The Financial Status of Social Security, Part 1

FinancialStatusOfSocialSecurity_Part1  <– PDF version

Dear readers:

This is the first in a series about the true financial status of the Social Security Trust Fund.   There are several useful charts showing the historical state of the Trust Fund since 1937; for that reason it is available only in PDF format.

Thanks for reading,

EDD

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The Politics of Dependency

The Politics Of Dependency   <– PDF version

Our topic today is the policy that seeks to reduce poverty.  But before I address the modern particulars, first consider an extended passage from a book by the 19th century American economist Francis A. Walker [1].   I have indicated in square brackets some explanatory notes, mostly related to the calculation of dates.  It is very important to recall as you read this, that Dr. Walker was a white person talking about other white people.  In his 1884 book he writes [2]:

The Impotent vs. the Able-bodied Poor.  The relief of the impotent poor, whether by private or public charity, is, so far as political economy is concerned with it, a question relating to the consumption of wealth.  It is so much a matter of course, under our modern civilization, that the very young and the very old, the crippled and deformed, who are unable to earn their own maintenance, shall not be allowed to starve, that the matter of relief to these classes becomes one of administrative detail, that does not require even to be alluded to in an elementary treatise on economics.

The experience of that country from which we derive our law and much of our administrative machinery [Great Britain], is, however, so instructive as to the influence for mischief upon the entire laboring population and upon the future production of wealth which may be wrought by ill-considered provisions for the distribution of alms to the able-bodied poor, as to make it worth while briefly to recite that experience here; and thereupon to define the limits outside of which the consumption of wealth for this purpose becomes prejudicial to production.

We shall get at our subject most directly by inquiring why it is that the laborer works at all.  Clearly that he may eat.  If he may eat without it, he will not work.  The neglect or contempt of this very obvious truth by the British Parliament, during the latter part of the eighteenth and the earlier part of the nineteenth century, brought the working classes of the kingdom almost to the verge of ruin, created a vast body of hopeless and hereditary pauperism, and engendered vices in the industrial system which have been productive of evil down to the present day.

Establishment of the English Pauper System.  By the act of the 43rd year of Queen Elizabeth’s reign [1601], every person in the kingdom was given a legal right to public relief, if required; but voluntary pauperism was severely dealt with, and the able-bodied compelled to work.

The principle of requiring the able-bodied poor to work continued for generations to be fundamental in the English pauper system; and for the better enforcement of this requisition parishes or unions of parishes were, by an act of 9th George I. [1722], authorized to build workhouses, residences in which might be made a condition of relief.  Moreover, from the days of Elizabeth to that of George III, the spirit which actuated the poor laws was jealous and severe.  Doubtless in that administration unnecessary harshness was sometimes practiced; but, on the whole, the effect on the working classes was wholesome, for it was made undesirable to become a pauper.

Removal of the Workhouse Test.  On the accession of George III [1760], a different theory came to direct legislation relating to poor relief, and a widely different temper of administration began to prevail.  Six successive acts, passed in the first years of George III, intimated the changed spirit in which pauperism was thereafter to be dealt with.  In the 22nd year of that reign [1781], the act known as Gilbert’s act gave a fuller expression to this spirit.  By the act the workhouse was no longer to be used as a test of voluntary pauperism:

The 32nd section provided “That where there shall be in any parish, township, or place, any poor person or persons, who shall be able and willing to work but who cannot get employment, the guardian of the poor of such parish, etc., on application made to him by or on behalf of such poor person, is required to agree for the labor of any such poor person or persons at any work or employment suited to his or her strength and capacity, in any parish or place near the place of his or her residence, and to maintain, or cause such person or persons to be properly maintained, lodged and provided for, until such employment shall be procured, and during the time of such work, and to receive the money to be earned by such work or labor, and apply it in such maintenance as far as the same will go, and make up the deficiency, if any.”

By the repeal of the workhouse test, and by the additional most injudicious provision which we have placed in italics, a deadly blow was struck at the manhood and self-sufficiency of the working classes of England.

The Logical Outcome.   By 1832 the false and vicious principle on which Gilbert’s act was based had been carried logically out to its limits in almost universal pauperism.  The condition of the person who threw himself flat upon public charity was better than that of the laborer who struggled on to preserve his manhood in self-support.  The drone was better clothed, better lodged, and better fed than the worker.

All the incidents of this bad system were unnecessarily bad.  The allowance for each additional child was so much out of proportion to the allowance for adults, that the more numerous a man’s children the better his condition, and thus the rapid increase of an already pauperized population was encouraged; while the allowance in the case of illegitimate children was even greater than for those born in wedlock.  “It may be safely affirmed,” said the Poor Law Commissioners of 1831, “that the virtue of female chastity does not exist among the lower orders of England, except to a certain degree among domestic servants, who know that they hold their situations by that tenure and are more prudent in consequence.”

Such may be the effects of foolish laws.  The legislator may think it hard that his power for good is so closely restricted; but he has no reason to complain of any limits upon his power for evil.  On the contrary, it would almost seem that there could be no nation, of any race of men, which a few laws respecting industry, trade and finance, passed by country squires or labor demagogues in defiance of economic principles, could not transform within half a generation into a nation of beasts.

Poor Law Reform.   We have seen what a system the English squirearchy substituted for the economic law that he that would eat must work.  The natural effects of this system were wrought speedily and effectually.  The disposition to labor was cut up by the roots; all restraints upon increase of population disappeared under a premium of births; self-respect and social decency vanished before a prize for bastardy.  The amount expended in the relief and maintenance of the poor had risen, in 1832, to 7,000,000 [pounds sterling].

In this exigency, which, in truth, constituted one of the gravest crises of English history, Parliament, by the Poor Law Amendment Act (4th and 5th, William IV) [1833 and 1834], returned to the principle of the act of Elizabeth.  The workhouse test was restored; allowances in relief were abolished; paid overseers were appointed, and a central system was created for the due supervision of the system; illegitimacy was discouraged by punishing the father, instead of rewarding the mother; and the law of pauper settlement was modified so as to facilitate the migration of laborers in search of employment.

By this great legislative reform the burden of pauperism, in spite of the continuing effects of the old, evil system, was reduced in three years, by an average amount, the kingdom over, of forty-five percent.

The Principle that Should Govern Poor Relief.  The moral of this episode in the industrial history of England is easily drawn.  It is of the highest economic consequence that pauperism shall not be made inviting; but that, on the contrary, the laborer shall be stimulated to the utmost possible exertions to achieve self-support, only accepting relief as an alternative to actual starvation.  It is not, to this end, necessary that any brutality of administration shall deter the worthy poor who have no other resource; but it should be the prime object of legislation on this subject to make the situation of the pauper less agreeable than of the independent laborer, and that, by no small interval.

“All”, says Mr. George W. Hastings [3], “who have administered the Poor Law, must know the fatal readiness with which those hovering on the brink of pauperism believe they cannot earn a living, and the marvelous way in which, if the test be firmly applied, the means of subsistence will be found somehow.”

The white people of England between the 1780′s and the 1830′s showed that if you subsidize dependency, you get more of it.  If you reward illegitimacy and the breakdown of the family, you get more of it.  If you treat the idle better than the worker, you get more idle people, and a great deal of resentment from those who work and pay taxes to support the idle.  It turns out that the people of America, white and black alike, have demonstrated the exact same behavior in the last fifty years as the English did over a similar interval.  Ambition to work is generally down; illegitimacy and poverty are generally up among all the races in America.  But this problem cannot get the attention it deserves because those heavily invested in the current system will not allow a discussion of it.  Consider the similarity of Walker’s conclusions with the remarks of Congressman Paul Ryan (R-WI), on 12 Mar 2014:

“We have got this tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning to value the culture of work.”

To which Her Most High Indignancy Congresswoman Barbara Lee (D-CA) commented:

“Let’s be clear, when Mr. Ryan says ‘inner city’, when he says ‘culture’, these are simply code words for what he really means: ‘black’.”  She also called Rep. Ryan’s statement a “thinly veiled racial attack”.

By calling Ryan’s statement “a racial attack”, Her Imperial Righteousness Rep. Lee is implying that blacks and whites are somehow different; that black people do not want the same things as white people, and behave differently than white people.  That sentiment is foreign to true civil rights advocates, but typical for narrow-minded race-baiting bigots.  How can Congress correct the problem if one faction of Congress calls the other side racists just for stating the obvious?  But enough said about politicians.  What about the 7 million pounds sterling that Dr. Walker mentioned, and how does it relate to America today?

The data from two websites [4, 5] reveal the following statistics:

a.  Nominal GDP of the United Kingdom in 1832 was 459,000,000 pounds sterling

b.  Nominal GDP in the United Kingdom in 1832, measured in 2008 pounds sterling, was 45,087,000,000.

c.  Nominal GDP in England (to which Walker referred) was 36,837,000,000 measured in 2006 pounds sterling.

Ignoring the difference in 2006 vs. 2008 pounds sterling, we have the ratio of the GDP of England to GDP of the UK in 1832 as 36937 million / 45087 million = 81.7%. Hence the nominal GDP of England in 1832 pounds sterling was 81.7% of 459,000,000 = 375,012,376.  The 7 million pounds Walker referred to thus represents 7,000,000 divided by 375,012,376, or 1.86% of GDP, which Walker called a “grave crisis”.

The U. S. 2013 federal budget [6] contains the following entries under the category “Welfare” (all figures are in $ billions US).

a.  Family and Children:           269.8

b.  Unemployment:                      53.2

c.  Worker Compensation             8.0

d.  Housing:                                   53.9

for a total of $ 384.9 billion US.  This excludes $ 366.6 billion for “Vendor payments for health care (Welfare)”.  I have excluded the latter figure since the payments for poor relief in England likely did not include any medical expenses.

Using only the 384.9 figure, and the 2013 GDP of the U. S. [7] as  $ 15,684.8 billion US, it is seen that the $ 384.9 B represents 2.45% of GDP; even worse than the ratio under the English system.  If the medical costs of welfare were included, the total comes to 4.79% of GDP.

So where does it end?  It doesn’t.  We will have more of the same (dependency and resentment) because the race-baiting politicians want it that way.

Please send comments to Edward.d.duvall@gmail.com

References

[1]  Francis A. Walker (1840 – 1897); economist and statistician, officer in the Union Army in the Civil War; chief of the Bureau of Statistics 1869-1870, Superintendent of the 1870 Census, President of the Massachusetts Institute of Technology 1881 – 1897.

[2]  Francis A. Walker, Political Economy, NY: Henry Holt and Co., 1892, (copyright 1884), pp. 356 – 361

[3]  George W. Hastings (1825-1917), English Liberal politician, Member of Parliament from East Worcestershire 1880-1892.  He was expelled from the House of Commons for fraud.

[4]  http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/threecenturiesofdata.xls

[5]  http://www.measuringworth.com/ukcompare/

[6]  http://www.usgovernmentspending.com/federal_budget_detail_fy10bs12014n_4010#usgs302

[7]  http://www.tradingeconomics.com/united-states/gdp

 

 

 

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Renaming the Washington Redskins

RenamingTheWashingtonRedskins  <–  PDF version

The Washington Redskins NFL football team has been criticized on and off for the past twenty years by some activists, supposedly representing Indian tribes, that the nickname “Redskins” is a racial slur.  Among the cases that have been litigated are Harjo et al v. Football, Inc. [1] and Blackhorse vs. Pro Football, Inc. [2], both objecting to the name under the disparagement clause of the Trademark Law. Apparently most persons of actual Indian descent are not particularly offended by the name (if we believe some polls taken among Indians).

More recently, two federal politicians, Senator Maria Cantwell (D-WA) and Congressman Tom Cole (R-OK) have voiced their opinion.  They wrote to NFL Commissioner Roger Goodell on 10 Feb 2014, stating in part [3]:

“The terminology used by theWashingtonfootball team has been determined to be a racial slur.  It is, in fact, an insult to Native Americans.  We are calling on you and the National Football League to take a formal position on a name change.”

Team owner Dan Snyder, citing statistics indicating that the public generally favors the current name, and reluctant to incur the costs associated with changing it, has stated that the name will never change.  I believe that in the long run Mr. Snyder is wrong.  Given the continuous string of accusations of racism from all the “aggrieved” interest groups (real and imagined) it is likely that he will eventually have to change the name.

If there is going to be a name change, there are two ways to go.  The first type, under the category ‘maybe the complainants should be careful what they wish for’, is to rename the team to reflect what the natives actually stood for and what they were.  Then we could choose from several viable alternatives:

a.  Stone Age Barbarians

b.  Enslavers of Women

c.  Demon Possessed Primitives

d.  Merciless Indian Savages (as mentioned by Thomas Jefferson in the Declaration of Independence)

But there is no point in that; after all, the Indian Wars are long over and members of the Indian tribes have not offended anyone.  They have in fact, suffered greatly from all the “help” given them by the government (not to mention the recurring violation of the treaties).   Since the federal politicians have weighed in (apparently not having anything else to attend to), I favor a second type of name change, one that honors the city of Washington as the seat of the federal government.  How about these for possibilities:

a. Masters of Corruption

b. Pathological Liars

c. Bureaucratic Incompetents

d. Marxist Crusaders

e. D. C.’s (Destroyers of the Constitution) – my favorite

Since all of them are provably true, it is hard to see any objection on the grounds of disparagement.

Please send comments to Edward.d.duvall@gmail.com

References:

1.  Suzan Harjo sought cancellation of the team’s trademark in 1992 under the “disparaging terms” clause.  She won the initial verdict in the Trademark Trial and Appeal Board in 1999, but that ruling was overturned by the D. C. Court of Appeals in 2005, citing insufficient evidence and expiration of the statute of limitations.

2.  This suit makes the same claim as Harjo, but with younger plaintiffs, supposedly not barred from a complaint.  It was filed in 2013 and is still in process.

3.   http://www.bbc.com/news/world-us-canada-26127941

 

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On Bail Outs and Bail Ins

OnBailOutsAndBailIns  <– PDF version

Are you tired of seeing the government rescuing wealthy bankers from their errors with your tax money?  Are you tired of watching banks creating questionable securities, then making large profits by selling them to unsuspecting customers based on risk ratings that were bought and paid for by the banks who created the suspect securities?  Meanwhile, when the bad securities crashed, the bankers took your tax money from the government to continue and expand their gambling racket.  Are you tired of watching your friends and neighbors lose their houses and jobs while the politically well-connected bankers are compensated and rewarded for failure?  In short, are you tired of seeing these Wall Street losers line up to take bailouts to save them from their own incompetence while the taxpayers take the loss?  Well cheer up chumps, in addition to future recurring bail-outs, there will come a day when you will be “invited” to “participate” in a bail-in.  Here’s how the scam will work.

When you make a deposit at a bank, you receive in return a demand deposit in the form of either a savings account or checking account entry.  Likewise, when you purchase a certificate of deposit, you receive a document, which is, like the savings and checking accounts, a receipt showing that the bank owes you the deposited amount upon presentation of a claim.  In other words, the bank does not sequester the money you deposited; it simply issues you a future right to a certain amount of money in the future, namely, the amount you deposited in one of the account types.  You are actually lending those assets to the bank, and the bank may do with it as it pleases.  The bank is merely obligated to fulfill its promise return it to you upon demand, and likewise with all other depositors.  The bank therefore keeps a small amount of cash on hand to disburse to its depositors from day to day; the rest is loaned out at a profit to the bank.  (Yes it’s true: banks make their profits by lending out something they do not actually own: your deposit).

But what if the bank engages in shady real-estate transactions, or lends money to people who refuse to pay back, or who cannot pay back; or if the bank over-extends itself through highly leveraged investments that decline in value?  There may come a time when the bank’s cash flow is insufficient to meet the daily demands by its depositors; in that case, it will have to obtain more capital to cover those losses and make good on its promises to the depositors.  But what if it cannot raise the required capital?  Remember, banks do not make money by risking their money; only by risking yours.  The CEO of the bank is not going to pony up $300 million of his own money to cover the depositors: he will inform the government that a bailout is needed.  If enough banks make the same mistakes, and the entire cartel becomes insolvent, then they get a very large bailout because they can claim that the entire financial system will collapse.  So it becomes an extension of the old rubric, which goes: “If you owe the bank $100 and can’t pay, you have a problem.  If you owe the bank $1,000,000 and can’t pay, the bank has a problem”.  To which we now add, “If the banks owe $1,000,000,000,000 and can’t pay, then the taxpayers have a problem.”  Hence the need for the government to bail out the bankers; the funds to do so are created by the central bank (the Federal Reserve in the U. S.), and the repayment is made by future tax increases to pay off the new debt created by the central bank.  A bail-out is when the bank is rescued by some external entity, usually the central bank acting on behalf of the government.

A bail-in is different.  A bail-in is when bankers are rescued by internal entities, which is to say, the depositors.  This is done by getting the government to allow the banks to refuse to honor claims by depositors, or prevent risk of capital loss to the bank by depositors demanding their own property back.  The bankers are unable to understand the colossal nerve of depositors, demanding to exercise their rights, formerly issued by the bank, to retrieve their own property on demand.  To the bankers, you are nothing more than an ingrate if you still insist that the bank uphold its end of the deal.  A bail-in is manifested by “capital controls”, (not on the banks since they do not risk their capital), but on its depositors.  It comes in the form of limitations upon depositors on how much can be withdrawn per day or week; a prohibition on the cashing of checks, limitations on how much currency can taken out of the country, limitations on overall volume of transactions, etc.  It matters not that a depositor needs money to pay for groceries or the mortgage: what matters is that the bank, by exercising a bail-in, gets to keep their money as long as it needs to, thus avoiding default, until it can coerce, bribe, or intimidate a government or other banks to give it a bail-out.  Now banks do not have the legal power to invoke a bail-in unilaterally: it has thus far required a conspiracy with the government to transfer such a power to the bank; for which consideration, the politicians are of course rewarded with favorable loan terms or even forgiveness of existing loans.  A bail-in generally does not permit the banks to pilfer the contents of “safe deposit” boxes, but it would be naive to exclude such a future possibility.

Lest you think this is all idle speculation, be advised that it already happened in Cyprus in 2013.  When the Cypriot national banks got into trouble, it negotiated a bailout with the IMF and other European central banks, but the deal was contingent upon the government of Cyprus to allow a bail-in binding on depositors.  So, in March of 2013, Cypriot depositors were saddled with the following restrictions on their own property [1, 2], some of which are still in effect:

a.  withdrawals limited to 300 euros per day

b.  cashing of checks prohibited

c.  Persons exiting Cyprus could take no more than 1000 euros with them

d.  Payments or transfers to foreign accounts limited to 5000 euros per month

e.  A 9.9% tax levied on depositors with balances greater then 100,00 euros, and a 6.75% tax on deposits less than 100,000 euros

What happened when the government imposed these violations of rights upon its own citizens in order to save the incompetent and/or corrupt bankers?  Did the people reach for the pitchforks and torches and descend upon the bankers and politicians?  No; they patiently waited in long lines like sheep; they raised no protest at the violation of their rights; they did not question the merits of the government’s actions against them.  You may be sure that this quiet acquiescence did not go unnoticed by the bankers and their political cronies.  When U. S. banks get in trouble again, as they are sure to do, it will create the perfect excuse for the government to restrict most cash transactions, allow the banks to prosper without risk, and track your every economic move electronically.

Please send comments to Edward.d.duvall@gmail.com

[1]  BBC News Europe, “Cyprus eases some bank restrictions after bailout”, 29 Mar 2013, http://www.bbc.co.uk/news/world-europe-21978286

[2]  Edward Harrison, “Cyprus’ Bank Deposit Bail-In”, 16 Mar 2013, http://www.nakedcapitalism.com/2013/03/cyprus-bank-deposit-bail-in.html

 

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