Sunday, September 27, 2015

Now That Speaker Boehner Is Out, What Next?

'Gang of Seven': Boehner, 2nd row, 1st on left
Quick question for all you 'reformers' out there:

'Name the Members of the 1990 'Gang of Seven' who toppled Democrat Ways and Means Chairman Danny Rostenkowski and helped pave the way for the 'Contract for America' and the GOP takeover in 1994?'

Right. One of the leaders was none other than John Andrew Boehner whom many on the right are today not toasting his service to our country but cheering his departure.

Others include former NC Congressman Charles Taylor who was never considered a squish by any measure. Rick Santorum of Pennsylvania was in that class of freshmen.

Jim Nussle of Iowa was so incensed about unethical behavior of Democratic leaders in the House over the House banking scandal (which involved cashing in postage stamps for cash among other things) that he resorted to wearing a brown paper bag over his head because he was so 'ashamed' to be part of the same Congress.
Not the 'Ain'ts'

Nussle, of course, went on to become Chairman of the House Budget Committee in 2001 and Director of OMB in 2007. See what a little 'theatrics can do for you in politics?

John Boehner came into the US House 4 years before we left Congress in 1995. He was a solid conservative intent on reforming the federal government which meant, back then, reducing it in size and expense and intrusion into your daily lives via regulations and legislative fiat across-the-board and, of course, balancing the federal budget for the first time since man walked on the moon in 1969.

(We went to a wonderful reunion of former staff and campaign aides for retired Congressman Alex McMillan last weekend where now-Governor and Presidential Candidate John Kasich, another reformer who was in Congress during the 1980's and '90's, wrote a very nice letter congratulating Congressman McMillan on his efforts to help guide efforts that led to the first balancing of the budget in 1997 'since man walked on the moon' so we decided to lift that phrase for this brief history lesson today)

'What happened to Boehner?' many on the far-right are asking today. 'If he was such a 'reformer' when he came into Congress, why did he leave as such a RINO (or whatever insult they care to cast his way)?'

'REALITY' happened to John Boehner. And the 'US CONSTITUTION' happened to John Boehner.

Just as it will happen to whoever takes the job as the next Speaker of the US Congress. And the next. And then next. And the next.

If you can't understand that, you are going to be perpetually perplexed, bewitched and bewildered by the US political scene. You might want to consider taking up horticulture or catfish-farming as a hobby since they would be far easier to understand and master.

The Founders did something pretty amazing back in 1787 when they were writing the second Constitution for the United States, the Articles of Confederation being the first, which bombed by the way or else there would have been zero need to go to Philadelphia and essentially 'overthrow' the first Constitution and replace it with the second.

They gave us the 'rules of the game' for playing in this democratic republic and essentially laid out a game plan for operating a capitalist economy under governance of the voting electorate, not a king or sovereign as had been the norm forever on the face of the earth until then.

They made it exceedingly difficult for any one person, faction or party to get 100% of what they wanted in any one session of Congress. They had just fought a war of independence from such tyrannical rule, in their opinion, and they were going to set up a government where that could never take place again on American soil.

Very few times in American history has one side or the other had a chance to get close to 100% of what they wanted to get done in any one session of Congress. 2009-2011 saw President Obama and the Democrat House and Senate push through major legislation including Obamacare mainly because they had 60, or close to 60 Democrat Senators in the US Senate with a massive majority in the US House and a Democrat leading the way in the White House with a pen in his hand to sign whatever Congress sent to him.

You may not like what they sent to him, but they did it (mostly*) according to the rules set up 238 years ago in Philadelphia by men such as James Madison, Alexander Hamilton and Benjamin Franklin.

What have been the main impediments for the past 5 years now for the Republicans who have controlled the US Congress to getting their agenda passed and overturning what the Democrats have done?

#1 is President Obama in the White House who has the same pen that can sign bills into law but he can use to veto any and all Republican bills that he doesn't want to see enacted into law.

#2 was the Democrat-controlled Senate under Majority Leader Harry Reid from 2008-2015. There was no way in Hades that a Republican snowball, no matter if it was the size of the Capitol itself, was going to roll downhill and get passed by the Senate and signed into law by President Obama.

Not without substantial input, negotiation and compromise from the Democrats, that is. In which case, the bill would look more like Dodd-Frank or ACA than the Balanced Budget Act of 1997 passed by a Republican House and Senate and negotiated by Erskine Bowles on the part of Southern Democrat President Bill Clinton that lead to the only 4 balanced budgets most of us will ever see in our lifetimes.

So what was the solution by many on the angry far-right of the political spectrum?

'Shut down the government!'

We have seen it done before. We have been a part of the chorus who said the same thing in frustration many times when we were 85-seats in the minority for a decade in the US House.

Try It At Home! You'll Get As Much Done As
You Would Shutting Down The US Government!
Know what it ultimately accomplishes 999 times out of 1000?

Nothing. Absolutely nothing. It accomplishes about as much as flicking these red white and blue Jello squares with your finger and watching them wibble and wobble for a few seconds on the plate....and then ultimately, they return to stasis and have made absolutely zero progress to any goal anywhere.

Know what would make a HUGE difference?

Getting a Republican elected President of the United States in 2016. That would make a huge difference for those of you who didn't think Mitt Romney was 'conservative' enough to meet your lofty standards of purity in political philosophy in 2012 so you decided to not work for him or, in millions of cases, decided to sit at home and not even vote for him.

How's that working out for ya?

The second thing that would really make a difference is for everyone to take a close look at the US Constitution again and understand just how deeply entrenched 'compromise' is in that sacred document. The Founders were 'serial compromisers' as our friend Neil Siegel of the Duke Law School likes to call them. There was not one single thing they didn't compromise on in 1787, unless, of course, you consider their punting of the slavery issue for 20 years not a compromise which it was for those who wanted to ban it outright immediately at the time.

You can wait, and wait, and wait until a Republican President who is 99.999% pure according to your standards wins the White House and the GOP maintains control of the US House and (somehow) gets to 60 US Senators....and THEN you can see all your dreams come true as the federal government is hacked back down to pre-World War II size.

The third thing you can do is take a lesson from Hall of Fame Coaches Dean Smith of Carolina and Coach K at Duke. Seriously. Both men adapted with the times and came up with new strategies to play college basketball based on 'reality' with each succeeding period and style of the game.

Coach Smith came up with the 'run-and-jump' trapping offense; the play-calling at the free throw line; the 'Finger Point' to praise the assist-maker, not the guy who made the easy layup and padded his scoring average and who could forget, the Four Corners offense that drove people crazy unless you were a Tar Heel fan watching yet another close game end with another Tar Heel victory.

Coach K has only managed to coach in 4 decades now with different players and different styles and different tempos and different ages. He won the NCAA title last year...and he used the ZONE DEFENSE a lot at the beginning of the year!  Talk about compromising your basic core principles of life! Coach K of 1986 would have strangled Coach K of 2015 for using any zone defenses...until he congratulated him on winning his 5th national title that is.

The point here is to say that there are other ways to get things done legislatively than shutting down the government. The Planned Parenthood videos are deeply disturbing to anyone who has seen or listened to them. Perhaps the funding for Planned Parenthood should be dealt with in a separate line-item appropriations bill that President Obama would have to sign or veto out in plain sight of day, not buried in the guts of a multi-trillion continuing resolution bill the general public has no idea of what it is in the first place anyway.

Congress has the power of the purse to fund or not fund the implementation of Obamacare or his executive action on immigration. 'Legislative supremacists' (their term) such as Henry Clay routinely challenged His Excellency, President Andrew Jackson, by not funding what the White House wanted and causing a ruckus that would make today's battles seem tame by comparison.

Maybe John Boehner could have done more on those tactical matters. Or maybe he had Chairmen of major committees and rank-and-file GOP members and/or Tea Party favorites unwilling to go even those alternative routes.

We remember hearing rebel GOP Congresspeople rail about 'cutting federal spending'...except the Appalachian Regional Commission or some farm program where they came from. Push on any Tea Party Rebel Congressperson today in the US Congress hard enough, and they will eventually spill the beans about the 2-3 federal programs they will not vote to cut because of the district and state they represent.

It is either that or compromise your rear end off which those on the far right still seem to feel is a 4-letter word. So do the same percentage of folks on the far-left who wouldn't know a good compromise deal if it fell off and hit them in the head like a ripe coconut.

All we know is that the next Speaker of the House, whoever he or she may be, will soon be called a RINO and worse by people who really have not read the Constitution or understand the rules of the game.

It is like playing golf with people who have not read the 'rules of golf', of which there are 34 basic rules and seemingly thousands of sub-rules. Something happens and then they get very angry and upset even though they don't understand the rules of the game to begin with.

Might as well follow the rules of the game as established by our Forefathers whom all of the right side of the political spectrum say they revere and respect and want to follow in the first place. Yes?

(We say 'mostly*' because the Democrats did use some parliamentary maneuvers such as budget reconciliation rules but they were not set up until after the 1974 Budget Control Act was passed post-Watergate)

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Tuesday, September 22, 2015

American Politics, Donald Trump, Gorgeous George and Al Czervik

Everyone is concerned about Donald Trump as if he is breaking some sort of gentleman's agreement in American political discourse.

If anything, Donald Trump is returning American politics to its rough-and-tumble nature that existed at its very beginnings.

American politics has never been the genteel gentlemen's sport that one might associate with English fox-hunting or cricket or tea-sipping at 3 pm in the parlor of some castle.

American politics has always been more akin to the WWE, the World Wrestling Entertainment Inc or the WWF before it. American politics 'looks' and 'sounds' vicious but there has always been a sort of understanding that beneath it all, it has very strong elements of entertainment, comedy and theater to every campaign. The more memorable they are, that candidate usually has a good chance of going a very long way to winning the White House.

The way that boorish people get eliminated from the political process is if enough people don't like them or what they are saying and they don't vote for him/her. It is Darwinism and capitalism at its purest intersection; you get the choice to decide if you are 'buying' what the candidate is selling and saying by voting for them or not. It is up to you.

If 50%+1 of the voting population agrees with you, he/she gets to serve in the White House for 4 years. This is not a debutante ball, you know, where manners and politeness are rewarded somehow.

Teddy Roosevelt was hardly considered a 'polite, shy and retiring' personality, for example. He could be as acerbic and scathing as any individual of his day, in politics, the press or anywhere in America.

If you have never seen Gorgeous George from days gone by in professional wrestling circles, then you may not ever understand Donald Trump, all the way up to his flamboyant blonde mane. Gorgeous George was the Master of Showmanship; he knew how to fill auditoriums to the rim with ticket-buying fans.

Just like Donald Trump.

(Muhammad Ali understood Gorgeous George 100%; he copied his flamboyant exhibitionist style of sports as entertainment all the way to becoming the (Greatest of All Time!' through the title of this post if you want to see the video of Gorgeous George below)

We thought it would be fun to see if you could match up the quotes below with any American political figure of the past or present, including Donald Trump, since he is considered by far to be the most scandalous in this campaign today.

Some are candidate-on-candidate quotes; some are elected official-on-elected official quotes and some are press quotes or scurrilous campaign jingles or comments circulated by opponents of the other candidate.

We threw in a few Rodney Dangerfield as 'Al Czervik in 'Caddyshack' quotes as well to see if you could tell the difference between modern American comedy and historical political fact, (mainly because we have been struck by how similar Donald Trump and Al's delivery and zingers really are upon deeper reflection):

1. "(He) had no more backbone than a chocolate eclair." 

2. "(He) doesn't know any more about politics than a pig knows about Sunday." 

3. (He is) a coward, “an idiot,” and “the original gorilla” 

4. "Are you prepared to see your dwellings in flames, ... female chastity violated, or children writhing on the pike?.....(T)he soil will be soaked with blood and the nation black with crimes." 

5. "In your heart you know he might" (explode an atomic bomb);  In your guts, you know he's nuts." 

6. (My opponent is a) "document-shredding, Constitution-trashing, Commander in Chief-bashing, Congress-thrashing, uniform-shaming, (foreign adversary)-loving, arms-dealing, criminal-protecting, résumé-enhancing, (foreign leader)-coddling, social security-threatening, public school-denigrating, Swiss-banking-law-breaking, letter-faking, self-serving, election-losing, snake-oil salesman who can't tell the difference between the truth and a lie." 

7. "It is said that at a year old,  he could laugh on one side of his face and cry on the other, at one and the same time." 

8. "(He's) a no good lying bastard" (and anyone who votes for him) "ought to go to Hell." 

9. "I've asked (the former) President to please not bring up the religious issue in this campaign." 

10. "He tried to choke me! You saw it. He called me a baboon, thinks I’m his wife." 

11. "(He is) unprincipled and a pander bear' 

12. "(He's) a cold-blooded, narrow-minded, prejudiced, obstinate, timid old psalm-singing Indianapolis politician." 

13.  "(T)he big newspaper, owned or controlled by Wall Street, ... which with raving fury defends all the malefactors of great wealth." 

14. "Oh, this is the worst-looking hat I ever saw. What, when you buy a hat like this I bet you get a free bowl of soup, huh?"

15. "(He has a) hideous hermaphroditical character, which has neither the force and firmness of a man, nor the gentleness and sensibility of a woman."

16. "Last time I saw a mouth like that, it had a hook in it."

17. 'Ma, Ma, where's my Pa? Gone to the White House, Ha, ha, ha!' 

18. "Oh, this your wife, huh? A lovely lady. Hey baby, you must’ve been something before electricity."

19. "(He's) a Byzantine logothete backed by flubdubs and mollycoddles." 

20. "(He is) a mean-spirited, low-lived fellow, the son of a half-breed Indian squaw who eats hoecakes, sired by a Virginia mulatto father."

(Bonus Question for extra credit, easy) 
21. 'Blaine, Blaine, James G. Blaine, The Continental Liar from the State of Maine!' 

(Answers below; no cheating until you have finished answering all the quotes first)

A. Rodney Dangerfield as Al Czervik in “Caddyshack” 10, 14, 16, 18
B. Virginia Senator Chuck Robb about Oliver North 6
C. Former President Truman about Dwight Eisenhower 2
D. Truman on Nixon 8
E. JFK about Truman's comments about Nixon 9 (see quote #8)
F. TR on President Benjamin Harrison 12
G. TR on President McKinley 1
H. TR on Woodrow Wilson 19
I.  Paul Tsongas about Bill Clinton 1992 11
J. Newspaper editor about Thomas Jefferson 4
K. Former Congressman Davy Crockett about President Martin Van Buren  7
L. TR about New York Times or Wall Street Journal 13
M. Democrat attacks on Barry Goldwater in 1964 5
N. Jefferson supporters on John Adams 15
O. John Adams response to Jeffersonian attacks 20
P. Opponents of Grover Cleveland who supposedly fathered an illegitimate child 17
Q. Union Commanding General George McClellan on President Abraham Lincoln 3
R. Grover Cleveland supporters jingle attack on James G. Blaine 21

(Sorry....none of the above quotes are attributable to Donald Trump...although many could be)

Bonus video: 'The Elections of 1800' Attack Ads by Jefferson and Adams

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Monday, September 14, 2015

Wile E. Coyote, Super Genius Who Gave You Obamacare

'My best friend is Jonathan Gruber of MIT'
We love Wile E. Coyote.

No matter what the obstacle or what the challenge, Wile E. Coyote always seemed to come up with some massively complicated Rube Goldberg contraption that defied gravity and common sense to capture the Road Runner and finally get a decent meal out in the desert.

We think Wile E. was on the legislative team that concocted and helped pass the ACA, the 'Affordable' (sic) Care Act, otherwise now colloquially known as 'Obamacare' which is neither 'affordable' and has not covered every uninsured person as promised in 2010.

(click through the title line if you want to see a classic video of Wile E. Coyote, this time with Bugs Bunny)

Consider this latest news from Blue Cross Blue Shield of North Carolina, hardly a right-wing Tea Party mouthpiece when it comes to Obamacare:

'60,000 North Carolinians dropped their health insurance, 50% of whom did so after receiving expensive medical care'

60,000 people. There are only 459,714 ACA customers in North Carolina to begin with. 13% of all ACA customers dropped out of the ACA within the first year, 1/2 of whom received expensive medical care before dropping out.

And guess what? With guaranteed issue, these same people can come back into the ACA coverage before they need another round of expensive medical treatment, receive it and then drop out of the ACA again right after and stop paying premiums again until the next time they need medical care.

This was all predicted as far back as HillaryCare in 1993. Everyone knew it would happen if set up like this without any penalties or restrictions. Obamacare is just HillaryCare on steroids.

Here's some news headlines you won't see coming out of the Obama White House on the ACA, especially not when they are waving the banner of successfully completing the Iran Deal that apparently only they and 21% of the American people want in the first place:

'Nationally, the federal government reported that 11.7 million people had signed up for ACA coverage by the February end of the enrollment period for 2015. By the end of June, the number still enrolled had dropped by 1.8 million, to about 9.9 million'

As a result, BCBSNC has asked the state of North Carolina for another large rate increase, now for the 3rd year running, this time of close to 35% over last year.

We took out a blunt pencil and figured out that had the ACA not passed in 2010, our individual health care premium would today be over 50% less than it is expected to be for 2016.

Yours might be more. If you are working for a big company that is paying for most of your premiums or a large university or large non-profit organization, you probably don't feel the sting of these exorbitant and almost usurious health insurance rate increases.

But rest assured, every small business person or self-employed individual is taking the full brunt of the Wile E. Coyotes in the Obama Administration such as Jonathan Gruber who thought they were 'Super Geniuses' and had concocted the perfect health care insurance system in 2010.

All we can say is we agree with Bugs Bunny when he says at the end of this embedded clip:

"'Mud' spelled backwards is 'dum'"

We don't know what 'Obamacare' or 'Gruber' spelled backwards means. But it is apparently not 'smart' or 'perfect' by any stretch of the canine imagination.

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Friday, September 11, 2015

'The Founders Were Serial Compromisers'

Compromise Brought Us Together.
Signing Pledges Will Tear Us Asunder.
One of the reasons why we like what we are doing is that we always get the chance to hear a distinguished scholar, professor or expert talk about some aspect of helping people learn to run for public elected office.

We get to learn from such experts while we also get to see the next crop of James Madisons, Thomas Jeffersons and Alexander Hamiltons in these classes. There are hundreds of them...they just have not been running for public office for any number of reasons.

Which we are trying to change.

Last night, we got to hear Neil Siegel of the Duke Law School expound on the ins-and-outs of the US Constitution in about 90 minutes. Each time we hear a different speaker, we learn something new about that truly amazing document written by mere mortals in 1787 in Philadelphia, PA.

Here's one line that caught our attention from his lecture:

'The Founders were serial compromisers'

In today's poisoned political environment, every one of these 'compromisers' would be primaried in the next election for violating some pledge they had signed promising 'never to do such a thing' while in office.

Here's what some of them might have been called:
  1. 'The No Equal Representation for Small States Pledge' signed by the Massachusetts, Virginia and Pennsylvania delegations
  2. 'The No End To Slavery Pledge' signed by members of the SC and Georgia delegations
  3. 'The No Taxing Authority for Congress Pledge' signed by almost everyone.
Can you imagine what would have happened had there been such a slavish dedication to any of these principles at the Philadelphia Convention? 

We can. The answer would have been 'nothing'. Or worse than nothing since the only government they would have defaulted to would have been the inept and inert Articles of Confederation that failed so miserably as our First Constitution and whose foibles and deficiencies led to the creation of the constitutional convention in the first place.

Is that what you would have wanted at the very beginning of our American Republic?

We bring this up because yet again we have seen the abject failure of 2/3rds of our federal government to work together, this time on the Iran Nuclear Deal which we think has the potential to be one of the worst deals America has ever entered into. (see 'Israel Will Not Exist in 25 Years'-Ayatollah Khamanei)

President Obama deliberately chose to by-pass the traditional constitutional process of passing the Iran Nuclear Deal as a treaty through the US Senate which required 67 votes to pass, mainly for fear of it not being able to attract enough Republicans to support it as written. Then the Democrats in the Senate mustered 42 votes to defeat a cloture motion which would have allowed full debate on the Senate floor had it gotten 60 votes in the Senate.

So, on perhaps the most momentous international agreement between the United States and anyone in the 21st century so far, the entire elected legislative body in the US Senate is basically denied a chance to fully debate the ups of this Iranian nuclear agreement, if there are any, and the downs, of which there seems plenty.

What sort of 'democratic republic' is that?

Here's a question to ask if you are a supporter of President Obama and this Iran Deal:

'Would you be as happy to see a President Donald Trump bypass a Democrat Senate and House and basically just emulate this process now plowed by President Obama?'

If you can answer an honest 'yes' to this, then you are constitutionally consistent at least. If no, then you really have to examine why and come up with a good answer as to why not.

It is very hard to have any sort of compromise when either side is unwilling to accept the fact that the other side basically fundamentally disagrees with you, no matter how smart you may think you are or how righteous you may think your cause is.

If you think that the Founders had it any easier when it came to commitment to issues and fundamental principles, think again. While no one was shot in a duel in Philadelphia, duels were common back in the day. Then-sitting Vice-President Aaron Burr shot Alexander Hamilton over a disagreement and a basic hatred of each other in the morning at Weehauken, New Jersey....and 10 days later, he was back in the Senate chamber presiding over the US Senate as if nothing had happened.

We can't have a functioning democratic republic without 'serial compromisers' as Professor Siegel pointed out last night. The Founders compromised on almost every single issue that came to the table at Philadelphia.

We can't even compromise on one single thing anymore. Not even allowing an important issue such as the Iran Deal to come to the floor of what used to be known as 'The World's Most Deliberative Body', the US Senate.

Today, the US Senate has officially become known as 'The Place Where Everything Goes To Die!' Or at least serious rational civil debate.

Daniel Webster and Henry Clay would be aghast. Maybe the Founders should have considered one more Amendment in their original bill of rights:

'Thou shalt compromise! Early, often and always!'

At least people would know that is how our government is supposed to work instead of not working as we have seen for decades now.

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Tuesday, September 8, 2015

Stark Raving Mad Facts About Social Security

While the world covers the rise of Donald Trump, Ben Carson and Bernie Sanders breathlessly while also trying to report 'what the meaning of the words 'classified State Department memos on a personal server' means to Hillary Clinton, some other very important issues are being left uncovered, unreported and not discussed.

In polite company at least.

One of the leading thinkers in Washington on Social Security matters for many years, Carolyn Weaver of the American Enterprise Institute, among other posts in DC, passed away yesterday.

While we did not know her personally, we were aware of her work as she was noted by others in her field for being clear-eyed and cold-blooded when it came to getting to the facts of the issue because it is so important to each and every one of us personally when we retire. Perhaps more so, it is 'collectively' more important to us as a nation because of the imbalances Social Security is placing on the nation's finances at this time and will continue to do so unless radically transformed and reformed.

We would much prefer to hear what candidates think about and are going to do about reforming Social Security, preferably to a defined-contribution based plan similar to what has happened in the private sector over the past 25 years, than what they think about less important matters which are usually the issues the press wants to cover ad infinitum.

How wonderful it would be to have a mature, reasoned debate about the future of Social Security, Medicare and Medicaid in the United States during this entire Presidential campaign since:1) they are VERY important issues and 2) if we correct them and solve them properly, most of our budget and debt problems will go away.

Seriously. Almost overnight. How great would that be? Something big actually getting done in American politics once again!

Just to bring some solid information for your gray matter after it has been pounded into gruel this past summer with a wide array of seemingly inane political matters, we thought we would reprint for you one of Carolyn Weaver's essays on Social Security from 1992 since it is so succinct and to the point that it might even start to heal your brain cells again.

The following article is from the Concise Encyclopedia on Economics. While some of the data in this version is a little out-dated, some of the points she makes about Social Security are so important we have highlighted them below in bold red just so you will know what is important in her writing.

The sad part is that this is the sort of thing we really need to be talking about in our national debate. As important as the issues of government clerks performing their civic duty when it comes to issuing marriage licenses or building the wall between the US and Mexico, these issues pale in comparison to the magnitude of the problems we face in funding the unfunded liabilities now evident in the Social Security, Medicare and Medicaid programs, just to name the most gargantuan Triple Towers of Fiscal Mismanagement of them all.

Think about that the next time you watch any of the debates or some of the truly insipid political reporting now going on the evening news or on the cable channels.

And remember the name 'Carolyn Weaver'. Cause she spent her lifetime sending out warning signals to us all.

Ignore her at your peril. Especially if you are age 20-30 right now.

[An updated version of this article can be found at Social Security in the 2nd edition.]

[Editor's note: although this article was written in 1992, the data anticipated by the author for the years up to 2000 have been fairly close to the actual data.]

'The Social Security system, including old-age and survivors insurance, disability insurance, and hospital insurance (Medicare), poses a staggering liability in the years ahead. Benefits in the year 2025, when the retirement of the baby-boom generation is in full swing, are projected to cost 23 percent of taxable payroll in the economy, up from 14 percent today. In today's dollars, that amounts to $1 trillion annually. Between now and 2065, the actuaries' official long-range measuring period, the nation's giant retirement program is slated to spend $19 trillion in present value terms. Counting Medicare, the liability is $30 trillion. How this liability is met—indeed whether it is met in full—will profoundly affect people's savings and retirement decisions, the nation's public finances, and ultimately, the amount and distribution of America's wealth.

For most of its history Social Security has been financed on a pay-as-you-go basis. With pay-as-you-go financing, benefits to retirees and other beneficiaries are met by current taxes on workers; income roughly equals outgo, and assets do not accumulate significantly. Pay-as-you-go Social Security systems have large unfunded liabilities.

Research by Harvard economist Martin Feldstein, published in 1974 (and in a follow-up article in 1982 correcting a programming error in the original study), suggested that the pay-as-you-go method of financing Social Security had depressed private saving in 1971 by a whopping one-third. His argument was simple but compelling: to the extent people view the government's promises to provide retirement benefits as a substitute for their own retirement savings, they will tend to save less. Less private saving, when not offset by increased government saving, means less new capital and ultimately lower real incomes.

Feldstein's findings touched off a major controversy in the economics profession over the determinants of private saving and the effects of government policy. Are people "life-cycle" savers, as Feldstein suggested, making choices to maximize their own financial well-being over their lifetimes, saving mainly to finance their own retirement? This is consistent with Milton Friedman's earlier discovery that an individual's spending is powerfully affected by how much he expects to earn over his entire lifetime, not simply by what he earns today. Or are people linked with their children, through financial gifts and bequests, in such as way as to neutralize the effects of Social Security? In the latter case, Social Security should increase private saving as the elderly attempt to offset, through increases in their planned gifts or bequests, the (implicit) future Social Security taxes that their children will have to pay. Harvard's Robert Barro, chief proponent of this view, argues that people adjust their private transfers to undo the compulsory transfers inherent in Social Security. If Barro is correct, the introduction or expansion of a pay-as-you-go system should reduce saving only by people who do not have surviving children or who want to transfer less than the compulsory transfers under Social Security.

While the debate is by no means resolved, most economists agree that both motives—life-cycle saving and bequests—matter. The empirical evidence, while mixed, continues to support the view that Social Security has had a significant depressing effect on private savings, although this effect does not appear to have been as large as originally believed. Economists B. Douglas Bernheim and Lawrence Levin, for example, found that Social Security depresses personal saving dollar for dollar for single individuals, but has no effect on saving by married couples.

Pay-as-you-go financing not only reduces real income through its effect on private saving, but also redistributes wealth and income over time. Those who retired in the early years of Social Security got huge wealth transfers because they paid taxes for only part of their work lives and because, as the system was being expanded and taxes were being raised, they paid these higher taxes for only a few years.

According to a study by the Congressional Research Service, a worker with average earnings who retired at age 65 in 1940 got back the retirement portion of his and his employer's taxes, plus interest, in a mere two or three months!!!! (our emphasis added). For workers who retired in 1960, the payback period was 1.1 years. For those retiring in 1980, the payback period had increased to 2.8 years.

The picture is much bleaker for future retirees. The expected payback period for today's older workers, those retiring in 2000, is 12.9 years, rising to 18.3 years for workers retiring in 2030!!!!!!(our exclamation points added for emphasis!)

This bleak long-term picture is inevitable. Average rates of return on Social Security taxes must fall as the system matures and, in the long term, cannot exceed the rate of growth of wages in the economy. Michael Boskin, chairman of President Bush's Council of Economic Advisers, and his colleagues estimated that workers with median earnings and with nonworking spouses will get a real return on taxes of only 2.1 percent if they retire in 2010, and only 1.5 percent if they retire in 2025 or later.

Returns are even lower for workers with working spouses. The expected net loss for the 2025 retiree is $48,000, in present value terms, as compared to a net gain to the 1980 retiree of $63,000.

Social Security also transfers income within the same generation. For example, the weighed-benefit formula subsidizes workers with low earnings at the expense of those with higher earnings. The payback period for someone retiring in the year 2000 varies from ten years for the minimum-wage worker to twenty years for the relatively highly paid professional (1992 earnings of $55,500).

Much of the wealth redistribution that Social Security causes has little rationale. For example, Social Security subsidizes people who work in covered employment for only brief periods, even if their earnings are quite high. Also, the 50 percent benefit increase for spouses subsidizes "traditional" families, those with one breadwinner and a nonworking spouse, at the expense of two-earner couples and single people. For people born in 1945, the expected rate of return for a two-earner couple with a combined salary of $50,000 is only 0.4 percent, or less than one-fourth of the 1.74 percent return for the single-earner couple with the same salary and same total taxes paid. Finally, the retirement earnings test and actuarial adjustments for early and delayed retirement subsidize people who retire at sixty-five (and possibly earlier) at the expense of those who retire later.

Each of these transfers alters the return to work and thus distorts people's decisions about when, where, and how much to work.

There is much evidence for the view that Social Security has contributed to the sharp decline in labor force participation rates and in the average age of retirement for older men. Michael Hurd and Michael Boskin, for example, concluded that the entire 8.2 percent decline in the participation rate of men age sixty to sixty-five that occurred between 1968 and 1973 was caused by the 20 percent increase in inflation-adjusted benefits enacted during that period.

As a result of legislation in 1983 and generally healthy economic growth during the rest of the decade, Social Security is running a surplus of about $50 billion annually and accumulating assets rapidly. (not true in the 21st century...our notes added) Trust fund assets have quadrupled in the past five years and now top $325 billion ($450 billion including Medicare). Social Security's total asset holdings are greater than those of the top fifteen private pension plans combined—including General Motors, AT&T, IBM, and Ford. According to the Social Security Board of Trustees, assets will peak in the 2020s at $5.5 trillion (roughly $2 trillion in today's dollars). Interest earned on trust fund assets is expected to defray a significant portion of the cost of future benefits.

Some economists applaud the shift from pay-as-you-go toward partial advance funding as a fiscally responsible measure that will increase national saving and lighten the tax burden when the baby boomers retire. Other economists criticize it as fiscal chicanery—a hidden redistribution of taxes over time. They argue that surplus payroll taxes are used to fund the general operations of the government today, in exchange for general fund financing of Social Security tomorrow, and that trust fund surpluses create no real saving and may result in substantial wealth losses for the economy as a whole.

Who is right depends on whether the excess payroll taxes are being (and will be) saved and productively invested, or whether they are being used to finance current consumption by the government. Presently, any surplus monies are invested in new, special-issue government bonds. The trust funds are credited with a bond—an IOU from one part of the government to another—and the Treasury gets the cash, which it can spend like any other federal receipts. Saving occurs only if the government uses the surpluses to retire outstanding government debt (or to issue less debt to the public), causing the public to buy new private securities, thus increasing the funds available for investment.

Advance funding, as currently conceived, is thus an indirect mechanism for adding to the nation's capital investment. But it can work only if Congress restrains itself from doing two things: (1) relaxing fiscal restraint in the rest of the budget—that is, increasing spending on other programs or reducing taxes—and (2) using the increase to increase Social Security benefits, bail out the financially ailing Medicare trust fund, or fund a new program like long-term health care. That's a big "if." The alternative, spending the surpluses as we go, would substantially increase the government's long-range indebtedness and undermine the economic well-being of future workers and retirees.

The budget reforms adopted in 1990 were touted for having dealt with these concerns head-on. Previously, the Social Security surpluses were counted in determining whether the government met its deficit-reduction targets. Increases in the surpluses thus reduced the savings that had to be achieved in other programs. Social Security has now been removed from the Gramm-Rudman budget targets—and from the mechanisms that enforce those targets. Also, new procedures make it more difficult to bring legislation to a vote that would undermine the financial condition of Social Security.

Economists grounded in public choice theory, and therefore skeptical of politicians, are not sanguine that these new rules can keep Congress from spending the Social Security reserves for the next forty years. The "enforcement mechanism" for Social Security is weak by design: expansions of Social Security will not trigger any automatic reductions in other spending. In addition, the procedural "fire wall" for Social Security applies only to some legislation. Moreover, enforcement mechanisms are subject to change, as evidenced by two major revisions of the Gramm-Rudman law since 1985.

Four central changes in our economic and social life since the thirties have altered the costs and benefits of Social Security, yet have had almost no effect on the design of the program. These are the great expansion in employer-provided pensions and other sources of retirement income; the steady increase in life expectancy (since 1930, life expectancy at birth has increased from 58 to 71.6 years among males, and from 61.3 to 78.6 years among females); the steady improvement in the financial well-being of the elderly relative to other age groups; and changes in federal policy itself, which have resulted in an array of programs providing assistance to the elderly poor and medical-care coverage for virtually all of the nation's elderly. U.S. retirement income policy can continue to ignore these developments only at great cost.

About the Author

Carolyn L. Weaver is resident scholar and director of the Social Security and Pension Project at the American Enterprise Institute in Washington, D.C. She is also a member of the Social Security Advisory Board.

Further Reading

Barro, Robert J. The Impact of Social Security on Private Saving: Evidence from the U.S. Time Series. 1978.

Board of Trustees of the Federal Old-Age and Survivors Insurance, Disability Insurance, and Hospital Insurance Trust Funds. 1992 Annual Report. 1992.

Boskin, Michael J. Too Many Promises: The Uncertain Future of Social Security. 1986.

Boskin, Michael J., Laurence J. Kotlikoff, Douglas J. Puffert, and John B. Shoven. "Social Security: A Financial Appraisal across and within Generations." National Tax Journal 40 (March 1987), no. 1: 19-34.

Feldstein, Martin. "Social Security, Induced Retirement, and Aggregate Capital Accumulation." Journal of Political Economy 82, no. 5 (1974): 905-27.

Feldstein, Martin. "Social Security and Private Saving: Reply." Journal of Political Economy 90, no. 3 (1982): 630-41.

Hurd, Michael D., and Michael J. Boskin. "The Effect of Social Security on Retirement in the Early 1970s." Quarterly Journal of Economics 99 (November 1984): 767-90.

Kollman, Geoffrey. "Social Security: The Relationship of Taxes and Benefits." Congressional Research Service Report no. 92-956 EPW. December 16, 1992.

Quinn, Joseph F., Richard V. Burkhauser, and Daniel A. Myers. Passing the Torch: The Influence of Economic Incentives on Work and Retirement. 1990.

Weaver, Carolyn L. The Crisis in Social Security: Economic and Political Origins. 1982.

Weaver, Carolyn L., ed. Social Security's Looming Surpluses: Prospects and Implications. 1991.

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