The Right Opinion

Political Statistics

By Thomas Sowell · Apr. 5, 2011

When someone gives you a check and the bank informs you that there are insufficient funds, who do you get mad at? In your own life, you get mad at the guy who gave you a check that bounced, not at the bank. But, in politics, you get mad at whoever tells you that there is no money.

One of the secrets of the growth of the welfare state is that politicians get a lot of mileage out of making promises, without setting aside enough money to fulfill those promises.

When Congress votes for all sorts of benefits, without voting for enough taxes to pay for them, they get the support of those who have been promised the benefits, without getting grief from the taxpayers. It’s strictly win-win as far as the welfare-state politicians are concerned. But it is strictly lose-lose, big-time, for the country, as deficits skyrocket.

Anyone who says that we don’t have the money to pay what was promised is accused of trying to destroy Social Security, Medicare or Obamacare – or whatever other unfunded promises have been made. It is like blaming the bank for saying that the check bounced.

It is the same story at the state level as in Washington. The lavish pensions promised to members of public sector unions cannot continue to be paid because the money is just not there. But who are the unions mad at? Those who say that the money is not there.

How far short are the states? It varies from one state to another. It also varies with how large a rate of return the state gets on its investments with the inadequate amount of money that has been set aside to cover its promised pensions.

A front page story on the March 28th issue of Investor’s Business Daily showed plainly, with bar graphs, how big Florida’s shortfall is under various rates of return on that state’s investments. Florida’s own estimate of its pension fund’s shortfall is based on assuming that they will receive a rate of return of 7.75 percent. But what if it turns out that they don’t get that high a return?

A 6 percent rate of return would more than triple the size of Florida’s unfunded liability for its employees' pension. The actual rate of return that Florida has received over the past decade has been only 2.6 percent. In other words, by simply assuming a far higher future rate of return on their investments than they have received in the past, Florida politicians can deceive the public as to how deep a hole the state’s finances are in.

Political games like this are not confined to Florida. State budgets and federal budgets are not records of facts. They are projections based on assumptions. Just by manipulating a few assumptions, politicians can create a scenario that bears no resemblance to reality.

The “savings” to be made by instituting Obamacare is a product of this kind of manipulation of assumptions. Even when the people who turn out the budget projections do an honest job, they are working with the assumptions given to them by the politicians.

The fact that the end results carry the imprimatur of the Congressional Budget Office – or of some comparable state agency or reputable private accounting firm – means absolutely nothing.

When Florida arbitrarily assumes that it is going to get a future rate of return on its pension fund investment that is roughly three times what its past returns have been, that is the same nonsense as when the feds assume that Congress will cut half a billion dollars out of Medicare to finance ObamaCare.

We would probably be better off if there were no Congressional Budget Office to lend its credibility to data based on hopelessly unrealistic assumptions fed to them by politicians.

One of the reasons why a federal “balanced budget” amendment is unlikely to do what many of its advocates claim is that a budget is just a plan for the future. It does not have to bear any resemblance to the realities of either the past or the future.

We do not need reassurances that do not reassure, whether these reassurances are in numbers or in words. No small part of the reason for the economic collapse we have been through is that federally designated rating agencies reassured investors that many mortgage-backed securities were safe, when they were not.

Not only investors, but the whole economy, would have been better off without these reassurances. “Caveat emptor” would be better advice for both investors and voters.

COPYRIGHT 2011 CREATORS.COM

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28 Comments

KYJeff said:

Sir,As a recipient of a "lavish" state pension I feel a bit like your example of the person who tells the bad news about funding. I, along with many others, seem to get blamed for the shortfalls. Many states have gone down the same path the federal government has followed. When there was money available they stole it for other purposes. This follows closely the federal practice of raiding the Social Security Trust Fund to fund other programs.We never had a right to strike, nor did we strike unlawfully. I was involved in a negotiation process which dragged on for fifteen months. We ended up with a small raise. When inflation was running in double digits we got 2.5% increases. All the while the state government failed to fund its pension obligation because the pension fund was doing VERY well on its investments.Public employees are not wholly to blame here. This is another example of blaming the wrong group. Please consider that using a comparison of Federal employee salaries to the rest of the work force. When these occur please consider that those drawing other public pensions are in the 'rest of the work force'. When describing the evils of lavish pensions please remember that they were negotiated in good faith by those representing the employees, and the governments for which they worked. Most were not forced down the throats of states. They negotiated either in good faith, or they simply lied to their employees. Either way it is really not the fault of the emmployees.Thanks

Tuesday, April 5, 2011 at 7:49 AM

TruthInAction in TX said:

Simply and well put. It isn't what you make; it's what you keep.

Tuesday, April 5, 2011 at 8:10 AM

Travis said:

Mr. Sowell,Thank you for writing this piece. You have said what I have wanted to, but cannot because, well frankly I cannot write well. I am going to pass this to everyone that I know, for we all need to wake up. Many Thanks.

Tuesday, April 5, 2011 at 8:53 AM

Jon said:

KYJeff offers that it is not the recipient of the benefits who is to blame for the cost of the benefit. So, blame must lie with either the union that negotiated the benefit, or the government representative who obligated the taxpayer to provide the benefit. How convenient. KYJeff offers as rejoinder that the union and the government negotiated in good faith. Balderdash. Helen Keller could see the conflict-of-interest.I am self-employed. I pay for all of my benefits. Each year, I set aside money for health care, retirement and insurance. I set aside money for the freeloaders of America's health care, retirement and insurance. And, I must also set aside some of my money for KYJeff's health care, retirement and insurance. And, he's the victim? KYJeff illustrates the point of Mr. Sowell's monograph.

Tuesday, April 5, 2011 at 9:35 AM

Simms said:

Since this country appears to have NO INTENTION of returning to the Constitution as the basis for its government, there is no hope of balancing the budget and eliminating the deficit. We call all expect hyperinflation and defaults, including a final and total government shutdown when ONLY the government accepts the federal reserve note formerly known as the "dollar" bill.

Tuesday, April 5, 2011 at 10:19 AM

jerry massey said:

TY, Jon, couldn't be said better!

Tuesday, April 5, 2011 at 10:27 AM

CDunn said:

Spot on, Mr. Sowell.@KYJeff -Who were these pensions negotiated with? With politicians whose reelections would be supported by those who benefit, or opposed by those whose beneifts were cut? This introduces a strong conflict of intrest, and is therefore immoral. [Yes, this applies to other etitlement programs, as well] Where is that "good faith" you spoke of?-Friend, I do not begrudge you the money you have made but I will begrudge your stubborn support of public sector unions.

Tuesday, April 5, 2011 at 10:29 AM

Howard Last in Wyoming said:

When it comes to the Balanced Budget Amendment I have two major concerns. What if the budget is not balanced will the Supreme Court order a tax increase? The members of Congress don't follow the Constitution now, why would they follow an additional amendment? Want to see a member of congress sweat ask him to name five bills he voted for and the section of the Constitution that authorized them. Don't be surprised if you get an open mouthed stare or the response "that is a stupid question."Maybe someone can tell me which section of the constitution authorizes social security and medicare. James Madison call your office.

Tuesday, April 5, 2011 at 11:54 AM

Skip said:

As usual, very lucid analysis of the problem. Simple? Sure, but why spoil a good comment with overbearing facts?

Tuesday, April 5, 2011 at 11:55 AM

LibertyIsUS in Arlington, VA said:

I'm going out on a limb here and say that KYJeff was toying with the readers of Mr. Sowell's editorial. His words acted as the lubricant to ease the pain Jon feels every time he pays his tax bill.

Tuesday, April 5, 2011 at 12:28 PM

Mark said:

As usual Dr. Sowell smacks it out of the park. Sweetheart packages negotiatted between the union and the pols the union dues help to keep in office are only good for one thing - taking the taxpayers money and wasting it needelessly. And the accounting shenanigans that the state and federal governments use to try to fleece the people even further would land the average businessperson in jail. Would that it had the same effect on those in government.

Tuesday, April 5, 2011 at 12:38 PM

Starrman69 said:

Well, folks used to think that the Northern Peoples were strange when it was reported that they would place their elderly on an ice floe and push it out into the ocean where either the polar bears or the orcas would take care of them. We'll have to re-visit this method of taking care of our elderly/retirees. I can see my own muncipality sending me a letter when they realize that they underfunded our pension. "Dear 'Sir'; Kindly accept our offer of an Alaskan Cruise. We feel that it is the least that we could provide. do not be concerned that it is a one-way trip as your award awaits you. Thank you for your years of service. Best Regards, Your Former Employer"I paid 20% of my salary into our pension program with every pay check, along with Federal, State, local, social security and medicare taxes..errr.. contributions. I feel so foolish in reading that there are so many non-contributatory programs out there.

Tuesday, April 5, 2011 at 12:58 PM

Tim said:

Just exactly what WILL happen when the top 5% of the people who pay 50% of the tax bill decide to leave the country?

Tuesday, April 5, 2011 at 12:59 PM

J Henry Jr said:

Tim, who is John Galt?

Tuesday, April 5, 2011 at 1:10 PM

Starrman69 said:

"John Galt wouldn’t feel this, he would know how to handle this. I don’t know." Ayn Rand

Tuesday, April 5, 2011 at 1:52 PM