Orrin Woodward on LIFE & Leadership

When I was eighteen, I had, in one day, two life changing experiences, both coming on my first day of work.  One for good, the other, not so good.  All of the new co-op students for AC Spark Plug, then a division of GM, gathered around a long wooden table in a conference room, to learn of their roles and responsibilities.  It was at this meeting that I first met Chris Brady, my good friend and business partner.  This was the good life changing event, as Chris and I have partnered in business over the last fifteen years, producing results and memories that will last a lifetime.  I will save my Brady stories for another time, mainly, because I want to discuss the other life altering experience that day.  I was an A section student at GMI-EMI (now Kettering), so I went to school during the summer while B section students worked in the summer, with each section rotating between work and school every twelve weeks.  Because I was A section, I was only at work one day that summer for my initiation, meaning AC had to cut a check for that day before I headed to school the following Monday.  You can imagine my anticipation, after leaving work, making my way to my rusty Chevette, when opening my first ever paycheck.  I made a whopping sixty-four dollars minus,  Federal withholding, Michigan State withholding, Flint City witholding, and FICA, leaving a grand total of around forty dollars.  I couldn’t believe the taxes taken from my check, over one third of my check vanished, but still a nice amount for a broke eighteen year old.  I quickly reviewed the taxes and acknowledged some legitimacy (the tax, not the amount) for the Federal, State, and City, but what is this FICA (Social Security)?  No one told me about any FICA tax, exactly what is FICA Tax?  I raced home to talk to my financial guru, my mom,  sharing with her my concern at this extra tax.  Laughing at my ignorance, she shared with me that our benevolent government withholds a certain amount of money from your paycheck, planning to take care of you when you retire.  “But I don’t need the government to take care of me when I retire,” I emphatically stated, “I’m going in there and telling them to stop withholding that FICA tax.”  My mother chuckled at me, like she has many times over the years, figuring I would have to learn this truth the hard way.

Imagine how strange I felt, realizing for the first time, that the State can help itself to my paycheck, not just for protection of my life, liberty, and property, but also to provide nanny services in my retirement years.  I appreciate the offer Mr. State, but I will take care of myself through my own savings plan; sadly, that isn’t an option as we are forced to save our money with the State.  Always the curious one, I asked around, seeking wisdom from some of my older co-workers, learning that employees and employers both pay half the bill, totalling over 12.5% of a employee’s income.  What I learned, that government can take our money, becoming a mandatory bank for us, didn’t sound like freedom as I understood the term.  But like most eighteen year olds, my mind quickly lost focused, conveniently forgetting about my lost freedoms, reassuring myself that I could trust the Federal government to save my money; after all, if you can’t trust your own government, the one assigned to protect our life, liberty and property, who can you trust?
What’s most surprising to me, looking at our Social Security system, isn’t its upcoming bankruptcy, nor its over 12% tax on every incomes, but the curious lack of concern by the American citizens.  Look at the latest statistics from the Mark Crovelli, writing for Mises Institute, on our American Social Security system.

For those people not gifted with accounting ESP like Lindorff, Social Security’s unfunded liabilities are conservatively estimated to be around $17.5 trillion. Oh yeah, and that “trust fund” that Lindorff mentions as if it were really overflowing with saved money — all the money has already been spent by Congress. As you can see, the numbers are not exactly as rosy as Lindorff’s ESP has led him to believe.
What is really interesting is that even while Lindorff is trying to make the case that Social Security’s fiscal condition is not all that serious, he concedes that Social Security will indeed go bankrupt this year. He writes:

So with beneficiaries rising faster than anticipated, and the total national payroll in sharp decline, of course things have gone negative for Social Security earlier than originally anticipated.

One would think that an institution going “negative” (i.e., bankrupt) is a sign that there is something fundamentally flawed with it. For Lindorff, however, bankruptcy is nothing to get ourselves worked up about, especially since the bankruptcy is only caused by the demographic problem posed by the baby boomers.

Lindorff thinks the boomers are only a “demographic wave that will eventually pass.” He’s right — we only have around 30 more years until the “wave” passes. Thirty years of bankruptcy is nothing that need trouble us!

Now, let’s see if we can understand these figures.  The unfunded liabilities is $17.5 trillion, that’s a boat load of money, even if your last name is Buffett or Gates, certainly enough to bankrupt the 100 wealthiest Americans with plenty of room to spare.  The tax money, taken from us against our will allegedly for our own good, because it was assumed government would be more responsible than its citizens, saving it for us until we retired, is missing in action.  Politicians transferred the money out of Social Security into other projects, violating our trust and their fiduciary responsibility, exhausting themselves in an orgy of spending, leaving a huge IOU to unsuspecting Americans.  The problem, as I see it, is our government has proven incapable of balancing the budget with the Social Security surplus; how will they balance the budget and fund Social Security when there is no surplus?  Can anyone say higher taxes or inflation?  I heard recently, that Social Security is now paying out more in benefits than its receiving in taxes; simply put, this means it’s time for us to reap what we the State has sown. Believing Americans, from all regions of the United States, allowed the federal government to go beyond its normal responsibilities, surrendering their money to FICA,  assuming their savings is secure.    Every year, for approximately the next 30 years, the numbers will get worse, accumulating more debt as baby boomers retire faster than the younger generations enter the workforce.  Remember,   currently, the State relies on the tax from the workers to pay the benefits of the non-workers.  If the pool of workers reduces while the pool of non-workers increases, exactly the condition we find ourselves with the Baby Boomer retirements looming, the State is in trouble.  The Social Security system is a classic example of a Ponzi scheme, where people get paid only if new people join fast enough to compensate existing beneficiaries.  If new members do not appear, the system collapses. Population growth, not to mention the economic conditions, are not cooperating with the needed tax revenues to fund.  By reviewing the State’s results, it’s clear to me, that Social Security isn’t going to be social and it certainly isn’t secure.

After hearing the dismal record of government involvement in Social Security, one can only pray for leaders to arise and address the root causes.  America is suffering a courage crisis at the highest leadership levels.  It’s time for government to stop trimming the leaves, calling this change; instead, start pulling out the failed government bureaucracies root and branch.  Leaders in the business community, that want to serve their customers, not partner with the State, need the freedom to do so.  Only production can generate real GNP and job growth, hiring more government employees only means higher taxes for the few courageous enough to still produce.   Perhaps the biggest lesson learned in the Social Security mess is that government is the wrong place to look for retirement planning.  We can make politicians our scapegoat, but the system rewards the wrong behaviors; changing politicians will do nothing, until we change what we ask government to do.  Of course the politicians, tempted by potential votes, increased the Social Security benefits; of course the politicians, enticed by the “free money” surplus, spent it all, writing IOU’s that come due after they leave office.  Social Security is in shambles, whether the government inflates its way or taxes its way out of the mess is the only question. We can complain about how poorly the Social Security system has been managed, but government wasn’t designed to manage our affairs, placing the responsibility upon citizens to clearly define and limit government’s roles.  Politicians, by their nature, cannot think long term, having to stand for re-election every two, four or six years; when you consider that Americans live over seventy years on average, making life a long-term project, even retirement happening after thirty or more years, you quickly see the fallacy of our short term government involved in our long term lives.  This is another example of the “Destruction of the Commons”, the politicians choosing their personal short term “good” creating the public’s long term bad.  A simple way to remove the risk of “Destruction of the Commons” is to privatize, similar to what the airlines did in the early 1980’s, ensuring there is no commons to destroy.  Government has always been a hot bed for short term fixes, pushing the long term consequences off into the future, a future that never comes for them, since they are out of office, being replaced by others who quickly learn the rules of the political game.

The problem, even though accurately defined and easily predicted, is not simply solved.  Because of the politics associated with Social Security, every electable politician is afraid to touch this with a ten foot pole, assuring the problem isn’t addressed, passing the buck into the endless future.  By studying the failure of Social Security, learning the “Destruction of the Commons” principles, seeing the political take over from the economic any field government enters, one becomes certain of the proper course, keeping government out of people’s affairs.  Americans, if we include colonial times, without the help from government, saving their own money and relying on family and friends, survived for 250 years without a Social Security system. Government, it seems, by offering to care for us in retirement, taxed our incomes, reduced our savings, forced us to hope in government’s solvency, a hope perpetually deferred.   I have mentioned only one area of government intervention, but there are plenty of others to choose from.  Each of the areas have their own particular facts, but all have the same underlying failure modes – “Destruction of the Commons.”   Without looking at Public Schools, Medicaid, Federal Housing Aid and many more, don’t we already have enough knowledge to know that less government intervention is better?  Is anyone truly going to argue that a $17.5 trillion deficit in one program is a success? With that said, is it really in our best interest to sacrifice our Health Care system on the State altars?  You don’t have to be a prophet to see the effects of the “Destruction of the Commons” in the Health field, offering slower services, less doctors, but always the higher taxes as our reward for trusting in the State.  As a leader, I learned a long time ago not to listen to what a person or organization says.  Instead, I learned to watch what they did and the results they achieved.  The rhetoric out of Washington may tickle the ears, but it empties the pocketbook.  We can and must do better.  God Bless, Orrin Woodward