Wednesday, November 28, 2012

Fiscal Cliff 1


I’m trying to check out the following as I write.


So far, I have no confirming or denying information.  The report, as written, contains some errors or misconceptions.

“This scheme mirrors what I expect the President will try to do with Social Security.  He wants to turn that program into a welfare program, too.”  National Seniors Council National Director Robert Crone

Crone’s statement errs in that Social Security is already a welfare program.  As nearly everyone knows, that is its fundamental problem: S/S never was a savings program; it always depended on the donations of dependents to support the aging.  Payouts are only loosely tied to, and never funded by the deposits of the same generation.  However, at its inception S/S was 1% and relatively harmless.[1]  In 1990, that number grew to 6.2% plus an additional 1.45% for health insurance.

Matching numbers were paid by employers from the inception of the program.  However, this is patently deceptive.  OASDI and HI paid by employers are costs of doing business.  No businessperson in his right mind is going to pay these fees without recovering them.  The obvious methods of recovering them are to suppress salaries or to increase cost of sales.  Since increases in cost of sales are limited by the market, and are reflected immediately as cost of living, all of these costs are reflected to the wage earner.  The real cost to the wage earner ranged from 2% in 1937 (still harmless) to 15.3% in 1990.  This is now clearly a toxic load.[2]

According to SSA the rates for 2012 are:[3]

·       S/S 4.2% for employees

·       S/S 6.2% for employers

·       Medicare 1.45% for both employees and employers

This is a net drop of 2% to 13.3% overall which is still a toxic load.  Evidently, the 2% drop took place in 2011.[4]

Individuals making $24,000 a year or less (no wife, no children, no other dependents) cannot afford to forfeit 13.3% of budget, pay taxes, and survive.  Even after mortgage-free home ownership is achieved in retirement, a married couple cannot survive on less than $36,000 a year.[5]

To add insult to injury, Medicare victims are taxed an additional:[6]

·       $1,156 annual hospital deductable

·       $99.90 monthly Part B

·       $145 annual Part B deductable

·       20% Part B coinsurance

·       1990 Medicaid was introduced, which is a purely welfare program[7]

As the NNRS[8] overture is explained, it basically turns extant retirement programs into S/S programs.  That these can be juggled into increased-welfare emphasis is no mystery.  That this proposal is going in the wrong direction is also fairly obvious: it supposes that money grows on trees and that those who refuse to work have a right to eat.  The answer to both of these questions is obviously, NO!

The real question is, "Will it happen?"  Yes, of course it will happen, perhaps not in this form, but it will happen in some form.  It does not make any difference which party is in power, it will still happen.  Here’s the math.  The government, along with nearly everybody else, has overspent its income.  All levels of government, business, and private individuals are seriously in debt.  One way or another, the debt must be served.  The federal government will eventually come after any money or appearance of money that exists anywhere including your savings.  If and when these funds are exhausted, and taxes cannot be increased anymore, more money will be printed (inflation).  In any case it is fairly obvious that the citizenry will be bled to death and the system will collapse.  It’s inevitable.  No one will have a dime left, and we will be in Greece’s shoes, total default.  It’s inevitable.

The illusion is that there is a way out of this box.  People want to believe that some politician or other offers a way out.  There is no way out.  The damage was done years ago.  The only recovery plan that makes any sense is to wipe out the whole system today, start over from scratch, and do it right this time.  Instead, everybody is jockeying for power, and everybody will lose.

There are names for this sort of statistical game.  This is more complicated than 2 x 2 games, but the idea is the same.  In 2 x 2 games, these are called coordination, battle of sexes, chicken, and prisoner’s dilemma.[9]

We are now obviously playing the chicken game; you know how that’s played: the only way to win is to face a head on collision, but winning results in obvious death.  The only way to live is not to play, but that is not a Nash equilibrium,[10] so nobody is willing to do that.  Either side can find a better position by playing the game (more prestige, more power, more money).  As a result, given the present value system, both sides will play, and both sides will die: because, jumping in the ditch represents an enormous loss of prestige, power, money, and face.  Nobody will be willing to go in the ditch and yield victory to the other side.  A Schelling point[11] must be found and/or the game must be changed.

As the level of crime (federal theft) increases this could transition into the prisoner’s dilemma.  Each prisoner improves his position by ratting the other guy out.  Consequently, both prisoners turn rat, and both lose.

As far as I know, there is only one solution, which is Moses' solution.  Kill off all the debt and never let it happen again.  All loans are 0% interest loans and short-term payback (7 years).  A strict division is drawn between lending and business risk investing.  Business risk investing may share its predetermined proportion of profits of any magnitude for any time, but must also accept total loss as a risk (no bailouts under any circumstances).  Job loss is not a real consideration; it is a smokescreen that covers up the problem.  The reality is that all jobs are lost as soon as the business becomes unprofitable; we just want to live in denial of the facts.

The objection is frequently raised that this is nothing more than defaulting on loans, which is a vicious social evil.  I would agree except for the fact the the loans were established under fraudulent conditions to begin with.  This always was a Dutch book.[12]  We have always played with loaded dice.  High risks were always sheltered, but jobs were never ever really sheltered.[13]  The system was dishonest from square one.

To get out of the box we are going to have to obey Moses and Christ, and write off all the debts.  We need to do this in an orderly fashion if at all possible.  Otherwise it will be done to us, as it is being done to Greece right now.  Controlled or uncontrolled, orderly or disorderly, the game always ends the same way.

Is the federal government coming after your savings?  Yer darn tootin, they are.  It’s just a matter of when and how.


Yours in Christ,

Herb aka Augie



[5] my estimates of survival living
[6] http://en.wikipedia.org/wiki/Medicare_(United_States
[8] New National Retirement System
[9] Stevens, Scott P., Games People Play: Game Theory in Life, Business, and Beyond (The Teaching Company, Chantilly, Virginia, 2008) 219 pages, 2 CDs
[10] http://en.wikipedia.org/wiki/Nash_equilibrium  John Forbes Nash, Jr. (http://en.wikipedia.org/wiki/John_Forbes_Nash,_Jr.)
[11] http://en.wikipedia.org/wiki/Focal_point_(game_theory)  It would be folly to believe that anyone is communicating or is even able to communicate in the current game.  The current game tends to render communication impossible.
[12] http://en.wikipedia.org/wiki/Dutch_book
[13] When your boss goes broke, your job is gone, and a bailout doesn’t really solve the problem; it simply redefines who went broke.  In this case instead of mega-companies going broke the debt is transferred to the backs of the populace, and the populace goes broke.  Since the populace is also the workers, jobs no longer exist.

No comments:

Post a Comment