The Quickly Approaching Collapse Of Social Security

Having turned 62 last year and now a monthly Social Security check recipient, I am especially interested in protecting that revenue stream that flows into my bank account. Since I paid into the Social Security fund for almost 50 years, I would like to get a lot of that forced payment back as soon as possible. But I have had concerns about the fiscal health of the Social Security process for a number of years, actually proposing three fixes to the whole Social Security Ponzi scheme in my book, “Love My Country, Loathe My Government.”

Why my concern? Two reasons: first, it is no surprise that tens of millions of Americans will soon be entering their golden retirement years and will be pulling down monthly Social Security payments which will put unprecedented financial pressure on the Social Security revenue stream and solvency. 

Second, politicians keep assuring us that the fictional Social Security Trust Fund will not run out of money until the 2030s. Not only do I not trust American politicians when they tell me anything but it is obvious to anyone who knows what the Trust Fund actually is knows that it is already bankrupt and empty, the 2030s claim notwithstanding. 

The Social Security process has been in a negative cash flow a situation for a number of years now, i.e. it has been paying out more than what it is taking in via Social Security taxes. And as the number of Social Security recipients increases over the next few years and the number of people paying Social Security taxes decreases, that cash flow deficit will only grow going forward.

This would be the time when the Trust Fund should kick in. But it has not kicked in since it has nothing in it and the cash flow deficit is being funded with general Federal government tax funds. Back in the 1960s, President Lyndon Johnson and the rest of the political class decided that it would raid the Social Security funds being set aside for future Social Security recipients to use for Johnson’s “Great Society” and the Vietnam War. Thus, they took the wealth and left future Social Security recipients with worthless IOUs from the Treasury Department.

How bad is the financial status of the Social Security process and the lies that the political class and government bureaucrats are telling us? David Stockman, who was the top economic advisor to the Reagan Presidency, recently analyzed the current fiscal situation of Social Security and his findings were not good, as he pointed out that reality in his article: “Funny Money Accounting—-Why Social Security Will Be Bankrupt In 10 Years.” The entire article from Stockman can be accessed at:

http://davidstockmanscontracorner.com/funny-money-accounting-why-social-security-will-be-bankrupt-in-10-years/

But can Stockman be correct? Wouldn’t the Washington politicians tell us what was going on and working on solutions? Ten years is not a long time as millions and millions of Americans enter their retirement years over those ten years. There can only be three reasons for their inactions:

1. Stockman is wrong and there is no need to get upset and issue a call to action to save Social Security.
2. The politicians do not understand the dire straits of the situation and/or are too inept to put together a solution.
3. The politicians are too busy worrying about their careers, self enrichment, and greed and could care less of fixing what is an economic lifeline for millions of Americans.

Let’s review Stockman’s analysis and research to see if we see which of these three options are most likely:

• The Social Security Trustees recently published their latest view of the whole system and said the trust fund now had life until 2034, a year later than they predicted last time around.
• Which is really nothing more than fancy accounting since the Social Security OASDI funds (retirement and disability) spent $859 billion in 2014 but only took in via Social Security taxes $786 billion, a negative cash flow of $73 billion.
• This was almost 10% of the revenue stream.
• From 2015 through 2026 even the Trustees predict that the OASDI funding mechanisms will run a total $1.6 trillion deficit.
• Since the Trust fund does not exist, this $1.6 trillion shortfall will have to be paid off by today’s kids and grandkids out of their future job wages and income.
• These same kids and grandkids will also be paying off the current $20 trillion in Federal government debt that the political class has accumulated for them, doubling that debt load in just the past eight years of the Obama administration.
• Stockman does a best case scenario where he deliberately and falsely assumes that the Trust fund does have real wealth in it but even with that assumption he forecasts that the trust fund goes dry in 2026, not 2034, an event that would theoretically require an immediate 33% cut in all Social Security payments to align revenues coming in with checks going out.
• According to Stockman: “In short, the latest untrustworthies report amounts to an accounting and forecasting house of cards that is camouflaging an impending social, political and economic crisis of a magnitude not seen since the Great Depression or even the Civil War.”

Nasty business here, financial hardship for those depending on Social Security in retirement and financial hardship for those still in the workforce who have to pay more and more of their hard earned dollars to support the negative cash flow of the system. This is money that will not be spent on vacations, retail purchases, movies, business start ups, etc., money that is not available to grow a robust economy. Just a massive redistribution of wealth from the young to the old.

But is Stockman right, are things really this bad? He proves his point by looking at the numbers and showing that the Washington bureaucracy is making such outlandish assumptions in their cover up of Social Security’s ailing ways as to be almost criminal:

• Stockman does agree with the Trustees’ estimate on how much the Federal government will have to pay out for the Social Security system in the next 12 years to cover payments and administrative costs.
• This outgo is expected to be $15.5 trillion and is needed to cover the number of Social Security beneficiaries that will grow from 59 million to 79 million over the next 12 years.
• He even agrees with the Trustees inflation assumption of between 2-3% a year which has been the historical run rate since the year 2000.
• However, his first major disconnect is with the Trustees’ assumption that there is currently $2.790 trillion sitting in this hypothetical trust fund, money that he calls pure “confetti:” "In truth, there is nothing there except government accounting confetti. This figure allegedly represents the accumulated excess of trust fund income over outgo historically, but every dime of that was spent long ago on aircraft carriers, cotton subsidies, green energy boondoggles, prison facilities for pot smokers, education grants, NSA’s cellphone snoops, space launches and the rest of Washington’s general government spending machine.”
• But now the math gets really crazy. Given there is nothing in the trust fund of value, the Trustees assumed that this nothing will earn $1.2 trillion in interest income over the next 12 years.
• Let’s get crazier. This $1.2 trillion in interest computes out to an interest rate of 3.5% a year, a number that no one in the world is earning on interest income. For example, even a 10 year Treasury bond is paying out at a rate of only 1.4% today, far less than half of the interest rate that the Trustees assumed they would get and they do not even have a an asset to gain interest on.
• But the most crazy assumption relative to all of the Trustees’ assumptions is yet to come. They assume that the national economy, the GDP, will grow at an annual rate of 5.1% every year for the next 12 years.
• Given that the long term annual national growth rate is just over 3%, and only 2.8% since 2008, there is likely to be at least one recession in the next 12 years, and the attainment of 5% annual growth in a single year rarely happens, this assumption is laughable, it is what Stockman calls the “skunk in the woodpile.”
• But they have to make this wild assumption in order to grow the economy and thus the Social Security revenue stream to meet their phantom 2034 goal for the non-existent trust fund.
• Stockman’s following chart shows that the Trustees are assuming that for the next twelve years we will have the longest non-recessionary period in the history of the country, 207 months, i.e. not going to happen:

• Stockman goes on to point out that there is likely severe deflationary pressure building through the world’s economy that will reduce, not grow nations’ GDPs in the future, putting more pressure on the Social Security revenue stream.
• By using the 5.1% vs. the more realistic but probably too high 2.8%, the Trustees end up adding an incremental $7 trillion to the U.S. annual economy which mathematically solves a lot of shortfall problems but is totally unrealistic.
• This is what Stockman calls "goal forecasting" where you start with an answer you need and work backwards to adjust the math assumptions to get you to that desired end answer, even if the resulting assumptions are ridiculous.

You get the idea, please go to the link above for a more in depth look at Stockman’s logical and sane analysis. But his analysis, simply using the Trustees numbers proves that no matter how you cut the data, no matter how you squeeze the assumptions, the government lied when it claimed to keep calm, everything is cool until at least 2034. 

The system is hurtling towards insolvency, it is now and will be forever more in a negative cash flow situation, the Trust Fund does not exist but is earning non-existent revenue on a non-asset, and the economic growth rates needed to keep thing in somewhat of a balance are ludicrous. 

As a result of this gross fiscal mismanagement going back to the 1960s and the Johnson administration, retirees are likely to get shorted what they were promised from the Social Security retirement fund that they diligently and legally paid into for decades. And that shortfall will either have to be made up by new, onerous taxes on our kids and grandkids or those in retirement are looking at a hefty monthly payment reduction.

And nobody, absolutely no one in Washington today or on the campaign trail has a plan. Or the attention span, to start addressing this dire problem. Which leads us to conclude that our third assumption above, “The politicians are too busy worrying about their careers, self enrichment, and greed and could care less of fixing what is an economic lifeline for millions of Americans,” is the reality of today.

To see our proposed changes to save Social Security, please go to www.loathemygovernment.com where you can pruchase our book, “Love My Country, Loathe My Government: Fifty First Steps To Restoring Our Freedom and Destroying The American Political Class.”

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:


http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w

The American Political Class - "The Good, The Bad, and The Ugly:" The Bad, Part 2

This week we are going through a number of posts under the theme of “The Good, The Bad, and The ugly,” stealing a title from an old Clint Eastwood movie. Yesterday, we looked at some of the good things going on in the country. When you write a blog like this, it can get kind of depressing as we watch our political class operate government in such a way that incompetence is rampant and rewarded, taxpayer wealth is abused and wasted, and the politicians in office have neither the will or the ability to truly resolve the major issues facing Americans. They are more intent on personal self-enrichment and staying in office.

Thus, it was good two days ago to get away from the disaster that is the American political class and talk about some good things going on in the country (“The Good“), all being executed and put forth for the betterment of Americans by private citizens doing the right thing. This is opposed to waiting for the politicians to do the wrong thing or do nothing but costing us a lot for their non-productive efforts.

However, today and yesterday we have to dive into the “The Bad” part of our theme. “The Bad” items discussed below are mostly concerned on how Americans feel about the state of the country, the state of their lives, and their attitudes towards the people causing most of the problems in this country, namely the current set of politicians. Never has a set of politicians been so ineffective or so demoralizing to the citizens of Americas, as we review “The Bad” conditions and feelings prevalent in America today, Part 2 ("The Bad," Part 1 can be accessed at; http://loathemygovernment.blogspot.com/2014/07/the-american-political-class-good-bad.html)

5) Despite Washington being dominated by Democrats in charge of the Senate and in control of the White House for the past six years or more, and the constant Democratic rant that non-Democrats are “waging a war on women,” how does a Democrat explain the fact that according to recent analyses by the Bureau of Labor Statistics (BLS), the number of women 16 and older not in the labor force climbed to a record high of 55,299,000 in June? 

• This translates into a whopping 55,299,000 women aged 16 and older who not only did not have a job, they did not actively seek one in the last four weeks. That is up 282,000 from the 55,017,000 women who were not in the labor force in May.
• According to BLS, the labor force participation rate for women was 56.8 percent, the lowest it has been this year.
• It has not been this bad for women in about 26 years, not since October, 1988.

Thus, given how much political control the Democrats have had since Obama took office, it appears that they are the ones waging war on women, at least from providing an economic environment that helps American women……and American men, and American minorities, and American kids to have a chance at a decent economic opportunity and a decent economic life.

6) Speaking of young Americans, consider some more bad research results from Pew:

• 51% of the millennial generation believe they will not receive any Social Security benefits at all when they reach retirement. 
• Just 6% of millennials think they will get benefits at the level enjoyed by current retirees.
• 39% believe they will receive benefits but at reduced levels. 
• They are even more pessimistic today than they were when Pew conducted a similar poll in 2011 when Pew found that 42% of millennials said they expected to receive no Social Security payments and 72% said benefits would not be the primary source of their own retirement income. 

These bad and depressingly low numbers and attitudes are not surprising, given how badly the Washington political class has managed the Social Security program in the face of the following realities:

• Within 15 years, the number of Americans reaching retirement age will increase 70% while the number of working Americans will rise by just 6%. 
• When Social Security started in 1935, there were 17 workers for each retiree but by 2035, there will likely be only two workers per retiree. 
• Social Security already accounts for 23% of the Federal budget and the overall program is currently cash flow negative despite the accounting trick that shows the Social Security Trust Fund will not run out until 2042. 
• In 1940, life expectancy after age 65 was about 12 years but today it is 19 years, a driving force behind the coming bankruptcy of the program.

Thus, how depressing do you think it will be for our kids and grandkids, given they have already realized that they are paying their hard earned wealth into a decaying government system, for the benefits of others, that they will receive little, reduced, or absolutely no benefit from? This is another example where taxation has morphed into repression in this country, courtesy of the American political class.

7) One last set of "Bad" data for today, getting too depressing to dive into more than that. The following chart comes from the Against Crony Capitalism website and it puts into a table the increase in the price of products we use everyday, courtesy of David Stockman, a gentleman who used to be Reagan's main budget resource. Of course, an increase in prices means a decrease in buying power for all of us and a hit to our economic freedom:

A very depressing chart, as we see that we have lost substantial buying power across a whole range of things we need for life, from food to transportation to health care to postage stamps. Although not included in the chart, I am positive that if the chart had a line labeled "Wages" that the growth in wages would be far less than most, if not all, of these household items.

And consider something even more depressing, courtesy of the potlicial class. The government and the politicians that operate it want us to think that the cost of living since 2014 has only gone up either 39.09% or 31.65% depending on what measure of CPI or inflation is bieng used. 

Given that food, health care, and transportation costs have gone up far greater than these two "official" inflation numbers, do the politicians really think we are that stupid not to realize they are "cooking the books" when it comes to calculating inflation? Try to name a major household expense that rose less than 30% in the past 14 years and try to see if that expense could overcome a 176% increase in gas, a 106% increase in eggs, a 59% increase in electricity, etc. 

There are not any major categoies of household purchases that could pull down the overall inflation number to what the politicians say it is. Thus, not only does the American political class not know how to facilitate a growing, low inflation  economy, they then cover up the truth with inflation numbers that do not reflect reality and expect us to believe them.

That will do it for "The Bad" part of this week's blog theme. Nasty, depressing stuff we have discussed over the past two days:

• The number of women not in the American work force is at an all time high and trending upwards.
• Younger Americans are beginning to realize that the personal wealth they are paying into the Social Security System for the benefit of others are benefits and wealth they are increasingly not likely to see returned back to them when they retire.
• The cost of products has grown considerabley over the past 14 years, reducing the buying power and economic freedom of most Americans, courtesy of a political class that is as economic ignorant as they come.
• Americans are suffering through a deteriorating crisis in confidence regarding America's greatness and our levels of freedom and liberty.
• The tepid economic recovery from the Greaty Recession has left millions and millions of Americans cash strapped or unemployed or under employed, further contributing to the state of depression hovering over the country.

Things are bad and getting worse so ask yourself: do you really think that the fools in Washington, the very same people that got us into this fix with faulty economic policies and economic ignorance, have any chance of somehow miraculously getting smart and wise in our lifetimes?

Nick Sorrentino, writing for the Against Crony Capitalism website, sums up our situation and depression quite succintly with the following quote: 

This is a trend which began in earnest under Mr. Bush and which then began to snowball under Mr. Obama. And most people don’t even know anything about the NDAA (which Obama signed which allows him to jail US citizens without trial, attorney, or even notification of abduction). They just feel it. They know that the NSA lurks online, somewhere and everywhere. They stand with hands up in the radiation machines at the airport. They witness the increased police checkpoints. They see the president disregard the rule of law to pursue naked political ends. They feel the loss of dignity. People feel the loss of freedom and of their liberty.

This is just the beginning I am afraid. I don’t see Americans feeling more free or that their government is any less corrupt anytime soon.

Still, each and every one one of us has an obligation to reverse this trend. 

Sad but true. And tomorrow it gets worse before it gets better. Tomorrow we go after the "The Ugly" part of the American political class, which is probably even worst than "The Bad" part we have disucssed over the past two days. 

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com
http://www.reason.com
http://www.cato.org
http://www.robertringer.com/
http://www.youtube.com/watch?v=08j0sYUOb5w

June, 2014 Poltiical Class Insanity, Part 6: Bonus Post On Political Class Incompetence in DC and in....Swaziland

I know I promised that yesterday would be the last political class insanity post for this month but I have to break that promise. As quickly as I write up the latest lunacy, more crops up from what is turning out to be the worst set of Washington politicians this country has ever had to endure. However, I guarantee that this will absolutely be the last insanity post for this month no matter how much ineptness I come across in the coming days and weeks.

1) David Stockman is a well noted economist who served as Reagan’s main budget person during the Reagan administration. Recall that once Reagan, and to a great deal Stockman, worked through the economic and financial mess that Jimmy Cartyer left the country with, the U.S. economy took off on one of the greatest economic boom periods ever. Thus, Stockman has a proven track record and experience in the real world.

Which makes his latest analysis that much more depressing, given how accurate he has been in the past. This analysis reveals that

median household income in the United States peaked back in 1999 and has been decreasing at a steady clip over the past 15 years. 

Since 1999, when adjusted for price inflation, Stockman estimates that median household income is down by 9%. Thus, most Americans are worse off financially through both the Bush and Obama administrations, with the majority of the decline happening since the end of the Great Recession.

Over that time period, the Federal Reserve pumped in trillions of dollars into money with no sound basis in wealth or economics, the Obama administration spent well over $800 hundred billion dollars in a stimulus plan that was a financial disaster, and the U.S. government has run trillions of dollars in deficits. Stockman’s conclusion is simple: the political class has no clue what it is doing when it comes to economic analysis and policies, not if they have destroyed nine percent of Americans' wealth in just fifteen short years.

2) Stockman’s analysis was not just on a national level, it was on a state by state level so that we can see what states are losing the median household income game slower and faster. But you can probably already guess the answer to what part of the country saw the slowest deterioration in household income. 

Yes, the top “state” was Washington D.C. While the average U.S. household saw its median income slip 9% over the past fifteen years, the median household income in Washington did nine points better, i.e. it has not lost anything off of its median household income since 1999, better than every other state except for Wyoming, which also has not lost anything relative to income.

Again, as we have seen time and time again, those in the seat of power in Washington certainly take care of themselves before they take care of the rest of the country, if ever. The least impacted states from a loss of income perspective since 1999 were either in the D.C. metro area influence, (e.g. Virginia, Maryland, and D.C.) or were heavy into the energy industries (e.g. Wyoming, Texas, Oklahoma and North Dakota.) 

The rest of the country saw substantial loss of median income levels with some states such as Delaware, Ohio, Nevada, and Michigan seeing their household incomes drop over 21% at the same time that there was no drop in Washington. Thus, is you stayed in these states over the past decade and a half, you lost more than 20% of your buying power through no fault of your own while those in D.C. made sure they lost nothing in their buying power.

3) Two weeks ago, May 22, 2014, was the 50th anniversary of President Lyndon Baines Johnson's much ballyhooed “War On Poverty,” according to a recent article put together by Rachel Sheffield. It was with that launch that the scope and expense of the Federal government expanded almost exponentially with the implementation of Head Start, Medicaid, public housing programs, and more.

What has happened in this “war” over the past fifty years is not pretty:

• $22 TRILLION has been spent over that timeframe according to the article but nary a dent has been made in poverty in this country.
• The percentage of Americans dependent on government has remained virtually unchanged since the 1960s.
• This $22 TRILLION has spawned about 80 Federal government welfare programs but has done little to eradicate poverty, as witnessed by the fact that almost 50 million Americans receive food assistance from the Federal government every month, an all time high no matter how you measure it.
• Head Start, according to Obama administration studies, has been turned into nothing more than a glorified Federal babysitting program with no educational or societal benefits beyond babysitting.
• Medicaid, along with its sister program Medicare, is likely to financially bankrupt the country unless something is done to fix the problems they face.

It continues to amaze me that the Washington political class can spend a mind boggling $22 TRILLION and get absolutely nothing in return. Trained seals working on a keyboard could probably do better since trained politicians in Washington got us nothing.

4) If you have been following the news, you know that a lot of our veterans have been suffering, and dying, as a result of incompetence and greed by those in Washington and this administration that operate the Veterans Administration. Although the budget to take care of our veterans has increase substantially over the past few years, that increased funding apparently has been wasted away and we are left with the latest Obama scandal of incompetence.

But although our veterans are dying, citizens in Swaziland are feeling healthier since the United States government is planning to spend $24.5 million to circumcise an estimated 150,000 to 250,000 male infants and males in Swaziland by 2018 to combat HIV. Let that bad priority sink in for a while. Rather than get our veterans the cancer treatments, the checkups, the medicines they need, we are worried about circumcision somewhere around the world in a country that I bet 99.9% of Americans could not find on a map.

Look, I do not consider myself a bad, heartless human being. It is my understanding that HIV is a major problem in countries like Swaziland, whereever in God’s creation it is located. But we have so much suffering and medical shortages right here in our own country in our own VA hospitals, we simply cannot afford to spend over $20 million outside the country in our own times of need.

Besides according to the grant, only “an estimated 150,000 to 200,000 males will be circumcised through this project contributing to a 65 percent coverage by 2018.” Thus, we are talking about a relatively small number of people that will get circumcised which means an even smaller number of people will get HIV in ….Swaziland, sometime in the distant future. In the meantime, many of our veterans are dying today in this country, a situation that might be made better with say the $20 million or so we are sending to…Swaziland.

5) The IRS has been around a long time. You would think and hope that they would have some semblance of competence by now. The Earned Income Tax Credit (EITC) has been around a long time. You would think and hope that the long time IRS would have a great handle on administrating the long time EITC.

Unfortunately, you would be wrong on both counts. According to a recent IRS Inspector General report, the IRS EITC program hands out billions in bad payments for earned income tax credit every year. Accordind to a recent Washington Examiner article by Kelly Cohen, the IRS gave out between $13.3 billion and $15.6 billion in improper payments last year. This fraud and inefficiency was accomplished despite the fact that there is a law that requires Federal agencies to crack down on fraudulent payments

Some of the $13.3 to $15.6 billion went to people who did not qualify for the credit. In other cases, an eligible person was paid the wrong amount. According to the Inspector General’s report, for the third year in a row, the IRS has failed to put together a corrective plan to reduce this improper payment rate and fraud nor has it provided all required information for the Improper Payments Elimination and Recovery Act of 2010. 

The IRS acknowledged there is a problem with EITC payments and said it was working to resolve the issue. However, given that they have known of the problem and leakage of billions of dollars for three years, I bet we are not looking at a quick resolution of this embarrassment and disgrace.

Just as an aside: how many veterans could have received proper and deserved medical treatment if that $13.3 billion had not been lost to IRS incompetence and had instead been diverted to the Veterans Adminsitration? Just a thought.

So kids, what did we learn from the numbers today: potential and future problems in Swaziland are more important to our politicians than real problems our veterans face today, as always, DC politicians take care of their own financial needs before ours, the IRS still cannot do anything right, and much like the war on drugs, we have also lost LBJ’s Great Society’s “war on poverty,” spending and wasting $22 TRILLION in the process.

Given all of this insanity of these numbers, please consider joining our drive for term limits at the following website:

www.howmuchworsecoulditget.com

Because really, how much worse could it get if we changed out every incumbent politician who cared more about our citizens than themselves or those in ….Swaziland.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com
http://www.reason.com
http://www.cato.org
http://www.robertringer.com/
http://www.youtube.com/watch?v=08j0sYUOb5w

Another View On How To Reduce Spending By Trillions Of Dollars

Earlier this month we did a detailed post that showed how easy it is to reduce Federal government spending by over $6 TRILLION in the next ten years. We did it in such a way that poor children do not go hungry, needy Social Security recipients do not suffer, and the nation's defense is not denigrated. We used the output from several nonpartisan sources who had already done a lot of the detailed research and analyses and estimated other expense savings using some relatively simple math assumptions and calculations.

Today, we will take a different approach but basically come to the same conclusions: there are so many ways to cut wasteful spending without undue hardship that it will be remarkable if the political class in the United States cannot come up with a plan to do likewise. Let's start with two large expense components, national defense and Social Security. In our earlier analysis, we identified ten years of Defense Department savings that could be taken without harming our national defense. We also identified $60 billion in Social Security savings over ten years if we raised the retirement age to 70, with a hardship exception, and stopped payments to Americans whose net worth was over $3 million.

Let's start this different approach with Pentagon spending. The approach is based on an interview of David Stockman that appeared in the August 8, 2011 issue of Business Week magazine. Mr. Stockman is a far better budget analyst than myself, having served as the director of the Office Of Management and Budget under President Reagan. I am assuming that his insights and knowledge can provide better estimates than some of mine.

In the interview, Mr. Stockman asserts that we live in a different world today but have a defense strategy and set of resources that are aligned with historical, obsolete situations, a conclusion we have supported many times in this blog.

He poses the following question in the interview: "Why do we have a defense budget at roughly $800 billion - bigger in real terms by 35% than it was when Ronald Reagan was fighting the Evil Empire and they had 8,000 (nuclear) warheads pointed at us?" He also discusses the reality that we don't have the same type of "industrial enemies" of the past and "we have been fired as the world's policeman."

Given these realities, why shouldn't the Defense Department and the resources associated with it 1) be cut back and 2) repurposed to fight today's non-traditional threats. If we take Mr. Stockman's assertions as fact, how much money could we save:

• Cut defense spending by his full 35% to be in line with Reagan era spending ratios and phase that in over a four year period: 10 year savings = $2.4 TRILLION
• Cut defense spending by half of his 35%  and phase that in over a four year period: 10 year savings = $1.2 TRILLION
• Cut defense spending by a third of his 35% and phase that in over a four year period: 10 year savings = $793 billion.

Thus, depending on how aggressive the political class wanted to be and how stubborn the military establishment wanted to be to protect its empire, the Federal government could safely cut over a TRILLION dollars, and possibly over two TRILLION dollars, from its spending without harming our national defense if you use the Reagan era budgets as a guide. These estimates are roughly consistent with the $1.4 TRILLION estimate we came up with earlier in August. But this approach also shows how much  more potential upside there is.

Stockman also discusses Social Security and his views are also consistent with our recommendations, namely raise the retirement age and stopping paying out Social Security checks to wealthier Americans, Steps 11 and 12 from "Love My Country, Loathe My Government," in order to preserve the program for those Americans that truly need the help in retirement.  In the interview, Mr. Stockman claims that we currently have 55 million people in the Social Security program, of which 40 million basically have no other source of income. That leaves up to 15 million Americans today who are more affluent and who could possibly afford to continue their life style without receiving a Social Security check.

Mr. Stockman does not talk specifics in this area but mentions that there "are 2, 5, 10 million people at the top who are quite affluent, who need to be means tested or have their benefits eliminated entirely." I would have preferred a little more specificity but lets run with these three scenarios:

• Assume ten million of these 55 million Americans are affluent enough to live without a Social Security check: ten year savings to the Federal government's budget = $1.3 TRILLION
• Assume five million of these 55 million Americans are affluent enough to live without a Social Security check: ten year savings to the Federal government's budget = $660 billion.
• Assume two million of these 55 million Americans are affluent enough to live without a Social Security check: ten year savings to the Federal government's budget = $264 billion.

Thus, if Stockman is right, the amount of savings from Social Security changes that do not impose an undue hardship on needy Americans is orders of magnitudes higher than what we estimated in the other post. If you take the two middle scenarios we calculated above for defense spending and Social Security, using Stockman's interview, you come up with expense and spending reductions of  close to $1.9 TRILLION. This is more than the $1.4 TRILLION we estimated previously.

Who would be upset about these changes? First and foremost would be the military contractors that have made themselves rich off of this unnecessary defense spending. Unfortunately, these contractors probably have great influence over the sitting politicians from a lobbying and election campaign perspective. That is where the challenge will be, are our politicians courageous enough to cut off their own money funnels to do what is right for the country? If history is any indication, that could be a tough sell.

The second obstacle would be the military themselves. As we discussed in earlier posts, the amount of bureaucracy and management layers in the Pentagon has exploded over the past few decades. We have more generals, admirals, and deputy assistant secretaries of defense than we have ever had. Dislodging any embedded bureaucracy is always difficult, especially a government bureaucracy, but it is unneeded spending that serves no purpose in defending the country.

I would have wished that Stockman had provided more insights on how to more finely tune the needed spending cuts with the least amount of angst. But his type of thinking and knowledge is what is needed to make the real cuts to real expenses and we know that there are many other Americans that have already done the heavy lifting, including the President's own Presidential commission on debt reduction.

In additional to the Stockman interview, I came across another short article that confirms my belief that the Federal government's useless, wasteful, and expensive ($107 billion a year)  Department of Education needs to be terminated. In the most recent monthly issue of AARP Magazine, an article reviewed the findings of a new Federal report on civics education in this country. According to the article, only 7% of 8th graders in this country can describe the three branches of government and only 27% of 4th graders, 22% of 8th graders, and 24% of 12th graders are proficient in civics. A disgrace.

Combine these stats with the results we have discussed in the past on public education: U.S. kids usually trail dozens of other country's test scores on standardized tests, almost 25% of those applying for enrollment in our military pass cannot pass basic reading and math tests, and about 40% of students entering community colleges in this country require remedial math and English courses before they can start their college work. There was no doubt in my mind, and these latest Federal findings just reinforce it, that the Department of Education has been an utter waste of time and money when it comes to educating our kids.

Using the approach we discussed in our first budget post, our plan would provide money and resources to the states to fix their education processes (teacher enhancement and certification, technology improvement, curriculum enhancements, etc.) over a four year period, using the annual Department of Education budget to fund the state level effort. After four years the funding would stop and the Federal government would save about $900 billion over the next ten years without negatively affecting national education. Combine these savings with the Stockman savings we calculated above and you have almost $3 TRILLION in government expense cuts from just three departments.

It's not hard Washington, no matter how you cut it, there are many, many ways to get spending under control. Just takes a little bit of insight, a little bit of math, and a whole lot of courage to stand up for what is right for the country, not what is right for your political career.






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http://www.reason.com/
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