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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Saturday, September 18, 2010

The Entitlement Bubble: The Bust Is Going to Be a Nightmare - Exchequer - National Review Online

As I written about in the past ad nauseum, government policy, irrespective of how well intentioned, creates incentives that mis-allocates resources in an economy.....
The problem with the business cycle under this analysis, you’ll notice, is not the bust — it’s the boom. That’s when the bad investment decisions are made, largely because political influence in the markets (housing policy, tax breaks, artificially cheap money and other interest-rate subsidies, risk subsidies, etc.) distorts economic calculation.
This has been the case since government has mis-utilized the enumerated right of the Commerce Clause in the US Constitution to essentially intervene in markets for any reason.

Now, as this writer argues, albeit somewhat weakly in my opinion, the US has $130 trillion in entitlement debt that unfunded and is an obligation that is impossible to meet....
Which brings us back to the entitlements. It’s easy to say: Well, we’ll just raise the retirement age, or cut benefits, or means-test them, or raise taxes on the wealthy who receive them (which amounts to means-testing, but Democrats like that version better). And, yes, that probably is what we will do, eventually. But that does not get us out of the economic pickle: People have been making decisions for years and years — decisions about saving, investing, consuming, working, and retiring — based at least in some part on what are almost certainly faulty assumptions about what sort of Social Security, Medicare, and other benefits they will receive when they retire. When those disappear, a lot of consumption is going to have to be forgone — and a lot of capital dedicated to producing those goods and services for consumption will be massively devalued. Businesses will have to retrench, probably in a way that is more disruptive and more expensive than the housing-bubble recession necessitated.

This is the boom. The bust is going to be a nightmare.
This is the crime of government. They have promised people that if you pay a lifetime of taxes, we will provide to you in your retirement years. Its a obligation that cannot be met.

Some argue that the US will adjust, but the adjustment will be much more difficult to do than one imagines. Essentially, by means testing these entitlements, the government is going to reward those that lived beyond their means, did not work or save up to their capabilities while eschewing obligations to those that paid their taxes, saved, invested, worked hard and created the wealth that sustained the nation. People that paid into social security have been promised to receive benefits from these payments. Government will default on these obligations to these people.

Its the exact opposite of the American character of thrift, savings, family and community. It will prove to be the unraveling of normal human interaction and community. It is the end of the American government which has become nothing more than a great mis-allocator or resources. Additionally, through this Ponzi like scheme of promises, people have made millions of decisions on consumption and savings based upon these promises that created massive mis-allocations of resources for decades.

The Entitlement Bubble: The Bust Is Going to Be a Nightmare - Exchequer - National Review Online


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