Friday, September 16, 2011

SS: Ponzi Scheme Isn’t the Problem

Tibor R. Machan

Everyone by now knows what a Ponzi Scheme amounts to. We all became familiar with it when Bernie Madoff was caught using it to amass a fortune at the expense of clients who were unaware that his plan to put away money for them amounted to such a scheme.

The issue in the case of Madoff wasn’t actually so much the scheme but the lack of full disclosure about it. Ponzi schemes are legion around the world and people knowingly take part in them. Most insurance companies use them, collecting funds from new clients and paying old ones in part from the new cash. Retirement systems make use of the scheme as well. Those who have paid in are often getting the funds the new clients pay now. So with the social security system.

But the social security system would be no problem if it were voluntary and those who are part of it knew from the start the risks involved. Fractional reserve banking is like that too: when people deposit their money in banks the money isn’t all left in vaults until they withdraw it but much of it is used to give loans and make investments. And clients of the bank know this but figure the bankers are skilled at what they are doing and will not use the funds recklessly, irresponsibly. But they do not expect all costumers to suddenly withdraw their funds; the banks could handle that. But since it is common knowledge, nothing is amiss in such arrangements.

So that’s not what’s wrong with the social security system. The problem is that once you work, you are forced to be part of them system (with only some exceptions, such as when the state you work in has its own similar scheme in play). This, just like the income tax, is a form of extortion. Just like what happens when organized criminals force merchants to cough up money for them or they will burn down the business! Sending working people to jail or imposing immense fines on them unless they pay their taxes, social security or otherwise, is just like that. One has no choice if one wants to make a living: “Pay the government or have no job!”

When Republican candidate Rick Perry called the social security system a Ponzi scheme, a bunch of his critics, even fellow Republicans, expressed shock. Their ire, however, is misplaced. But the Republicans have no more leverage with pointing out that social security is mandatory than would the Democrats. Republicans and Democrats--indeed all political parties other than the Libertarians--favor extorting funds from the citizenry, only for different purposes. So what they argue about isn’t really all that important. Ponzi schemes are everywhere. What is much more problematic is when everywhere some people force others to carry on in certain ways, take part in various schemes, whether they chose to or not.

If there is a feature of the modern world that is basically different from ancient systems is that it is less enamored by outright force--slavery, serfdom, torture, etc. Such things are these days more widely seen as uncivilized, barbaric. And if a political system or public policy embodies coercive force that some use on others, it is now more suspect than it used to be in olden days. Not everywhere, of course, and not even in so called Western democracies. After all, democracies can contain a great deal of coercion and do everywhere you look. Still, the coercion in democracies is less brutal than in systems with top down dictatorial rulers such as the ones in the Middle East.

What needs to be discussed about social security in not the Ponzi scheme element but that is forcibly imposed on all working people in the country, never mind whether they want it or not. It would be quite enlightening if this aspect of social security were debated. That would bring up a central feature of most governments, namely, their coercive nature. That is what the American Founders and Framers were concerned about and while they didn’t reject all coercive policies --e.g., slavery, taxation--they were very hesitant about them.
Welfare Statism and Compassion

Tibor R. Machan*

There are many debates in political theory, most of them focused on what kind of legal system is just. It is an ancient topic, of course, and the various positions do not change all that much, merely get slightly revised by their new generation of champions.

Yet, whatever one’s political convictions, there is widespread enough agreement about what is a political versus an ethical position. The welfare state is a political idea, whereas, say, altruism or utilitarianism is an ethical one. Of course, which is the correct ethical position, which ought to guide human conduct, is also widely debated and has been from time immemorial.

Anyone aware of this elementary point of the history of ideas knows, also, that it is a central feature of any ethical position that when it is practiced by people, they need to practice it voluntarily. No moral credit accrues to someone who does what ethics requires because he or she is coerced to do so. Every parent knows that a child begins to mature ethically when good behavior is exhibited as a matter of free choice, not out of fear of physical punishment. This is regardless of what school of ethics is expected. Whichever ethics is correct, it only earns moral merit if it is done from choice, never because it is done from fear.

Another elementary point is that while support for a given political position can gain one moral credit, that too must be voluntary. If you place a gun to someone’s head and march the individual down to the polling place and he or she votes for a candidate or measure because you have forced it on him or her to do so, that is not credit worthy either. Whichever is the correct political position, it too must be a matter of free choice for one to gain credit for championing it.

So once this is appreciated, let’s suppose that it is morally creditworthy for people to act compassionately, to offer their help to those who need it. Once again one could gain credit only if one acted so because that is what one wants to do. And that’s so with other virtues as well. One is morally praiseworthy only if one practices the virtues because one wants to. Accordingly the flack received by Representative Ron Paul from some of his critics because he does not believe government should engage in welfare policies must be seen in a certain light. It isn’t a sign of Dr. Paul’s lack of compassion to reject government’s role here, not at all. That’s because compassion, too, must come from a free choice, not because government takes one’s resources as hands these to the needy.

So when in his New York Times column on September 16th Paul Krugman chided the likes of Ron Paul (as have some other democrats or liberals) for their lack of compassion in their refusal to back government administered funding of health care, etc., he was quite confused. Just consider: a few days ago the news showed about a dozen people pitching in to lift an automobile so a motorcyclist who was pinned under it could be pulled out and saved. We may assume that these people pitched in voluntarily, not because someone made them do so. But Professor Krugman and his fellow critics of Rep. Paul would have had to consider it far more compassionate had these people reached for their guns at the scene of the accident and forced others to pull out the motorcyclist from under the car. That is the crux of the difference between Professor Krugman's conception of compassion and Rep Ron Paul's.

Those who champion government programs to provide support to anyone, the poor, farmers, artists, or others are not in fact being compassionate. They are bullies aiming to make others act in ways that would be compassionate if individuals did it of their own free will. But they are not being compassionate, not by a long shot.

*Machan is the author of Generosity, Virtue of Civil Society (1998).

Tuesday, September 13, 2011

Machan’s Archives: The Myth of Job Creation and Security (1996)

Tibor R. Machan

During one of his campaigns for the presidency Bill Clinton was stomping one state with a talk parts of which were aired on National Public Radio, the radio network of record on what pleases the modern liberal establishment. The excerpts were typical. Mostly the pres was taking his lines from that funny little movie, DAVE. In it the fictional president-stand-in, played by Kevin Kline, proclaims that first on his political agenda is the secure a job for everyone in the country.

It is one of these pitches coming from politicians that are truly sick. This is because if there is one promise on which politicians cannot possibly deliver it is the one about providing jobs or job security. No one can give another person job security, not unless someone else is placed into involuntary servitude. That is, to secure a demand for some productive activity in the market place, others must make the free choice to purchase its result. This means that there is no way to guarantee any job for anyone if potential customers are treated as sovereign, free agents. If, however, job security is promised to us, those who make such a promise must give up on treating customers as sovereign, free persons. They have to be treated as slaves to the products that have to be purchased in order to secure the jobs in question.

Consider my job. I was at this time a tenured university professor at a large state university. Only if I committed a crime could I be fired or laid off (unless the entire institution were abolished by the politicians in the state). (Which is to say that even politicians cannot force people to keep paying for something, as the Soviet Union found out.) The only way I could have had job security is by forcing the taxpayers of the state to give up their income for the goals I serve, teaching college level philosophy courses.

I, then, had job security only because the citizens of my state were placed into involuntary servitude for the sake of supplying the productive service of college teaching. I lived off their involuntary service, extracted from them in the form of taxes -- that is, the forcible relinquishing of a portion of their earnings -- each April 15th. The reasons here do not matter -- many think education is so important to produce that people ought to be forced to pay for it, never mind their own choices in the matter. This is one of those places where talk about what "we" want hides the fact that some people may well not want it, so the "we" really is just some of us, while the others are being coerced.

In a relatively free society bits and pieces of such job security may get by, even if they, too, are something of a fraud since, after all, the majority of voters may change their minds, too, and pull the rug from under the tenured professors sometime. This has already happened at some colleges and universities that have abandoned tenure and even reneged on it because the money wasn't there to continue this job security myth. But to promise, as President Clinton did, job security to all workers is rank deception.

No one can deliver jobs or job security to workers in the private sector. A company would be lying if it made such a commitment. How are they going to keep their customers coming back for their product -- at the point of a gun? That is exactly what would be needed to deliver on that kind of a promise. And even then the enforcers may go on strike! Eventually the country can collapse from lack of personal initiative. So the promise is phony in any kind of society. Mostly it is phony in one that pretends to some measure of citizen -- including consumer -- sovereignty.

Wishful thinking has won many elections and, no doubt, without some alternative and realistic vision to take its place, this fraudulent ideal of jobs and job security will once again gain Democrats sizable support in American electoral politics. But the ideal itself is corrupt and that means we will pay for pursuing it -- or rather our children will when stagnation sets in as it inevitably must from attempts to institute forced labor in a society.

Sunday, September 11, 2011

Who Builds Obstacles to Real Stimulus?

Tibor R. Machan

Where I work we have a retirement plan. It comes with the job so once you get your employment you are also part of the system.

Turns out that the accounts set up can contain quite a lot of cash. However, even if one is over the age of 65, even 70, the plan does not permit one to make any cash withdrawals if one is still working full time. One is able to take out loans but these, of course, need to be paid back in monthly payments, so they offer little help with one’s expenses in bad times like ours.

Anyway, what is most interesting is that freeing up some of the retirement funds--say about 15 or 20 %--could make it possible for many of those who work at such places to inject substantial funds into the economy by paying off a mortgage, making improvements on one’s home, purchasing an automobile, taking a vacation or whatever. This is just what the current administration in Washington aims to achieve with money printed or borrowed, i.e., with non-productive economic stimulus.

I haven’t got the figures but I bet that the change of such plans at various companies, universities, hospitals and so forth, so that participants could withdraw some funds and use them to make purchases of various kinds, could amount to a pretty penny! Might even help jump start a dormant system!

When one looks into why these plans do not permit any cash withdrawals, at first it appears that the rule is made by the employers and changing them would require some procedures that a single employee is rarely set up to carry through but a group of them might manage. With some tenacity they could. But a little more investigation shows that it is useless to appeal to the employer. It is certain Department of Labor regulations that in fact coerce employers to disallow such withdrawals by working employees.

In particular, Chapter 4 (Payment of Benefits) of the Employee Retirement Income Security Act of 1974 (ERISA) “sets standards for most employer and union sponsored plans in private industry and imposes responsibilities on those running the plan.” Aha. I was almost convinced that my employer experienced a fit of paternalism at some point and set up the retirement plan in a way that no cash withdrawals are possible if one is still working full time. (Never mind now whether such withdrawals might be wise or not--one size does not fit all in these as in many other cases.) But it turns out that my employer’s hands are tied by federal law.

Talk about government regulation that imposes severe restrictions on citizens regarding how they may use their own resources. That, of course, is the idea behind social security--coercing us all to “save” for our old age! Never mind, once again, that different folks could well use different strokes here, as elsewhere.

It is odd that at this time, when Washington is desperate for some genuine, bona fide economic stimulus, real funds that make it possible for citizens to go to market and generate commerce, including, of course, employment, that very same Washington is prohibiting the use of funds for just that purpose. Instead, it promotes using artificial funds, money printed and borrowed, with which to engage in a Keynesian pseudo-stimulus, with its bizarre device of the multiplier, the something from nothing idea that injecting such phony funds into the market will produce multiples of those funds--as if the law of the conservation of mass and energy had been overturned.

It is sometimes useful to check out the obstacles to coping effectively with some of life’s challenges. It may appear that they are placed there by corporations, businesses, and other economic institutions and one might actually be able to have a chance of removing them by persuading the people at these institutions to change their minds. But, no, it is often the federal government--in this case the Department of Labor via ERISA--that renders it impossible to make adjustments that could help citizens to manage their affairs and, also, downturns in the economy.