An Unforeseen Development?

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On NPR this morning, I heard that 525,000 people had left the American labor force in December. I couldn’t find the number on the NPR website, so I looked on the Labor Department’s. My “find” function came up empty there as well. It’s probably there, but I think you have to add and subtract a little from the relevant columns of figures to come up with it. Having wasted precious minutes, I grew impatient. I baited my Google hook with the raw number (525k) and cast it into the data sea. The number was reported on many suspect blogs, tagged with red doughnuts warning me away. Then: Voil√†. An article from Economics Analytics Research, Unemployment Rate Plunges to 6.7% in Dec. As Labor Force Shrinks; Payrolls Up Disappointing 74K”:

The drop in the unemployment rate came as a result not of new jobs, but a sharp increase in the number of persons not in the labor force — 525,000 — to 91,808,000, an increase of 2,969,000 in the last year. In 2012, the number of persons not in the labor force increased 2,199,000.

Why are people dropping out of the labor force? Some retire. Some grow weary of a fruitless job search and move in with their parents. Others migrate to the underground economy. But why the “sharp” increase at the end of 2013?

Let’s face it, there are people who will choose to glide into Social Security and Medicare on the wings of Obamacare.

At least part of the reason may be this: before January 1, 2014, when you left the labor force early, not only did you lose any possibility of unemployment benefits but you were also probably tossed into the healthcare jungle of uninsurable pre-existing conditions, crowded emergency rooms, and lousy medical treatment.

Let us say that you are a 60ish empty nester who has been downsized. You have been looking for work for a year. Your unemployment benefits have run out and all your job leads have led nowhere. While you have a modest nest egg, Social Security won’t kick in for a few years and Medicare a few years after that. Your company-sponsored health insurance has run out and you are on the verge of applying for jobs for which you are ridiculously overqualified just to get the insurance.

But not so fast. Beginning on January 1, 2014, if you don’t have a job or more than a modest income, you are eligible for Medicaid — healthcare provided at no cost to you as a result of the Affordable Care Act. Please note: non-income assets don’t count against eligibility, and, under the new law, the allowable income ceiling has been raised (eligibility requirements have been relaxed) to allow millions more to enjoy this benefit, including the boomer described above.

Let’s face it, there are people who will choose to glide into Social Security and Medicare on the wings of Obamacare. They will choose not to take a big step down the career ladder in order to secure a benefit that is available for the asking. There is a facet of human nature that shrugs, “Why not?”

It has to be asked: was this incentive to hang it up early an intended part of the new law, or was this “sharp” shrinking of the labor force an unforeseen development?

In either case: heck of a job, guys.




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Keeping an Eye on the Iceberg

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I have often reflected on the looming fiscal disasters that are Social Security and Medicare. As several recent articles suggest, our economy is still heading toward the financial iceberg.

The first report comes from the trustees of these two Ponzi programs. It shows that the financial outlook of both has worsened dramatically over just the last year. It confesses that the so-called Medicare trust fund will be empty by 2024, five years earlier than predicted by the trustees just a year ago. Assuming current revenues, and no unusual increases in the costs of medical care (a dubious assumption indeed), Medicare will only be able to pay 90% of its promised benefits after its trust fund is depleted.

Social Security is also in deep trouble. Last year, it started running a deficit between taxes paid in and benefits paid out. The trustees’ report indicates that from here on out, this deficit will be permanent, and will rapidly increase in magnitude. As another report notes, Social Security will exhaust its “trust fund” by 2036 — one year earlier than last year’s estimate — at which point it will have to slash its benefits by 23%.

This second report confirms a prior reflection of mine that the separate trust fund for the Social Security Disability Insurance program will actually be gone by 2018, if not sooner.

Yet another recent piece sheds light on why SSDI is going off the cliff so quickly: at least some of the 1,500 judges who administer the program just hand out “disability” awards without any real scrutiny of the merits of the claims being made.

This fascinating story centers on Judge David B. Daugherty, who routinely rubber-stamps all requests for disability that come before him. Last year, of the 1,284 cases he saw, 1,280 were greeted with benefits. This year, he is being even more generous with our money, awarding benefits in all 729 cases received. Judge Daugherty has often listened to 20 cases a day, spaced 15 minutes apart, and many from one local lawyer to whom he appears to be particularly sympathetic. His near-100% record awards contrasts with the average of 60% for the system as a whole.

Daugherty is just a particularly egregious example of an entitlement system run amok. Many of the SSDI judges award taxpayer money to claimants without any hearing at all, or merely by looking at the medical evidence submitted by claimants’ attorneys. The SSDI paid out an amazing $124 billion in benefits last year — and the sum will only balloon, making it the first of the entitlement programs to go bust (in a technical sense: naturally the taxpayers will be forced to pick up the tab).

Of course, the point needs to be re-emphasized that all these so-called “trust funds” are just government IOUs issued to cover the surpluses they ran while the Baby Boomers were at their peak earnings. The surplus funds were spent running the government. The “trust funds” are thus the moral equivalent of the “special purpose entities” set up by the crooks at Enron to hide its debt. Their function is to push debt onto entities that are apparently separate from the main organization, which actually owes it. Alas, since Congress exempted itself from the provisions of the Sarbanes-Oxley Act, the feds can get away with this fraud (a point I have explored elsewhere).

The accelerating deficits have moved no less a luminary than Tim Geithner, our incorruptible Treasury Secretary and head of the Social Security and Medicare trustees, to tell us that the report makes clear that we need to act “sooner rather than later.” Yeah, but Geithner didn’t indicate how his call for action squares with the views of his boss Obama, who has steadfastly refused to state where he would cut entitlement programs — even as he created a huge new one in the healthcare field.

The few brave souls who have called for reforming the entitlement programs — most heroically Republican Congressman Paul Ryan — have gotten scant public or media support. (Even Newt Gingrich has attacked Ryan’s call for reform, calling it “right-wing social engineering.”)

The estimable economist Veronique de Rugy, commenting on the recent trustees’ report on the Medicare-Social Security mess, makes the point that these Ponzi schemes transfer money from the young to the elderly population. What she doesn’t note is that the reason they are still so generally supported is that the elderly vote religiously, while younger people vote only sporadically — and children, who must in the end pay for all these deficits one way or another, have no vote whatsoever.




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