• Promises, Promises

    by  • April 12, 2013 • Economics • 0 Comments

    The US, at least, is a nation hung up on promises.

    The promise of free medical care. The promise of a comfortable retirement. the promise of 10% stock market returns. The promise of security.

    They’re all false. But we collectively tell each other these lies and act as if we can make them come about.

    Given that people always gravitate towards whatever is best for themselves, I don’t find this surprising, nor do I resent it. The mass of people gravitate towards ideals, and the rich people use those ideals to create plans which pretty much only benefit themselves.

    Of course, people are attracted to unions because the unions promise them a better bargaining position. the artifically high compensation are seen as a boon, while the artificially high unemployment that comes with it is barely touched upon.

    Free medical care is, of course, an impossibility. Nothing can be free, because everything we value is the product of someone’s work. And no one works for free. Folks might consider volunteerism as an exception to this rule, but alas, it’s not. Volunteering is not work; it’s a hobby. It’s something people do for enjoyment. The first order of business is always to survive.

    The stock market outperformed the bond market in the 20 years between 1980 and 2000 by a whopping 1%, but with a much higher risk, and much higher volatility. the idea of the stock market as some kind of perptual return machine is ludicrous; the whole point of average return means some people lose everything. It’s all timing; It’s all luck. Unless, of course, you’re doing something illegal.

    We’re a gambling nation, believing in unachievable promises and spout off words like fairness and value, while purposely not defining those terms. The definition of fairness depends not only on whom you ask, but on when you ask them. Fairness to a young person on minimum wage is quite different than fairness on a 50 year old with a lot of life and death behind them.

    The things that depend on productivity — which is loosely measured via GDP — such as tax revenue and market returns, cannot grow at an exponential rate. If our promise-heavy government suggests we can grow at 7% a year, that would mean a doubling of economic output in 10 years. halve that rate, and that means GDP doubles in 20 years. Our population doesn’t grow that fast.

    But our promised obligations do. The people involved with making those promises have incentives to create a plan that, on the surface, satisfies their constituency, and then they get out before the real costs are incurred.

    Unfortunately, this is how people get rich today. They create an environment in which they are a primary dealmaker, create a deal with costs they don’t pay for, and get out.

    This is the mortgage mess. This was long-term capital management. This was the S&L crisis. and this is pension crisis.

    Unions have created financial time bombs, just like our mortgage mess, but on a vastly more destructive scale. They are the epitome of what every anti-business liberal says they hate about corporations. Greed, at the very top, taking advantage of government, of workers, and of people.

    Unions have become exactly big business. Where few profit, many are exploited, and the true costs are pushed onto everyone else.

    Yet they continue the narrative that unions are for the people.

    The US now has, in its infinite wisdom, a myriad of agencies and personnel designed to ensure, or at least protect after the fact, workers rights.

    We’re paying for this via taxes and by heavy borrowing. Now we also need to continue paying the price for unions, too? I’d say pick one, kids. Public sector unions are even crazier — they are pitting workers against a government that is trusted to evaluate food, medicine, work conditions. Financial regulations.Aand suddenly, in this one instance, I’m an asshole for pointing out that you’re turning around and saying the government can’t set fair compensation packages?

    Nevermind that unions essentially elect the politicians they’re making deals with. There’s no one representing the people at the negotiating table now.

    It’s this kind of massively twisted logic that makes me think the whole system has to collapse before people start thinking straight again. But alas, the powers that be market so well, that maybe the collapse will be successfully blamed on others. After all, democrats are pro-corporate cronyism in their actions, and yet the vast majority of them seem to think they’re not.

    That’s pretty damn good marketing.

    Failure must happen, to corporations, to individuals, to unions. If it isn’t allowed to happen on a small scale – if we continue to bail out entities and make small scale failures bleed into giant ones — then the failure is going to take us all down.

    That’s the nature of leverage. Borrowing for risky ventures creates a domino effect if and when a venture fails. Failure is an indicator that we need to change things, and if we don’t heed that, we instead let it continue, the failure just gets grander.

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