Oh What a Tangled Web We Weave

6 comments

Posted on 16th December 2012 by MuckAbout in Economy

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If this doesn’t piss you off, nothing will.  Let’s just solve all our problems by making the BIG LIE official policy of the Government (as if it isn’t already!).  Now the FED is going to set it QE4EVA policy based on unemployment – which figures are just as big lies as the “official” CPI rate which understates inflation by a minimum of 7%  (Official CPI year over year: 2%, true year over year is 9%).  So what do we do?  Modify the way the CPI is figured, yet once again, so any adjustments to payments made based on the “official” CPI will be lower – saving the Goobermint money and putting the greased pole to anyone receiving benefits.

Now benefits from Medicare, Medicaid, welfare, Obamaphones, SNAP and Social Security are going to have to be reformed and probably cut.  But WHY IN HELL CAN’T THE GOVERNMENT BE HONEST AND SAY, “Hey guys and girls, we’re going broke and can’t afford these entitlements.” instead of LYING about it, not reducing Gooberment spending, fraud and abuse, cut Federal salaries (especially the automatic pay raises CONgress awarded themselves) and everyone share the pain?  

This “suggestion” sucks and John Rubino calls them on it..

 

Hat tip to  John Rubino

 

By the age of 12 or so, most people have learned through bitter experience that dishonesty is hard to pull off, because one lie tends to require more lies, until the complexity of the situation exceeds the liar’s ability keep everything straight.

This is just as true for governments as for individuals, especially when it comes to money. A currency that holds its value over long periods of time is nice but restrictive, because it limits a government’s ability to fight multiple wars and buy votes with generous social programs. So every government eventually resorts to monetary inflation, which is a combination of theft and deceit – or fraud, as it’s known in legal circles. By creating large amounts of new currency, a country lowers the value of each piece of currency in the hands of citizens, thus secretly taxing them to run the government. Then, to mask the effects of this stealth tax, governments distort their reported economic statistics to portray a world that’s healthier than the one most people experience. The goal is to siphon off as much wealth as possible while keeping the victims docile for as long as possible. The longer the con runs, the richer the people at the top become.

Eventually the gap between government reports and individual experience grows so wide that the lie is revealed and the scam ends, either through some sort of revolution or a financial collapse or both. A sign that we’re approaching that point is the following article, in which Time Magazine advocates making a heretofore-unspoken part of the con explicit government policy:

Fixing Inflation Adjustments Is the Smart Way to Shrink the Deficit

Let’s face it: There’s no way to reduce America’s budget deficit that won’t hurt someone, and that pain can’t be limited only to the rich. A payroll tax, passed in 2010, is scheduled to expire at the end of this year, for example, and that will cost middle-class households anywhere from $600 to $1,200. In addition, more than 20 million taxpayers could become subject to the alternative minimum tax (AMT), adding several hundred dollars to their annual tax bills on average. On the spending side, budget cuts would not only reduce government services but could also eventually cost tens of thousands of Americans their jobs.

But there are other ways to make progress on the deficit over the long term that would be a lot less painful and would also be politically viable. In my last column, I wrote about the estimated $30 billion a year that the Federal government could save by getting really tough on fraud. Even more could be done, though, by changing the inflation adjustments for government spending.

Cost-of-living adjustments (COLAs) are used throughout the U.S. economy – for union contracts and income tax brackets, as well as for government entitlements. It may seem only fair to adjust contracts and government programs for inflation – otherwise recipients would see their standard of living steadily erode over time. But there are a lot of ways to adjust for inflation. Moreover, the most commonly used gauge, the Consumer Price Index (CPI), may overstate the adjustment needed. Switching to a more conservative measure could save as much as $200 billion over the coming decade.

The most commonly proposed change is to replace the CPI with another index called the “chained CPI.” Basically, inflation is calculated based on putting together a basket of commonly bought goods and services and then tracking the price increases for them. In reality, though, people don’t consistently buy the same things. If one particular item – steak, for example – gets very expensive, people will typically buy something cheaper instead, such as chicken. The chained CPI takes into account the substitution of cheaper items for things that get too expensive, and is therefore arguably more accurate than the regular CPI. It also rises a little bit more slowly.

The result of replacing the regular CPI with the chained CPI would be slightly slower increases in monthly Social Security payments and some other government benefits. The new measure would also modestly boost tax revenues. The reason: tax brackets are indexed to inflation and would ratchet up more slowly if the chained CPI were used to adjust them. For many taxpayers, that would mean that some of their income would fall in a higher bracket.

Further savings could come from changing the formula used to calculate initial Social Security benefits. Because Social Security was originally designed to mimic a pension plan rather than look like a welfare entitlement, initial benefits are pegged to retirees’ earnings over their working lives. Because the general standard of living improves over time, wages and salaries normally outpace inflation – and so do initial Social Security benefits. (After benefits have begun, further increases are based on a more usual cost-of-living adjustment.) Some economists have long argued for altering the formula for initial benefits. Keeping the current more generous earnings-based calculation for lower-income retirees but switching to an inflation-based calculation for the more-affluent half of the population could eliminate half of the Social Security deficit over the next 75 years.

Such fixes to benefit plans are not uncontroversial. When a recent Republican budget proposal included changes to the way the Federal government calculates inflation, the idea was swiftly rejected by some Democrats. Opponents of the idea objected that retirees face higher inflation than the average American because of health-care costs and that some of the tax increases would fall on the middle class. It’s true, of course, that altering inflation adjustments will limit future benefit increases and cause an upward creep in income taxes. But the idea that the Federal deficit can be brought down to sustainable levels without anyone giving up anything is simply unrealistic. Hiking tax rates on the rich alone will raise enough revenue to cut the deficit only by about 8%. In the end, simple arithmetic ensures that the bulk of deficit reduction will come from the middle class – the challenge is to minimize the pain.

Unfortunately, tinkering with inflation adjustments will be little help with other runaway costs – most significantly health care, which presents even greater long-term budget problems than Social Security does. Advances in medicine often make treatment more expensive. In addition, health care is labor intensive, and in all service sectors it’s hard to offset rising labor costs with the sort of productivity gains that can be achieved in manufacturing. Doctors can only see so many patients an hour, teachers can only correct so many papers, and there’s a limit to how fast a pianist can play the minute waltz.

But where rising costs are chiefly the result of inflation adjustments, fine-tuning those mechanisms may be the least painful way to start bringing down the long-term deficit. The spending cuts that are currently scheduled to go into effect next year in the absence of a budget deal look horrific and could result in 7% to 9% reductions in a broad range of Federal programs. Surely it seems more rational to minimize the need for such sudden, deep, and indiscriminate cuts in the near term by accepting smaller increases in government spending over the coming decades.

Some thoughts:
This is a perfect example of how lying sometimes corrupts both liar and victim. The honest approach to a situation where there’s not enough wealth would be to explain that everything from the military empire to the welfare state will henceforth have to live smaller. But that’s both hard to say and hard to hear, which makes the lie relatively painless for both sides. Just keep telling citizens that they’ll get everything they expect, while actually giving them a little less each year. Government gets the inflation-generated resources it wants, and the recipients of government spending get to pretend for a while longer that they’re taken care of. The problem is pushed into the future for tomorrow’s leaders and the children of today’s recipients to deal with.

Put more clearly, US voters are enabling the liars because – despite the mounting evidence that the lies are coming at our expense – we prefer the comfort of those lies to the harsh reality of no more free money for the lifestyles we thought were our birthright.

The result of dishonest public policy being enabled by voters in denial is a corrupt society, where lying – as in the article reprinted above – becomes acceptable public policy. We’re not far from the old Soviet joke, “we pretend to work and they pretend to pay us.”

6 Comments
  1. AKAnon says:

    Nice find, Muck, but the proposed “solution” is already policy, just not so blatantly obvious. The “substitution” within the basket of CPI items is old news. When bread becomes too expensive, will the people eat sawdust? Yeah, I know-been there, done that.

    16th December 2012 at 7:55 pm

  2. Ron says:

    I think cutting back on overseas bases would be a good start.I think social programs are the last thing that needs cuts.Specially with how the country is doing.Stop foreign aid also.
    Its all smoke and mirrors anyhow.

    16th December 2012 at 8:01 pm

  3. AWD says:

    Good stuff Muck. The government will lie ad infinitum, the trick is now going to be keeping the unemployment level about 6.5%, so the Fed can print money forever. The government will now lie in the opposite direction, inflating unemployment, because the Fed is financing almost 100% of the government’s deficit spending.

    And, those of you that had plans on moving overseas, or out of the country to avoid taxes and the criminals in government, think again:

    Is The US Killing The Global Economy?
    Originally posted at Armstrong Economics,

    The United States is the ONLY country that taxes American citizens even if they have never lived in the United States at any time. Once born American, you owe taxes as an economic slave even when you receive nothing and have never lived in the USA. This law passed last December that authorizes the confiscation of any firm’s assets if they do not report what an American citizen does overseas has been devastating. Americans have been thrown out of banks everywhere. In Switzerland, you have to fill out papers to open and account swearing you are not an American citizen even if you are Swiss. Americans are being thrown out of public funds and just about everything anywhere right down to safety deposit boxes. The balance of trade will continue to collapse as foreign goods can be sold to Americans but Americans cannot open businesses overseas unless you are part of the big multinational corporations. This alone has sent the velocity of money spiraling downward. However, what is going on now is just off the wall.

    The US government is now hunting down people who may have had one parent as an American yet they have lived outside the USA all their lives. The IRS has been hunting lineage of Canadians who had one American parent and are sending them letters informing them that by US law they should have been paying taxes their whole life to America in addition to Canada. This is sending countless Canadians running for lawyers all because the USA is broke.

    http://www.theglobeandmail.com/globe-investor/personal-finance/us-tax-crackdown-hits-canadian-residents/article584297/

    How Americans are being treated by their own country is not as a free individual, but as
    economic property to pay revenue to the government regardless of where they live. NO OTHER NATION DOES THIS BUT THE USA. We are in such serious trouble with this Sovereign Debt Crisis that all liberty is being lost. Virtually every other major nation does not tax worldwide income if earned outside the country under the simple theory you pay taxes to use state services. If you are not there, you do not pay. American are owned by the government no different than the days of slavery. If your parents were slaves, you were the moment you were born. We perhaps ended private ownership of people, but we did not end state ownership of people. You must work and pay taxes and it has nothing to do with paying your “fair share” since there is nothing owed to a citizen by the state.

    The desperate need for revenue to pay the bond holders has destroyed everything the constitution was intended to secure.

    16th December 2012 at 8:28 pm

  4. Roy says:

    Your soul may belong to god (or the devil) but your body belongs to Government.

    If you sell the use of your body, it’s prostitution.

    If you ingest certain substances you can be incarcerated.

    Your estate cannot sell your organs for transplant.

    You cannot refuse certain medical procedures, vaccinations and others on your children.

    16th December 2012 at 9:38 pm

  5. Makati1 says:

    You can leave the US but you cannot take much with you. However, you can drain your accounts slowly through ATM withdrawals and move it to a safe place where you live. For instance, I can move $800 per day out of my US bank and into my hands. That is about $300,000.00 per year. In one year’s time, I can move enough to live comfortable here for 40+ years. That would buy a nice home, furnish it and pay my expenses for 40+ years. It can be done, but not if you have millions. They want a chunk of that and their cut on any interest your foreign investments pay, forever. (Or until: 1. you renounce your US citizenship, or, 2. The US ceases to exist as a tax collecting entity, or, 3. You die.) If you do it right, you can still do it, but I don’t know how long the ATM withdrawals will be allowed. Of course, in a year the dollar may be dead anyway.

    16th December 2012 at 11:40 pm

  6. Novista says:

    There is NO statistic that the gubmint cannot make ‘elastic’. like the currency …

    17th December 2012 at 7:13 am

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