Is Government dependable?

Every year the Social Security Administration sends me a statement with my estimated Social Security retirement benefits. If I feel like being depressed, I do some analysis on those numbers.

A few years ago I computed the effective rate of return for money I pay into Social Security. You can find the results here. At that point, my money entrusted to the "Social Security Trust Fund" produced the equivalent of a 1% annual rate of return over my lifetime. By comparison, a diversified investment portfolio should be expected to return eight or ten percent over the long term.

This year I compared a dollar paid into Social Security to a dollar invested in my 401(k). In both cases I started with a dollar paid in 1994, when I was fresh out of college. The dollar in my 401(k) has had a rough ride, with some big gains and stomach-wrenching drops. Today it has grown to $3.93.

If I went to the government and asked about my dollar, they couldn't give it to me, or even tell me how much it is worth. They don't have it any more. They spent it in 1994. All they have is a Treasury Bill indicating that the government owes itself $1 plus interest. To understand how this works, get a piece of paper and write "I owe myself $1 million." Then sign it. Congratulations! You are a millionaire! At the effective rate of 1% my dollar would be worth $1.21.

Assuming typical results for both the 401(k) and Social Security, if I retire at age 65, the dollar in my 401(k) will have grown to $54.34. The dollar I paid into Social Security will produce $1.52 in benefits for me. The 401(k) investment will be worth 35 times more than the Social Security benefit.

"But wait," you might say, "The 401(k) is invested in stocks and those are risky. Social Security is safe, there is no market risk. It is sure to be there for you." A big hole was shot in that argument by the report issued by the Congressional Budget Office which states that Social Security will operate at a deficit until the money runs out entirely in 2037.

How can this be? In 1984 Congress overhauled Social Security, increasing the payroll tax and putting the surplus into the "Social Security Trust Fund" where it would be available to cover the surge in benefit payments caused by the baby boomers retiring. We were assured that Social Security would be solvent until 2060.

But putting Congress in charge of safeguarding a pool of trillions of dollars was clearly not a good idea. You know the fox and the hen house. Congress, which depends on spending more and taxing less in order to secure their re-election, spent the money. Bernie Madoff was small time by comparison. With interest, the Social Security Trust Fund should be worth $2.6 trillion today. This should anger you. That was not their money to spend, it was your money, entrusted for safekeeping, promised to be there for you when you retire. Roosevelt called it "A sacred trust".

Millions of Americans depended on the government for a secure retirement. For more than half of America's retired people, Social Security provides the majority of their income. According to the recent report, in the near future, benefits will have to be cut, payroll taxes will be increased, and still the Treasury will have to borrow or print more money to meet its obligations.

Even the measly 1% return will not be there for me when I retire.

People who depended on government for their retirement are learning that government is not dependable to deliver on its promises. Now, who wants to sign up to depend on government for health care? Have they earned that level of trust?

Let's hear it for Scott Walker

When you look behind the financial disasters of our time, the odds are pretty good that you will find either a labor union or a government bureaucracy distorting the free market. Often you will find both, as in the case of the American automobile industry which is collapsing under the double burden of unsustainable union wages and benefits, and government regulations and taxation which make it next to impossible to compete in a global marketplace.

While the Federal Government madly spends money it doesn't have, taxing, borrowing, and printing money at an alarming rate, states who don't have the same luxury are going bankrupt under the strain of mounting unfunded Federal mandates, from sources including Medicare, the EPA, and Department of Education.

While the Obama recession has been hard on the private sector, it has been very good to government employees. As of last summer, the average civilian government employee was compensated $123,049. The rest of us poor schmucks working in the private sector where we have to be productive and produce a product that consumers are willing to pay for, earn an average of $61,051. Since Obama took office, government is the only sector where employment is actually rising. Today the government employs 2.4% more people than it did in January 2009. Private sector employment is down 4.4%.

Unions exist for the purpose of extracting above-market wages for their members. If they did not accomplish this, there would be no reason for anyone to join the union and pay dues. In the private sector, unionization eventually forces a business into bankruptcy. The business must pay above-market costs for labor, but can still only charge market prices for their product, making it impossible to remain competitive and profitable in the marketplace. In the government sector where agencies can simply force citizens to pay higher taxes and are not required to compete for revenue or market share, unions can simply grow unchecked. In the past 50 years, unionization in the private sector has dropped from 33.9% to 6.9%. Meanwhile, unionization has tripled among government employees, going from 9.8% to 36.2%. The case for higher taxes gets much harder to argue when faced with the reality that those taxes are going to pay busybody bureaucrats who make more than you do.

Enter Wisconsin's new Governor, Scott Walker, who recently introduced a bill to deunionize Wisconsin's government agencies. The outcry from government employees in Madison would make you think you're in Cairo Egypt. It is a necessary step for any state which wishes to remain solvent. It is also a gutsy move from a new Governor who is bucking the conventional wisdom that you get reelected by providing an ever-increasing stream of government largess to your constituents. Politicians want the masses eating out of their hand because that way they are always needed. Independent, self-sufficient citizens can throw their elected officials under the bus if they get out of line, but those who depend on the government for their food, shelter, medical care, clothing, and their very life will put up with much more abuse. Obama's central strategy involves paying off unions for their support by directing huge amounts of taxpayer's money their way in the form of stimulus, bailouts, and government contracts.

Governor Walker is certain to take some political hits for his stand. There will be weeping and gnashing of teeth from government employees who are really put upon to be forced to work for market wages like the rest of us. Undoubtedly, the media will delight in showing us pictures of public servants huddled in alleyways due to the exploitation allowed by deunionization. And of course we can expect Democrats to stir the pot in future election cycles, asking us to pity the poor victims of the state's unfair employment practices. But remember that for every person carrying a sign calling the Governor "Hitler" there are fifty people who are actually going to work and being productive, and they love what Walker is doing. It is exactly what they voted for in November. Elections have consequences.

At the heart of the issue is the question of the government's purpose for existence. Do we have a government to provide cushy jobs for a large percentage of the population from which they can never be fired no matter how poorly they perform, with guaranteed raises, guaranteed benefits, and guaranteed pensions for the rest of their life, funded by an ever-increasing tax burden on the rest of society? Or does government exist to protect the fundamental liberties and rights of its citizens and create a fair and free environment for individuals to excel, innovate, and achieve greatness based on their own merit?

Hats off to you, Governor Walker. You have no idea how much heat you will take for daring to kill the sacred cow of the left. But if you stand strong we will see that you were right in the end.