President Delivers Mea Culpa for Botched Government Program

But it’s not the one you think.  Someday, in the not too distant future, perhaps….

But I am getting ahead of myself.

Yesterday Obama delivered his apology for botching the implementation of the single most important social program of his administration.  The rollout of Obamacare has been a laughable failure – the hilarity tempered only by the fact that millions of lives are being disrupted and who knows how many thousands of lives will be put at risk because of the failure of the program.

The magnificent failure is being performed on the full public stage, in an area of life that touches every single American.  While this may be one of the most publicly visible failures of a government program in history, there is no reason to believe it is the only one.  In fact, it is safe to assume that this failure is typical of failures that occur every single day in every single government program.  The only difference is that Obamacare is painfully visible and personal to almost every single American.

This brings me to the murder-by-drone program of the United States Government, a program that has gained significant visibility under the Obama administration.  The government keeps a kill list, known sanitarily as the Disposition Matrix:

The Disposition Matrix is a database that United States officials describe as a "next-generation capture/kill list".  Developed by the Obama Administration beginning in 2010, the "Disposition Matrix" goes beyond existing kill lists, and creates a blueprint for tracking, capturing, rendering, or killing suspected enemies of the US government. It is intended to become a permanent fixture of American policy.  The process determining criteria for killing is not public, but has been heavily shaped by presidential counterterrorism adviser John Brennan.

The database's existence was revealed by a three part series published in The Washington Post. The Post noted that as of their publication, the number of civilian and militant casualties resulting from American drone strikes would soon exceed the number of people killed in the September 11th attacks.

One day, God willing, we will see a president offer his mea culpa for the botched rollout and implementation of the kill list.  Ideally, it will be issued as a public relations stunt in hope of swaying public opinion prior to his standing trial for war-crimes. 

Using the Obamacare mea culpa speech as the basis – with the necessary changes noted in brackets – following is that speech, to be delivered in the not-too-distant future:

Good morning, everybody -- or good afternoon. Today I want to update the American people [and the world] on our efforts to implement and improve the [targeted kill list program]. And I'll take a couple of your questions.

[It] has now been [sixteen years] since the [disposition matrix, popularly known as the kill list] opened for business. I think it's fair to say that the rollout has been rough so far, and I think everybody understands that I'm not happy about the fact that the rollout has been, you know, wrought with a whole range of problems that I've been deeply concerned about.

Yesterday, the White House announced that in the [sixteen years since the publicly announced start of the program], more than a hundred thousand [terrorists were] successfully [killed].

The problems of the [program] have [resulted in] too many [non-combatant deaths], and that's on us, not on them.

Those [deaths] represent more than 1.5 million people. Of those 1.5 million people, 106,000 of them have [been confirmed by the World Court as actively in combat or otherwise a threat].

And, you know, that's on me. I mean, we fumbled the rollout on this [targeted killing program]. There are a whole bunch of things about it that are working really well which people didn't notice, all right, because they weren't controversial…there [was] a whole bunch of stuff that we did well over the first [sixteen] years, but we also knew that [developing accurate lists, and killing only people on the list]…was going to be complicated, and everybody was going to be paying a lot of attention to it.

And we should have done a better job getting that right on day one, not on day [6,000].

I was not informed directly that the [kill lists and drone strikes] would not be working…the way [they were] supposed to.  [Had] I been informed, I wouldn't be going out saying, boy, this is going to be great. You know, I'm accused of a lot of things, but I don't think I'm stupid enough to go around saying, this is going to be like [shooting fish in a barrel]…if I thought that it wasn't going to work.

Retirement: Always a Dream

The dream of retirement as it has been sold in the West is gone.  It is not quite accurate to say it has vanished in a puff of smoke; for it to have thusly vanished requires that there was a time that the dream was possible.  It did not vanish – the dream was never real because the dream was never plausible.

What was the dream?  The government would provide a safety net of income – social security as it is called in the U.S.  The government would provide medical care for all retirees.  But even the programs not directly tied to the government were a dream – pensions from your employer; private retirement savings in the form of 401(k) and IRA plans; stock market investments, mutual funds, bonds for income, real estate booms.

On top of this retirement dream was the idea that the government would also take care of the poor, through welfare of all forms: public housing, food stamps, support payments, unemployment benefits.

Everyone could live off of some combination of savings and transfer payments.  This idea might work for a time as long as the number living from savings and transfer payments remained relatively small as compared to the number involved in producing the goods and services necessary.  I recall thinking during the late ‘90s tech boom, “who is going to do all the work when we all get to retire at age 30?”  I almost grasped the problem…but not quite.  I understand it a little better today.

Dr. North recently wrote a piece that captures this – in this commentary he specifically points to the promises of the U.S. federal government: Social Security and Medicare.  Underlying Dr. North’s commentary is an analysis by Prof. Lawrence Kotlikoff of Boston University, demonstrating the true rate of growth of the U.S. government’s debt and deficit – with unfunded liabilities the amounts are staggering, and impossible to overcome: over $200 trillion debt, and an annual deficit of over $10 trillion.  These numbers represent the present value of the promises made by government towards its constituents.  As is obvious, the promises are much more expensive than the current out of pocket cash expenditures.

The issue is not that the amounts will someday become reality (they cannot), but that there is no way possible for the promises behind these amounts to be kept.  Dr. North’s point, and it is a correct one, is that mass inflation or hyperinflation will not solve the problem of this debt.  Implement inflation, and this will certainly lesson the burden of repaying the on-the-books debt.  However, remaining on the other side of the destruction of inflation we will still find government promises to provide a retirement and medical lifestyle.  A significantly devalued currency does not change this fact.  A new currency does not make it more possible. 

I will add that the problem is compounded as a) the rolls of welfare recipients and otherwise un(der)employed grows, b) the involvement in and allocation of economic activity by the government continues to increase, and c) as the rolls of retirees with legitimate savings grows – expecting to use the savings to buy product from those still in the productive workforce.

The issue is a simple one, and one I have suggested several times in the past: there are too few productive supporting too many non-productive, and the ratio is worsening as time marches on. 

What do I mean by productive and non-productive?  This requires some clarification, as often people read these phrases and believe I am making a value judgment.  I make no value judgment: I do not mean to suggest that all working people are productive while all non-productive people are lazy bums.  I am speaking completely in terms of economic production.  To clarify, I will offer some examples and further comments.

Productive: individuals performing tasks (providing goods or services) that would be valued in a free or relatively free market, and valued at a level of compensation more or less equivalent to what is realized today.  The best way to elaborate further on this is to move on to my definition of non-productive….

Let’s start with the easy one: anyone receiving state aid, equivalent to the net amount of state aid received.  Welfare, food stamps, unemployment benefits, etc. 

Next on the food chain would be government jobs, held in quantities that would either not exist or even be non-existent in a free-market environment.  Federal Reserve economists, drone pilots, anyone participating in overseas military and covert operations, staff in welfare and most other state offices.  The list is quite long, given the amount of state intervention in the economy.  Pensions received by retirees from these positions would also qualify.

Another rung up the ladder would be individuals who work in private industry, but in such industries that mostly if not completely exist in their current form due to government intervention in the market.  Banking and finance and military contractors are two such industries, as examples.

Now we come to your everyday retiree – even the one who properly saved money and is funding his own leisure lifestyle.  Certainly such a person had a very productive life; however, now that he has “gone fishing,” he is counting on someone else’s productivity to feed him in his leisure. 

It is in this manner that I am thinking when I group individuals in either the productive or non-productive category.  Those who are currently engaged in a productive activity and in a manner that would have a similar remuneration as it would in a free market as opposed to those who are not.

Hopefully it is clear that I do not view all non-productive as leaches – those who have rightly saved and planned demonstrate a good example for us all.  Yet they are no less dependent on the productivity of society to support their leisure than is the welfare recipient.  I can even hold some sympathy for those dependent on Social Security given that the government has stripped most people of the possibility to save, due to a lifetime of taxes and especially inflation.  Finally, it should be clear that I do not view all those who draw a paycheck as productive.

With this categorization, I come back to the idea of retirement.  For one to retire or live on transfer payments someone else must be willing to work and be able to produce for more than his own immediate needs.  This is true whether the non-productive individual is a welfare recipient or a 60 year old with a $10 million portfolio.  The idea that the baby boom generation could retire or retire early thanks to the dotcom boom or the real estate boom or in the “market” was never plausible: as I asked myself at the time of the dotcom boom, who will do the work? 

Even worse, the problems presented by the increasing costs of the government commitments of current and future retirees – Social Security and Medicare, as indicated in Kotlikoff's figures.  On an accrual basis, this liability has increased over $10 trillion in one year!

Finally, the numbers of unemployed, welfare, food stamps, disabilities, etc., are increasing – at a pace far greater than the general population.  From where will these receive support?  The proportion in the truly productive class is shrinking.  (As an aside, I consider that one reason the West became so amenable to China and India was in an attempt to improve the ratio by bringing in hundreds of millions of new “productive” into the mix.  At best, the politicians might have bought a few years, nothing more.)

This brings me back to Dr. North’s commentary:  mass inflation and hyperinflation cannot solve this problem.  The numbers are so staggering that even the magic of “growth” cannot solve it – where will the opportunities come to invest $200 trillion today and earn a 5% or better return, such that the annual deficit can be funded?  Even if the numbers were half of the projection, such numbers are overwhelming in a country with an annual GDP of approximately $15 trillion. 

The West has never seen a sustained period of 5% growth, and certainly not in a time horizon of 75 years as covered in Kotlikoff's analysis.  And to make the numbers work, the investment of $220 trillion must be made today – every year of delay only adds to the mountain of liabilities to be climbed tomorrow.  The United States is an economy of $15 trillion.  Where will such large investments be made with sustained returns never experienced before?

Ignore money and the value of the currency: in order for one to live without working, someone else must produce enough to support both himself and someone else.  It is not a question of value in money – it is a question of production given an ever-shrinking productive base, in relative (and perhaps absolute) terms.

Think about the image of Atlas shrugging; however replace Atlas with an ever-shrinking percentage of the population providing productive output.  Eventually, the weight of the non-productive will prove overwhelming.

The problem is in the ratio of non-productive to productive – and this ratio does not change even if inflation adds six zeroes to every Federal Reserve note in circulation (and to every digital account).  What is important to the retiree is not the nominal value of the FRN, but that it can buy food and shelter for the month.  What is important to the elderly is the ability to have access to health care.  More zeroes do not solve this problem – both the income and expense becomes inflated, and sadly for most, the expense side seems to inflate more.

The government promises will break because the ratios do not work and are getting worse.  There is no way around the fact that the promises for retirement and medical care will not be kept – certainly not for those who look to government to provide these benefits, and even to many who have saved privately toward this end.  There are not enough productive in proportion to non-productive to provide the excess production necessary to support the retirement and / or the welfare of this growing class.  Sadly, this problem will also impact those who have properly saved for retirement as well.  They are competing for resources with those who are also receiving government support.

Government can hyper-inflate away the current on-the-books debt – this amounts to perhaps $15 trillion or so in the U.S.  Given that the present value of the liabilities is increasing at almost this amount EVERY YEAR, this is no solution other than perhaps the one final kick-the-can.  And, as previously mentioned, hyperinflation does nothing to change the ratio.

There will be a reset – but the big reset will not be in the currency, it will not be in the banking system.  Yes, these will reset and the reset will be painful.  The big reset will be in the expectations that so many can live at the expense of so few – whether those “so many” have honestly saved or are living on the back of a government promise.

Too many non-productive hoping to live off of too few productive, with the ratio only worsening.  This is the ultimate problem, and there is no solution possible other than to hit the reset button – the big reset button of completely rewriting the rules regarding the social welfare state that has come to represent virtually all Western states.

This day of reckoning is coming.  

Romney Will Look to Market for Healthcare Reform…wait…Check That

(Reuters) - Republican Mitt Romney on Tuesday laid out his vision for a "consumer market" healthcare approach to replace President Barack Obama's sweeping reform law, whether or not the U.S. Supreme Court overturns the legislation this month.

Great – a market for health care.  Get the government out, buyers and sellers, free choice to buy…or not buy.  A real market.  Hooray!!!

Romney said he would like healthcare goods and services to be available in an open marketplace like other consumer products including automobiles and tires….

Boy, this sounds terrific.  Perhaps this is why Rand Paul supports Mitt.

Romney said he would also press for more private insurance options for senior citizens from Medicare…

Wait, this doesn’t sound like any market I know.  Is this something he learned at Bain?  How will he “press”?

…and help states address the needs of an estimated 50 million uninsured Americans by freeing up federal funds from the national Medicaid program for the poor.

Federal funds?  I smell a rat.

The presumptive Republican presidential nominee told supporters in Orlando, Florida, that he would prevent people with pre-existing medical conditions with a history of health coverage from losing their insurance.

Um….wait a minute.  How, exactly, will he “prevent” this?  Perhaps he will ask nicely?

I am getting an uncomfortable feeling, like I have heard all of this somewhere before.  Let me think, wait a minute – it is coming back to me now:

The [Obamacare] law would extend health coverage to more than 30 million uninsured Americans beginning in 2014, prevent insurers from denying coverage to people with preexisting conditions…

Both plans would ensure people with preexisting medical conditions receive coverage.  When a Republican says this, I guess it is the “market.”  When proposed by a democrat, it didn’t come across this way.

"It's important for us, in my view, to make sure that every American has access to good healthcare," [Romney] said while offering few details on his proposals.

I think Obama said the same thing.  

Obama, whose speech was preceded by emotional testimony from a cancer patient, said: "After decades of inaction, we have finally decided to fix what is broken about healthcare in America. We have decided that it's time to give every American quality healthcare at an affordable cost."

Romney seems to have hired Obama’s speechwriter.

Consumer markets tend to work very well: Keep the costs down and the quality up…

Just like the Obamacare plan would...

…encourage innovations intended to lower costs while improving the quality of care.

Good deal for those opposed to Obamacare: Romney says he will repeal it….

"At a time when the Supreme Court has left Obamacare in case, I will repeal it on day one," Romney said.

And apparently replace it with Romneycare.  No need to write new legislation – they can just change the title.

Reuters makes an astute observation, one that demonstrates exactly why they are a news organization worthy of our trust:

His own prescription for the country's sprawling and often inefficient healthcare industry bore little resemblance to the president's reform law, which was based on the reforms Romney oversaw in Massachusetts in 2006.

Yes, clearly….

Thank you, Rand Paul.