Who's to blame for our Fiscal straits?

Someone sent this OpEd to me the other day: America the retirement home. To which, I replied:

I agree that the President should lead the national discourse on this subject. It is simply too important for him not to. I also agree that we need to control the ongoing and projected costs of retirement.

But there are several of Samuelson's assertions I don't agree with at all.

 

First, federal entitlement is not the primary reason other spending is being crowded out. Another reason is that most recent budget reforms have focused squarely on discretionary spending. As such, non-entitlement's share of the federal budget shrank because there was a deliberate effort by both GOP and Dem to reduce the size of the federal government. I think that a good deal of that was right-sizing and needed. We now need to work on entitlement reform again, but not because other funding is being crowded out.

In the case of defense, cyber-attack preparation was gutted, not by entitlements, but by spending on the war on terror and Iraq. Before 9-11, Rumsfeld had already embarked on what would have been the largest downsizing of the US fighting force. The intent was to focus away from massive ground operations and replace it with smaller fast-reaction tactical warfare capabilities. This would have also meant major base closures and the mothballing of many weapons systems. All that was cast aside after 9-11. The re-introduced downsizing is something that was supposed to happen 12 years ago, and most of the weapons on the scrap list were identified as obsolete back then.

Another reason that non-entitlements is crowding out core military spending is the fact that because of advances in medical technology, more soldiers are surviving what would have been fatal injuries in the past. This is increasing long-term medical, rehab and psychological costs. Fighting a protracted guerilla war on foreign soil where the enemy uses mostly small arms and improvised explosives doesn't help. While parties had a part in incurring that cost, the GOP is more to blame. And even after backing such a war, a GOP administration, despite all its rhetoric about supporting our military, wasn't willing to fund the obligation. It sadly took a Democratic president to fully fund veterans' care.

Even if we reform some of the calculations for entitlement qualification, it doesn't change the fact that the US economy has to spend money on retirees. The GOP solution of gutting Social Security and Medicare only offloads the burden to states and to individuals. But the costs don't go away and will still be a drain on the entire economy. Whether the federal government pays for it as a pass-through entity or individuals is pretty moot. 

There are several things that really need to happen. Samuelson hits on only one, increasing the age for when SSI benefits begin. The really big elephant in the room is the absolute cost of medical care. Like it or not, Obama/Dole/Romney-care is the closest the federal government has ever come to broaching that subject. Some states have begun to try to work on this, but they simply don't have the market power that the federal government does. The US spends more money on medical care than any other developed country. It doesn't have to do with over medication, more administrative costs, abuse of insurance benefits,... The same routine simply costs more in the US than anywhere else. The same medication costs more. The same checkup costs more. Yet, we spend about the same as other systems on administration and have just as many per capita routines as the global average. One large buyer with real economic power needs to bring some sort of transparency and normalization to pricing. Second, we need to massive tort reform and limited liability on malpractice.

Going back to retirement age... Increasing the age will help, but it doesn't deal with why many Americans don't want it to increase. The fact is that the educated elite start working later and later in life, they work for a shorter period, yet they max out their SSI benefits eligibility before hitting the retirement age while blue-collar Americans start working earlier and until they're older but only barely hit maximum benefit when they retire. Not only should the age increase but there should also be a consideration for the number of years worked. Someone who only begins working 30 and retires by 55 shouldn't get the full SSI check at 65. 

The really sad thing about all this is that the only Presidents who have ever talked frankly about the long-term economic ramifications of federal spending are Jimmy Carter and Ronald Reagan. No President since has ever come clean. Clinton sort of touched on it but neither of the Bush's ever did. And to place all the blame on Obama after Bush 43 presided on the degradation of the political partisan atmosphere is a bit ridiculous.

Foreigners and Economic Opportunities for Singaporean

K. Shanmugam Singapore Minister for Foreign Affairs and Law speaks on a TV show and a friend of mine forwarded the link to me.

I did, either the incredibly stupid or honest thing of responding to it directly on Minister Shanmugam's Facebook page. Following is what I posted:

As a foreigner living in Singapore, I found this discussion fascinating and insightful. 

I think it is important to distinguish whether there are enough job opportunities or if the opportunities available are for the right jobs. Given the fact that Singapore's unemployment rate is significantly below what is considered to frictional unemployment (the level of unemployment due to natural transition of workers between jobs, 5% is generally thought of as being frictional at full employment; Singapore's unemployment rate is 1.8% - 60% lower). So, there is no shortage in absolute number of jobs in Singapore. The real shortage is in the lack of workers. 

When an MNC moves a major office to Singapore from another country, it needs to be able to ramp up to full capacity as quickly as possible or the cost of moving will be too great and those MNCs won't move here at all. To make that transition time short, the companies bring senior people from their other offices or hire people with significant experience because they already know the industry, the clients, the culture of the company, the procedures,... And those staff will tend to be senior because that is whom you need to manage the transition and to train the local team. But over time, the MNCs should endeavor to fill as much of their staffing, both senior and lower, with local hires. First, it makes economic sense to do so, because a foreign employee often requires an expat package since they need to pay private market rates for housing and children's education, and no senior manager is going to move to Singapore while suffering a degradation in living standards. Second, doing so makes for good corporate citizenship to the host country, Singapore. In other words, it's the right thing to do.

The question then becomes: why aren't senior roles offered to locals when an MNC has already had a long tenure in Singapore? The fact is that there simply aren't as many Singaporeans with comparable qualifications as there are positions to be filled. At least not YET. The government must develop ways to work with MNCs to create management training programs for Singaporeans. These programs should be applied with both a carrot and stick method. For Singapore to be able to take care of its retirees, more and more of the senior positions need be filled by Singaporeans. But it's important to note that the fact that MNCs are placing senior managers here is a plus for Singapore. It allows Singaporeans to be exposed to and to aspire to these senior positions. It also puts in place the business infrastructure and management infrastructure to support those managers, thereby creating other tertiary jobs. And it provides an invaluable pool of potential mentors for Singaporeans to learn from as they take an increasing number of senior roles. Simply welcoming MNCs to your shores with a smile isn't enough, there must be a proactive approach to developing the local talent pool.
In creating the management training opportunities, the government needs to admit that the government itself competes for native managerial talent. Today, too many of the best and brightest Singaporeans become government employees where their youthful vigor and the steepest part of their professional learning curve is spent in becoming bureaucrats instead of dynamic, tactical and strategic problem solvers. I understand the argument that there needs to be a highly competent public sector to plan for Singapore's continued success, but as that success take root more and more, the most valuable resource of this nation - its people - should be unleashed on the private sector at a greater and greater rate. In fact, the government should encourage national scholars to buy-out of their bond, not discourage it. Afterall, those young professionals who buy-out of their bonds are paying back into the system so that other young Singaporeans can be afforded the opportunity for a world class education.