 108, and Ethiopia at 107, and maybe Papua New Guinea at 102. And who knows? With even more radical reform, they might crack the Hot One Hundred and be bubbling under such favourable business environments as Yemen (99) and Moldova (94). Greece ranks 140th when it comes to starting a business, and 154th when it comes to protecting investors.

If it’s that difficult to start a new business, is it any wonder that so much of the Greek economy is in the underground/unreported/untaxed sector? Many media reports say that anywhere from 10% to 25% of Greek economic activity is “off the books”. A quick Google search will show a much higher range of estimates going up to 60% . . . and that might be an optimistic under-estimate.

If more than half of the nation’s economic activity is in the black market, it will take much more than adding a few auditors and inspectors to the tax department to fix the problem: an absolute majority of Greeks are actively hiding their business from the government, and any serious attempt to crack down on them will bring down the government. And that’s not even the biggest danger — the Greek government isn’t the most stable entity to start with. The government falling might be a safety valve, because the other alternative is literally revolution.

Talk about your destabilization!

April 16, 2010

Exposing the truth about government-run Ponzi schemes

Filed under: Economics, Government, Politics — Tags: , , , — Nicholas @ 09:22

Kathy Shaidle is exactly right in her analysis of the key weakness of the Tea Party movement:

The Tea party movement contains the seed of its own failure

It preaches self-reliance and small government, but old people still want their pittance of gubmit cheese, ie Social Security.

If they/we were intellectually honest, we would be calling on the raising of the eligibility age to 90, which is more in line with Bismark’s original plan: a little pension for those who were never expected to live long enough to ever get it.

It was meant to be a “look how generous I am” gesture with no real impact; the original designers never thought we’d live long enough to cash the checks.

Older Tea Partiers (and all of us) should be petitioning the government to write everyone a one time check for the exact amount they were forced to contribute, plus maybe 5% interest if that is do-able.

And then the program should be abolished.

I hope most of my readers are not depending on their “government benefits” to get them through in their retirement years: the economics of the situation almost certainly won’t allow it. There are several problems with government-run retirement schemes, starting with the fact that most of them are not in any sense of the word “funded”. Most governments have been using the contributions as a giant low-interest revolving fund: you contribute, they withdraw and leave a promissary note in the kitty. The promissary note is drawn on you and your children. There is, technically speaking, no money in the kitty.

The people who will be worst hurt by the necessary changes to government pension schemes are the ones who earned too little (or spent too much) during their working lives and didn’t make any private provision for retirement. As Kathy points out, the first government pensions were designed so that most potential recipients would be unable to collect, because the start date of the pension income was set beyond the average lifespan of the population. Looking forward to a pension would be much less realistic today if the official “retirement age” was set to 90!

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