I’ve recently read a couple of stories on the web that had a common element to them. This one from John Feehery CNN is one I’d like to comment on. Not knowing just how long CNN will keep this link live, I’ll summarize his points here. The title of the piece is “Commentary: What’s driving the U.S. over a cliff?”. In it he addresses 4 questions which he claims are relevant. With one underlying theme being that most people want the government to spend less on everyone and everything other than the benefits they personally rely on. (well Duh! Welcome to America – home of Created Equal, as long as I’m first.)

First, why do we let people retire too early and then expect them to live so long without working? He points out that long ago, before real antibiotics, most people simply died before they retired. They died on average around the age of 52 and those that made it to 72 typically retired. Nowadays, people retire 10 years earlier and live significantly longer. So, how is it that people have come to expect that they should retire so early only to be carried by the government entitlement programs?

This is a very sensitive subject. Quite frankly I think 30 years of service is enough. I’m not talking about the 40 quarters spread over 30 years that qualifies folks for Social Security either – 30 years of work. If you put in 30 years I believe you are tired of working and entitled to retirement. The real rub comes in when you talk about inflation, especially in the cost of medicine, and the fact that folks will continue to live longer and longer. Right now we (the US) live 3 months longer for every year that goes by. Soon, we will be seeing life extension that exceeds 1 year per year. When that happens, a whole lot of people are not going to die except by accident. Tinkering with the Social Security taxes, ages, and benefits will not be able to handle that problem. There needs to be a different solution altogether.

Second, why do most Americans spend so much of their health care expenditures in the last three months of their life? His statistics show that 27% percent of medicare costs are incurred by people in the last 3 months of life. Rightly, he equates this to services that do not work. Medical treatment that does not change the outcome.

What he did not say is that in the old days people simply died rather than do everything within their (or the government’s program’s) means to get a little more time. At what level of quality? Is this linked to the decline in morals – which are certainly linked to the decreased importance of religion and the associated increase in the fear of death? We certainly need to have an open discussion/debate of how much effort/expense is appropriate, but once again it is not really the effort, just the expense.

Third, why do so many people pay nothing in federal income taxes? The numbers are pretty shocking. A third of the people in the US pay no federal taxes – at all. The new tax changes working their way through congress could potentially raise that to nearly 50%! This indicates one of two things: either we have a lot of very poor people or some folks aren’t pulling any weight (I won’t get into a discussion of what “their fair share” might mean – you’ll find some of that over at Hooda Thunkit although I’m not quite clear where he stands on the issue).

I think the income and inheritance taxes, both personal and corporate should be scrapped – completely. In its place I would propose a Value Added Tax (VAT). This VAT would also include the costs to government for things like infrastructure (roads & bridges) and other uncovered costs (tobacco and alcohol taxes as well as a carbon tax – not a cap and trade system) so, it would have different VAT levels depending upon the product. This assures that those who spend support the system and those that save/invest provide the growth. Things will and should cost more in many cases – we’ve been living a false sense of wealth or a false low rate of inflation for too long. If you think the projections are bad now, just consider the fact that these same non-tax-paying demographic groups are also those that rely heavily on entitlements and are proliferating more quickly than those that pay the taxes. They vote too so, any change had better come pretty quickly.

Fourth, why is it more profitable to work in the government than to work in the private sector? His fourth and last point is that the statistics show that the average wage/compensation of a public worker is much higher than that found in the private sector. He concludes that public servants are simply over paid.

Show me how many public servants work in fast food restaurants, wash cars, clean houses, or answer phones for a living. Otherwise, make your case for why police, fire, military workers are on the same level and should be paid the minimum wage. Let’s also take the salaries of the president and those in other leadership positions in government and compare them to the CEOs of major corporations. You guessed it. This is simply a case of comparing apples to oranges. No firm conclusion can be drawn from those averages he sites and draws his outrageous conclusion from.

Since I agree with the basic premise of the title of the article – that we are indeed driving off of a cliff – what is the real problem and is there a solution? In my biased view, the problem is that we have shipped a lot of the work out of the country. It has taken a good 20 years to do so, but we have stopped being a producer and become simply the market for the goods of others. The theory that supported this switch was that we needed to send our money overseas so that those folks could raise their standard of living and buy more of our stuff. The problem is that they don’t want our stuff. If you doubt that just look at the trade deficit for the past 20 years. A lot of that money just never makes it down to the average person, but they also do not have the same style of living that we do. They aren’t going to buy a CD or rent a movie or get on a plane built in the US and take a vacation in Las Vegas. It just ain’t gonna happen.

Instead of raising their standard of living we are and have been lowering ours. Some of that is in hidden inflation, but as we are now beginning to see a lot of that will simply be realized through decreased valuations of property (of all types) and a loss of jobs -  for good. The cliff we are driving off of is built out of high expectations. We are not entitled to very much let alone living so well at the expense of others. I had a discussion at lunch recently with a renowned economist, Jeffery Sachs. I had just asked him whether inflation was required to keep the economy functioning – basically whether it was just a giant ponzi scheme. He dodged the question I asked, but said that it was much easier for folks to accept inflation than it was for the system to absorb rapid decreases in prices. I read between the lines of his reply to my unanswerable question and saw that I may have hit the nail on the head. The cost of a lot of things is going to have to come down. Whether this is by inflation or deflation does not matter. The result is that the value in producing those things will require that wages in those related industries to come down or jobs be completely eliminated through automation.

It is a tangled web especially when you, for example, look at the intertwined industries of medicine, insurance, and lawyers. Who could possibly put a price on life? The balance of a market economy is not relevant in this instance. Looking at the long-term budget of the US, the cost of entitlements and their growth is dominated by the growth in medical costs. I seriously doubt whether congress can come up with and pass a plan that will solve this problem. It is our problem only, because we expect too much from the system. We need to change, personally, and not push the problem over to Washington for congress to solve. We must accept the fact that we are spoiled and expect too much.

Except for me that is. (and so it continues)