Thursday, January 27, 2011

My View

Random ruminations from your resident curmudgeon...

The time is finally here. You know what I am talking about- that time when you admit what you have known all along to be true but have denied or just pushed to the back of your mind and ignored its reality. The reality about which I am speaking? The fact that the Social Security is bankrupt, a fact that has been mentioned here on several occasions. According to the Congressional Budget Office, the fund is now beginning to run a deficit, and will do so every year until it is completely out of money in 2037. This admission is a positive first step; the CBO had originally stated that the deficit situation would not occur until 2016 at the earliest. A bruising recession that has caused the unemployment rate to rise significantly has meant that significantly fewer dollars are flowing into the system. Couple that fact with the benefit payouts from Social Security are going to begin to increase exponentially, and this is a financial train wreck that is happening right before our eyes. Congress has been loath to address this problem as the solutions are going to be be painful for all. Among other proposals will be significant tax increases; increasing the retirement age for full benefits; and means testing, or some combination of these choices. We all know how we got here: Congress "borrowed" (read: looted) the $2.5 trillion dollar surplus that was in the fund to spend on other programs (read: re-election pork), and put Treasury Bonds in its place. Now that more benefits are being drawn out as Boomers reach retirement age and less income is coming in, we must make some serious changes to the program to maintain its long term viability. It will be interesting to see if Congress has the cajones to do so.

The other day, my wife called me ignorant. I told her I don't know the meaning of the word.

One of the major problems that policy makers must contend with is the high unemployment rate. Although the nominal rate of unemployment is just over 9%, the real rate is estimated by some economists to be between 16 and 18% of the workforce. As mentioned above, one of the problems this creates for Washington is lower tax collections (FICA, Medicare, and Income) and greater federal outlays for unemployment benefits. The question is how to get the unemployment rate back down to more normal levels, and it is a question that has no easy answers. Companies have been slow to hire because of the uncertainty of the political, regulatory, and tax environment; and because they have found they can use technology to enhance productivity and forgo the hiring of new personnel. The Fed has been pushing down interest rates in hopes of spurring business activity and therefore an increase in employment. It has not worked. There have been some cosmetic regulatory and legal changes that have come out of Congress. These, too, have not stimulated job creation. In my view, there are only two real fixes that will add jobs in this country. One, lower the cost of U.S. workers (salary and benefits) to a level comparable to foreign workers. The other solution is to raise the value added that each U.S. worker brings to the job. The first solution is painful and will obviously lower the standard of living for many. This is the effect of global competition; as consumers we demand the cheapest goods and services (sweeping generalization, I know, and also know that is not true in every case, such as healthcare) and the effect of that is that companies are locating jobs to places that have a lower cost structure than the U.S. The second solution, raising the value added by U.S. workers, is a costly solution that requires extensive commitments to education and training and takes time. Expect unemployment to remain high and to be with us for quite some time.

I always practice safe lunch and use a condiment.

More than ever, we should be very informed about the legislative process that is going on in Washington. Our elected leaders face tough choices. Making difficult, well thought out decisions and sound financial choices is not natural to them. President Obama set the stage in his State of the Union address on Tuesday with 15 proposals, such as investment in infrastructure and streamlining government departments. Of the 15 proposals, five would boost spending, three would reduce spending, and seven were indeterminate because of a lack of specifics, according to the National Taxpayers Union Foundation. Know this, "investment" is government-speak for spending more tax dollars, and wasteful government spending has gotten us into this mess and now must be curtailed. Also know that spending freezes sound good, and I am all for them, but they alone will not get us back toward fiscal sanity. Get involved in the process and follow the money, uh, legislation through the process. Our financial future rests on us as the electorate holding Congress accountable.

My Dad fought in the Korean War, and survived exposure to mustard gas and pepper spray. I always like to refer to him as a "seasoned" veteran.

And that, my friends, is my view.

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