Thursday, June 28, 2012

The Problem with Helping the Little People

It's a wonderful notion, using the power of government to help the little people. Think of the long ages of Man, and how all the time the rich got richer and the poor got poorer. (Actually, everyone below the firstborn rich son got poorer).

Now with beneficial progressive legislation, we can help the little people.

Only the trouble with big government programs is that you always seem to end up benefiting the big boys as well.  Take state government pensions, as described by Walter Russell Mead.
The biggest scam going in American financial life may be the collusive effort by Wall Street, the political class, and public sector unions to use union retirement money to prop up Wall Street speculation.
Come again?  Here's how it works.  Government pension plans assume high returns:  Some states assume as much as 8.5 percent.  Well you can't do that with bonds, so the pension funds hire Wall Street managers to invest in risky hedge funds for a higher return.  And that means that the Wall Street guys charge higher fees.

Unfortunately the Wall Street hot-shots are not bringing in hot-shot returns.  Calpers, the California state pension fund has only delivered 3.4 percent return over the last 5 years.

But the state isn't off the hook, of course.  It is still obligated to pay the pensions.  Only now it doesn't have any money.  So it will raise taxes or cut services. Or both.

See how the little guy does in all this.  Government employees are already well paid, usually earning 25 to 50 percent more than equivalent workers in the private sector.  Then they have almost guaranteed lifetime employment.  The politicians benefit because they get to collect campaign contributions from the grateful government employee unions.

But the little guy, the guy without the bulletproof government job and lifetime job security:  he's the chap supposed to pay for this.  And he is the guy that has to do with less government services when the cuts come.

Then there is Medicare that goes to the richest Americans, and Social Security that goes to middle-class Americans like me that ought to fund their own pensions out of their own savings.  There is university education that is a gigantic middle-class subsidy--both for the middle-class students and the middle-class professors that get to do cool stuff courtesy of the average taxpayer, and the middle-class administrators that direct traffic to achieve nebulous diversity goals.

The problem with government is that, however it starts out, it always ends up tipping cash into the pockets of the powerful.  That's because the powerful have the money to get the attention of the politicians, and money is the mother's milk of politics.

It's such a blooming shame.

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