eFlourishing Masthead Outlined

 Published Weekly by Family Wealth Management, LLC 
          January 12, 2011                                                                                     Issue 45

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The recent debt crisis in the private sector has revealed a potentially more devastating crisis of government debt.  I'm not forecasting Armageddon, because I have a solution that may well come to pass sooner than anyone thinks; but first, let's define the problem.

The New York Times recently published an article 1 on the broadly negative social consequences of the debt crisis in Southern Europe.  If you want to read it in full, I'll wait.

Young people in Europe, many of whom have received lavish, government-subsidized educations, now find a job market consisting of mostly menial, or even temporary, jobs.  Now, is it a surprise that an economic system that subsidizes unemployment and punishes work has steered young people into an economic cul-de-sac?  

Some of these disenfranchised young go into the streets to riot or protest. Some go to Northern Europe in a brain drain of college graduates reminiscent of the exodus from Great Britain in the wake of its post-WWII turn toward socialism.  Many - maybe most - live in their childhood bedrooms well into adulthood, because they can't afford to move out.


"Youth unemployment," the Times reports, is "40% in Spain and 28% in Italy."  Because payroll taxes and firing costs are so high, businesses across Southern Europe are reluctant to hire new workers on a full-time basis.  Instead, young people are offered unpaid or low-paying internships, traineeships, or temporary contracts that don't offer the same benefits or protections as a full-time job.  Does any of this sound eerily familiar? 

The result in Southern Europe is described by the Times as a social structure that protects a "caste of tenured older workers rather than helping younger workers enter the market." The long-term result has been a demographic implosion, as birth rates have plunged, and there are fewer and fewer young people working to pay the benefits promised to their elders.  Conservatives here in the U.S. have made a big deal of the cultural causes of this demographic decline, but I think misbegotten economic policy is really the decisive factor.  To wit:

The entitlement state concept is literally a prescription for the impoverishment of a nation. As common sense would suggest, and as history has repeatedly demonstrated, it ensures that there will be more people going into the benefits queue than are coming out of the cradle; fewer workers to provide entitlements for an aging population.  It's psychologically devastating, too, with many people spending their entire lives thinking and behaving like dependent children, instead of as independent, responsible, and productive adults.

Here in the U.S., entitlement states being managed for the benefit of government employees have already delivered Illinois into virtual insolvency and thrown California into a more or less permanent fiscal crisis.  Many others have similar problems.  Just as low fertility rates and a brain drain have impoverished Southern Europe, the 2010 census revealed 2 that America's high-tax entitlement states have been losing population to their more fiscally responsible neighbors.  In the immortal words of Pete Seeger, "When Will They Ever Learn?"

If our states are already having problems paying for pensions and retiree health care benefits, what about America's unfunded liabilities for Medicare and Social Security?  The oldest baby boomers will become eligible for Medicare this year, and many have already qualified for Social Security retirement benefits.  When the youngest of the seventy-seven million baby boomers turns sixty-five in 2029, who will pay for her benefits?

We baby boomers have been warned throughout our entire lives that the Social Security system is unsustainable; a Ponzi scheme.  Ditto for Medicare.  Did we riot in protest of the inevitable consequence of those unfunded liabilities?  No, we're too sophisticated for that.  We demanded even more entitlements and put our heads in the sand. When challenged on the fiscal improprieties, we made jokes.  We pretended that there was a lockbox protecting our benefits, and we kicked in the head (metaphorically, of course) any political candidate who suggested otherwise. Granted, there haven't been many of those; and it's no wonder.

The real problem is not some demographic coincidence - the baby boom. The real problem is a basic moral principle, or rather, the violation of one. The principle I'm thinking of, of course, is every person's right to his own life; you remember, the one guaranteed by our U.S. Constitution.

The premise of the welfare state, derived from Karl Marx' dictum "from each according to his ability to each according to his need", is that every man's alleged need is a moral claim on everyone else's life. That "need" entitles him to demand his benefits from the state and expect that someone, somewhere, somehow, will pay for them.   

There are those who think that only "the rich" will get stuck with the bill, and since they themselves are not "rich", it's okay.  As I've said before, and as California, Illinois, and Southern Europe now make exceedingly clear, the wealthy and the able can vote with their feet, and they can take their money, their businesses, and their brains with them.  They are and they will.  Good for them, says I, because he who defends his own rights, defends the rights of all.

The reality now emerging from the global financial crisis - the government debt crisis -- is that we have finally reached the day of reckoning for the welfare state.  My solution - the only possible solution -- is to stop eating our young, to stop bleeding the most productive among us, to stop demanding that others pay for our education, our retirement, our health care -- and to begin to grow up.  We baby boomers didn't create Social Security and Medicare, but we can hardly take refuge in ignorance or in blaming others.  To this point in our lives, we've taken no credible action to alleviate the problem of over-promising and under-funding. Instead, we've demanded ever more entitlements as we've migrated from youthful rebelliousness to our rapidly approaching dotage. 

So, here we are.  The jig is almost up.  And, we - the celebrated baby boomers - are in charge. I think we now know who will be obliged to remedy America's government debt crisis; we, who helped create it.    

We baby boomers may well be, as is often claimed, the generation of spoiled Americans. But, we are still Americans, and in our time and in our own way, I believe that we will become America's greatest generation.  We will grow up. 

I have no doubt that we will make good on America's promises to today's retirees.  Congress has spent their contributions, and we will have to face that fact.  At the same time, we will finally begin to roll back the entitlement state and its outrageous and immoral claims on our children's and grandchildren's future.  Like the WWII generation and others before us, we will do what needs to be done, not necessarily because we want to, but because we have to.

Until next week,



1   http://www.nytimes.com/2011/01/02/world/europe/ 02youth.html?_r=3&pagewanted=all

2   http://washingtonexaminer.com/politics/2010/12/ census-fast-growth-states-no-income-tax

Special thanks to Robert Tracinski, publisher of The Intellectual Activist, whose recent article "The Cradle and the Grave" in TIA Daily inspired this message. mh





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