When Governments Betray the Voters' Trust
Aug. 15, 2012
This was posted yesterday.
My father as well as many older men I know will not liquidate their 401K. They believe and trust the government and the financial institutions. They vote the party line. Their mind is still in small town America with flags hanging from the front of the houses. And anyone who says different and raises an alarm is just some crazy nut like the conspiracy theorists. They will lose their savings and jobs and have nothing to show for it. "How can society function if you don't trust the major institutions?" they ask. Exactly. How can society function? I hope you have an answer to that for your own security and future.
This is one of the most crucial questions of social theory. There comes a time when the fundamental institutions of society lose the trust of that society. When this happens, there is a restructuring of the fundamentals of that society. It does not happen often in history, but when it does happen, it imposes enormous social changes.
I suppose in the 20th century the most striking example of this was the loss of faith of the Chinese people in the institution of the Emperor, which took place in the first decade of the 20th century. The entire structure of the political order was called into question by this loss of faith. It led to a series of warlords battling for control of the government. It led to the triumph of the Communists in 1949. And then it led to a complete loss of faith in the Communist economic system, beginning with Deng's transfer of authority over the agricultural fields to private owners. In between, the Communists had placed the family under suspicion, and they had persecuted almost all intervening institutions. Mao killed at least 60 million people, and it may have been twice this who died as a result of Communism's failed economic experiments. I know of nothing on so huge a scale, and I know of nothing which has challenged institutional systems older than the ones Mao challenged.
Something like this has been attempted in India. But the caste system continues to function, which indicates that the secularism of British rule was not successful in eliminating a rival system of social hierarchy inside India. The British did eliminate the institution of suttee.
From the point of view of an American looking to his nation's past, there is not much space devoted in textbooks to those institutions which once had public confidence, but which subsequently failed. These institutions existed in local communities. The poor house is such an institution. In the 1820s, large, state-run institutions began to replace similar institutions at the local level. This decade was the great era of experimentation in the United States. The institutions of the state prison, the state insane asylum, the state orphanage system, and the state schools began to take shape in the 1820s and early 1830s. It was the era of the asylum.
The churches are going through extraordinary changes, but trust in the churches has been maintained pretty consistently. Trust in the local police is also a common feature of virtually every community. Trust in the public school system has begun to wane. But no alternative system has gained the public's trust, so, by default, the public schools remain America's only established churches.
Obviously, great trust remains in promises issued by the United States government. This especially affects Social Security and Medicare. Trust in the military is certainly not what it was in 1945, but it is also not so far down on the public's trust list as it was in 1975. There has been a revival of trust.
Americans say they do not trust Congress, but they reelect their congressmen consistently. There is much grousing about Congress, but there is no serious move to reform the system.
What is at stake today is the survival of trust in the federal government. Kotlikoff's figures make it clear that this trust cannot be maintained indefinitely. There will be a great default, and when this takes place, the hopes and dreams of tens of millions of Americans will be shattered. When this happens, the public will revoke the trust which it has shown in the past to the federal government.
The federal government has appeared to be able to fulfill its political promises regarding the retirement years. The government betrayed the trust of the public completely with the debasement of the currency, but the public did not react against Congress, nor does the public understand that the Federal Reserve System is the cause of inflation. It is only with the 2007 candidacy for the Republican nomination of President by Ron Paul that millions of Americans finally learned the Federal Reserve is the enemy of the people. This had not been understood from 1914 until 2007.
At the heart of an American's trust is his wallet. Americans trust their wallets more than almost any other national people trust their wallets. Americans trust business, they trust the money supply, and they trust the government to make certain that banks are kept open in a crisis. Americans say they do not trust the bankers, but they do trust the banking system. The government is credited with providing security for the banking system. So, in any period in which the banks falter, and they find themselves without resources, this will cause a major shift of opinion among voters regarding the federal government and the FDIC. If the bank accounts are cleared out of assets by the failure of the banks, and if the FDIC does not intervene to save these accounts up to $250,000, then there will be a remarkable abandonment of trust in both the federal government and the banking system. You can see the rhetoric of this fading of trust regarding both institutions today. This has escalated on a scale that I would not have believed possible prior to a collapse, and it has taken place in just the last five years. Ron Paul is the primary reason.
When the public revokes its trust in the FDIC, the Federal Reserve, the Pension Benefit Guarantee Corporation, and all of the promises from the trustees about the Medicare trust fund and the Social Security trust fund, there will be a shaking of the political foundations in this country. Trust regarding government-guaranteed retirement is at the very heart of people's trust in the government. Promises regarding Medicare are even more fundamental. This is why the voters are simply unwilling to accept the reality of the need for budget-cutting here. It does not matter what the numbers are; the voters will not accept the suggestion that the federal government will ever renege on its promises regarding economic welfare during retirement. Voters do not think it is statistically necessary that the government renege, and they will not accept the suggestion that it should renege. The full faith and credit of the United States is trust and fully by the voters in the two areas of Medicare and Social Security.
When the full faith and credit of the United States is shown to be misplaced trust, voters will figure out that they have been betrayed. Of course, they have demanded that they be betrayed. They have systematically removed from office anybody who dared to tell anything like the truth about Social Security and Medicare.
Voters all over the world take the same position. Any politician who dares to point to the statistics of guaranteed retirement and guaranteed medical care is regarded as a crackpot, and he is soon removed from office. This sends a message to every politician who wants to be reelected. The message is clear: keep your mouth shut on the statistics of Medicare. Paul Ryan called the statistics into the question, and on no issue is he more vulnerable. Romney is backing away as fast as possible from the specifics of Ryan's criticism of Medicare.
These two welfare state retirement programs are said to be too big to fail. They are too big to fail today. They are so big that they will eventually bankrupt the United States government. Either Congress is going to default on these promises, or Congress is going to default on the entire government debt. In this sense, they are too big not to fail. They are too big not to bring down the government with them when they do fail.
It is the failure of politicians to face reality of the magnitude of the off-budget federal debt, meaning the unfunded liabilities of the federal government, that will ultimately bring down the government of the United States, and call into question the reliability of Congress.
There will be a massive reversal of trust. There will be outrage at Congress for having betrayed this trust. There will be a time in which radical views held by formerly obscure people will be the basis of their election to Congress. There will be a complete housecleaning on the House of Representatives, but this will be done in the name of rival viewpoints. There will be standard welfare state Democrats who insist that the government could have saved the system. There will be tea party people who point to the numbers and say that it was impossible to save the system.
The promises will have to be broken. Even hyperinflation cannot prevent this, because hyperinflation always leads to currency reform, and the magnitude of the unfunded liabilities will still be so great that the government cannot possibly afford to maintain the retirement systems.
When it becomes clear that there is no solution, i.e., that the numbers simply do not add up, there will be an enormous loss of faith in the federal government. This will be one of the great opportunities for defenders and promoters of liberty in the history of man. The greatest that I can think of was the removal of Communist Party control over agriculture, beginning in 1979. I don't think there is anything to match this in the history of man, given the magnitude of the changes this produced in China, and given the enormous size of the Chinese population. No society this large has ever been subjected to social change as rapid as what has taken place on the Chinese mainland since 1979.
When the successor of whichever President goes down on the The U. S. S. Medicare is sworn into office, he will have more authority to transform the American ship of state than any President has had since the first term of Franklin Delano Roosevelt. If he uses this opportunity to de-fund the majority of federal agencies, and shrink the government by at least 80%, then this legacy will survive. The recovery will come far faster than if he pussyfoots around, and takes halfway measures in shrinking the intrusion of the federal government into the lives of Americans. That would be a political question.
There will be enormous pressure put on him by defenders of the welfare state. They will resist the budget cuts that will be mandatory to balance the budget. Is easy to say that "our guys cannot be defeated," but in the conflict of ideas, bad ideas have triumphed for long periods of time in the past, and they may do so in the future. But, on the whole, when Washington's checks bounce, so will its credibility. That will be a tremendous opportunity for defenders of liberty.