Let me consider a hypothetical: I promise my kids a pony. I get a pony, but I borrow money to buy it. I know I can’t really afford the purchase price as it is, but I also forget the expenses of stabling and pony chow. I become delinquent on my pony debt payments, and then the pony is repo’d.
Was that pony stolen from my children?
There are a few issues with that analogy (as with any analogy) with respect to the various public financing and entitlement reform going on.
But the essential concept is that some benefit was promised to a particular group, money has been borrowed for years to provide said benefits but the financing is unsustainable, and thus said benefits get cut. This has played out in Greece, in Prichard AL, in Rhode Island, in New Jersey.
Some people have thrown around the word “theft” cavalierly, whether with respect to the beneficiaries facing much smaller benefits or taxpayers facing much larger tax bills. Let’s look at some of the posts.
First, two from Dustin Siggins at Hot Air. In the first of two posts, he claims that most forms of entitlement reform are theft from future generations or theft from current beneficiaries:
Given the fiscal impossibility of maintaining retirement benefits as they currently stand, how should this theft be enacted? Is it right to take from current seniors, who are in the middle of retirement but who are also much wealthier as compared to younger people? Is it right to take from middle-aged people, who are years from retirement but have spent decades preparing for it with expectations of certain levels of federally-funded retirement dollars? Or should the focus of reforms be on young Americans, who have more time to change personal habits and prepare financially for lower benefits…but who as the Debt-Paying Generation are likely to face dire employment and other financial challenges that could prevent them from having the kinds of financial means in retirement today’s seniors possess?
To clarify: from a strictly legal perspective, the federal government is not actually stealing from seniors by doing any of the above. The original language of the legislation which created Social Security, for example, stated “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” Additionally, the 1960 Supreme Court case Flemming vs. Nestor declared that American taxpayers are indeed not legally entitled to the dollars they think they are. However, the implicit promise still exists, if the language of politicians and special interest groups is to be believed, and most Americans believe they are indeed entitled to receiving retirement dollars for which they have been taxed. Use of the word “stealing” is thus applied more from a moral, ethical and “if it weren’t Congress it would be illegal” perspective.
He follows it up with this post about “theft” again:
Public policy question of the next decade: Is it okay to steal?
Follow-up question: Would it be okay to steal a significant amount of money from a generation of people, or a smaller amount from multiple generations, to avoid a national fiscal collapse?
Final follow-up questions: Are these questions academic due to simple mathematical reality?
As 2012 wears on and Congress worries about November, the mathematics of these questions as they relate to our national debt are increasingly hard to ignore. Unfortunately, as I described earlier today at Right Wing News, the politically possible solution to fixing the major drivers of our debt – Social Security and Medicare – consist of one word: stealing. In fact, they consist of lots of stealing from one or more generations of Americans.
I could go on about “stealing” — this is just plain idiotic moral thinking. If you want to make the case that taxes are theft, then try, but the issue is that we are in a republic, and the level of taxes are our own fault. It’s our own fault if we keep electing profligate spenders. There might be more of an argument with respect to the Federal Reserve and the theft of the value of money through inflation, and more on that later.
Current beneficiaries can whine “but we paid for these in the past!” But what did you pay for? I bet I could craft something fair that is sustainable.
For example: Medicare. Medical cost inflation has skyrocketed, partly because we have all sorts of exotic gadgets and drugs that didn’t exist decades ago. If we dialed back the Medicare benefits to the average level of care while you were “paying in”, I bet that would be supportable. (Yes, I know this is a pipe dream….but the point is what’s “fair” — you were paying to cover much lower levels of care for seniors back in the day. And they didn’t live as long.)
And Social Security? Those benefits are indexed to a wage scale — which has actually risen faster than inflation over the past several decades. Perhaps we could rejigger that formula so that it actually scales with inflation, and not wage growth. Would you like that?
Those both sound “fair” to me. After all, that’s what you were “paying for” back in the day.
So what about these future generations supposedly getting stolen from? Actually, you can’t steal from them. Because they will decide whether or not they will fulfill promises made by prior generations. Funny how you can’t actually force moral obligations on people who don’t feel obliged. If said future generations decide that no, you’re going to eat cat food, grandma, and like it, well there ya go. That’s what will happen.
But even so, even pretending future generations are willing to pay higher taxes to fill decades-old promises that had been altered several times over the decades, given the demographic issue of there not being enough of future generations… they simply will not be able to fulfill those promises. This is the situation many European countries find themselves in — they have populations very willing to pay through the nose for the swaddling state, and have found that they cannot finance it given demographic facts on the ground.
Now let’s consider a somewhat stronger claim: public pensioners getting their benefits “stolen”. Let’s look at a particular case, as to what’s happening in New Jersey. I will be linking to a series of posts by pension actuary John Bury.
First, the attempt to cut cost-of-living adjustments (COLAs) to pension payments:
New Jersey suspended pension cost-of-living-adjustments last year. There were lawsuits. The state moved to dismiss.
In a hearing where Superior Court Judge Douglas Hurd ruled that the elimination of pension cost-of-living-adjustments for all New Jersey retirees was OK it was the state’s position that even the basic pension was not guaranteed to the extent it was not funded.
Judge Hurd: Under that analysis, I mean, there’s no right to any type of future pension benefits, right?
State Attorney: Right
Video at the link. Bottom line from Bury:
If these are the ground rules in New Jersey then the obvious questions:
1. Why the hell is the state putting any money into the pension plan? It’s only creating an obligation that doesn’t legally need to be there.
2. Since no trust fund exists for medical benefits then what is stopping the state from canceling all health care insurance for public employees?
3. Does this ‘debt limitation’ clause extend to regular debt? That is, can the state default on bonds?
4. If all this is so then what idiot would ever enter into any contract with New Jersey again without getting the cash up front?
Of course the state can default on its bonds. Do you want to deny reality? Any debt can be defaulted upon.
It is true, there isn’t much in the way of law surrounding state defaults… but just because there is no good law doesn’t mean there is no fiscal reality that doesn’t give a damn what the law says. The law can try to promise a pony, but the law doesn’t create money. If the money isn’t there, then no pony. Or, in this case, the pony gets repossessed.
It is a good question as to why anybody would extend credit to NJ at this point, though. Maybe NJ is not in as dire straits as Rhode Island or Illinois, but if I were a vendor to the state, I would make sure that I wouldn’t let the state be more than 30 days in arrears. Look what happened to the vendors of Illinois. There are some customers you simply don’t want to have.
Of course, the employees of NJ may be a little more stuck.
Now, with regards to theft and fairness, one can make the case that employees were promised a certain benefit, and if they don’t get it, something is being stolen from them. However, given that the unions kept getting bought off with some very juicy pay and promised benefits while the state kept skipping pension fund contributions… what did you think would happen?That no matter how bad it got, the benefits would get paid? You trusted union leaders who didn’t use their political power to make sure the funds were secure?
You’re responsible for that, union members. You guys picked your own leaders.
To paraphrase a wise man: You screwed up — you trusted them.
Well, choice of leaders has consequences. Unlike my hypothetical pony-promised kids, you chose to go along and never questioned the assumptions.
I am not interested in hearing cries of “Theft!” or “Unfair!” from either side. Heck, if bonds are defaulted upon, I’m not going to cry for the bondholders, either — they should’ve been more demanding in terms of public accounting. You had to know you could be defaulted upon.
Bill Whittle did a video a while ago talking about why being a conservative sucks. And one way it sucks is that I have to tell you that there is no pony, though you may see a pile of horseshit.