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"The Government Comes Up With the Money"

A mindset that's killing our economy
Wednesday, January 29, 2014, 12:48 AM

I'm half-heartedly watching the State of the Union address right now. What a cynic I've become.

My younger self would be shocked and saddened to learn how I've come to view these annual addresses as little more than a game of charades. The President (not just Obama, but his predecessors, too) reads a carefully and expensively constructed script designed either to elicit self-congratulatory applause from the echo chamber side of the hall, or to lob political harpoons into the other.

But in the end, it's nothing more than a game of words. And the real issues that desperately need addressing get ignored, glossed over, or showered with pablum and over-promises that will never materialize.

A few minutes ago, the President just announced his new executive order to raise the minimum wage by nearly 40% for those employed by federal contractors.

Now, I'm not going to make this article about the rightness or wrongness of such a move. And I'm very sympathetic to those earning the current minimum wage amount of $7.24/hour. In a world where the basics of living like food, health care, housing, energy, and education have skyrocketed in cost (due in no small part to the intervention of central planners), yet real wages have actually regressed, how the heck does one get by on the minimum wage?

But I will share the thought that enters my mind whenever I hear a politician make such a magnanimous and grandiose claim: How is this going to be paid for?

I think I'm shocking no one when I emphasize that our political leaders act as if money is magically produced whenever the need is great enough. Weak economy? Print money to bring interest rates down. Banks unstable? Print more money to buy their bad assets from them. Can't balance the budget? Run the country at a deficit (as they don't matter anyway, right?).

But I'll share a recent personal experience with the government that still managed to shock me. And I think it captures well the magical thinking at the heart of our national dysfunction.

A relative of mine is in her senior years now without any savings to lean on. (By the way, that puts her in the company of 22% of US seniors over 65. In fact, a shocking 4 out of 5 of all U.S. working households have retirement savings totaling less than one year's worth of income so it looks like there will be many more in her situation soon)

There's no way to sugar-coat her financial condition. She's in a tough situation with limited options. But we're doing what we can to support her.

Which led my ears to perk up when a friend suggested there may be a relatively easy way to boost her monthly Social Security payment. It turns out that, despite being divorced for over 40 years from her former husband, she can claim a portion of his Social Security benefits. If you were married for over 10 years, the government allows this.

Okay, I thought. Good for her. But what about her ex-husband? I doubt he's going to be happy seeing a drop in his Social Security check, and even less happy learning that it's because the government decided to give the difference to someone he divorced four decades ago.

But here's the thing that bowled me over: His doesn't drop.

The government makes it clear that if a divorced spouse is awarded any claim to your Social Security benefits, the benefits you receive remain untouched. From the SSA.gov website:

Note: The amount of benefits your divorced spouse gets has no effect on the amount of benefits you or your current spouse may receive.

As the one investigating this opportunity, I spent a day on the phone with the Social Security Administration, and, sure enough, that's the way it works.

I couldn't help asking the nice folks at the SSA: Who funds this? Where does this extra money come from?

In theory, the Social Security trust fund is a kitty paid into by workers as they earn income during their lifetime. (In practice, we know the kitty is empty, having been raided by politicians for decades). In this case, the ex-husband worked for a certain number of years and had a certain amount of his income directed into Social Security to finance the payments he would later receive in retirement. Payments that he now is, in fact, receiving.

So, if the government later decides that his ex-spouse should also get a check based on his years of employment, but no extra hours were worked to fund that second check, how does that math work?

Well, as probably comes as no surprise, math doesn't factor into the answer I received. "It's just how the system is set up" I was told. "The government comes up with the money."

And that to me succinctly sums up why we deserve the economic predicament we find ourselves in: too many of our leaders and too much of the populace look at the government as a perpetual font of money. The curiosity to ask the questions: Is this sustainable? Is this wise? isn't there. Either because we're too lazy or too fearful to learn the answers.

For the record, I did prod further into how such a payment system could remain solvent. But it was clear to me that, not only was this a strange question to the folks I was asking it of, but it was something they had never even thought about before. It didn't take very long before they conceded that it probably doesn't make sense, but folks who qualify for the extra money would be crazy not to take it.

In the end, my family member did qualify. But not for very much. (There were uncommon exceptions that ended up reducing her claim)

And while I understand why she feels the need to take the money, I'm conflicted about my role in the affair. Because it's this very behavior of treating the government like a free money ATM (or a benevolent uncle with a bottomless wallet use whatever analogy you like) that's ruining us.

Which makes it all the harder to hear of 40% hikes in the minimum wage, or health coverage for all through the "Affordable" Care Act, or extension of the expired unemployment benefits for those who have been out of work for over 99 weeks, without asking: How are we possibly going to afford this? 

~ Adam Taggart

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69 Comments

rcmacl's picture
rcmacl
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Sighs

I know there is no money for any of this, so why pick on the folks in extreme poverty.  At least the money they get is going back into the economy, maybe even some of it in a very local way.  I don't mean to pick on you Adam, maybe I am just feeling exhausted by all this too.  One of the things that I feel like gets forgotten is that for retirees and the spouses that supported them, Social Security isn't exactly an entitlement program, they put a good deal of money into it.  Why shouldn't she get some money for the time and life force she spent supporting him while he paid into social security, and I don't really see any point in penalizing him.  I suppose it may offend some people that we don't penalize people for divorcing.  Yes, paying federal contract employees enough so that they may not have to receive food stamps, does add to the deficit, but as we know it is all going to fall apart soon enough so how bout letting the poor have a last little bit of food and shelter while there is still money there.  I guess I feel like we should just save our outrage for the financial elites who get a rather amazing amount of welfare.

Arthur Robey's picture
Arthur Robey
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Beans

How are we possibly going to afford this? 

No sweat. The Machine will provide.

Your relative's wages were probably screwed right down to where she had no excess reserves to invest in anything. Henry Ford had the nous to give his workers enough to be able to purchase his products. It seems that Henry was the last of the Thinkers.

If the Machine chooses to print money and give it to the Bankers- why be coy about feeding a little old lady? Dig in. The more she gets, the less the bankers can stuff into their constipated vaults.

Rector's picture
Rector
Status: Gold Member (Online)
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Posts: 351
Okey Dokey. That's the ticket

Once again, thinking emotionally and not rationally, we will continue on our course to destruction.  Empathy, fairness, entitlement (legitimate), and all other considerations will by BRUTALLY thrown out the door if we don't make incremental changes to our behaviors.  I understand and agree with your concern for the people who find themselves without other options to survival, but if we keeping stacking more people in this wagon, we are going to kill the horse, and then we will all walk.  At that point, no one will give a crap about fairness, or pain, or the "Elites" - things will devolve into a brutal march for survival and all those who were vulnerable under this highly ordered and generous system will fail.

Our government in all its endeavors is blowing money like the prodigal son.  All levels of society are exploiting the "system" in unique ways.  This is a classic Nash Equilibrium - no one benefits from changing their strategy unless we all do.  Human nature will ensure that never happens.  And so it goes. . .

Inevitable means inevitable,

Rector

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thc0655
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Don't worry

Don't worry, Adam.  We will soon be administered a lesson via a 2X4 to the side of the head which will knock this attitude right out of us.  After the coming Big Reset, everyone from little old ladies to Lloyd Blankfein and Jamon Dimon will never again assume, "The government will come up with the money." That will be so much healthier for everybody, but getting there is going to be painful and nasty.

Rob P's picture
Rob P
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That's real true

Adam, I totally understand what you're getting at in this.  I think that part of the problem - and the solution - is that, in general, people are really ignorant in regard to economics, both micro and especially macro.

Recently, in regard to home health services under Medicaid, I heard someone say "you might as well do it, they'll pay for it", with "they" being that Godlike fountain from which floweth all money and other goodies(i e the government).

I used to teach policy at the local university and I saw the attitude you're describing continuously, at least in one subset of the students.  I remember discussing SS and the other federal programs in the context of the "budget" (Oh my goodness, what's that??), and asking the seemingly odd question "and how will we keep paying for all of this - especially with so many baby boomers retiring?".  One young lady said "print more money". I encouraged her to pursue a degree in political science and then go into  politics (Ha).  The thought came so easily; she seemed like a natural.

But with that said, as with your relative's SS, I sure enjoyed having hospice in last year - 100% paid by medicare - when my dad was dying.  It was a HUGE amount of services, costing who knows? 

For me, it's a moral delimma - "get it while you can", verses "oh shit, I seem to find myself in the middle of the money hole at the center of the problem". 

Well, apart from your situation which doesn't really apply, here's a tip for you buddy:  "they paid in" seems to work pretty well in terms of glossing over any guilt or other concerns :)

Ha, thanks for the reminder.

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mobius
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James Dines's "Generation Immortal"

Adam,

My head is spinning because what you've written seems to be a very plausible outcome. 

Need money? : JUST PRINT IT!

In James Dines's KWN interview below, he mentioned the possibilities of 3D printing and how, in the future,  we can simply micro manufacture organs & other vital tid-bits leading to longer life spans.  In fact, he called something akin to generation of immortals. 

Need body parts? : JUST 3D PRINT IT!

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2014/1/26_James_Dines.html

So, I think the future bodes a whole lotta printing, which ever way you look at it. oh yeah, & 70 is the new 30.

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cappe_74
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agree

I agree with this reasoning. If you are giving many to banks for free, then there is no justification on earth to not giving to people in need for minimal surviving.

Stay human!

Arthur Robey's picture
Arthur Robey
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Shemen, Money, Madness and 2x4.

Money is not real. It is supposed to represent that which is real.

If one note represents one widget and then somebody prints ten notes to represent the same widget, there is still only one widget. (Inflation)

But if The Machine makes 10 widgets then the value of each widget becomes less than 1 note.

For example, I am looking at Swiss timepieces that used to sell for $1000, they are now going for $160. Why? The Machine can make them far cheaper than any Swiss watchmaker and we have an oversupply problem. The price has plummeted in spite of the printing press. Why do you think that the sellers of watches loath both Deflation and Competition?

Deflation, not only because the debt obligations vaporized but because the machine out-paced the rate at which money could be flooded into the hands of the consumers. It does not help that someone at the top has got religion about money and thinks that it is real. There is this mad scramble for the unreal at The Top that is preventing the trickle-down from becoming a deluge.

I will stick to my guns. What we are watching is the destruction of the very idea of money.

This is Future Shock. Those born before 1980 cannot get their heads around the idea that humans are falling out of the Economy. The process is accelerating. Working for a living and saving "money" is just so last century. Why save that which has no value?

Overpopulation? No biggie. The Ape/Pig hybrid was never too fertile to begin with anyway. Just a little bit of this and a little bit of that and, voila, shemen.

The biggie is carbon in the atmosphere. That is where the 2x4 comes in.

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sand_puppy
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Political Dissent in the Surveillance Era

The Text that Changed the World

Being a political dissident in an age of surveillance. Your cell phone (and street camera mounted facial recognition software?) give the government, against whom you are protesting, your identity and location. And they don't like what you are doing.  They send you a text message to let you know that they know who you are....

On Tuesday the Ukrainian government sent the following text message to thousands of protesters in the streets of Kiev: “Dear subscriber, you are registered as a participant in a mass disturbance.” This short text belied a far more radical message. For the first time, a government was able to identify individual protesters and privately communicate to them that it knew who they were and where they were located.

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KennethPollinger
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A LOWER Class society?
 
Ken PollingerAwareness Centers
Nyack, New York ~ The Catskills, New York ~ Lagunas, Costa Rica

www.AwarenessCenters.com ~ info@AwarenessCenters.com

 

Comments by Ken:
 
Here is my construct again for your review. Following this, you will find some observations by me concerning the US Census Bureau's culture of presenting income statistics--quite DECEPTIVE if you ask me.
 
Then I came across three other attempts to do what I am trying to do. Please check these out.  I then make some comments about their attempts.

Screen_shot_2014_01_20_at_10.52.32_PM.pn

Concerning the Income-Wealth Class Structure

 
 Inspecting the US Census Income data, we find the following:
 
1. The chart starts with the lowest income range at the top (Under $2,500)
     and proceeds all the way to the LAST category at the bottom ($100,000 or more).
 
     Is this deceptive?  Why not present the ranges with the more income at the TOP and descend to the bottom one. I believe this would be a truer picture of the income structure; otherwise, one needs to INVERT the info to see the picture that is worth a thousand words (or ranges).
 
2. From the lowest range to the next to last range ($97,500 to $99,999), all the brackets have a range of $2,500).  BUT THEN, we have the last income range of $100,000 or more!!!!!  How incredible!! How deceptive!!
 
    Why are there not many more income ranges, all the way to highest incomes where data is available, for example, Forbes 400 or highest Hedge Fund Manager: Ray Dalio with 3 BILLION?  Is this done ON PURPOSE by the Census Bureau??
 
3.  Also, where is the income information of the very rich who can purchase TAX-FREE municipal bonds (frequently free of Fed, state, and city taxes)? For example, their wealth makes more income without any work whatsoever, thus money making money.  For example, if Ray invested just 1 BILLION of his "earnings" (income),  he could generate 60 million of additional income, TAX-FREE.  Not bad, for not working.
 

If you have never seen the US Census Bureau Income data, please CLICK HERE.

 

Academic Class Models

Household income is one of the most commonly used measures of income and, therefore, also one of the most prominent indicators of social class. Household income and education do not, however, always reflect perceived class status correctly. Sociologist Dennis Gilbert acknowledges that "... the class structure... does not exactly match the distribution of household income" with "the mismatch [being] greatest in the middle..." (Gilbert, 1998: 92) As social classes commonly overlap, it is not possible to define exact class boundaries.

According to Leonard Beeghley[citation needed] a household income of roughly $95,000 would be typical of a dual-earner middle class household while $60,000 would be typical of a dual-earner working class household and $18,000 typical for an impoverished household. William Thompson and Joseph Hickey[citation needed] see common incomes for the upper class as those exceeding $500,000 with upper middle class incomes ranging from the high 5-figures to most commonly in excess of $100,000. They claim the lower middle class ranges from $35,000 to $75,000; $16,000 to $30,000 for the working class and less than $2,000 for the lower class.

Academic Class Models
Dennis Gilbert, 2002 William Thompson & Joseph Hickey, 2005 Leonard Beeghley, 2004
Class Typical characteristics Class Typical characteristics Class Typical characteristics
Capitalist class (1%) Top-level executives, high-rung politicians, heirs. Ivy League education common. Upper class (1%) Top-level executives, celebrities, heirs; income of $500,000+ common. Ivy league education common. The super-rich (0.9%) Multi-millionaires whose incomes commonly exceed $350,000; includes celebrities and powerful executives/politicians. Ivy League education common.
Upper middle class[1](15%) Highly-educated (often with graduate degrees), most commonly salaried, professionals and middle management with large work autonomy. Upper middle class[1](15%) Highly-educated (often with graduate degrees) professionals & managers with household incomes varying from the high 5-figure range to commonly above $100,000. The Rich (5%) Households with net worth of $1 million or more; largely in the form of home equity. Generally have college degrees.
Middle class (plurality/
majority?; ca. 46%)
College-educated workers with considerably higher-than-average incomes and compensation; a man making $57,000 and a woman making $40,000 may be typical.
Lower middle class (30%) Semi-professionals and craftsmen with a roughly average standard of living. Most have some college education and are white-collar. Lower middle class (32%) Semi-professionals and craftsmen with some work autonomy; household incomes commonly range from $35,000 to $75,000. Typically, some college education.
Working class (30%) Clerical and most blue-collar workers whose work is highly routinized. Standard of living varies depending on number of income earners, but is commonly just adequate. High school education.
Working class (32%) Clerical, pink- and blue-collar workers with often low job security; common household incomes range from $16,000 to $30,000. High school education. Working class
(ca. 40% - 45%)
Blue-collar workers and those whose jobs are highly routinized with low economic security; a man making $40,000 and a woman making $26,000 may be typical. High school education.
Working poor (13%) Service, low-rung clerical and some blue-collar workers. High economic insecurity and risk of poverty. Some high school education.
Lower class (ca. 14% - 20%) Those who occupy poorly-paid positions or rely on government transfers. Some high school education.
Underclass (12%) Those with limited or no participation in the labor force. Reliant on government transfers. Some high school education. The poor (ca. 12%) Those living below the poverty line with limited to no participation in the labor force; a household income of $18,000 may be typical. Some high school education.
References: Gilbert, D. (2002) The American Class Structure: In An Age of Growing Inequality. Belmont, CA: Wadsworth; Thompson, W. & Hickey, J. (2005). Society in Focus. Boston, MA: Pearson, Allyn & Bacon; Beeghley, L. (2004). The Structure of Social Stratification in the United States. Boston, MA: Pearson, Allyn & Bacon.
1 The upper middle class may also be referred to as "Professional class" Ehrenreich, B. (1989). The Inner Life of the Middle Class. NY, NY: Harper-Colins.

Comments about the THREE researchers by Ken:

 
As a sociologist, the traditional manner of studying social stratification is the 3 major
classes: Upper, Middle, and Lower, with each having three subdivisions.  The differentiation between all NINE classes is quite difficult to determine and is somewhat subjective, although each researcher should provide some rationale for his/her divisions/categories.
 
Thus, Gilbert, Thompson and Hickey, as well as Beeghley ALL have the middle class being VERY large: the great middle class society, as preached by many in the mainstream.  They average about 45-47% while I present only 25%.  Who is right here??  One must look at the income statistics to determine where one stands.
 
 
Thus, my image of our society is PREDOMINATELY LOWER class, not Middle class, contrary to what people WANT to believe.
 
Gilbert presents NO ranges of concrete income!!  Quite vague, of course.
 
Thompson and Hickey make no distinctions between $500,000 and above--I do!!
In fact FIVE divisions!!   . . .and above: how high, praytell?  I go up to BILLIONS in income!! Also, they present some vague general suggestions as descriptions.
I, on the other hand, offer photos, names, and sources.
 
Beeghley has the superrich at $350,000.  Is he kidding?  Rich=net worth of a million.
NO WAY!!  For example,  Jamie Dimon's COMPENSATION (fancy word for income)
in 2011 was $23.1 MILLION; Lloyd Blankfein's was $21 MILLION; while John Stumpf's was
$19.3 MILLION  (JP Morgan, Goldman Sachs, Wells Fargo, respectively)
 
Much more could be said here but this just shows why very few KNOW what's really going on in terms of income and especially wealth.
 
And speaking about this Paul Krugman, NYTimes, "The Populist Imperative," the following:
 
". . .most Americans don't realize just how unequally wealth really is distributed."
 
 
THIS IS WHY I AM WORKING ON MY INCOME-WEALTH CLASS STRUCTURE--to enlighten people about what the hell is going on!!!!!!!
 
 
If you have any interest in all this, I'd love to hear from you.
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kaju0317
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SSI

Read your SSI statement.  I don't think many people do, when I tell them what it says they are surprised. 

I wish I had kept them all through the years but the oldest one I have is from December 29, 2008.  It states that "In 2017 we will begin paying more in benefits than we collect in taxes.  Without changes, by 2041 the Social Security Trust fund will be exhausted and there will be enough money to pay only 78 cents for each dollar of scheduled benefits."

Today, January 29, 2014, my online statement states "Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 77 cents for each dollar of scheduled benefits."

So in just over 5 years the picture looks much worse.  Instead of exhausting the trust find in 2041 it now is scheduled to happen 8 years earlier in 2033.  They have also removed the statement indicating when we start paying more in benefits that they collect in taxes.  And they also eliminated the language that the SSI fund will be exhausted.

KennethPollinger's picture
KennethPollinger
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Ooops, forgot to mention SOURCES
SOURCES: 
 
1. Census Bureau 2010  (last 3 years drastically LOWERs the Middle and Lower Class numbers.
 
2. As for the UPPER Class numbers, here are some sources:
 
   a. Forbes: The Richest People in America (100 of them)
           range: 4.6 BILLION- 72 BILLION (Gates)
 
   b. Forbes: The 40 Highest-Earnings Hedge Fund Managers and Traders
           range: 90,000-2.2 BILLION
 
   c. Forbes: Top College Presidents
           range: 1.6 million-3.3 million (salaries ONLY)
 
   d. 50 Wealthiest POLITICIANS in USA
           range: 6.0-294 MILLION)(Rep. Michael McCaul, TX; Rep.Darrell Issa, CA)
 
   e. Forbes: The 10 Richest People in Medicine
           range: 1,12 BILLION-7.3 BILLION
 
   f. Forbes: The Top 10 Wealthiest Lawyers in the US
           range: 12 million-26.1 BILLION
 
  g. Federal Reserve Presidents
          range: 150,000-21.5 million
 
Now, I need to tease out all these folks with their monies and see where they fit into my Combination Income-Wealth Chart.
 
NOTE: I must admit that I have NOT seen anyone do what I am attempting--that is, gather much data and try to present the BIGGER picture of INEQUALITY in the USA.  This seems to be a topic of discussion these days centered around food stamps, unemployment checks, medicaid, pre-kindergarden, etc., BUT NOT THE REALLY BIGGER PICTURE.  I will have quite a few critical observations about the Census Bureau's chart, as well as the the title of my project.
 
Top Ten Wealthiest:
 
Rank Name Net Worth Age Residence Source
1

Bill Gates

$72 B 58 Medina, Washington Microsoft
2

Warren Buffett

$58.5 B 83 Omaha, Nebraska Berkshire Hathaway
3

Larry Ellison

$41 B 69 Woodside, California Oracle
4

Charles Koch

$36 B 78 Wichita, Kansas diversified
4

David Koch

$36 B 73 New York, New York diversified
6

Christy Walton & family

$35.4 B 59 Jackson, Wyoming Wal-Mart
7

Jim Walton

$33.8 B 66 Bentonville, Arkansas Wal-Mart
8

Alice Walton

$33.5 B 64 Fort Worth, Texas Wal-Mart
9

S. Robson Walton

$33.3 B 70 Bentonville, Arkansas Wal-Mart
10

Michael Bloomberg

$31 B 71 New York, New York Bloomberg LP

 IMPORTANT NUMBERS:     Total numbers: over 400 BILLION                                                                                                           

and if we view the top 100 wealthiest: a total of 1,342 BILLION (if I am adding correctly!!!!!!!!!!!!!!!!!)

So, a mere 10% tax on these folks could pay for food stamps, unemployment insurance, etc.

Maybe a 25% tax could fund a LIVING WAGE for the LOWER-LOWER 44.95% (those nasty, lazy, unproductive non-seeking job suckers, at least according to the Republicans, and some Democrats)





More from the NYTimes



2 Parties Place Political Focus on Inequality



Half of Congress Members are Millionaires, Report Says



The Vicious Circle of Income Inequality



Bailout Risk, Far Beyond The Banks

One more to come today.  Sorry for hogging space, Ken

KennethPollinger's picture
KennethPollinger
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Last one, I promise

You MUST see the entire listings of both parties--fascinating  And these are the folks cutting food stamps. etc.

SHAME on them!  Loved your post Adam--you've got HEART!!

Comments by Ken
 
I promised you periodic information about the Income-Weath Social Classes Chart.
Last time it was the 100 wealthiest.
 
TODAY, it is the "average worth" of US Politicians.
 

House Democrats

Screen_shot_2014_01_20_at_10.55.11_PM.pn



House Republicans

Screen_shot_2014_01_20_at_10.56.01_PM.pn



Senate Democrats

Screen_shot_2014_01_20_at_10.56.53_PM.pn



Senate Republicans

Screen_shot_2014_01_20_at_10.57.35_PM.pn

 

 

Lastly, Please enjoy three articles from the NYTimes;
 
 
"For the Love of Money," by Sam Polk (1/19/14)  Sunday Review  (POWER,baby!!!)
 
"The Undeserving Rich." Paul Krugman 1/20/14  Op-Ed
 
Comments?  Join the conversation.
Arthur Robey's picture
Arthur Robey
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Posts: 2506
And tying it all together.

1,342 BILLION (if I am adding correctly)

You make my point for me sir.

$1.3 T is not real. It would not make a jot of difference to their breakfast table if they misplaced 99% of it.

I foresee a time when the Machine will give you a requisition slip for the quartermaster with your name on it and an expiry date. Then everyone will belong to the same social status.

It is said that the Machine's intelligence will match that of a human, briefly.

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soulinrevolt
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question

Your piece makes an excellent point.  But what I always ask myself when I read something like this is this: would we be able to afford it if our pentagon budget wasn't, roughly, the rest of the world's combined?  The concepts of Social Security and Universal healthcare don't seem to me to be that unreasonable, but as long as the lion's share of national wealth is funneled into so few hands--military industrial complex, big banks--we can't really expect much for the average citizens.

Don't get me wrong, I agree with your post and I'm against the money printing, but, if not now at least in the past, we have had the money to provide a better life for our society as a whole, but it went straight to the top.  Now it's too late I guess.

Thanks for the post!

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charleshughsmith
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money printing and debt

I think the most important facet of your story, Adam, is the unquestioned faith we collectively have in the central state's ability to fund every social program (as well as the Empire). The other point that needs to be made is *printing* the money for SSA would not be as destructive as *borrowing* the money, which is what we're doing now. If we simply printed $700 B a year to pay for SSA and were otherwise running no federal deficit, that is 4.3% of the $16T economy--given the many forces of deflation at work, that would be unlikely to spark runaway inflation. But we don't actually print money--we borrow it into existence and then owe interest on that debt forever. That's the real problem.

Ken, I value your attempts to organize income/wealth data.  I have tried to do the same thing and also with taxes, which are a mess because they vary locally.  The Census Bureau data is a bit skewed because they report 245M people as receiving some income, but there are only 140 M people who are employed--and only 115 M of those are full-time employed.

So perhaps we should start with employed people, and perhaps analyze full-time earnings more closely, as part-time work is not enough to qualify for middle-class incomes.

Your primary point is clear: the super-wealthy are in a world far above merely wealthy or upper-middle class, and our political class is now drawn from the wealthy class. When governance can be bought, it's no wonder the game is dominated by wealth.

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Main act

When in a circus one should act and dress appropriately. I hope your being entertained, cause the main act is about ready to begin and this one isn't to be missed. Don't take everything so seriously (future shocked) it is the circus after all. After the lights turn on, please be courteous of your neighbors and quickly head for the exits, cause this show going to bring the whole tent down. Do beware of the encore clowns.

Rose 

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Bigger picture

I don’t disagree with many of the points Adam made in the article, but I think it lacks perspective of the long term trends and forces that have brought us to this predicament.  That’s particularly true of inherent conflicts between the corporatocracy/gov’t.  (herein after referred to as the corporatocracy) complex and ordinary human beings that goes back a long way to the birth of the labor movement that resulted from what I consider the natural state of the corporatocracy, that of the robber barons.

The abuses by the corporatocracy were epic and legendary.  See the Jim Crow laws, The Jungle by Upton Sinclair or Grapes of Wrath by John Steinbeck.  The labor movement slowly addressed the worst of these abuses with plenty of sacrifices by the masses along the way until after WWII when quite suddenly we underwent massive industrial expansion that required lots of workers to support.  There were plenty of inflection points along the way, notably Jeckle Island, WWI, the roaring 20s, the depression and dust bowl 30s, the Social Security Act and WWII.  The “greatest generation” and their parents were born during this era and survived the various meat grinders along the way.

Cheap fossil energy and incredible technical innovations fueled the industrial revolution that gave the veterans coming home from WWII perhaps the most incredible opportunities for economic improvement ever in history.  Responding to market forces the labor movement increased rapidly in numbers and power, directly benefitting the working class and creating the largest middle class ever.

Despite the increases in wealth there was still a large underclass being left behind based largely on race, citizenship and economic dislocation.  The LBJ Great Society programs (continued by Nixon) were intended to address the discrimination and poverty of these people.   The rapidly expanding economy gave little reason to think we couldn’t afford the social safety net.  The corporatocracy was still doing just fine spending money for guns and butter.

As a young adult and early member of the Boomer generation, I remember the promise that the economy would continue to grow with decreasing work hours and improving working and living conditions for ourselves and our children.  That promise was, in short, the American dream.  The relatively unsophisticated (i.e. most of us) didn’t see a lot of reason to doubt that promise.  Of course, implicit in that dream was the notion that increased productivity would continue to ensure economic expansion and increasing opportunities for everyone.  One of the curious ironies of this period up until the present is that productivity has steadily improved throughout, but the benefits seem to go mostly to the 1%.

The standard workweek got to 40 hours and got stuck there.  In addition, wages have done no better than remain stagnant and workplace benefits are steadily declining since the 70s.  There are far fewer jobs for the relatively unskilled, meaning that even the lower level jobs require training/education that is becoming increasingly expensive and difficult for many.  I think it is undeniable that globalization, or more accurately, off-shoring, has exacerbated all of these trends.  And, of course, we are also in the age of limits.

The bottom line in all of this is the reality that there just isn’t enough work to be done to maintain full employment, no matter how you define it.  I believe that the corporatocracy has been fully conscious of these trends all along and has expanded the safety net to absorb all of those left behind and to keep them off the streets.  They remember what happened the last time the citizenry rose up en masse and disturbed their comfort during the civil rights era and Vietnam.  Government entitlements and support payments have been sufficient to keep the underclass quiet so far.  But, the underclass is growing and the middle class is shrinking.

Having seen the growth of some of those entitlements and support payments from the inside, I am convinced that subtle and not so subtle pressures from Congress and the leadership of those programs, right up to the oval office, have been to expand those benefits and incomes by the bureaucracies that administer those programs.  They have also been expanded by the judiciary, of course, but that too at least partially results from pressures from tptb.

So, today’s underclass is made up of the elderly, others who are no longer able to work because of some kind of disability, those whose skills don’t qualify them for more than unskilled work, which is decreasing in availability and remuneration anyway, and, to be sure, low level grifters who take advantage of the system.  Many of the latter supplement their gov’t payments with black market incomes.  There is little doubt in my mind that we have an economy that can no longer support all of us and tptb are just fine with that.  They keep throwing us bones and engorging themselves with financial shenanigans on a global scale.  Minimum wage laws are also a big part of the entitlement culture, and the fact is a family, whose members are increasingly taking those jobs, cannot live on $7.24/hr.  I boldly predict it will rise with the corporatocracy’s grudging approval.

It still comes down to the 1% vs. the 99% and will probably continue until some kind of black swan comes along prompting the masses to take to the streets.  When that happens we may see real change.  In the meantime all most of us can do is increase our personal resilience.   The mistake we make is blaming those who need their gov’t checks possibly supplemented by Wally World jobs.  The people in charge know exactly what is going on.

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Important numbers indeed

[KennethPollinger]

  IMPORTANT NUMBERS:     Total numbers: over 400 BILLION 

While I do believe that the growing wealth gap is a big problem, I want to side-step that a bit and put these numbers into the context of government spending and the mindset that accompanies that (the original thrust of Adam's piece).

If We The People decided to entirely expropriate every single dollar from the list above, it would not even plug a single year's budget gap for the U.S. federal government.

Assuming the appropriated $400 billion was not viewed as a windfall to be spent, that is encourage more spending by holding the current budget constant and just adding this to that amount, all that would be accomplished would be a temporary reduction not elimination! of the amount of new debt being taken on.  In our names, of course.

To really drive the point home, imagine if the federal government decided to apply a 100% income tax on all incomes over $250,000...that would surely fix it, no?  We'd have entirely eliminated the deficit and had plenty to spread around, right?

No.  

There would still be a deficit.

And that deficit is only projected to get worse going forwards, and that's with an assumption of the return of rapid economic growth in the 3.5% real range.

The bigger story here is one that we all are participants in and that involves the idea of living beyond your means.  That's something we are doing both economically and ecologically, and the only remedy that works is to reduce your consumption in both places.

That's the first hard truth that has to be faced up to.

Once that's been done, the very important next step is to decide how to do that equitably and fairly.  That's where we also need to have a hard conversation about how our current system of money just automatically grants ridiculous advantages and gains to those who already have more than they can spend.  That's the miracle of compounding for you.

But I believe it's unworkable to start with the idea that if we just divided things up differently that this would all somehow work out.  It's missing the first step, which states that we're past the point of all this working out and we have to dial our expectations and consumption back.

Both issues are important, and I think they are best served by keeping them linked but distinct from each other.

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Wrong focus

While I agree with the bigger point of this article, i.e., that the government is not an endless source of free money, I have to take exception to your examples.

Minimum Wage: You imply that this is going to be paid for by the government. Unless I am missing something, that is incorrect. It is, of course, paid by the employers. (Just to assume for a moment that no one lost his or her job if the minimum wage were increased, it would likely have the effect of reducing the number of people on government programs.) If you want to argue that raising the minimum wage would hurt the economy (implication: more people lose jobs>more people eligible for gov't programs) or make a political/philosophical argument that it is not the government's role to meddle in wages, I think those discussions are important but not germane to your point here.

Social Security for spouses: So my first question is: Do you think it is beneficial to children (and ultimately to society) that one spouse stay home with the children while they are being raised? This is the point of the social security benefit of which you complain. If a spouse stays home to raise the children, she (it could just as well be Dad but I will use "she) will lose a good portion of her working years and when/if she enters or reenters the workforce, she will likely never catch up. This was especially true in your Aunt's pre-Internet days. The benefit is small: only 50% of the former spouse's benefit and only that if it is greater than the benefits she earned by her own work. It is unfortunate that people get divorced but as long as we are forced to contribute to social security, this arrangement makes sense. The way it is structured, the most likely recipient is a former stay-at-home spouse who was in a long marriage. (That some marriages do not produce children, etc. has no bearing on this point as my only point is that this is why this particular benefit exists.)

As to the bigger picture, i.e., educating the populace that the government cannot forever be an endless source of money, after all money is not created out of thin air (oh wait!) - I think we should start with the TBTF banks, the military expenditures (which is actually the economic engine running this country), and the daily extraction of money that crony capitalism engenders. Why point a finger at the little guy or gal when his or her share of government (funny) money is merely a drop in the bucket?

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kaju0317 wrote: Read your SSI

kaju0317 wrote:

Read your SSI statement.  I don't think many people do, when I tell them what it says they are surprised. 

I wish I had kept them all through the years but the oldest one I have is from December 29, 2008.  It states that "In 2017 we will begin paying more in benefits than we collect in taxes.  Without changes, by 2041 the Social Security Trust fund will be exhausted and there will be enough money to pay only 78 cents for each dollar of scheduled benefits."

Today, January 29, 2014, my online statement states "Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 77 cents for each dollar of scheduled benefits."

So in just over 5 years the picture looks much worse.  Instead of exhausting the trust find in 2041 it now is scheduled to happen 8 years earlier in 2033.  They have also removed the statement indicating when we start paying more in benefits that they collect in taxes.  And they also eliminated the language that the SSI fund will be exhausted.

You are confusing programs.  SSI is essentially a poverty program that has no trust fund.  It is means tested and comes accompanied by Medicaid.  Social Security Retirement and Disability programs do have trust funds and entitle the recipient to Medicare.

I know it is popular to consider the SS trust funds to be a fiction, but that rationale only applies if you also consider other gov't securities held by private parties, pension programs and trust funds to be fictions.  It's all debt owed by the gov't.

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I'm a financial planner, and

I'm a financial planner, and there are so many Social Security "planning" options in the case of married (or divorced) couples, it's astounding.  My grandmother was divorced from my grandfather.  After her husband (my stepgrandfather) and my grandfather had both passed away, she had the option of claiming survivors benefits on the higher their benefit amounts.  Prior to that, she was claiming a 50% spousal benefit based on my stepgrandfather's earning record.

We also have a client who is getting survivors benefits based on her deceased husband's benefit amount.  Nevermind the fact that we manage about $9 million for her.  And she has probably another $3-5 million in "nonfinancial" assets.

Ultimately, the spousal benefits and survivor benefits were put in place when typically only one spouse worked.  It was a way to compensate the non-working spouse for staying at home and raising a family and taking care of the household.  While this made sense, these planning options are likely going to be the next thing that gets targeted during SS reforms (after chained CPI, pushing back the full retirement age, etc).  As Adam noted, this type of benefits won't be sustainable.

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More "hate the rich" sound bites....a way to avoid reality

KennethPollinger wrote:

and if we view the top 100 wealthiest: a total of 1,342 BILLION (if I am adding correctly!!!!!!!!!!!!!!!!!)

So, a mere 10% tax on these folks could pay for food stamps, unemployment insurance, etc.

Maybe a 25% tax could fund a LIVING WAGE for the LOWER-LOWER 44.95% (those nasty, lazy, unproductive non-seeking job suckers, at least according to the Republicans, and some Democrats)

You have some critical errors in your thinking here.  First, that $1342 Billion is net worth, not income, so yeah you can tax it at 25% and then in 4 years what are you going to do when it's gone?  But the more important question than that, who's going to buy those assets so you can make use of it?  The vast majority of that wealth is going to be stocks & bonds, who's going to purchase it - the little old lady your trying to help?  How are you going to turn that paper wealth into something real?

As far as having more breakouts above $100K, would be nice but it doesn't matter.  While it's annoying to see much of the "wealth" flowing to the top right now, much of it is simply paper wealth (again high value of stocks) that doesn't represent real wealth.  Also, it doesn't really matter.  The problems is that in the US nearly all citizens are living far beyond their means - supported by the reserve currency of the world, deficit spending at all layers of government, and personal deficit spending using credit.

If you take the conservative number (some estimates are double) that we have $100T in debt and unfunded liabilities you quickly find that no amount of taxing or wealth confiscation will make a bit of difference.  To put it in perspective, the total value of US assets is estimated to be $188T, but only  $46T of those are tangible assets.  If you took all those "real" assets and distributed them evenly among the 112M households, that still only a net worth of $410K/household.  How is that 100-200T ever going to be paid, that's 2-4x that $410K/household value?

Want another way to look at it, if you want even wealth distribution, if you have more than $410K in household assets (house, savings, pensions, personal belongings, share of national parks, forests, roads, etc of everyone in your house) of more than $410K, then you need to be ready to give up anything above that in the name of fairness. I'm guessing quite a few on this forum wouldn't find that very appealing.

EDIT: Chris said this much more eloquently. smiley

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I was wrong to call it SSI,

I was wrong to call it SSI, my mistake, my comments refer to Social Security Retirement & Disability program. 

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Only 20% of US budget is military, most of it is social programs

soulinrevolt wrote:

Your piece makes an excellent point.  But what I always ask myself when I read something like this is this: would we be able to afford it if our pentagon budget wasn't, roughly, the rest of the world's combined?  The concepts of Social Security and Universal healthcare don't seem to me to be that unreasonable, but as long as the lion's share of national wealth is funneled into so few hands--military industrial complex, big banks--we can't really expect much for the average citizens.

Actually the lions share goes to non-military items. Social Security, Medicare, Medicaid are more than double the defense budget.  If you add in many of the mandatory/discretionary items you probably have 3x the defense budget going to "social" programs. This graphic from 2011 illustrates this the best.  The 2013 numbers are similar.

Also, you have to realize that that defense budget keeps more than a million people employed.  So while I agree we need less spending on defense (and everything else), that defense budget is not going strictly to a few people, its more like it goes to a lot of people with those at the top skimming from it.

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Not proposing ROOT solutions

Just trying to show how skewed it is right now. I'll throw in the INCOMES of Hedge Fund Managers soon, as well as medical doctors and educational Presidents.  I do not pretend to provide answers as I personally think the system is beyond fixing, maybe a class warfare?  But then there are two sociology/political science principles:

1) The Circulation of the Elites (always happens after revolutions), and 2) The Iron Law of Oligarchy (pyramidal structures always manifested themselves, at all times).

So, I'm off to warm Costa Rica where I eat rice, beans and corn--really good stuff--VERY resilient, no? And mingle with the poor locals, the salt of the earth!

I just thank GOD (Quantum Consciousness, my definition) everyday that I'm not in the LOWER class--poor karma???

Really LOVE these conversations.  Many thanks to Chris, Adam and ALL you folks.

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Arthur, I think that you're digging well beneath the surface...

... with your acknowledgement that our money is, for the most part, FAKE.

This view meshes well with that expressed by E.F. Schumacher and expanded upon by The Archdruid, JMG.

Schumacher wrote that there are two types of wealth.  Primary wealth is the first, which is made up by the services provided by the earth's ecosystems and the raw materials that the earth provides.  Secondary wealth is made up of all of the products and services that are created through human manipulation of primary wealth.  Without primary wealth, there can be no secondary wealth.

Greer expanded (updated?) this definition to include tertiary wealth -- financial instruments that are ultimately founded on primary and secondary wealth.

We now live in a time where primary wealth is completely discounted/misunderstood, secondary wealth is following the same path, and tertiary wealth has been elevated to replace the first two -- and in the process has become increasingly disconnected from the first two.  It is this fundamental disconnect that drives our slavish devotion to perpetual exponential growth extracted from a world that is increasingly coming apart at the seams.

The top 0.001% knows this.  It's why you have hedge fund managers buying up farmland while simultaneously taking advantage of the Fed's free money program.  Personally, from an expediency standpoint, this is why I can't really blame those on the lower end who are trying to get what they can from the system -- because it's not that the system is going to fall apart, it already is falling apart.  I'm sure as hell not going to refuse to take advantage of state and federal rebates for alt. energy when I build out my PV system in the next couple of years, just because the monetary system is falling apart, just as I'm not going to refuse to have a backhoe help build my backyard pond or use a chainsaw to process firewood because peak oil is upon us. 

I'm not going to judge those on the lower end of the econometric scale who try to game the system to their own advantage, even if it contributes to the decline, because the decline is occurring regardless of what they do.  That die was cast long before today....

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Not quite

Examined -

Let me clarify, as I think you've made some assumptions about my intent that aren't accurate.

1) My question on the 40% increase in minimum wage was: How will it be afforded? Yes, the employers will pay the increase, but can they do so at acceptable cost? And by 'acceptable cost', I include factors like:

  • will prices need to rise, thus exacerbating the already-painful price increases in essentials (food, energy, housing, health care, etc) that so disproportionately inflict injury on the poor and middle classes?
  • will workforces shrink as employers can afford to hire fewer workers?
  • will work benefits shrink as costs/employee rise?

In your comment you mention "Just to assume for a moment that no one lost his or her job if the minimum wage were increased". Sorry, but I just don't see any probability above 0% for that outcome. It strikes me as the same sort of reality-detached magical thinking that's at the heart of the point I'm trying to make within this article. If your assumption were possible, then why stop at a 40% minimum wage increase? Why not make the minimum wage $1 million and eradicate poverty altogether? Because as we all know, you can't produce real wealth with more paper. Paper can only distribute wealth (or more accurately, claims on wealth), and even then, it has consequences that need to be taken into account.

And lastly, in the case of the President's executive action to increase the minimum wage paid to federal contractors, the government may indeed end up being the root source of funding for this increase. It's highly likely these contractors will charge the government more for their services in the future, because their labor costs just jumped so severely. And where will the government get the money to pay these higher bills? From the taxpayers (or more likely, as Charles notes, it will fund the cost increases with debt borrowed on the taxpayer's backs)

2) I may be misreading you here, but you seem to imply that I have a philosophical issue with spousal benefits as a part of SS. I don't.

The issue I have is that the system is acting in a mathematically irresponsible fashion.

In the example I cite, the ex-husband's SS payments were calculated based on his income over the years he worked. By its rules, the system determined he paid in enough wages to merit a SS retirement income stream of $X.

Does his ex-wife have a claim on that? Maybe, maybe not. That's not my point. But if it's determined that she does, which the government indeed thinks, then I would expect her to receive a payment of $Y and the ex-husband's payment to shrink to ($X-$Y). That would keep the system solvent, in theory.

But that's not the case. Instead, it's an ($X + $Y) situation. His payments stay the same, and she also gets a check.

By writing the above post, I wanted to highlight the broken math behind the system. But more importantly, I wanted to expose its consequence-free thinking. It's the free money mindset that's the root evil here which pervades ALL government spending and borrowing (on both the politician and populace sides). 

3) You (and several other commenters) appear to have interpreted my position as attacking the SS check recipient. Let me be clear: that's not my intent at all. As described above, I'm instead criticizing the system and the mindset driving it.

My article above was based on a personal vignette; it was not suggesting the vignette was the entire scope of the problem.

And I thought I gave a sufficient nod to the equal insanity of throwing fresh money & debt at the markets, banks, etc. But in case it wasn't enough: heck yes! we should be running our national fiscal books in ALL cases within our means (and fairly, too, while I'm making wishes here). I'll loudly applaud and actively participate in any discussions that delve into reforms for Wall Street, the military-industrial complex, corporate subsidies, etc. 

Sadly, IMO, even under the best of circumstances should saner thinking suddenly break out across the country, before we can live within our means, we will need to live beneath them for a painfully long time in order to make up for the over-excesses we've been enjoying.

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Thanks for the clarification Adam

Adam,

One question I have that nobody seems to be able to answer is this? Is it possible to balance a budget permanently in a financial system that is paper based, backed by debt?  I don't think so.  Many people simply suggest cutting expenses and the problems will be solved.  But doesn't a paper money system need to continually expand to avoid serious recession or depression? Along with the resulting lack of trust in such system?

My contention is that most of the corruption we see is a result of the easily predicted death throes of a paper based money system. Making moral judgments in a system lacking morality may be wasted time and thought. 

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A word about gov't contracting

Adam

Quote:
And lastly, in the case of the President's executive action to increase the minimum wage paid to federal contractors, the government may indeed be the root source of funding for this increase. It's highly likely these contractors will charge the government more for their services in the future, because their labor costs just jumped so severely. And where will the government get the money to pay these higher bills? From the taxpayers (or more likely, as Charles notes, it will fund the cost increases with debt borrowed on the taxpayer's backs)

I've seen some of this from the inside also.  Davis-Bacon is a nightmare of complexity and confusing standards.  I certainly understand the frustration of contractors trying to comply with the regulations.  But, having overseen compliance with those regulations for a segment of gov't contractors, I can say that I don't know of one contractor who went out of business or significantly reduced their workforce. 

Second, again in that segment of contractors, they bid for the jobs.  They can't just willy-nilly jack up prices.  Most of those contracts were for construction or maintenance of gov't structures.  These kinds of contracts tend to have fairly fixed costs and require certain numbers of employees.

Another observation.  I was doing this work back when Reagan was supposedly privatizing all kinds of gov't programs.  The myth is that somehow all that work was suddenly shifted to the private sector and were, ipso facto, less expensive.  On the contrary, it turned into a gravy train for contractors at the cost of huge increases in taxpayer dollars.

I would love to see a full accounting of all those formerly gov't functions that were outsourced but are still paid for by the taxpayer.  Particularly, I would like to see how much more we pay for all those military and "security" functions that the military and spook agencies formerly performed, but are now performed by the Blackwaters of the world.

So, in summary, we are paying more for a lot of those services at least partially because they are now performed by the private sector and when one contractor raises his prices, they all do; and those services are largely necessary for the rest of the private sector to perform their functions.  The contracting system is fairly transparent among the contractors and they know how to play the game.

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does anyone out there know

does anyone out there know where the break even point is? where does it make sense to give up being middle class and settle for free entitlements. ? just wondering. Strategy change?

the system is the system and we are all free to play the system any way we each choose.if i decide to play by the systems rules, that is my choice. i have no reason to be upset if everyone doesn't see my wisdom!! or folly. your choice is your choice . no matter what i think.

i see the system changing right in front of our eyes. and i am hearing a lot of comments that are bemoaning how unfair it is to change the system

.the reality is --- it's changing. and we can chirp away or start adapting.

Arthur says : I will stick to my guns. What we are watching is the destruction of the very idea of money.

i agree but i would change that to say i see a desperate attempt for folks to say the money is real , the system is wrong. People are desperately trying to hang on to the idea of money...to their own detriment.

the money is worthless so who cares about all the numbers and charts. Or the idea of money having real value.. we are just waiting for a disclosure event to shed light on this fact.

i was taught to work hard at something i loved doing, save 10% every year for when i was old.

a few years back i realize that that was no longer going to be a good strategy and i had been duped into giving my years of work for a sheet of paper with numbers on it. so in 2006 i started transferring my "paper wealth" into owning my own hard assets: land, shovels, fences etc.

i live in michigan. we have lots of snow and it's been extremely cold in the negative numbers. it's currently 16 degree and as soon as i send this, i am taking a book out to my greenhouse , where it is 85 degrees, and i will sit down and enjoy reading for awhile. i bought and built my greenhouse with some of my worthless paper money before everyone has realized it's worthless.

last month my heating bill was $15 for the whole month, because i worked hard and chopped and stacked enough wood to heat my well insulated house.

the numbers i care about are how many cords of firewood do i need for a cold winter like this. and how long does it take me to split it all. i stay one or two years ahead on my wood. better than paper!!

a little hard work is actually good for this 60 yr old woman.

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military spending vs social spending

The data agrees with rhare:

US Defense Spending: FDEFX / FGEXPND

US Social Spending: social security (W823RC1) + medicaid (W729RC1) + medicare (W824RC1) + unemployment (W825RC1) + "all other benefits" (W827RC1) / FGEXPND

I'm not trying to argue that military dollars are well (or even necessarily) spent.  He's just right on the numbers.

But I certainly wouldn't use the argument that "the military employs a million people."  I'd much rather NOT tax people, let them use their own money, and NOT hire the million people in defense, and assume the private sector could find a better use for the money.  Strictly from the standpoint of a jobs program, dividing 1 million workers by the 777B spent by the miliary, we get a cost of $777k per worker.

Expensive jobs program.  Even for the government.

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Miliary spending

davefairtex wrote:

But I certainly wouldn't use the argument that "the military employs a million people."  I'd much rather NOT tax people, let them use their own money, and NOT hire the million people in defense, and assume the private sector could find a better use for the money.  Strictly from the standpoint of a jobs program, dividing 1 million workers by the 777B spent by the miliary, we get a cost of $777k per worker.

Expensive jobs program.  Even for the government.

I guess I stated that kind of poorly.  What I was trying to point out was that when you look at the Military budget and say people are getting rich off it, it's misleading.  Only a very small percentage of that $777B is being siphoned off to make people wealthy.  A lot of it is going to  a lot of people's salaries and equipment that does have a "useful" purpose.  It's the "slash the military budget" and everything will be better that I think ignores other impacts, for example, what happens when millions are suddenly unemployed and have unusable skill sets.  For a while the problem will probably be much worse.  Don't get me wrong, I think it needs to be cut considerably (move to defense versus empire building).

I also was way off on the number of people being supported by the military budget.  I was just counting the defense contracts (can't find the link to the number now, but it was in the million range), and left off the 2 million active and reserve troops that the budget also pays for.  So the cost/jobs is actually much less than the $777k/worker. A few billion dollar planes and other equipment takes up a lot of that amount so it's not all salaries anyway.

The key takeaway is that the "Slash the military" and "Tax the rich" are not realistic approaches to our current issues.  They make good sound bites but do nothing as far as addressing the magnitude of our problems.  As Adam, Chris and others have pointed out, we have a very bad spending problem.  We are living well beyond our means and have for years.  Until that is accepted, which means giving up on the naive sound bites, we will not be working towards a solution.  Then on top of that so much of the wealth we perceive is an illusion based on a faulty monetary system.  If the money is not real, then the wealth is not either.

Arthur Robey's picture
Arthur Robey
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Posts: 2506
In The Iron Grip of an Illusion.

Nice clear graph Dave.

I interpret it thus:

Drones, no matter how repulsed you are by them, are a cost effective method of stirring up a hornets nest. They are an example of the Machine increasing "productivity" and decreasing costs while eliminating humans. (On both sides). Who would dream of sending in serried ranks of grunts in this day and age? Far too expensive! Consider the medical bills alone.

And we haven't even begun to discuss the cost/benefit ratio of autonomous robots. Obviously large aircraft carriers just aren't in the cost/benefit ballpark.

I have to concede that there are still cheap humans to be bought. Classic evolution should come into conflict with designer humans over that issue.

My hope is that the illusion of money pops soon and we wake from its nightmare. Our culture must be go the way of the Bushido. In support of my view I regurgitate I, Pet Goat II.

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cmartenson
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The Breakeven Point

ferralhen wrote:
does anyone out there know where the break even point is? where does it make sense to give up being middle class and settle for free entitlements?

I have a friend who is on disability, but dreams of the day she might be off of it again.

While the amount she is living on is tiny, once the various health insurance benefits are factored in that come along with a tiny income, we calculated that she'd have to earn $42,500 on a pre-tax basis to break even. 

In a county where the median income is a fraction of that, that's a tall order.

Thetallestmanonearth's picture
Thetallestmanonearth
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Posts: 176
My new plan to fix the economy

Forget cutting military spending etc. What if we just all at once ban petroleum powered farm equipment. Think of all the jobs that would open up. (Clearly I'm being sarcastic, but I think there is an some twisted wisdom in the idea).

Hotrod's picture
Hotrod
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Posts: 69
New Plan

Tallestmanonearth,

What you suggest may not be all that farfetched.  Modern agriculture uses  massive amounts of petroleum and credit, both of which could become a limiting factor very quickly. The Amish purposely limit technology in an attempt to keep many people of their community actively farming. Unfortunately, in our society, your standing is inversely proportional to how dirty your hands become while earning a living.  As well as your financial compensation. 

KennethPollinger's picture
KennethPollinger
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Posts: 217
Undue Influence?

From our prior list of top ten Billionaires:  Charles Koch,  36 Billion; and, David Koch, also 36 BILLION.  Let's see what they are up to now--could this possibly be true?  Surely Rachel is biased, no?  WEALTH MATTERS and can keep the Plutocratic Elites in control.  Focusing ONLY on income is quite deceptive, no?  Do these brothers consider sustainability, limits to growth, etc., important??  That's why I claim that we need Income-Wealth Social Class Charts--wake up America.

westcoastjan's picture
westcoastjan
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Posts: 466
thoughts on the machinations of govt spending

I have been following with interest the comments and thinking on this article. Where does the money come from is a really good question, and one that most people do not truly understand, from the perspective of how governments operate. My work has me connected to the provincial government budgetary process, and I can tell you that there are many senior executives with spending power who do not know how budgets actually work.

The key that most people in general do not understand is that a Budget is actually legislated and passed into being, making it a law. This is the validation process, which is done by the different but similar legislative processes in various countries. To spend more than is legislated in a budget is to literally break the law...

What has amazed me is that Obama has never brought in a budget (at least that is my understanding from the outside looking in).  So the reality is that in not doing so, he has been able to make these grand gestures, such as what he just did in raising the minimum wage for federal contractors, without fear of actually breaking the law. Had he brought down budgets each year, he would not have been able to do this (and many other things) legally speaking. So I have to ask has he been a sneaky SOB in purposefully not bringing down a budget knowing that he could do what he wanted and not be technically breaking the law?

Should the first order of business then not be creating new legislation to make it mandatory to table an annual budget? It should be illegal for a President to just spend, spend, spend without legislative accountability. Maybe I am out to lunch and really do not understand the American political system, but to me, the basic first step is table a budget, and if you don't stick to it then the people will call you on it.

Thoughts?

Jan

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RNcarl
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Posts: 361
As good a place as any

cmartenson wrote:

ferralhen wrote:
does anyone out there know where the break even point is? where does it make sense to give up being middle class and settle for free entitlements?

I have a friend who is on disability, but dreams of the day she might be off of it again.

While the amount she is living on is tiny, once the various health insurance benefits are factored in that come along with a tiny income, we calculated that she'd have to earn $42,500 on a pre-tax basis to breakeven. 

In a county where the median income is a fraction of that, that's a tall order.

Well,

I have been away... from the site for a while. Seems, when the chips are down, I cough up the red pill (or is it the blue one, I can never remember) and scramble to support my family. This diatribe is germane to the topic even if it isn't clear now. Please keep reading.

First, according to most of Kenneth's tables, I was/am about a 10%'er. That is until my employer of ten years decided to give me a "pink slip" as my tenth anniversary gift. I am employed in that evil medical device industry. My competitors became my friends and I quickly was employed by one of them and returned to my 10%-ish status. But, I am learning that the 10% status is very tenuous because of all of the rants about the ACA. I am in that age group that is too young to "retire." And retirement is out of the question anyway because like Adam's relative, my retirement account does not amount to much. I also have two teenagers who will be going off to college soon. (Yes, I believe in college.)

Currently, in the state that I live in, if I were to go "back" into the hospital and take a job as a nurse, I would NOT be making more than that $42,500 figure Chris was talking about above. Why? I thought nurses made good money you say. They can, just not in the south. And, hospitals are NOT hiring full time. It is far easier to "cancel" your extra shifts (when you try and make 40 hours) if the census is low than try to either shift you around the hospital or make you use your vacation time to be paid full 40 hours... But I digress.

Last summer, one acquaintance even asked me, "Why don't you go on disability and collect?" I replied that I am not disabled and how could I do that? She replied, "I don't know, but I know someone who just got their disability decision and are collecting and he doesn't seem disabled either!" And just think, on disability, getting assistance, SNAP and whatever else, my daughter would most likely get to attend UNC - Chapel Hill pretty much for FREE because of the state's College Promise program.

What is wrong with this picture?!?!

Pure and simple, our entire system is broken. But like any good machine, it will continue to work, limping along until there is a catastrophic FAILURE. - Perhaps.

The question is, how long will it limp along? Chris is still in awe that it hasn't "broken" yet. He saw the warning signs back in the early 2000's. He saw the numbers perhaps, but a lot of us, "knew there was something wrong." We are now almost half way through the "Next twenty years will be nothing like the last twenty years" prediction that Chris made. In some ways he is right. In other ways, not much has changed.

Bottom line, the rich will continue to get richer because they make the rules. And, until the system really "breaks" that will only change in that a new cast of characters will take their place. Ask the Pharaohs, the Caesars, and the kings of the western world, each new realm succeeding the last.  How long did Rome last? Folks, we have a long way to go even with bumping up against the edge of energy production. Will it get a lot harder before it gets easier? Probably.

So, what's the answer? Live your life. Provide for your family as best and any way you can that has the most joy and causes you the least amount of grief. Because unless you are one of the 1%'ers you are just making ends meet.

I choose to help others. I choose not to worry if someone getting SNAP "deserves" it or not. And even the military Industrial complex and all of it's "military welfare" to the soldiers families does not bother me any more. Why? Because we are all just trying to feed our families and live out our time on this rock in relative comfort.

The "big reset" will come when it comes. Maybe sooner, maybe later - much later. It doesn't matter. If you are reading this, you are already more "prepared" than the other 99% who are not aware.

~ Peace 

aggrivated's picture
aggrivated
Status: Silver Member (Offline)
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Posts: 163
Unraveling our ties to un-money

On one hand, Un-money is debt based money.  It's 'value' is borrowed from the future.  It will primarily be repaid by future labor (ours and those after us ) and our use of stored energy either fossil or nuclear. This money will also  become of less value as either human labor becomes less important to the economy, or our stored energy supplies become unavailable. Either way it is based on the use of power in the future.

On the other hand, Money is commodity based.  Gold and silver fit here and IMO so does bitcoin, since the mining must be done before the bitcoin can exist. Other commodities are also wealth and could be used as money. Money exists because energy has been expended to get it.  It's value is determined by it's desirability in the current economy.

My take away from all this discussion on Uncle Sam's largesse out of empty pockets is to strive to live in ways that untangle our lives from the web of un-money.  To do this requires accumulating 'primary wealth' as defined in "Small is Beautiful' by Schumacher. As each is able, begin to take your energy and resources out of the system of un-money.  This can't be done quickly for most of us. Decompression must be gradual or it kills.

The stock markets withdrawal symptoms from the FED's backing down Quantitative Easing is an example of the shock of weaning off un-money.  As we do so ourselves life for each of us will change. So before un-money becomes too worthless we need to be adequately untied from un-money. 

Here are a few examples discussed on this site....Chop your own firewood. Use the sun's energy. Take your 'unemployed' time and invest it directly in your family, friends and community. Teach your children.  Save your excess in forms of wealth that are not dependent on un-money. Invest in local enterprise. Become your neighbor's social security.

I'm not saying this is an easy transition. Chris pointed out the example of the friend on disability. Some won't be able to do it and survive.  Still, I think that it's worth trying to untangle ourselves from the web of un-money.  The community on this site is full of living examples on that journey.  Hopefully the demise of un-money's value will be gradual enough for lots of others to wake up to it's deception and join in the untangling journey.  But then, I'm not waiting around either.

rcmacl's picture
rcmacl
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Posts: 12
I still want to know why we are after the poor

Adam you really seemed quite outraged about this:

"And while I understand why she feels the need to take the money, I'm conflicted about my role in the affair. Because it's this very behavior of treating the government like a free money ATM (or a benevolent uncle with a bottomless wallet  use whatever analogy you like) that's ruining us."

She "needs to take the money"? You make it sound like she is touching something dirty, and that if she weren't in such a piteous condition, she should turn it down.  She earned the money.  Let us look at it another way.  I imagine that whatever property you live on you now own free and clear, but I think it likely at one time that you had a mortgage and the you got a considerable subsidy from the United States government to support your home ownership.  Money that the government really wasn't in a position to afford.  Perhaps you should look at how much of a gift you got from the government during your years of home ownership, and see if you can return some of it to your aunt and then you wouldn't be in the position of abetting an old woman in getting an extra thousand or two a year from the Feds.

I do understand your point, every single gosh darn one of us has at one time or another expected the government to step up to the plate without thinking about where the money is coming from, but this just does not excuse directing outrage towards programs that may mean the difference between whether someone gets one healthy hot meal a day or not.  Leave that to the right wing pundits who no doubt think your aunt is a welfare queen.  
 
Yes the dollars add up as we try to find funding to feed the steadily increasing number of people in this country who no longer have food security.  And yes we can't solve all our problems by taxing the rich, but what the rich folks have adds up too.  If we liquidated the Koch brothers 72 billion is assets we could support the entire Social Security retirement and survivors benefits for almost two entire months, ALL 39 million of those folks.  And another issue no one else has addressed, that money will actually be spent in ways that benefit the economy as a whole.  Heck if we let the poor be the last big beneficiaries of the final gasps of our debt bubble, I suspect the world would be a better place.
 
Yes I am speaking my mind, but I spend a lot of time here listening to folks who don't have the glimmerings of a clue of what it is like for an urban family of four to get by on 24,000 a year, which by the way means they aren't even in poverty according to our government.  Try eating on food stamps.  Mostly I just sigh and shake my head, but I really want to speak out when one of our respected guides on this website starts heading off in this direction.
Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 1883
You really aren't getting me

rcmacl -

Gosh, you're really not getting me. Did you read my further clarification below?

I'm beginning to think that more words from me are not going to help you understand my position better.

Let me reiterate a few bullets here. If that doesn't help, I guess we'll just have to agree to see this issue differently:

  • First off, be careful with your assumptions. Both of the relative I mention in this story, and of me. For example, I rent. In fact, I'm over 40 and have never owned a house. When you make an ungrounded assumption about my background or motives, you open yourself up to the possibility of missing the mark widely. It's much better to stick to facts and data.
  • I'm not clear at all that you do "understand my point." Because it has nothing to do with whether my relative deserves the money, morally. It's that our SS entitlement system (like most other government funded programs) has a mathematically broken model. And this is exacerbated by an irresponsible, consequence-free "free money forever" mentality that both the operators and beneficiaries embrace.
  • And this line really confuses me: "this just does not excuse directing outrage towards programs that may mean the difference between whether someone gets one healthy hot meal a day or not". I see the situation completely differently. I think it's our responsibility to express outrage if a support program tens of million of people depend on is running itself into insolvency. If we don't, and the program is run into the ground, ending those hot meals for good are we not complicit in our negligence to act?
  • If you want to rail at the obscene concentration of wealth happening in the U.S. as a result of our misguided and crony capitalist policies, have at it with my blessings. Chris, Ken and others have already contributed intelligently on that topic in previous comments on this thread. I'll just reiterate that even if we appropriate all the wealth of these modern-day robber barons, it won't fill the financial hole we're in. Not by a long shot. To your observation though, it might make us feel better for a few months.
  • I sense it's important to you to hear that I and the PP community believe those living on government assistance should be treated with kindness, compassion, and understanding of the challenges they face on a daily basis. If my assumption is accurate (and please forgive me if it's not), then speaking for myself, let me clearly state I completely believe that. But I also think that, consistent with that belief, these folks deserve programs that are based on sound math, meaningful support, effective incentives for true self-betterment, and measurable impact. Simply handing out money until the doomed system breaks does not serve their real interests, nor those of the future generations that will have to bear the costs of the aftermath.

I hope this helps.

cheers,

A

earthwise's picture
earthwise
Status: Platinum Member (Offline)
Joined: Aug 10 2009
Posts: 829
Lawless lawmakers

Jan,

I'm pretty sure that a budget is mandated by law. This is just another example of the flagrant disregard of the law by our 'elected' representatives.

SingleSpeak's picture
SingleSpeak
Status: Gold Member (Offline)
Joined: Dec 1 2008
Posts: 430
Since Adam rents

and therefore did not feel the need to respond to the the following jab from rcmaci, I will.

Perhaps you should look at how much of a gift you got from the government during your years of home ownership, and see if you can return some of it..........

The government allowing me to keep some of the money that I earned doesn't qualify as a gift IMO.

If someone goes into your bank account and takes a few thousand dollars and then gives you back a few hundred, would you really consider it a gift just because he was stealing more from someone else?

SS

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 1421
slash the military - not a solution?

Actually, if we were to tax the rich AND slash the military budget, it would come very close to solving our problems.  Whether that's a good idea or not, it would work.

According to the latest data (from the treasury department's monthly MTS spreadsheet, smoothed with a 12 point moving average because the underlying series is so volatile) we're running a deficit of about 560 billion per year - annualized.  You can see from the chart below that the deficit reduction activities actually have reduced the deficit.  Wonder of wonders.

http://www.fms.treas.gov/mts/mts.xls

Given the military budget is 777 billion, less deficit of 561 billion, + "tax the rich" scheme that could conceivably be able to garner at least some money (say - taxing those hedge fund owners at ordinary income rates instead of LTGC, just for a starter - and the futures traders who also get a LTCG benefit too, for some unknown reason), I think rummaging underneath the seat cushions we could zero out the deficit in fairly short order.  It would be a drastic reduction in military spending, but - let's be clear, it would work.

And if we combined this with "means testing" social security, and/or expanding SS taxes past the current income limit of - what is it, around 110k/year - why, bob's your uncle and we'd be all set.  Why not gradually raise the retirement age while we're at it.  Gore enough sacred cows, and what do you know, we really can fix our budget issues after all.

And in terms of dealing with the dislocation with downsizing our military - most likely it is cheaper to do it now and retrain all those guys to do something peaceful, rather than borrowing all that money to keep the system going and pay them not only current salaries but pensions as well.

Bottom line: regardless of whether or not you approve of the policy, the numbers say, it would work.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 2506
Taxes, Just for Fun.

A tax on every stock exchange transaction would also work wonders. The VIX would set new records. Even if there is no logic to it, it would be a hoot to see what happens to the HFT algos.

I guess the Machine would not take too long to factor it in. It would be a neat test to see just how intelligent the machines have become. It would not surprise me if the algorithms are capable of learning.

Everywhere I cast my mind I see the sign. This is a Great Transition. Stay healthy, get enough sleep and break out the popcorn.

I see that the old guard have fallen off their perches at last and NASA and the military (especially the Navy and air force) are embracing LENR. They would be mad not to. The army still has not got over having to abandon swards.

westcoastjan's picture
westcoastjan
Status: Gold Member (Offline)
Joined: Jun 4 2012
Posts: 466
re those lawless lawbreakers...

Earthwise, thanks for the response - I am certain as well that there are laws saying budgets must be tabled. Apparently laws have become like stop signs in that many people ignore them, driving right on through them because there are no consequences.

I marvel at the fact that there is no outrage over the fiscal mismanagement of Obama (and others before him), yet a previous President was called on the carpet because he couldn't keep it in his pants. Meanwhile, people care enough to get a 100,000 signature petition to the Whitehouse calling for the deportation of Justin Bieber, but there is nary a peep calling for a petition to end to deficit spending or anything else that is "material". Therein lies the problem - what has become "material" for most, the entertainment and sports worlds, is so immaterial it makes me want to barf!

But once again, I find myself very much alone in my thinking when amongst family, friends and colleagues. Most are too busy talking about the latest Superbowl commercials, or the goings on in the latest reality show, and they cannot be bothered to even think about anything that might pop their fantasy happiness. Sigh...

Jan

Nate's picture
Nate
Status: Gold Member (Offline)
Joined: May 6 2009
Posts: 461
haircuts dead ahead

davefairtex wrote:

Actually, if we were to tax the rich AND slash the military budget, it would come very close to solving our problems. 

According to Laurence Kotlikoff, the federal governments unfunded liabilities are $220 trillion.  If we add state and local government unfunded liabilities into this figure we are near $300 trillion.  This works out to about $1 million per US citizen. 

Taxing the rich AND slashing the military budget would come no where near solving our problems.

earthwise's picture
earthwise
Status: Platinum Member (Offline)
Joined: Aug 10 2009
Posts: 829
rcmacl wrote:I do understand

rcmacl wrote:

I do understand your point, every single gosh darn one of us has at one time or another expected the government to step up to the plate without thinking about where the money is coming from, but this just does not excuse directing outrage towards programs that may mean the difference between whether someone gets one healthy hot meal a day or not.  Leave that to the right wing pundits who no doubt think your aunt is a welfare queen.  

 
Sorry Rcmacl, but your just plain wrong. This may be true in your world, but not in mine. I've never taken a single dime from any government program and the very few people I know that have, are evenly split between those who were entitled by way of lifetime contributions (Social Security) or were people ripping off the system. As a blue collar, middle class guy, all I want from my government is to be left alone. And, I think about where the money comes from all the time: every week when I see the taxes taken out of my paycheck. 
 
The entitlement system as we know it was designed for fraud. I know that's a bold statement but I can tell you some anecdotes describing some "inside baseball" that would curl your hair; private admissions by high ranking congressman regarding the well known level of fraud. The "help the poor" mantra is just a facade.

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