TABLE OF CONTENTS
1. Introduction
2. The Role of Taxation
3. The Relationship
Between Tax and Money
4. Comparing Imperial Budgets
5. Imperial Financial Management
6. Social Security, Medicare and IOU's from the Government
… to the Government
7. The Lock Box Myth and the Problems it Generates
8. Perhaps a New Religion is in Order!
This is the Wizards of Money, your money and financial series… but with a twist. My name is Smithy and I'm a Wizard watcher in the Land of Oz. This is the 12th edition of the Wizards of Money and it is entitled "The Imperial Budget and the Mythical Lock Box".
In this the 12th edition of the Wizards of Money we are going to take a look at the biggest budget in the whole wide world in the whole of history - that is, the $2 Trillion USD budget of the US Government.
How does such a big Empire spend the money it collects from residents? In such a big and complex budget is there any misleading accounting wizardry going on? We will look at these and other questions by comparing the budget of the US Government to that of its 2,000 year old ancestor, the Roman Government in the early years of the Empire. Then we will look at the role of the US Treasury in managing the biggest budget in the world. Finally, we spend some time dispelling the greatest Treasury Myth ever conceived of in the history of Imperial Budgeting - that myth involving the so-called Social Security and Medicare "Lock Boxes". We will see that these Lock Boxes or safety trusts do not, and indeed logically cannot, exist by going back to a first principles understanding of what our money is. We will also discuss how the presentation of these mythical trusts by various "spin doctors" has seriously distorted the public's understanding of the funding for old age pension, medical and disability benefits. This has prevented productive debate and problem solving on what could prove to be the very thing that could bring down the Great Empire…Getting Old!
But first let's get started with what taxes are and what a government budget is, and then talk about how the money we use relates directly to our taxation system.
Of course one cannot talk about the role of tax without talking about the role of government since tax is what funds everything a government decides to do. Regardless of what kind of society you live in - dictatorship, communist, capitalist, democracy, semi-democracy - a government will spend money on the following in various orders of priority:
The purpose of any insurance is to pool risks so that each individual in the pool lowers their own risk of some crippling disaster for a small annual fee paid to the pool. Therefore any insurance mechanism is necessarily re-distributive. "Insurance like" federal taxes such as Social Security are more re-distributive than any private sector insurance because those with the highest ability to bear the related risks (those with high incomes) get the lowest expected return on their contributions to the system. In addition what is really happening, as we shall see in the last section, is that current workers contributions are always paying for current retirees in the system and there really isn't any "saving for the future" going on, as is so often presented to the public.Such a progressive risk sharing mechanism could not work in the private sector, which is why it was founded as a public system in the first place.
Many people in capitalist economies who argue for less government intervention in the market economy seem to overlook the fact that the government creates the infrastructure for the markets to function in the first place. Without government created legal and judicial infrastructure, even the most basic contract would not be enforceable, except at gunpoint. Since our whole monetary and trade systems are built primarily on contracts of agreement (with occasional input from firepower), modern markets would not exist, and economic development could not happen, without significant government intervention.
Those who also argue for an end to government sponsored re-distributive mechanisms either overlook or dismiss the role of periodic redistribution in sustaining economic prosperity. As noted by John Maynard Keynes in the 1920s, without government intervention in redistributing wealth in suitable amounts you step on to a spiral of increasing inequality. The following is a quote from Keynes' book "A Tract on Monetary Reform", written in the roaring 20's at a time of a roaring increase in income and wealth gaps globally, that covers both the government's role in market existence and in redistribution:
"Nothing can preserve the integrity of contract between individuals except a discretionary authority in the State to revise what has become intolerable. The powers of uninterrupted usury are too great. If the accretions of vested interest were to grow without mitigation for many generations, half the population would be no better than slaves to the other half. Those who insist that … the State is in exactly the same position as the individual, will, if they have their way, render impossible the continuance of an individualist society, which depends for its existence on moderation."
Normally the largest and most debated government spending items in any country at any time are related to Military Spending, Social Spending, and Interest on Government Debt. We discuss the three further later on when we compare the Roman Empire's budget to that of the modern empire. But first we discuss the very much forgotten, ignored and taken for granted relationship between money and tax.
3) The Relationship Between Tax and Money
Most residents of any country today will be charged taxes by their government on any income they make in their private activities. Tax is the most common liability all people must meet and therefore people like to earn all or some of their income, and accept payments in, a medium of exchange, or form of money, that can be used to meet tax liabilities. It is also in the government's best interest that people get paid in a medium of exchange that it accepts for tax payments, as well as in banks' best interests that checks drawn on bank deposits are suitable to the State as a form of payment to meet tax liabilities. Therefore, to the extent that people are agreeable to a system of government taxation, everyone's best interests are served by a significant proportion of money in circulation being that which is acceptable to the State to meet tax liabilities.
This is why our major medium of exchange today, the US Dollar, is created through what is really a joint venture between the Treasury Department of the US Government, and the private banking industry through their bank deposits, and the Federal Reserve's role in creating "high-powered money" that we spoke about in Wizards Part 1. Federal Reserve Notes created by the Federal Reserve System and blessed by the US Treasury as being legal tender for all debts PUBLIC and private can be used to pay taxes, but most people use drawings on bank balances to pay tax bills instead. The State, through its role in issuing banking licenses, regulating banks and being the ultimate risk-bearer in the case of bank failure, blesses payments using bank-created money, which are just electronic records, as being good and well for meeting tax liabilities. Recall that we spoke about the creation of both Federal Reserve Notes and bank-created money (which is most money) in Wizards Part 1.
The mature development of this system of State-blessed, bank-created money really came about with the founding of the Federal Reserve System in 1913 and the re-introduction of Federal Income Tax in this same year. These events both played a significant role in financing America's involvement in World War I. Today's US Dollar money system, and the links between the State and the private banking industry, were further strengthened by State action, such as Federal Depository Insurance, after various learning experiences such as the '29 Crash and the Great Depression as we spoke about in Wizards Part 10.
Today, many years later, we don't think about these interesting ties between what the State accepts as payment for taxes, the money that banks create, and the money we get paid in for our work. Instead we just take it for granted that it's all the same "stuff". But it took many years and learning from financial collapses to get it to its present state and, indeed, part of its success and stability is the fact that most people never stop to think about it.
So stable, so unquestioned and so unchallenged is the US dollar system today, that the US dollar and promises to pay US dollars in the future by the US Treasury are without doubt the safest of all financial assets in the world. Hence the US dollar and US Treasury bonds (promises by the US Government to pay US dollars in the future) are known as the "risk-free" set of financial assets. Risks of ALL other financial assets are higher and are measured against this "risk-free" benchmark. Of course there are some risks - basically, that one day the US could fall off the Empire throne and the USD will collapse in value, but there is no expectation of this in the market so the USD retains its "risk-free" status.
When you think about saving for future retirement it is this status of the USD that is critical to thinking about funding Social Security and Medicare. The understanding of State-sanctioned, bank-created money at such a fundamental level lies at the heart of the Social Security/Medicare debate and helps us understand the reasons that a publicly funded US pension system CANNOT be pre-funded by an investment trust in financial securities. This basic understanding of money is achievable for anyone, whether you have studied finance theory or not. We will come back to these points in the last segment of this Episode, but please keep them in mind throughout the discussion of State spending.
Now lets see how the US Government's 21st Century spending stacks up against the Roman Empire's 1st and 2nd century spending.
"The Imperial March"
There appear to be at least as many permutations and combinations available for presenting US Federal Budget and Government Spending data as there are years that it would take you to count to $2 Trillion dollars, which is about 60,000! (Note that [in the US] the number One Trillion is One Million times by One Million, or 10 to the power of 12).[By the way, for the mathematically inclined, the correct mathematical definition of One Trillion is One Million to the power of 3, and the correct mathematical definition of One Billion is One Million to the power of 2. BUT in America numbers work differently, and so it came to be that One Billion got redefined as One Million to the power of 1.5, and One Trillion is redefined as One Million to the power of 2. The effect of being the Imperial Power is that everybody else in the world has now had to adopt this number convention].
How you would like to present the Federal Budget depends entirely on the bias you start with and the point you are trying to make. Therefore it was decided in this episode of Wizards to admit the bias up-front and then you can better decide what to do with the data. My bias in looking at US federal spending was the thought that maybe we might just be the Roman Empire woken up from a 1,500-year nap after thoroughly exhausting ourselves last time. To be sure, the Roman Empire had many similarities with the modern US Empire - both being Empires built on a combination of clever legal systems, hard-work, confidence, much brutality in military conquest and extensive use of slave labor, coupled with a system of desirable, tempting, and free entertainment to warm the masses to the Empire, as well as erratic spouts of helpful assistance to the poor. Certainly also, a widespread Roman currency and trade system, and an extensive taxation and government spending program were just as critical to the success of the Roman Empire, as they are to today's American Empire. We spoke of many of these parallels in Wizards Part 4.
The comparison of Imperial Budgets started with finding a Roman budget at a time around when their leaders stopped being elected and instead were "appointed" and when ancestral lines of Emperors became very popular. So I started with the early Empire days of the 1st - 2nd Centuries AD.
A rather technical history book called "Money and Government in the Roman Empire" by Richard Duncan-Jones, published by Cambridge University Press in 1994 explains an approach, based on historical data from those days, to calculating the Roman budget in this period. The total Roman budget was about $1 billion sesterces, a common Roman currency that started in the BC years as about 1/4 of the Moneta denarius that we spoke about in Wizards Part 4. I was able to get estimates for the Roman budget in 150 AD broken down into the following expenditure categories:
Roman Empire Budget Distribution Source of Roman Data
Expense Item Percent Outgo
Military 70%
Civil Service - Judiciary, Police, Government Departments 10%
Social Spending 5%
Economic Infrastructure 5%
Other - Mostly Foreign Affairs 10%
I then compared this to US Actual Government Spending in the year 2001 (Total $1.9 Trillion) by first subtracting both Social Security and Medicare (Total $0.6 Trillion) which have been more than fully self-funded by separate taxes (the FICA taxes) since the early 1980s and that we will devote the last section of this episode to. Then I also subtracted interest on public debt ($0.2 Trillion) for comparison purposes since the Roman Empire did not have a consistent, well developed system of Sovereign debt issuance like the modern Empire does.
Some other adjustments I made to US Imperial Spending were to include Veterans Benefits, Military Retiree benefits and Military Assistance to the Provinces (Countries) of Judaea and Egypt (Israel and Egypt) with Military Spending. The inclusion of benefits to ex-military employees is consistent with the way the Roman data was derived, and the inclusion of military aid to Israel and Egypt was done because these were the two most expensive outer-Provinces to maintain under both Empires.
I came up with the following distribution of expenses on a comparable basis derived from Table 26.2 of the full current Budget of the US Government, available in Spreadsheet Form by going to the Office of Management and Budget Website at www.whitehouse.gov/omb, click on Budget link and go to Spreadsheets, then click on Detailed Functional Tables (Chapter 26). If you want to see how I categorized the data, that will be posted on the Wizards of Money web site at www.wizardsofmoney.org OR go Directly to US 2001 Spending Breakdown OR Go to Directly to OMB Detail Data
American Empire Budget Distribution
Expense Item Percent Outgo
Military 40%
Civil Service - Admin, Justice, Treasury, Fed Civil Retirees 10%
Social Spending - Medicaid, Food, TANF, Umempl, Housing, SI 30%
Physical and Economic Infrastructure 10%
Other - Education/Training, Research, Foreign Affairs 10%
Clearly the data indicates that social spending in the Roman Empire was generally at a very low level. However social spending tended to happen erratically in much larger amounts, depending on the Emperor of the day, and the need to win over public opinion.
What is clear from looking at the two budgets is that the current US budget has more regular proportions of social spending, especially in comparison to military spending. However it should be noted that the US budget looked much more Romanesque in earlier decades of last century, notably during the 40s for WW2 and during the 50s in gearing up for the Cold War, where military expenditures were close to, and sometimes even exceeded, the Roman proportion.
The move from a Romanesque budget of the 1950s to the current US spending distribution has a lot to do with increased healthcare expenditures such as Medicaid, and the introduction of things like the Earned Income Tax Credit, and changes to Unemployment, Housing and Food Assistance Programs.
Note that most of these social spending items included in the 30% fall under the grouping of "Means Tested Entitlements" which means that they make up the social safety net for people whose income and assets fall below a certain threshold. The other primary social spending benefits or social safety net items are Social Security and Medicare, which apply to Retired and Disabled Persons and are not means tested. As noted earlier these benefits have been self-funded through separate employer and employee contributions (known as the "FICA taxes") for the past two decades. Because of the unique circumstances and confused public debate surrounding Social Security and Medicare, the last section of this episode of Wizards is devoted entirely to them.
In general, rising medical costs affect both Medicare and the means tested healthcare entitlements such as Medicaid. In fact, one of the Historical Data Tables in the Budget (Table 16.1) shows total government spending on all health programs to have increased from about 2% of the Imperial Budget in 1962 to just over 10% by 1980, to almost 25% or one quarter of the Imperial Budget by the year 2001! As anyone with a health insurance policy will also know, health care costs under private sector coverage also continue to rise. Overall, an increasing amount of America's total Gross Domestic Product (GDP - a measure of the total economy) is spent on health care. To keep score of the size of an economy and the size of national income people often talk about GDP or Gross Domestic Product. This measure of national income is also equivalent to Annual Consumption Expenditure plus Government Spending plus Investment - which are the only three places your money can go. That is, any income you get either goes to taxes, you spend it or you invest it. US GDP is about $10 Trillion US dollars. Consumption Expenditure makes up about 65% of GDP in total. Government spending makes up about 20% of GDP or $2 Trillion dollars a year.
Today healthcare expenditure makes up about 14% of US GDP. About 30% of this is picked up in Government Spending, the rest is in private spending. By the end of this decade healthcare spending will be inching close to almost a fifth of the total Imperial GDP! America spends more on healthcare as a percent of GDP than any other developed nation, but has less public coverage for this cost and a large uninsured population. So the high spending on healthcare in the US must be explained by something other than a general concern that everyone have adequate care.
To a very large extent the high level of American healthcare spending is a result of America becoming victim of its own technological success, its sedentary lifestyle and a culture obsessed with longevity, overcoming natural cycles and the desire to "stay young". The latter appears to be common to inhabitants of Great Empires of the past. This cultural obsession, fed by medical technologies far superior to those of any other country, may one day suck up so much of the US economy that it wont be able to sustain Empire status. Indeed it is perhaps the very fear of this that is really driving the attempt to redefine Social Security and Medicare that we shall talk about later.
Moving on to some of these other expense items, it should be noted that "Other Spending" includes Foreign Affairs expenditure other than the expenses of maintaining the outer provinces of Israel and Egypt, which are included in the Military item. Under both Empires so-called "foreign aid" is or was an important part of keeping peace with peripheral provinces or countries. Unlike Rome, the US Empire also successfully uses loans through various multi-lateral institutions such as the IMF, World Bank and Inter-American Development Bank to maintain optimal relations with peripheral sovereigns. This use of loans gets to one of the fundamental differences between Rome and America - the role and leverage of the Empire's financial system.
Recall that we discussed the role of leverage in our modern financial system in Wizards Part 11, and its part in driving both the industrial and technological revolutions. The US Empire's success is largely due to the success, and complete faith in, its highly leveraged and purely fiat (meaning that money has no storage or intrinsic value) monetary system. In contrast, the Roman Empire's monetary system was almost entirely metal based and while there was easy access to credit for the ruling classes this was not true for other classes. There appears to be much debate among historians about what stopped the Roman Empire from having an industrial revolution. But whatever one's opinion, surely a pre-requisite is a highly leveraged, and maybe purely fiat, monetary system with sophisticated, widespread access to credit. But Rome never got to such sophistication with its financial system. This provides us with another reason why its success was always more driven by military conquest than anything else. In contrast, for the modern American Empire, financial influence is on a par with military power, and both feed off each other.
The financial success of the American Empire has also made its tax collection process far more efficient than any previous Empire, the biggest problem being with collecting from the rich. Since the financial system is a fiat system, financial transactions can be purely electronic and thus tax payment happens before many of us even get our monthly or fortnightly pay. Contrast this with the resource intensive system of the old Roman tax collectors having to go door to door to collect weighty coins and various goods such as wheat grains.
5) Imperial Financial Management
The role of the Treasury Department or Treasurer of any body is to deal with financial issues - to collect income, to disperse expenditures, to maintain the books, see to the investment of surpluses and the borrowing necessary to cover shortfalls. So to with the US Department of Treasury that oversees the management of the biggest account in the world, that of the US Government. The US Treasury Department overseas the main governmental revenue collector, the IRS or Internal Revenue Service, the Bureau of Public Debt that manages government debt issuance, and the US Financial Management Service, who manages "The Books".
It is important to appreciate that the accounts of a government do not look at all like the accounts of any body in the private sector, be it a for-profit or a non-profit organization, or even an individual. Indeed if you viewed the US government balance sheet through a private sector lens you would immediately declare it bankrupt and wonder why US Government Bonds are considered the safest assets in the world!
However the reason a government's balance sheet doesn't tell you what you need to know about the safety of a government obligation is because it doesn't place a value on the right of a sovereign to tax its residents. This right of the sovereign, held only by the sovereign, generally makes obligations of the sovereign a safer investment than any private sector body licensed by, or domiciled in, that same sovereign nation. Then, the higher the national income (or the tax-base) in that country the higher the expected revenue to the sovereign body, and the more likely it will be able to meet its own obligations (provided its debt levels stays within certain bounds). Thus it comes as no surprise that the country with the largest economy and national income also issues the least risky type of debt security - and in today's world that is the US Government.
The resulting easy ability for the government to both tax and to borrow facilitates the type of military expenditure and infrastructure spending necessary for empire building and further economic growth. Economic growth spurs further access to capital for military and infrastructure expansion, and so the cycle continues. Any empire would then be very concerned about the following two primary threats to this pattern:
6) Social Security, Medicare and IOU's from the Government … to the Government
If you have a regular job and you look at your pay-stub you will see two deductions for FICA taxes. FICA stands for Federal Insurance Contributions Act and covers two basic benefits for retirees and disabled persons:
Social Security: Labeled as FICA-OASDI or Old Age and Survivors Insurance and Disability Insurance. This provides pension benefits to retirees, survivors and disabled persons.
Medicare: Labeled as FICA-HI or Health Insurance. This provides medical insurance for retirees, survivors and disabled persons.
Many people may be aware that the amount of money the government collects from us as and our employers as the FICA taxes has exceeded the government's obligations in Social Security and Medicare payments for the past few decades. This has been true since FICA taxes were increased under the Reagan administration in 1983, curiously at a time when other Federal Income Taxes were reduced. Then the question is "What has the government done with that excess money?" and many people have gotten very upset to find out that the answer is that - its all been spent on other things. About $1.4 Trillion of Social Security and Medicare Surpluses - all spent elsewhere by the US Treasury.
Lets see why this is. Many people are upset because they think the government should have "saved the money" for the future and often they are misled to believe this through the existence of what are called the Social Security and Medicare Trusts, or sometimes more snazzily labeled as the Lock Boxes. In what form could the government save the money? Perhaps:
A similar argument applies to investing the funds in the non-government guaranteed private sector. The private sector depends for its success on the stability and financial security of the State. If the State collapses so does the private enterprise defined by the rules of the State. If certain private enterprises collapse it shouldn't effect the State, except if there is massive widespread collapse and then the State would step in to provide as many guarantees as possible. So some ultimate risks are still born by the State. The main point is that investing in the private sector carries with it higher risks than holding a government obligation. And the main point of Social Security is to pass risk from those that can least bear it over to those that can. Private investing without government guarantees completely removes this risk transfer feature of Social Security and places private sector investment risks onto those who can least afford it.
Therefore, as nonsensical as it sounds, so long as there is a surplus collection, the most sensible thing to do is for the Social Security and Medicare funds to pass over the excess funds they collect each year to the Treasury for it to spend back into the economy. The Treasury then writes an IOU to the trust fund to pay back the amount it just spent on something else. Basically the Government is writing an IOU to itself. The government is writing out some little pieces of paper that say "Dear Me, I owe me some money", and then they put the paper in a box, lock it up and call it a safe "lock box" or trust fund.
Whether intentional or not, what effectively happened to the Social Security and Medicare surpluses generated by the Reagan Era FICA tax increases and reductions in benefits, was that they helped fund Reagan's big military build-up of the eighties. With a Federal Income Tax Cut, but an increase in FICA taxes, the tax burden was made LESS progressive, and the loss in tax revenues in the general Treasury account was somewhat offset by Social Security Surpluses. This shifting of funds also enabled the government to replace borrowing from the private sector (the markets), which it cannot default on without dire consequences, with a promise to "pay back" the funds to Social Security and Medicare many years in the future when needed. This is a much less serious promise than issuing debt to the private sector because future governments may very well get away with reducing publicly funded social security benefits if they argue it effectively enough. However the government cannot default on debt issued to the private sector else it will send the markets into a tailspin (since it is the most risk-free asset) and thus send the world's economy crashing.
Recently the Bush tax cut has compounded this trend of borrowing from Social Security and Medicare to make up for lower general revenues and thereby fund other government expenditures, and substitute borrowing from the markets with borrowing from Social Security/Medicare.
Only time will tell if these promises will be broken, but in the mean time it is important that people understand the real funding issues and not get distracted by Lock Box accounting wizardry.
7) The Lock Box Myth and the Problems it Generates
Central to understanding the Social Security dilemma is understanding what it means for the government to write an IOU to itself. As discussed, a US government IOU is the lowest risk asset, but the government being able to come good on this obligation ultimately depends on its ability to collect taxes in the future to pay-off all these IOUs.
In reality, looking right through the wizardry of all these IOUs from the government to the government in the so-called Lock Box or Trust Fund, what really happens with Social Security funding is that the current base of taxpayers always fund the benefits for the current set of retirees.
Social Security and Medicare are, as we say in the pension and insurance world, funded on a "pay-as-you-go" basis. This means that the obligations to be met this year will be funded by revenues collected this same year - there is no pre-funding of benefits, and there cannot be, as we have just argued. When it comes to being the Imperial Government, there is nothing safer to invest in than yourself, and this is equivalent to depending on future tax revenues to meet all future expenses, which means you fund everything on a pay-as-you-go basis. That is, taxes collected from current workers always pay for the benefits of current retirees.
In reality the Trust Funds provide a mechanism whereby future general income tax revenues of the government can be legally transferred to meet social security obligations in excess of Social Security taxes if and when needed. It is a legal mechanism to facilitate possible future flow of funds and nothing more. But there is no guarantee on benefits and current benefits are always set by the law of the land of the day. But now we get to the problem of the liability being with the government - that is, of course, that the government sets the law of the land! And so the government can change the laws that specify benefits if it so decides.
Since the elusive Lock Box (or Trust Funds), stuffed full of government promises to itself, is little more than a legal technically that doesn't get at the real issues of funding Social Security and Medicare, it should not be the focal point of discussion.
However, unfortunately some of the leaders at the US Department of Treasury still frame discussion around the mythical Trust Funds.
Treasury Secretary Paul O'Neill: Excerpt from March 26, 2002 Press Conference after the release of the Social Security and Medicare 2002 Reports
Now lets hear from another Trustee [aptly named] Tom Saving, who correctly describes the real problem that worries the government, and it's NOT funding shortfalls in the 2030s or in 2076! What really worries the government is that within the next few years Social Security and Medicare Costs will start competing for funds that would otherwise be spent by the government on other things (say, military or other things), rather than supplying extra funds to these things (as they have since the Reagan Era).
Social Security/Medicare Trustee Tom Saving: Excerpt from March 26, 2002 Press Conference after the release of the Social Security and Medicare 2002 Reports
An finally we hear from a caller who called into a C-SPAN show that Tom Saving was on the day after this press conference. He pretty much gets at the cold, hard truth of these trust funds.
C-Span Show with Tom Savings - a caller's explanation of the Social Security and Medicare Trust Funds
Cutting through the Trust Fund Accounting Wizardry we might surmise that the real Social Security and Medicare funding dilemma is this:
How do you fund the medical and retirement costs of an aging society and still keep being the Great Empire?
As noted, in a pay-as-you-go system the current base of workers fund the retirees and the sick. Translated into real goods and services this means that the current base of workers produce all the good and services, not only for themselves, but also for an increasing proportion of non-producers. The demographic trends driving an increasing ratio of non-workers needing support to supporting workers are:
This increasing demand on society's resources creates great pressure on funds that might otherwise go towards Empire building and maintenance (military and infrastructure), and will likely lead to much slower economic growth. This is perhaps the real dilemma that keeps the Emperors and their friends up at night.
Since many necessary Empire maintenance and building expenditures originate in the public sector there is a very real danger that a good chunk of the publicly funded safety net could be cut in the coming decades. Economic risks are thus passed back to those who can least afford them. There is a very real concern that increasing total medical and pension costs will lead to an even worse situation of services provided on an ability-to-pay, rather than a needs basis.
While it is true that both labor force productivity gains and further government borrowing from outside the government could serve to meet some of these increasing obligations, it is not clear that these could be sufficient to solve the problem and both can come with nasty side effects.
The point to be made here is that people need to be aware of what the real trade-offs are and that public discussion should be about the real issues and not about some mythical Lock Box (or Trust Fund) as is so often one by the Government's spin doctors.
Furthermore, even more dire a situation than the Social Security dilemma is the increasing share of national expenditure devoted to healthcare, as alluded to earlier. This effects all of Medicare funding, Medicaid funding, private medical funding and the ability of society to come up with a solution to the uninsured problem in the midst of exploding health costs everywhere else.
Add to that the riskiness of national output, or GDP itself, with more and more of it being conceptual and abstract services and thus able to disappear from the economy just as surely as Enron disintegrated. Recall that in the last episode of Wizards (Wizards Part 11) we included some words of caution from the Great Wizard Greenspan about the risks of the components of GDP becoming increasing "conceptual".
And the final sting of the dilemma is this - If people were content for the projected increase in healthcare and retirement to eat into Empire building and maintenance expenses then of course the Empire itself is at risk. And when the Empire is a risk, so is the whole economic and financial system through which these benefits are paid anyway.
So there are no easy answers. Well, except maybe …
8) Perhaps a New Religion is in Order!
In the deteriorating years of its Empire, Rome, ever practical, saw fit to rejuvenate its Imperial Power using the cheapest and most efficient tactic - a new religion to rally the troops around.
Though the ruling Emperors and Governors wouldn't have known it at the time, Rome's "business-as-usual" termination of a Messiah provided tremendous returns 300 years later as the Empire was collapsing. After all, if you don't have money to pay soldiers, you can always rally them around a new and appealing religion - for free!
In a few years or decades or centuries, the American Empire might also try its way out of its dwindling Empire dilemma with a shot at a new religion. Apparently the existing dominant religion so beneficial to, and kindly handed down from, the Romans themselves, isn't working too well and only makes the longevity quest even worse. It seems that the "fire and brimstone" warnings have really sunk in and everyone wants to delay as long as possible the taking of the inevitable "perpetual nap". Perhaps a new religion could help alleviate this cultural trend to want to live in one's earthly body well beyond what nature had intended for it. Inventing some religious worship methods that involved physical exercise would be an added bonus.
The possibilities are endless. In any case, as silly as it all sounds,
such tactics would probably work much better than a Mythical Lock Box!