The Political Economy of Turning Wrenches
Originally Posted at Forbes.com
By Lawrence A. Hunter, Ph.D.
Back On The Margin
August 28, 2011
Economic Lessons Learned From Number One Son
A booked-up, old Ph.D. can learn a lot about life, economics and politics from watching his sons. My oldest son, for example, decided back in high school that college offered him nothing but a lot of debt and political-correctness hassle.
Number One Son had been taking things apart and putting them back together since, at age six, he first disassembled and reassembled (mostly) an old lawn mower I had put out at the curb for garbage pickup. Then he moved on to cars where he spent his twenties doing what he loved; turning wrenches for a living, and taking the kind of classes that mattered to him to become an ASE and Nissan Master Technician. He loves his job, and he hates it.
When he turned 30, Number One Son realized he had made a life-determining decision 12 years earlier that was structuring and shaping his life in ways he wasn’t happy with. He still loved turning wrenches but his income didn’t compare with that of his high-school classmates who had gotten their first-class ticket punched in the higher-education complex. Many of them had become part of the military-financial-industrial complex making large multiples more income by rent seeking in the private sector or sucking off the public teat in a comfy government job.
No matter how hard he worked, regardless of how much he excelled at his chosen craft, Number One Son faced a wage cap he would never exceed as an automotive technician. He was stuck, not in a dead-end job but on the back road going 45 mph while many of his peers zoomed along the expressway in excess of 80 mph, and even faster for those who had learned to exceed the speed limit with impunity. He wasn’t addicted to drugs or alcohol, and he was gainfully employed, but he was stuck in a rut that only would get deeper as he got older.
He could have traded in the automotive business for a government job leaching off taxpayers or gone on welfare, claiming the back problems and joint maladies he developed turning wrenches qualified him for “disability compensation.” Instead, during the past two years he has adopted a long-run strategy of extra-hard work and sacrifice to rectify his situation. While continuing at his day-time job, he and his girlfriend, who has a keen business sense and the IT skills to go with it, took his accomplishments within the Nissan community and parlayed them into a business called 5523 Motorsports. 5523 Motorsports builds race car engines for a Grand-AM race team and offers retail and Internet customers a one-stop shop for automotive-performance modification focusing mainly on imports—providing services that include but are not limited to engine development, race car prep and fabrication, parts sales, tuning and engine building for off-road vehicles.
There is a larger point here though than just bragging on Number One Son. His situation illustrates perfectly the problem economists call “dynamic inconsistency” or “time inconsistency,” a situation where a decision-maker’s preferences change over time in such a way that what he preferred at one point in time is inconsistent with (not just different from) what he prefers at a later point in time. It is the very same problem we face now with Social Security and the other major retirement entitlement programs. The nation has “turned 30”, is looking back with regrets that we didn’t better prepare for Baby Boomers’ retirement, and looking forward with trepidation.
Social Security was created as a Ponzi scheme and sold as “social insurance,” a “retirement plan” that workers paid into each and every payday. To make matters worse, for the last 25 years Congress pilfered genuine Social Security surpluses to support its spending habit on everything else and left in the place of surpluses some $2.5 trillion in special-issue federal bonds. Now, the baby-boom-top-heavy, Social-Security Ponzi pyramid is beginning to invert and tip over. It has become necessary now to redeem some of those trust-fund bonds every year to make up for an annual payroll-tax deficit. There are sufficient Trust Fund bonds to make up the annual deficits and pay all benefits in full and on time for the next 25 years, and there are sufficient federal revenues to redeem the bonds without borrowing another dime from the public.
But instead of following Number One Son’s example and allowing American workers to invest in their future, politicians of both parties want to double down on the welfare state. Democrats, by and large, stick their head in the sand, proclaiming the program is “sound” until it completely runs out of money in 2036. Republicans want to throw in the towel and quit on Social Security by turning it into a niggardly welfare program that reneges on the promise to yesterday’s workers, turns tomorrow’s retirees into welfare recipients on the dole, and treats tomorrow’s workers like saps who have to prop up the inverted pyramid scheme by supporting it with more tax dollars every payday without even the pretense of receiving a reasonable rate of return on their efforts when they retire. Republicans and Democrats alike should be ashamed of themselves.
Most reprehensibly, politicians—especially Republicans but the Obama White House as well—are working overtime to blame currently exploding debt and deficits on Social Security. They intentionally deceive the public by citing the program’s projected long-run deficits as an excuse for short-run benefit cuts to help reduce the deficit so they can keep spending money to buy votes from special interests. They are holding Social Security Trust Fund bonds hostage in the budget battles, as President Obama did when he threatened to default on the bonds and a hold up of Social Security checks if Congress didn’t raise the debt ceiling—this despite the fact that even without more borrowing from the public there is more than sufficient revenue to pay all interest on all debt and redeem the Trust Fund bonds necessary to pay Social Security benefits in full and on time.
Obama and the Republicans twist themselves into pretzels protecting private corporate bonds from default by commandeering private capital and debauching the currency through the Fed to make multi-trillion-dollar bailouts of financial institutions. They bend over backwards to put the Chinese, labor unions, financial institutions and other owners of federal and corporate bonds ahead of Social Security bonds.
While the liberal Democrats are wrong when they say nothing is wrong with Social Security that expanding the base of the Ponzi pyramid won’t fix, they are right to say the program is not in immediate financial jeopardy, and it is not part of the current deficit and debt problem. While Republicans are right to say Social Security is unsustainable as currently configured, they are wrong to say it is, therefore, necessary to turn it into a welfare program and cut back benefits, not only for future recipients but also current retirees.
The solution is not to turn today’s workers into future welfare recipients; rather, it is to use the 25 years available to convert workers into savers with the freedom to direct their retirement saving into self-sustaining, asset-based retirement plans they own and control, not a government-run Ponzi scheme that fuels a redistributive welfare state, which produces financial misery for all.
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