Predictions Are Just That - Podcast Transcript

November 2005

The following transcript is for the podcast entitled “Predictions Are Just That.”

Welcome to the PACT America podcast.

Today I would like to talk about predictions.

I would like to start by reading something from the introduction of the PACT America report.

“Social Security has been described as a ‘pay-as-you-go’ system. Politicians would like people to believe that this means the system is inherently flawed, but in reality, the entire U.S. government is a ‘pay-as-you-go’ system. Each year, Congress must make a budget based on the amount of money that was received that year in the form of taxes. This means that the Department of Defense is also a ‘pay-as-you-go’ system. In order to avoid ‘going bankrupt,’ the Department of Defense requires additional tax money each year. Since the Department of Defense does not actually pay for itself by generating revenue, the Department of Defense will generate ‘large and ongoing deficits’ in future years. However, that does not mean that the American people do not benefit from the defense of our country. In the same way, Social Security provides a benefit that cannot simply be measured in dollars and cents.”

(pause)

“The problem with Social Security is not that it is a ‘pay-as-you-go’ system, but that it will start paying out more than it takes in. Right now, the entire ‘pay-as-you-go’ U.S. government pays out more than it takes in, and this occurrence is called a deficit. The problem is that the Social Security deficits will grow to unsustainable levels given current projections. However, because Social Security is a ‘pay-as-you-go’ system, all of the projections for Social Security rely on one simple premise: the economy. If we continue to lose American jobs and wages continue to deteriorate, Social Security will become insolvent much sooner than anticipated. The best way to fix Social Security is to fix the economy. If American workers have better jobs that pay higher incomes, they will in turn pay higher income taxes and higher payroll taxes. Therefore, the solution is not to raise taxes, but to raise incomes. Our country must promote strong American industrial production.”

Okay, let's talk about some of this stuff for a second.

First of all, politicians have been going on and on about the fact that Social Security is in trouble or it has financial difficulties. They say that when the Baby Boom generation starts to retire, that Social Security will be under so much strain that it won't be able to make all its payments.

However, Social Security is a “pay-as-you-go” system, and so is the entire U.S. government. If Social Security faces future financing troubles, the entire U.S. government faces those same troubles. You know, when the Baby Boom generation starts to retire, they're not going to be paying as much income taxes as they have been, so that means we're going to have less tax revenue going around.

And right now, if you really want to get technical about it, Social Security is the only government program that generates a surplus. Right now, Social Security is the only government program that's “running a profit.” So if you want to tell me that the strongest program is going to be going bankrupt, then that means that the entire U.S. government is going to go bankrupt.

The same people who claim that Social Security is in trouble are running up our national debt to astronomical levels. How are we going to pay that debt? Right now, the interest on the national debt is a sizable portion of our tax revenue. So that doesn't make so much sense, now does it?

(sigh/groan)

You know, I don't want to be someone who talks like with these “gloom and doom” speeches. And it's true, people have been complaining about the national debt for years. But not that many years. You know, it has only really been a problem for the last 20 years or so. In 1980, the national debt was less than $1 trillion. Now it's right up there at $8 trillion. So in 20 years, we went from less than $1 trillion in debt to $8 trillion in debt. That's huge!

You know, and 20 years really isn't that much in the life of a civilization. You know, that's just a drop in the bucket. So in these times, or in those times, we've enjoyed peace and prosperity. You know, times have been good. But what's going to happen if times aren't so good? Are we going to be able to maintain this massive amount of debt? I don't think so.

That's why we need to get this under control right now.

(pause)

You know, and one of the reasons that the government has been able to hide this deficit problem is because they've been borrowing money out of Social Security. So Social Security is the only government program that generates a surplus, and these politicians have been taking that surplus, our surplus, and spending it on these other government programs.

So they're able to hide the problem right now, you know, by borrowing from Social Security. But in a few more years, Social Security is going to be the... Social Security is going to be the one that needs to do the borrowing.

(pause)

I don't know.

One of the things that really motivated me to get involved with this issue was when I was reading through the President's Commission report. That's the formal report that set forth all of these ideas for the President's proposal to invest Social Security's money in the stock market through private accounts. I was just... shocked when I read the page that said that this idea would take 75 years to reach positive cash flow. That means it would take 75 years to become profitable.

Let's say you're an investor. Would you invest in a business plan that's going to take 75 years to become profitable? Probably not. You won't live long enough to see those profits.

And all these academics, all these economists, they're so fond of making all these economic predictions, all of these numbers calculated out and projected into the future. But real life doesn't work that way. You can't predict 75 years out into the future; you don't know what's going to happen then.

Look at it this way. Social Security just recently celebrated its 70th anniversary. That means the program has been in effect for 70 years.

If you look back over the past 75 years, I mean our country has changed radically. You know, when it first started out, we were in the midst of the Great Depression, and that was terrible. Then we entered World War II, this huge war that transformed... I don't know, the globe basically. And over the past few years, I mean we've seen other changes in the economy due to simple things like women entering the workforce and the Civil Rights Movement changing things around. Now we have these immigrant workers moving in, and look at some of these other topics like just technology. Computers have revolutionized our economy.

And what computer model, or what economist could have ever predicted any of those events? You know, you can't predict that kind of stuff. So you can't possibly sit there with a calculator and compute out all these numbers and tell me that you're going to create some plan that takes 75 years to achieve positive cash flow.

And you can't even predict that for the normal Social Security system, because right now they're predicting that Social Security will be able to sustain itself until about 2042 or so. But all of those predictions are based on these current economic numbers. If we continue to outsource our jobs and people continue to lose their jobs, I mean where's that tax revenue going to come?

You know, right now the corporations are profiting and the rich are profiting, but they've got ways to avoid paying taxes. So as a country, you need to be focused on providing the best standard of living for your citizens as possible, because when your citizens do well, you do well. Because your budget is based on their budget. The amount of taxes that we pay are based on our incomes.

So if you as a country say, “Hey, we need more money,” then you need to do what's best for the people of this country. That should be obvious. I mean that shouldn't be something that you need to be told, but money is the only thing that these guys listen to.

So what I'm trying to say is, “Hey, the money is when we're all doing good. If you need these taxes, you need to make sure that we as Americans are doing well.”

So you just can't predict some of this stuff. No business can make a model 75 years out into the future with any sort of even remote possibility of it happening. You just don't know what the future holds.

And even with traditional Social Security, one of the issues that I have is that the projections that they're using to show that Social Security is going to be in trouble are based on like a... I shouldn't say worst-case scenario, but they're very conservative, and they're... just that, they're conservative numbers. So it's not the worst-case scenario, but it's definitely not the best-case.

But with this system for private stock accounts, they are using a best-case scenario. So you're telling me that we're going to take 75 years to achieve positive cash flow under the best possible scenario? It's not going to happen.

All I'm trying to say is that whether it's your personal life, whether it's your business, or your government, you just don't know what the future is going to hold. That's why you have to use common sense. Common sense.

So let's start to move in the right direction here, you know? Let's start to make things better for American citizens, because when American citizens do well, the government is going to do well.

(pause)

There's not much more I can really say about this.

So this is Adam Florzak keeping it real.