What's In Store

President Obama will fail.

This prediction takes no insight at all. President McCain would have failed. Although socialism fails more spectacularly the more thoroughly politicians implement it, and President Obama and the Democratic Congress will aggregate more resources and authority into Federal hands than would have a President McCain, a quite spectacular failure will happen in the next four to eight years, guaranteed. I refer to the impending bankruptcy of entitlement programs and private pensions. President Bush attempted to address a part of this problem with his proposal to privatize part of Social Security. The Democrats in Congress, who prefer to issue IOUs to the Social Security Administration and use FICA revenues as additional discretionary (their discretion) funds, scuttled this effort. The gap between FICA and other tax receipts, on the one hand, and Medicare, Social Security, and other Federal obligations, on the other, will grow. The first baby boomers (post-WWII births) turn 65 in 2010.

The Federal government assumed partial responsibility for private pensions, with tax exemptions for company-funded pensions and retirees' medical care. Companies found it cheaper to purchase labor with promises of payment in the future than to pay for labor out of current revenues. Like politicians, they made more promises than they can keep. Bet on it: politicians will commit tax revenues in support of underfunded pension obligations for large companies like United Airlines (already happened), GM, Ford, and other dying giants.

What do you do when you have made more promises than you can keep? You have no choice. You break some of them. In this case, the default will come in two forms: direct and indirect. The direct default will come in at least two models: a legally-mandated gradual rise in the age at which one can collect benefits (insurance company executives would have gone to prison for this 50 years ago) and reductions in the care for which the government will pay. The indirect default will take the form of inflation. The government will keep its dollar-denominated promises in inflated, devalued, dollars.

The best outcome which voters could ever have expected was transparency: an actuary, accountant, or market-oriented economist as President (or some politician who would take actuarial advice seriously) and a majority in Congress of the same orientation. Instead we got a President Obama, Senate President Biden, Majority Leader Reid, and House Speaker Pelosi, who either (a) suffer severe delusions about the resources available to the State or (b) know better and hold office for the graft they can skim from the system as it falls around them.

My advice? Plant a garden and work off the books.