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September 28, 2008

PUT A CORK IN IT

UPDATE: I originally wrote this 9/1/08, but did not post it at that time because I wanted to work on my answer to the closing question.

Now that we've had somewhat of a crash, like I predicted below, does it change my attitude about wanting Obama to win? Not at all. If anything, the naked attempts by the same people who caused the problems in the first place to grab goodies during the bail-out negotiations just reinforces my feeling that once Obama is elected, DC will go so wild with spending that the country will rebel and finally cap it for good.

 What do we do about government spending?

Read this pessimistic analysis outlining the dire financial position of our entitlement and retirement programs.

This is one of the reasons I want Obama to win. I want this Social Security and pension fund crash to happen as soon as possible Like all the other government caused or exacerbated financial screwups in my lifetime - S&L scandal, wage & price controls, various bail-outs, FM/FM, the 2000 tech bubble burst, the 1987 stock bubble burst, and so on - [and now the Credit Crunch of 08] the sooner we get this fixed, the faster we can get it behind us, and limit the cost to damage already done.

My answer is to reduce benefits paid out to match income. When the system reaches "insolvency" (meaning the dollar amount of Social Security taxes collected that year is exceeded by the dollars scheduled to be paid out) everybody getting a payout gets a percentage reduction to match. So if we collect only 90% of the scheduled payout, beneficiaries get only 90% of what they expected, with no "make-up" in the future if the system turns around.

Also, as soon as we hit "insolvency", the programs will close, admitting no new participants, and freezing all those who have already contributed to the current value of the benefits accrued to date. From that point forward, those already in the system will continue to pay at the same rate, but each year an increasing percentage of that payment will be redirected by the participant to private equity markets or insurance companies. At some point the accrued and compounded value of those contributions will equal the benefits that the contributor would have received had they stayed in the system, at which point they will stop making payments into the system, and will from then on direct their own retirement and health financing.

So the sooner we start this, the better. Since we actually hit "insolvency" many years ago (buying debt to cover the difference) we need to do this right the hell now.

So what about all those poor people who depend solely on their Social Security and Medciare/Medicad? How will they make up the difference when the plan starts shorting them, which, combined with inflation, will leave them with less money for higher bills?

We allow individuals and charities to supplement their care with tax-deductible dollars, until we reach the crossover cohort, then the tax benefit reduces to zero to match pro-rata the benefits lost in the close-out of the old system. Presto - the government is out of the pension business for good in 25-35 years.

I await the brutal corrections to come from the Dunns.

Posted by: JBD at 08:30 PM | No Comments | Add Comment
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