Friday, July 30, 2010

Social Security: old allies become new enemies

In the study of Social Insurance and Economic Security its been a known-known, stretching back to the 1970’s, that general increases in life expectancy and future life expectancy of the group representing a population blip (baby boomers) spelled danger regarding the future insolvency of Social Security. Today this known-known has finally become a mainstream topic regarding Social Security insolvency.

Focusing on the topics of life expectancy and the population blip of baby boomers, regarding Social Security, one must remember that this topic, political-economy enemies of Social Security regarding insolvency, were once political-economy allies of Social Security‘s supposed solvency. How so?

At the advent of Social Security in the 1930’s the benefits were payable at the recipients age 65 whereas the average life expectancy was age 61. Hence a marginal amount of recipients existed while a large amount of contributors existed to maintain the cash flow that generated benefits to recipients. Life expectancy has increased over the years in a gently sloping fashion, yet year after year life expectancy marches on at a an ever increasing rate. For example, life expectancy in 1935 was 61.7, 1940 was 62.9, 1950 was 68.2, 1960 was 69.7, 1970 was 70.8, arriving some 35 years later at 77.8 in 2005. (1)

The gently sloping increase in life expectancy from 1935 to 1970, an increase of 9.1 years over 35 years, left social security appearing long term solvent as the group generating tax revenue for benefits was still larger than the recipient group.

By 1985 life expectancy had reached 74.7 and the recipient group was now living 13 years longer than the 1935 group and the size of the group was growing ever larger. Now life expectancy was becoming the enemy of Social Security long term solvency. Enter the baby boomers.

Those sixty four million children born between 1945 and 1964 became an ally to the supposed long term solvency of Social Security. (2) By 1985 most if not all of the baby boomer had entered the work force. This mammoth group replenished and expanded the group generating tax revenue for the ever expanding and ever longer living recipient group. Hence the baby boomer group through sheer numbers and increasing incomes, lead to increased Social Security revenue which temporally continued the facade of long term solvency regarding Social Security.

Therefore, what is now the mainstream topic of Social Security future insolvency, life expectancy of the recipient group and the sheer increase in the numbers of recipients caused by aging baby boomers, publicized as the enemies of Social Security solvency, were once upon a time the allies of the facade of long term Social Security solvency.



Sunday, July 25, 2010

ObamaCare: price fixing scheme as the norm.

What has become more than apparent, through the health-care debate and now "law of the land", is that ObamaCare hinges on a price fixing scheme.

We know for a fact that no price fixing scheme, in all of recorded economic history, has ever been successful. Rather bad track record?!? Price fixing merely affects supply quantitatively and qualitatively. Or, alternatively, supply merely deteriorates in quality and the the new lower quality supply is rationed over time.

Looking beyond the basic price fixing scheme, Thomas Sowell, in his book Applied Economics, makes an excellent observation/argument that all government run health-care is always based on price controls. Moreover, Sowell explains "why" government run health-care is always based on price controls.

Sowell's observation may surprise you!

Paraphrasing Sowell, the legislator-politician has discovered that government run health-care is a very, very expensive proposition. That government run health-care, over time, eats up larger and larger and larger chunks of tax revenue that could be used for other existing spending programs or newly proposed/future spending programs. Hence it boils down to the competition among government spending programs that has lead the legislator-politician to employ price controls regarding government run health-care. Government run health-care price controls exist in order to leave behind more tax revenue for the legislator-politician's current and future spending programs.

If Sowell is correct, then Obama-Care is merely following a predetermined formula, set long ago, for any and all government run health-care program: price controls. That the price control scheme is employed by politicos as the politicos would rather impose qualitative and quantitative supply problems regarding government run health-care, to be experienced and dealt with by the participants of the government run health-care program, in favor of continued or proposed spending in areas far, far removed from the health-care arena.

The question that begs asking: is the participant in a government run health-care plan directly paying for exogenous politico spending areas, through qualitative and quantitative reductions in supply, by way of price fixing? For example, Jane needs a hip replacement. Jane must wait months and months for the surgery and is assigned to a less than up-to-date facility which lacks adequate staffing and adequate supplies. Does Jane's long wait and reduced quality of health-care translate directly to funding other politico spending programs? Jane's very long wait and quality reduction is funding an agriculture subsidy? Funding a pension payment for a retired government employee? Funding re-paving a roadway? Funding the department of education? Better yet, is Jane funding a newly proposed politico spending program?