When someone gives you a check and the bank informs you that there are insufficient funds, who do you get mad at? In your own life, you get mad at the guy who gave you a check that bounced, not at the bank. But, in politics, you get mad at whoever tells you that there is no money.
One of the secrets of the growth of the welfare state is that politicians get a lot of mileage out of making promises, without setting aside enough money to fulfill those promises.
When Congress votes for all sorts of benefits, without voting for enough taxes to pay for them, they get the support of those who have been promised the benefits, without getting grief from the taxpayers. It's strictly win-win as far as the welfare-state politicians are concerned. But it is strictly lose-lose, big-time, for the country, as deficits skyrocket.
Anyone who says that we don't have the money to pay what was promised is accused of trying to destroy Social Security, Medicare or Obamacare— or whatever other unfunded promises have been made. It is like blaming the bank for saying that the check bounced.
It is the same story at the state level as in Washington. The lavish pensions promised to members of public sector unions cannot continue to be paid because the money is just not there. But who are the unions mad at? Those who say that the money is not there.
How far short are the states? It varies from one state to another. It also varies with how large a rate of return the state gets on its investments with the inadequate amount of money that has been set aside to cover its promised pensions.
A front page story on the March 28th issue of Investor's Business Daily showed plainly, with bar graphs, how big Florida's shortfall is under various rates of return on that state's investments. Florida's own estimate of its pension fund's shortfall is based on assuming that they will receive a rate of return of 7.75 percent. But what if it turns out that they don't get that high a return?
A 6 percent rate of return would more than triple the size of Florida's unfunded liability for its employees' pension. The actual rate of return that Florida has received over the past decade has been only 2.6 percent.
In other words, by simply assuming a far higher future rate of return on their investments than they have received in the past, Florida politicians can deceive the public as to how deep a hole the state's finances are in.
Political games like this are not confined to Florida. State budgets and federal budgets are not records of facts. They are projections based on assumptions. Just by manipulating a few assumptions, politicians can create a scenario that bears no resemblance to reality.
The "savings" to be made by instituting Obamacare is a product of this kind of manipulation of assumptions. Even when the people who turn out the budget projections do an honest job, they are working with the assumptions given to them by the politicians.
The fact that the end results carry the imprimatur of the Congressional Budget Office— or of some comparable state agency or reputable private accounting firm— means absolutely nothing.
When Florida arbitrarily assumes that it is going to get a future rate of return on its pension fund investment that is roughly three times what its past returns have been, that is the same nonsense as when the feds assume that Congress will cut half a billion dollars out of Medicare to finance ObamaCare.
We would probably be better off if there were no Congressional Budget Office to lend its credibility to data based on hopelessly unrealistic assumptions fed to them by politicians.
One of the reasons why a federal "balanced budget" amendment is unlikely to do what many of its advocates claim is that a budget is just a plan for the future. It does not have to bear any resemblance to the realities of either the past or the future.
We do not need reassurances that do not reassure, whether these reassurances are in numbers or in words. No small part of the reason for the economic collapse we have been through is that federally designated rating agencies reassured investors that many mortgage-backed securities were safe, when they were not.
Not only investors, but the whole economy, would have been better off without these reassurances. "Caveat emptor" would be better advice for both investors and voters.
To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate web page at www.creators.com. Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His Web site is www.tsowell.com.
COPYRIGHT 2011 CREATORS.COM
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7 Comments | Post Comment
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Mr. Sowell,
A few questions:
Where were you when the Bush administration was involving us in two wars and handing out tax cuts? Where were you when Cheney was claiming that "deficits don't matter"? Why are these discussions always about what domestic spending we can't afford without raising taxes to pay for it and never about what military adventure or new weapon we can't afford without raising taxes to pay for it? We went for years calling DOD expenditures on wars "off-budget" emergency items. Calling it an unexpected "emergency" for the first few months might be understandable. After several years of that the phrase comes to mind "They are lying cowards".
Why do you fail to mention the tax cuts these governors are handing out to the wealthy and business while the state coffers are dry? Could it be the fashioned GOP ideal of giving money to the wealthy hoping they will be nice to the working class? Isn't this handing out other peoples money in that the rest of the taxpayers are going to have to fill in that hole?
Do you give any thought to the damage to the economy of laying off tens of thousands of public sector workers in the midst of a recession? Teachers, social workers, police, etc who are laid off are not spending money in American businesses.
Comment: #1
Posted by: Mark
Tue Apr 5, 2011 2:01 PM
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@ Mark
Sowell's beliefs about the current war actions are no secret, so whether you or I agree with them or not, he will stand pat on them. But this:
"Where were you when the Bush administration was involving us in two wars and handing out tax cuts?"
Is patently false. You cannot cut taxes *and* start wars. Some people were getting some tax cuts is the best that can be said.
"Why do you fail to mention the tax cuts these governors are handing out to the wealthy and business while the state coffers are dry? Could it be the fashioned GOP ideal of giving money to the wealthy hoping they will be nice to the working class?"
Actually it's more like the economic reality that the less taxes assessed on the wealthy, the more likely they are to invest, produce work and create jobs. If you still feel that's not fair, realize that the unfairness is not who is taxed, but that people are taxed at all.
"Do you give any thought to the damage to the economy of laying off tens of thousands of public sector workers in the midst of a recession? Teachers, social workers, police, etc who are laid off are not spending money in American businesses."
Have you given any thought to the hundreds or thousands (possibly millions) of private sector workers who have already been laid off and continue to be laid off? What makes public sector workers so special?
Financial systems across the globe (not to mention legal systems) are still due for massive corrections, and the short-term damage borne of those corrections (and by short-term I mean anywhere up to 20 years) will be horrible for nearly everybody. But the long-term health of these global economic systems will be much better.
Comment: #2
Posted by: Eric Evans
Tue Apr 5, 2011 10:15 PM
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It must be election time for I am noticing a multitude of government prohgrams soliciting free programs for those who no longer want to be independent. Signing these people up must mean they have to vote for the liberals (socialists) so they don't die.
Comment: #3
Posted by: John C. Davidson
Wed Apr 6, 2011 7:17 AM
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@Mark -
Also, those public sector workers are paid through taxes. It is sad for anyone to lose their job, it really is. But I am a taxpayer which means I am the emplyer of the public sector workers. I cannot afford them or all these unfunded programs any longer. I will look them in the eye myself should I meet them in the street and say "sorry I couldn't afford to pay your salary anymore". You'll hate to hear this:
If you take the total price of public schools here in Utah, divide it by the number of students, and divide that by the 9-months our kids are in school you get a cost of $928.46/month for public education. That's pretty good compared to most states. But it sucks compared to the private schools in Utah. I want to send my kids the the private school near our home. It costs $797/month. That's right, $131 LESS than we are forced to pay for public school.
I am tired of overpaying for underperformance.
Comment: #4
Posted by: Danimal98367
Thu Apr 7, 2011 9:13 AM
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Eric,
It is not difficult to have wars and cut taxes. All you have to do is borrow the money, as the borrow and spend Bush administration did. Remember how the war appropriations were not counted against the deficit, as if this was money that would eventually be delivered by the freedom fairies, or some other "special" source?
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I think that the concept of giving money to corporations through tax cuts is a fine theory, only it doesn't seem to work that way in practice. GE paid no corporate taxes in the US last year. Did you read all about how a grateful GE was using this windfall by investing in expanding their US workforce? No? I seemed to have missed that one too. The reality is that the corporations take the money and spend it, or not, in the best interests of the shareholders. That is what corporations are supposed to do. The fallacy is assuming that that will be to the benefit of the nation's workers and taxpayers. Right now, corporations are sitting on vast amounts of cash. Are they using it to expand? No. They are waiting for the economy to be better so they can be sure that there will be buyers for the expanded production. If the middle class is getting laid off and not re-hired, the expansion is never going to come. Government is not acting in the best interests of the taxpayers. It is acting in the best interests of the corporations. The recent state GOP moves clearly are more about union busting to remove a voice that tends to support democratic candidates than balancing budgets. The unions were willing to give back, and there is no doubt that some significant cuts are going to be required, but the GOP had a much more radical agenda.
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The question is whether it is better to fully crash the economy and re-build it stronger from the ashes or if we should borrow to avoid the crash. If the former is correct, the GOP is doing all the right things to bring about the crash. God help us if they are wrong.
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Danimal,
Private schools have certain advantages not available to government schools. 1. They do not have to take all who apply. Educating severely disabled, emotionally disturbed, poorly prepared, disruptive, etc. students is not easy and it is not cheap. The private schools can just say "no thanks" to those applicants. 2. Parents of private school students are very motivated to support their charges in obtaining academic excellence. Parents of kids going to most government schools did not have to go to any extra effort to get them there and so have less personally invested. The parental involvement filter is quite real. It also eliminates all but the most motivated of poor parents from private schools. 3. Private schools do not waste time teaching to the standardized tests or following all of the silly central state government teaching fashion / requirements.
I am surprised that the difference in price is so small, given the cost advantages of private schools. It sounds like you may be getting real value for your tax dollars. But before you start thinking vouchers, just remember that government money comes with government rules. You do not want the states to do to private schools what they have done to government schools.
Comment: #5
Posted by: Mark
Fri Apr 8, 2011 6:23 PM
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Thanks, Thomas Sowell, for your articles.
Taxpayers say to politicians/government workers ‘budget deals', a ‘slice of the pie is better than no
pie when you're hungry!' In case you don't know what this phrase means ‘you're going to have to
cut taxes, including salaries, benefits, and retirements!' Taxpayers have no more money for another
tax increase! Raising taxes is your answer for everything. Is this all you know! This
politicial/government joke has caught up with you, hasn't it? Instead of doing your job by watching
spending and hiring, for years, your ‘we'll stimulate the economy with more bailouts and handouts'
and once this depression ends, we'll reduce the deficit!' A little late, wouldn't you say? Economists
and Taxpayers, know the politicians/government workers will never get control of anything, never
have, never will; therefore, it's time to hand out pink slips.
Democrats and Republicans are responsible for high salaries, retirements, social, welfare programs.
Harry Reid's comments about cutting the 14 trillion dollar debt with a mere couple billion is one
more of their jokes along with ‘this budget is the hardest job I've ever done!' Guess what, folks,
these people don't know what a hard job is!
Bigger government isn't creating jobs - it's adding to the 14 trillion dollar deficit! Politicians sold
Americans manufacturing jobs out to the highest bidders. If you'd learn to listen “we have no
jobs!” This ‘service country you created' for your very deep pockets is only servicing you, social,
welfare and unemployment!
Social Security belongs only to Taxpayers that's worked! Corrupt and greedy politicians, in order
to get elected, borrowed against social security for illegitimates and people not wanting to work,
thus leaving nothing for the elderly that paid money in.
Politicians say ‘you must volunteer and give back to your community!' By the way, why don't the
politicians/government workers get off their duffs and volunteer at homeless shelters and without
the secret service, since this costs Taxpayers.
While I'm on a roll, it's time to eliminate elections and the two (2) party system as ‘these
incompetent, corrupt jokers' have bankrupted this country!' America needs to run like a business!
Taxpayers need to ‘hire' a real president! No fringe benefits and if he/she doesn't do the job, fire
them and hire someone else.
It's really quite simple, folks!
Comment: #6
Posted by: Shirley deLong
Sun Apr 10, 2011 10:46 AM
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Shirley,
Who would you put on the hiring committee? Currently, the voters, with a lot of paid input from the corporations, are the hiring committee. Remember that the CEOs of Lehman Brothers, Enron, and AIG were not exactly the model of brilliant leadership.
Comment: #7
Posted by: Mark
Sun Apr 10, 2011 11:19 AM
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