Opportunity

If you would like to see the background on these action items (and we recommend that you do), please see the book The American Ideas: 13 American Originals to Know, Love, and Defend available in hardcover and eBook.

CHAPTER 6: Opportunity – To ensure the future of this American Idea, we should:

• Love a place like America where everyone can win, rather than hate it because everyone doesn’t.  What’s better than having a chance?  We should love this place that stands alone for giving people more than just a chance to work (and many countries don’t even offer their people that).  As Jay and the Americans put it in their song Only in America,

Only in America

Can a guy from anywhere

Go to sleep a pauper and wake up a millionaire

 

Only in America

Can a kid without a cent

Get a break and maybe grow up to be President

 

Only in America

Can a kid who’s washin’ cars

Take a giant step and reach right up and touch the stars

It’s a false guilt that says because many live in countries where little or no pursuit of happiness is possible, we shouldn’t be able to pursue it in America either.  In the novel Freedom: “For Mr. Franzen the central question is whether people really have a right to the pursuit of happiness when much of the rest of the world lives in misery.”[i]

Yes, we do.  In fact, it’s an unalienable right.  If Mr. Franzen doesn’t believe this, he has the right to forgo the pursuit along with the right to give away every cent of his money earned…in the land of opportunity.

America offers people the chance to be something different, something new, something greater.  It offers the chance to make a living.  But even better, it offers the chance to make a life.

• Make the concept of “possibility” our personal watchword and strip the use of it away from the politicians.  Politicians like to talk about all of the things we can’t do without their help.  We can’t run an economy, build businesses, stay employed, or be ethical.

But long before the government was so heavily involved in almost every aspect of economic life, Americans did these very things for themselves.  They did it because they had dreams, and they knew they were dreaming them in a place of possibilities.

We have to detach possibility from politicians and programs and re-attach it to us.  Individual Americans built the powerhouse economy that the politicians only use for their revenues – even while they cripple it with taxes, regulations, debt and inflation.

We understand possibility more than politicians do.  We want more of it, and less of them.

• Keep the concept of opportunity alive by maximizing our own opportunities and the opportunities of others.  The concept of opportunity can’t exist in a vacuum.  People either see it or they don’t.  If they don’t, they’re much more likely to look for a political hack or “helpful” government to give them what they think they need.

Someone once said that an unattended culture can be lost in one generation.  The exquisite, essential Idea of Opportunity can be lost even faster than that.

We who are leaders in business need to take intelligent risks that expand both our opportunities and the opportunities of all of our other stakeholders – employees, partners, suppliers, customers, shareholders.  Let’s put people in a position where their passions, interests, talents, skills, creativity and commitment can make an outsized contribution to everyone else’s success.  Let’s remember that “employment is the source of self-assurance and independence.”[ii]

Those of us who aren’t leaders need to take advantage of the opportunities that are presented to us – or that we can root out or create on our own.  Americans have always been better at asking forgiveness than permission.  Why wait for someone up the line to tell us to do what we already know we need to do?

In contrasting Europe with America, economist Edmund Phelps said “It did not occur to me that [the European actually] had less need for mental challenge, problem-solving, initiative and responsibility…[since] there was little opportunity or reward to exercise freedom and responsibility, [they] learned not to care about those values.”[iii]  Cultures without a focus on opportunity lose (or never develop) the skills to capitalize on it – mental challenge, problem-solving, initiative and responsibility.

An environment that nurtures opportunity isn’t a given.  We should realize that it “is a matter of how fertile the country is in coming up with innovative ideas having prospects of profitability, how adept it is at identifying and nourishing the ideas with the best prospects, and how prepared it is in evaluating and trying out the new products and methods that are launched into the market.”[iv]   It’s a great gift to all of us that we live in such a culture.  It’s up to each of us to keep it alive.

• Hate the artificial distinctions and regulations that reduce people’s opportunities.  People can be boxed in by countless artificial and phony barriers that have little or nothing to do with character, spirit, or potential.

This means we should loathe the barriers so prevalent in other cultures – like dozens of hurdles and approvals (and many months) before a new business can even be started.

But we should also loathe our own barriers.  Minimum wage is one example.  People – perhaps some with good intentions and not just a desire to win votes – talk about a person’s “right” to a certain wage.  But they don’t deal with at least two important questions:

• What if the person’s efforts aren’t worth that minimum wage?  Many people, with no knowledge, skills, or experience, aren’t able to work at a level that can reasonably command any wage, not just minimum wage.  By forcing an organization to pay that wage, it corrupts the economic system.  The company gets less value for what it pays, hurting its performance and finances.  More experienced workers, who may themselves not be performing up to a minimum wage level, are either paid even more to create some separation of wages, or are paid at the same level and have their morale and economic senses battered.  Customers, who ultimately pay the wage, get a bad bargain – poor performance for more money than it’s worth.  And the employees themselves, even if they know at the start that they aren’t worth that wage, will come to feel entitled to it.  After all, it’s the law, isn’t it?

• What does the minimum wage do to people’s opportunities?  There’s some disease in government thinking that assumes businesspeople to be stupid (as well as corrupt and greedy and only marginally useful).  But businesspeople aren’t, in the main, stupid.  They won’t pay minimum wage to below-minimum performers if they can find a way around it.  They’ll buy equipment to replace people.  They’ll pay good people a little more to work harder so they won’t have to hire sub-minimum workers.  They won’t bring in a trainee with potential, someone who could gain valuable experience while being paid with a few dollars and a lot of experience.  Is it really better to have unemployed teens – many getting into trouble because they don’t have anything to do – than teens at very low pay learning a trade or picking up experience (all while learning life skills like punctuality and responsibility)?

Will some companies take undue advantage of a minimum wage?  Of course.  But not for long.  If their employees pick up any skills and have any self-motivation, they’ll find someone who’ll pay them just a little more.  And then someone else and just a little more…

• Appreciate good limitations that prevent the lazy and undeserving from ruining other people’s opportunity.  The old proverb says, “He who doesn’t work, doesn’t eat.”  Few would hold this as a truism for the severely handicapped or disabled, but even here there are organizations that offer them meaningful work.

Any culture that rewards slothfulness and parasitical behavior is sowing the seeds of its own destruction.  Given human nature, when people see what miserable things get rewarded it invites them to behave the same way.  Even to those who keep working, it’s a very discouraging thing to behold.

All of the money and resources that go to supporting the new non-working class are stolen from those who want opportunity rather than handouts.  Unless we want a culture that’s driven by countless people wanting more for doing nothing, and then eventually having virtually nothing to distribute, we have to appreciate and support the good limitations that restrain bad human drivers like greed, jealousy, and irresponsibility.

This applies not just to the lazy or undeserving individual at the low end of the economic scale, but also to the fat cats and robber barons.  Nowhere are good limitations more needed than in the financial sector where giant organizations corrupt the system and are in a position to destroy it.  They’ve been doing this since at least the time of Andrew Jackson, if not before.

A Federal Reserve Bank president noted in late 2010 that “after this round of bailouts, the five largest financial institutions are 20 percent larger than they were before the crisis…taking…actions today to reduce the scope and size of banks, combined with legislatively mandated debt-to-equity requirements, would restore the integrity of the financial system.”[v]   The dog is the American economy.  No one should be allowed to wag it.

• Expect education first and last to be about developing character-driven opportunities for students.  Ignorance is not bliss.  Education is a first-class ticket to a smarter and better future.  And it’s the only way accessible to everyone regardless of life’s circumstances.

This should certainly be true at the college level, given its required commitment and huge expense.  But

Nearly half of the nation’s undergraduates show almost no gains in learning in their first two years of college, in large part because colleges don’t make academics a priority….Instructors tend to be more focused on their own faculty research than teaching younger students, who in turn are more tuned in to their social lives….After two years in college, 45% of students showed no significant gains in learning; after four years, 36% showed little change.  Students also spent 50% less time studying compared with students a few decades ago…despite an “ever-growing emphasis” on study groups and collaborative projects, students who study in groups tend to have lower gains in learning.

We have to get out of the everyone-has-to-go-to-college mindset.  This mindset

• Prolongs adolescence
• Wastes resources
• Cheapens college degrees
• Under-supports other paths like technical training

This isn’t contrary to education.  It just recognizes that there are many ways to acquire one.

• Prize and praise merit.  What is it about human nature that we can so easily criticize and tear down accomplishment?  What prevents far too many teachers and government workers and union members from embracing the concept of appreciating and rewarding excellence?  Why do governments lay their heavy hand of taxation most firmly on the backs of the highest achievers?

So much of this negative reaction comes from jealousy and envy.  Some derives from a fear of being held to high expectations or to real accountability.  Some of it comes from a misunderstanding of good ambition.  And some flows from a lack of awareness of how hard it is to accomplish anything.

But it’s merit that makes a society better than it is now.  A merit-based culture innovates and becomes more and more productive.  It brings out the best in its members.  It provides incentive to learn, try, care, devote.  It sets a standard of excellence and a motive to meet it.

Earned merit should be prized in America as it once was.  We should take care to avoid subjectivity, where favoritism and cronyism can be called merit.  We should do all we can in every area of life to create merit at the core.  Anything less is yielding to mediocrity at best, and at worst to a long slide into collective poverty.

• Encourage healthy competition.  No sports team ever got better by playing against mediocre teams.  The American Dream Team showed the world at the Olympics in 1992 how basketball could be played.  The competitors were demolished – but they also learned more than they could have ever learned in a kinder, gentler way.

Healthy competition provides endless opportunity to newer and smaller entrants.  Without artificial barriers, anyone with moxie has a chance to get into the game and even to win it.  Healthy competition also gives a way to keep even the largest organizations looking for ways to improve, which means better things for everyone they serve.

Unhealthy competition is another matter altogether, and isn’t competition in any real sense.  Winning by using government connections, lobbying for special consideration (as Boeing recently did with the U.S. government, taking Airbus out of a legitimate win), fighting for tariffs and import quotas, getting government guarantees or subsidies or bailouts or insurance to aid bad ideas or bad management – these and more are the antithesis of good, healthy competition.

Ultimately we don’t need trade agreements, government subsidies or tariffs, or government-to-government deals.  We don’t need to worry about what their governments are doing.  We just need to eliminate corporate taxes and regulations, and get out of the way while we build a great future for Americans.

Everyone in a free society should be free to compete.  Government, like any good referee or umpire, should set a minimum number of rules to assure healthy competition, like protecting against fraud.  Other than that, government should remember the sports fan’s mantra – the referee should never decide the outcome of the game.

• Reward the underdog, not the underperformer.  When we see people who don’t have anything or very much, what should we do?

We can enable and encourage them to have more, or we can enable and encourage them to stay where they are.  There’s a huge difference between someone who’s down but wants to be up, and someone who’s down but happy to stay there if they can get away with it.

As a culture of opportunity, we want to offer people hand-ups, not handouts.  If their difficulty is a result of circumstances, we should be willing as individuals to offer them a way to win.  But if it’s a result of bad attitudes or behaviors, we should be willing to hide our wallets.

We do no one any favors if we help them live lives of narcissism and false entitlement, if we continually offer them a way to be something much less than they could choose to be.

• Build opportunity around principles, and treat success and examples of success with skepticism.  Few things are as common as – or as ridiculous as – business books and courses built around anecdotes and case studies of successful organizations, rather than around timeless principles.

Enron is a classic example.  One of the largest companies in America, it was declared to be the “most innovative” (by Fortune[vi]), “great investment” (by countless analysts and brokers[vii]), and the model for the future (by Gary Hamel in his book Leading the Revolution[viii]).  It turns out that it was most innovative in the area of ethics, became a disastrous investment, and serves best as the model for everyone who wants to go to prison.

Success, if earned honestly, should be admired.  But in a place where success is never final, it shouldn’t be treated as the answer, as the one best way, or as a substitute for principles and character.

• Help the poor with a vibrant economy and give them ways to join it.  Surely the best way to help poor people directly is to have a free society and vibrant economy.  It is phenomenal that “no country with a free press and fair elections has ever had a large famine – the ultimate disaster for the poor.”[ix]   Freedom produces winners, but it also produces more of everything – including opportunity – for everyone.  “It is surely no accident that every economy in the top 25 of the Global Innovation Index is a democracy…”[x]   That freedom-driven innovation paves the way to a better life for all.

On the other hand, heavy-handed, top-down societies are breeding grounds for entrenched and irredeemable poverty.  “There are limits to how much an Islamic republic and a communist state can have in common, but they seem to agree on what to avoid: Western-style freedom.”[xi]   As a result, they have large swaths of their societies that have no way to escape having to scratch out a meager existence.

Having a dynamic, competitive economy is a very good thing.  But to also be moral, that competition needs to be competing up, not competing down.  We don’t want people to have short-term losses turn into life-long losses.  Losing?  Yes, at times.  Being irretrievably crushed?  Never.

Even in our generosity, we want to help people be independent, not dependent.  This means that the goal of all charity should always be to find constructive, near-term ways to get people back into the game.

• Celebrate good failure and condemn the bad.  Any society that condemns all failure as bad is doomed to the worst failure of all – the end of risk-taking and boldness.

Good failure occurs when someone tries something worthwhile and it just doesn’t work – a new medicine, product, process, scientific breakthrough, a practical way to help the poor.  By celebrating it, we’re saying that we appreciate the heart and mind behind it, that we know we’ve learned things we couldn’t have learned any other way, that we can now close a door that appeared to be open but was just a distraction, that we know no one is more fragile than after a failure, and that tenacity and determination are born in failure.

Bad failure occurs when someone tries an ethical or practical short cut and it just doesn’t work – or worse, when it appears to work for a while and leads us down long and wasteful paths.  By condemning it, we’re saying that we loathe the heart and mind behind it, that we hate the chipping away of our ethical core, that we abhor the laziness behind a sloppy effort, that we want to unlearn the supposed lessons that were foisted off on us, that we can attack the problem or opportunity with fresh eyes, that we know no one is more open to change than after being humiliated.

Few societies celebrate, or even tolerate, good failure.  They want everything to be done perfectly, and it is – perfectly third-rate, perfectly behind the times, perfectly unable to keep up with the dynamic world of the 21st century.

• Accept the ups and downs of a vibrant economy and refuse to let government manipulate it.  Nothing in life is always the same.  Every life and every economy has ups and downs.

An open market is self-correcting unless government tampers with it.  New innovations and organizations prosper, while low-and-no value products, services, and organizations wither and die.  However painful to some (often the unprepared) in the short-run, it is immensely beneficial to the whole society in the long-run.

Government manipulation distorts this process and prevents needed correction.  Often it creates bigger ups – stocks, real estate, commodities – followed by bigger downs, all as sure as night follows day.  As an editorial in USA Today observed,

These depressing data show how disconnected the political debate in Washington is from most people’s economic reality.  The decline in earnings was well underway before the Obama administration.  It was even underway before the 2008 financial crisis, and I will not be reversed by passing another stimulus program or by getting Washington off the back of business, whatever merit those ideas might have.  The Great Recession exposed weaknesses in the economic models of the United States and other countries that rely too much on government and consumer debt…. Those problems can’t be fixed quickly, which is why politicians rarely talk about them, but bad public policy is clearly a part of the problem.  Government spends money in two currencies – U.S. dollars and open-ended promises.  The latter is taking over budgets.[xii]

It takes a wise, patient people to live with freedom and fluctuations.  Americans were, and can be again, that people.

• Keep the government out of the opportunity business.  Government has a very hard time keeping the concept of opportunity separate from the notions of vote-buying, paying off supporters, favoritism, and being influential.

The only time that government creates opportunity is when it favors some select group at the expense of everyone else. It bails out this business, but not that one.  It subsidizes this group’s activities but not every group’s.  It protects this industry with tariffs and import quotas but not every industry.  It offers tax credits to some home buyers but not all home buyers.  It helps some people buy a car but not everyone.  It creates make-work on the one hand and penalizes resourcefulness and productivity on the other.  It taxes what it calls “excess profits” and wipes out the investment and innovation those profits can buy.

Government isn’t smart enough or just enough to be in the opportunity business.  Americans don’t need a government that plays favorites – and they themselves don’t need to be teacher’s pet.

• Get the government out of the opportunity-destruction business.  It’s too hard to create and take advantage of opportunities without our own government wiping them out.

No civilized nation wants an impoverished and wasted underclass, or the social turmoil and even revolution that are its most dangerous responses.  But as a result of this concern and the shortage of experience by nations, even F. A. Hayek, who did so much to sound the warning about dangers to liberty, opened the door to government feeding troughs and the problems they create – control, dependence, lobbies, favoritism (like the old over the young).[xiii]

The government can provide a requirement without providing the structure or the means.  When the government provides the structure, we can be sure it will be politically driven, favor one or more groups over others, be incredibly cumbersome and almost certainly unjust, spend a huge percentage of the monies on the structure itself (welfare for the bureaucrats), and yield an unimaginably low return.

When the government also controls the means, we can be sure of trickery, such as

• Deception, like calling the social security tax a “contribution,” delaying people’s full retirement age after a lifetime of promising an earlier date, and protesting proposed tax cuts that are merely reductions in the rate of increase
• Manipulation, like using funds for other purposes, and transferring monies from the young to the old
• Waste, like having a huge entrenched bureaucracy to administer the system, and fraud so bad in Medicare that one senior investigator told me they only go after the cases exceeding a million dollars

In a sense, it takes extraordinary genius to create such monstrosities and convince anyone that they’re a good thing.  No business could sell them.  Only the government could come up with them and enforce them.  It’s even worse than socialism – it’s stupid.

The only way anyone gets anything from government is by the government taking it away from someone else.  This is bad business, and fundamentally and irredeemably unjust.

• Refuse to let the government diminish private-sector opportunity to benefit public-sector opportunity.  Thomas Jefferson said “Having always observed that public works are much less advantageously managed than the same are by private hands, I have thought it better for the public to go to market for whatever it wants which is to be found there….”[xiv]

Those who serve us in government deserve to be compensated decently and protected from layoffs caused by bad management.  But they don’t deserve better compensation, and they don’t deserve more protection in hard times, than those who are paying their salaries.

If there is a conflict here, it wasn’t started by the private sector.  It was initiated by powerful unions and weak management in the public arena (as in professional sports unconstrained by financial reality) who together have driven wages and benefits to levels beyond both the private sector and sustainability.  “After shedding 3.8 million jobs in 2008, private employers slashed deeper in 2009, cutting nearly 5 million more.  But during that same period, the public sector, including the federal government, added more than 100,000 jobs.”[xv]   They not only didn’t feel the pain, they actually gained opportunity at the expense of the people.

“What’s more, the average government wage of $26.11 per hour was 35 percent higher…State and local workers averaged $13.49 more in benefits, almost 70 percent higher than the private employees’ $8 per hour in benefits.”[xvi]   This kind of opportunity – supposed civil servants getting security and pay and benefits at the expense of their bosses – has nothing to do with the American Idea of Opportunity.

Government now watches out for its own more than it watches out for the rest of us.  “It is not an accident that in framing the national stimulus program in 2009 Congress directed a stunning $275 billion of the $787 billion as grants to the states to support public-service employees in health care, education, etc….City government was developed to serve its citizens.  Today the citizenry is working in large part to serve the government.”[xvii]

All of this illustrates “the colossal irresponsibility of lawmakers who have engineered a massive transfer of wealth from non-unionized [private] workers to unionized [public] ones.”[xviii]   It will not only lead to higher taxes and less service, but much less opportunity for good people who want to go into public service in the future.  How many government jobs will be unavailable because so much of the funding is going to pay lavish pensions to people who retired long ago in their 50s?

Government workers should match the wages and benefits of private-sector workers (so, lower).  They should also match unemployment levels in the private sector (so, higher).  They shouldn’t be treated worse simply because they’re public servants.  But they shouldn’t be treated better, either.  As an example, in education, inferior performance needs to be addressed clearly and quickly.  As noted in The Economist,

Each new international education ranking makes it clearer that American schools and continental European universities do not lack money, as unions claim, but need to hire better staff – and be able to sack lousy teachers.  Merely bringing the useless bits of the public sector up to something close to average would save a fortune and improve services dramatically[xix].

The public employment arena has become a King’s Court, happily going on with their well-funded lives while the people who support them try to scratch out a living.

• Institute a Citizenship Tax in place of the “progressive” income tax.  Everyone pays a flat federal Citizenship Tax of 10 percent.  Very few get to pay no taxes, so that the vast majority of citizens will have a stake in government and a desire to see its costs controlled.  The rich still end up paying more – a lot more – in actual dollars, but with this we hit the middle ground in the tension between the need for revenues and the need for justice and equality.

States set a flat tax rate as well, perhaps no more than 5 percent.  Even without this, though, states have to do what the federal government doesn’t have to do – compete for businesses to stay, expand and relocate, in part by having reasonable levels of taxation administered in a just manner.

• Eliminate all anti-growth taxes, such as corporate income taxes – especially on money earned on investments made in America.  Corporate income taxes have to go.  We used to understand how low taxes created made-in-the-U.S.A. opportunities, but we’ve forgotten even as many other nations have gotten the message.

This is especially important for the millions of small pass-through businesses (S corporations, LLCs), where corporate and personal income are combined and can make entrepreneurs look rich.  Now, if they leave it in the company, they pay no taxes, and only get hit if they take it out.  A perfect formula for investment in the future and jobs.  This is what most entrepreneurs want anyway – to grow their dream, not spend their lives at a resort.

• Set property taxes at a fixed rate based on true spending needs, not a variable rate based on supposed market value.  State property taxes are another place where government can be abusive.  A taxpayer can move, but he or she can’t move a home.  State and local government can exercise tight control with little or no check on their behavior.  They get to decide not only the tax rate but also the assessed value of the home, and have structured it in such a way that their revenues are always protected.  It was reported in early 2010 that “Despite a real estate implosion, property tax revenue collected by states and localities actually rose 2.7% last year to $421.8 billion.”[xx]

Tying property taxes to the supposed market value of the home allows them to go up dramatically in a real-estate boom, while the way those taxes are structured keeps them from going down much or at all in a real-estate bust.  These taxes should be set at a fixed-dollar amount for a home, with any annual or other adjustments made based on a tough debate and vote.  The alternative is what we have now, a hidden evaluation of the home’s value that can only be protested with great inconvenience and often little hope of success.

• Eliminate the “vulture tax,” and the government hovering over the dead.  What about the “vulture tax” – inheritance taxes?  Why should government circle the dying and dead, looking to take advantage of tragedy?  Do we really want a ghoulish government that profits from our death?  Why should we have a tax take what is triggered not by growth and activity, but by sadness and loss?

There should be no vulture tax whatsoever, on principle.  In most cases, most of it has already been taxed – personal income with the income tax, pass-through business income with the income tax, dividends and capital gains with specific taxes, etc.

So-called inheritance (estate) taxes break the ties between a family and its past efforts.  They deny a family its ability to bless its descendants.  They aren’t really death taxes – they’re taxes that penalize the living.

• Expect the government to let us keep our own money while they keep the money sound.  The goal of a self-sufficient citizenry can be far better accomplished by leaving people with most of their own money and keeping that money sound.

To do this, the government has to learn how to live within a fixed income.  This is always a good concept for preventing good government from becoming a voracious beast.  It also means that the government doesn’t get to live by a different set of budgetary rules than every citizen and business who can’t simply increase their income by edicts and the force that backs those edicts up.

• Force each generation to pay for itself by ending government’s ability to borrow.  Borrowing makes government a servant of the lenders.  It’s quite a sorry spectacle to see the U. S. Secretary of State pleading with the Chinese government not to dump its current dollar holdings and, in fact, to add to them.

Government borrowing always benefits someone today by penalizing someone else tomorrow.  Why should one generation get to receive all of the good things in life at the expense of all of those who follow?  This is a gross abuse of stewardship and a callous disregard for our own posterity.

Borrowing also allows government to manipulate the economy.  This allows government to prevent necessary corrections to bubbles and other economic lunacies on the one hand, and to create new bubbles and lunacies of its own on the other hand.  Government borrowing puts the future, not just the economy, at risk.

There are only so many dollars to be borrowed.  Every dollar borrowed by government is a dollar that can’t be borrowed by organizations that create products, services, and jobs.  Government borrowing also drives up interest rates for everyone else in the long run.

The rule for government should be simple (the only way the government will understand it):  No borrowing.  Ever?  No.  Well, but what about war?  No borrowing for elective wars.  That should mean no borrowing in practice, because it’s unlikely that America will ever have any other kind of war.

• Banish the Cancer Tax (inflation) and its endless destruction of value.  “Whip Inflation Now,” declared the political slogan from the wildly inflationary 1970s.  Perhaps it should have been “Stop Inflation Now,” giving us a more appropriate acronym of “SIN” instead of “WIN.”  But encouraging individual citizens to somehow whip inflation is akin to asking them to stop a war.  There’s no question that inflation is a sin to be stopped – but it needs to be stopped by the sinner (government) not the victims (us).

It was a silly button to wear, but an outstanding principle to practice.    Why do we need any inflation?  We don’t.  Only the government ultimately benefits from this terrible hidden tax.  And the cancer even devours the government at last.

With a currency not tied to anything, it will be difficult for the government to get it exactly right – no deflation or inflation.  But it can correct overs with unders and unders with overs.  It can get close.  It can give us one of the keys to the best kind of financial security and sanity: the knowledge that my $100 will buy the same quantity of goods and services in twenty years that it will buy today.

$100 in 1950 is only worth $4.54 in 2010.[xxi]  It’s hard to even comprehend such an incredible destruction of value.  But the destruction is there, relentlessly chewing up the fruit of a lifetime.  While 10 percent inflation devours at a much faster rate, even 1 percent is sufficient to wipe out the hard-earned savings of 50 years of labor.  And we’ve been much higher than 1 percent for a very long time.  As of January, 2011, the government has a goal of 2 percent inflation – akin to having just a little cancer.[xxii]

• Require people to provide for their own retirement expenses and healthcare.  If the goal is to guarantee that people prepare for their future so that their neighbors aren’t burdened (a not unreasonable objective) there’s a far better way than what we have now.  We’ve learned two very important things over the past century – that many people won’t provide for their own future unless forced to do so, and that government is incapable of administering a retirement or healthcare program with intelligence, impartiality and prudence.

A number of people say that Social Security is a Ponzi scheme, but they’re wrong.  It’s a lot worse than a Ponzi scheme.  It’s a Ponzi scheme with authority and power on its side, not just deception and manipulation (although it has those, too).  Social Security is a Ponzi scheme on steroids.

In a Ponzi scheme, the first people in pay relatively little for what they get out.  The ratio changes as newer people are brought in – they put in more and more, but with the mid-to-long term prospect of getting less and less (until they and all of the later ones coming in finally get nothing).  So far, Social Security sounds just like a Ponzi scheme.  People who paid in for a few years and collected checks for 30 or 40 years got the best that a Ponzi scheme could offer.

But with Social Security we have government and coercive power involved, forces about which Bernie Madoff could only dream.  They add to the normal Ponzi scheme at least four explosive dimensions:

1. Government forces everyone to join the scheme.  Even Madoff couldn’t persuade everybody to join his con.  You could say “no” to Madoff, but you don’t have this option with the government.  If Madoff could have forced people to join, he would still be living large.
2. Government forces everyone to pay an ever-higher percentage of their taxable income into the scheme.  How bad is it?  From 1937 to 1949, the rate was 1 percent (from both the employee and the employer, or a total of 2 percent).  As of this writing, the rate is 7.65 percent for each, or a total of 15.3 percent.[xxiii]  They have to do this for several reasons.  First, government keeps promising those who have been in the scheme longest more and larger returns (benefits).  And second, there are fewer and fewer working people to support more and more retirees.  Demographics is one of the most intractable forms of math.
3. Government forces everyone to pay this increasing tax percentage on an ever-higher level of income.  From 1937 to 1949, the tax was paid on only the first $3,000 of income.  By 1960 it had only made it to $4,800, and by 1970 it had only crept up to $7,800.  Then the big jumps began: $25,900 by 1980, $51,300 by 1990, $76,200 by 2000, and an amazing $106,800 by 2010.[xxiv]  The combination of the increasing tax rates (# 2 above) and these ever-increasing taxable incomes is the only thing that has kept this world-class Ponzi scheme afloat for so long.  From 1937 to 1949, people only paid 1 percent on a maximum of $3,000 – that means, incredibly, that they only paid $30 into the scheme each year.[xxv]
4. When all else fails, the government has the secret sauce that Madoff could never access – the printing press.  If the ridiculous tax rates on the incredibly high levels of income still aren’t sufficient to pay off the earlier entrants, the government can simply print dollars.  The only problem with this, of course, is that those dollars are worth ever less, since there are more of them chasing the same amount of goods.  So people will still get their dividends (benefit checks), but they’ll be able to buy a whole lot less with the cheaper dollars they are receiving.  At 4 percent inflation, a dollar loses almost half of its value in just 10 years, and many of those people are going to be receiving their checks in 20 or 30 years.  They’ll get their checks, but they’ll be hard-pressed to buy what they thought they’d be able to buy.

What does this mean?  A government full of people that find it to their advantage to make big promises about goodies to a lot of people who vote is a terrible thing to combine with a power that can force people to pay bigger and bigger chunks of their income into supporting those promises – and then, when those promises still can’t be legitimately met, simply print what isn’t really there.

What of all of the proposed solutions.

• It’s hard to argue for a higher tax rate and still appear to be sane.  A combined 15.3 percent is already a huge take off the top and a significant obstacle to hiring.

• To argue that the solution is to tax everyone on their entire income, while keeping benefits limited, is to finally lift the mask and admit that Social Security isn’t a pension scheme at all.  It’s an income transfer scheme, from the youngest and often most productive people to those who are getting Madoff-level (or higher) returns on their own “investment.”  And then there is that old “less income in the hands of investors and job-creators” thing.

• To argue that we have to raise retirement ages is a death spiral.  When 68 or 69 or 70 isn’t high enough, what then?  75?  80?  Only when you can prove you just have 6 months to live?

• And what about reducing benefits?  That’s hard sailing for a lot of people who don’t have much else.  Actually, we’re already doing this, by letting inflation eat away at what those monthly checks can buy.  The cost-of-living adjustments have the unique and contradictory attributes of being both economically unsupportable and financially insufficient at the same time.  What’s a 3 percent COLA when food and energy are going up 6 percent?  Not enough to keep from sliding down the quality-of-life scale, but enough to make the scheme even more unstable.

Social Security would get a much-needed lift if it could high-grade itself into being a Ponzi scheme.  No wonder it’s always been a disaster waiting to happen.

Replacing Social Security with mandatory deposits to a restricted-withdrawal retirement account would achieve the goal without in effect burdening people’s neighbors in the next generation.  Social Security is the ultimate full-load fund.

For the government to require every citizen to set apart a certain percentage of his or her income to provide for his or her own future needs is the most minimal and benign intrusion possible.  10 percent would be a good target, with people paying themselves at the same rate that they’re paying the federal government.  This set-aside could be done for both old age and disability.

And the funds should be tax free, not only when they’re going in but when they’re coming out.  Why should the government profit at the very time when a person’s options are most limited and his or her future (and its duration) so uncertain?  Whose money is it, anyway?

Government has developed a marvelous way of appearing to add value when it’s really just transferring other people’s money from one group to another.  It is often argued that this produces a fair society – and this is true, as long as we define fair as “taking from the people who earned it to give it to the people who didn’t.”  But it’s really social engineering, theft, and a means of stealing the freedom of some to enhance the freedom of others.  It defines fairness as “all sharing equally regardless of contribution” (it is truly amazing to believe that anyone thinks that this still works) rather than reaping what you sow.

As with all Ponzi schemes, wild growth in Social Security has taken on a life of its own.  It started out promising X, then 2X, then 10X – all to collect votes from current or near-term retirees and to convince future retirees that a glorious future awaited them.  And it just keeps getting worse.  In 2010, “The typical 30-year-old today is scheduled to get an inflation-adjusted retirement benefit that is 50% higher than the benefit for a typical current retiree.”[xxvi]   Scheduled to get it, but not likely.

A system that requires young people to remain in the system to be bled, knowing they’ll never see a payout, is gross injustice.  To promise them even more than the payouts that are already heading the nation toward bankruptcy is cynical and dishonest.  There are no funds set up for anyone.  There are only funders – young people – set up for future financial disaster.  They’ll be paying out more and more until they get paid back…nothing.

Elderly people support Social Security for obvious reasons.  It was the only game many of them could play.  But even they should see the fundamental unfairness and unsupportability of this badly conceived, poorly designed, improperly managed system.

The greatest of Ponzi schemes will eventually fail, and fail spectacularly.  Everyone knows this terrible day is out there, as sure as the turning of the earth.  With changing and declining demographics, it’s now observable by the casual observer that it won’t work.  But it was always immoral.

Any politician not willing to deal with this system in a fundamentally different way right now – by changing the scheme, not by increasing required contributions or delaying retirement age – isn’t worthy of public office.

The above applies to Medicare and Medicaid as well.  Money taken out of paychecks over a lifetime of work should be able to create the ultimate health savings account for buying insurance, medical care, and medicine.  This would also provide incentive to live wisely, so this account will be sufficient to meet the needs of a – hopefully – long life.

• Keep the government out of the insurance business.  In an open market, private enterprise will provide insurance where the risk is reasonable and measurable.  This leaves the government with all the risk that’s unreasonable and immeasurable – another way of saying “Risk that should be avoided.”

Government insurance always creates moral hazard – banks operating without sufficient reserves, loans to the financially unsound, homes built in flood plains.  The only insurance policy the government should provide is a policy of “no insurance here.”

• Prevent big finance from being the tail that wags the dog – to death.  Major elements of big finance have developed steps to enhance themselves at the expense of everyone else:

1. Buy politicians
2. Get those politicians to eliminate regulatory oversight and pass favorable laws
3. Make enormous profits through reckless behavior that puts the economy at great risk and may even wreck it
4. Get bailed out by the bought politicians using lots of our money (OPM – Our People’s Money)
5. Use their government-sponsored financial position to buy the buildings and assets of all the companies they killed
6. Repeat steps 1-5

Do we need substantial financial institutions?  Yes.  But we don’t have any of those.  Banks have almost no actual reserves.  Investment banks bet the farm on things they don’t even understand.  Balance sheets are paper thin, held together by the willingness of government to serve us up as the paperclip to hold them together.

Big finance needs to be smaller in size and bigger in responsibility.  Great Americans – Thomas Jefferson, James Madison, Andrew Jackson, many others – have been fighting against big finance for centuries.  We need a few great fighters right now.

• Refuse to equate opportunity with big business.  Big business isn’t inherently bad.  But it isn’t inherently good, either.

Big business can create incredible economies of scale, providing more and better goods and services and ever-lower prices.  It can employ the many of us who want to be part of a large structure and enjoy the opportunities for promotion and advancement that it can provide.  It can advance good concepts that would flounder in a smaller, resource-restricted organization.  When it has a success, millions of people can benefit.

But it can also waste incredible amounts of money and resources, depriving other organizations of opportunity.  It can use its size and clout to get special favors and avoid well-earned failure.  It can create enormous numbers of mindless jobs that drain the life out of people.  It can buy and then shelve excellent new products, medical devices and medicines.  When it makes a mistake, ten thousand people can lose their livelihoods in a moment.

We should view big business, and the big labor that goes with it, as one component of a culture of opportunity – but only one.  And often, not the best one.

• Treasure and nurture small business, the real engine of growth.  When it comes to the creation of the future, big business gets all of the press, but small business does most of the heavy lifting.

How so?  “Companies with fewer than 500 workers employ roughly half of all American workers…more than 70 percent of net new jobs between 1993 and 2006 were created in firms that had fewer than 20 employees at the start of the survey period.”[xxvii]   Here’s a stunning number that sums up the value of small over big business:  “Over the past 30 years…100% of the net job growth in the American economy has come courtesy of firms that are less than 5 years old.”[xxviii]   100 percent is a very large number.

Americans understand this, since “49% think positively of small business.”[xxix]  How could this not be so when 32 percent of all jobs created between 1992 and 2010 were created by companies with less than 50 employees?[xxx]  Why put big-company executives on job councils when they have almost nothing to do with creating jobs?  Big business is great at creating economies of scale and enhancing productivity – a formula for reducing employment.

Too much consideration is given to “big” – lobbying, subsidies, protection, waivers, bailouts.  It’s time to support the real heart of business in America – the small part that is really the biggest part.  It’s too small to fail.

Without small business – and apparently even smaller small business – the American economy would be a shadow of itself.  And it would almost certainly be rigid and on the decline.

• Refuse to equate opportunity with entrepreneurship. Entrepreneurship is almost a sacred word in America, and rightly so.  It means that anyone with a good concept can develop it, start a business to promote it, and receive the rewards commensurate with the risks they’re taking.  For a people who believe in liberty and the pursuit of happiness, entrepreneurship is a vital possibility.

At its best, it opens doors.  In America, it opens them easily.  It creates something out of almost nothing – where there was no business and no employment, there’s now a thriving organization with 500 employees.  If run by people with street-smarts and decency, it can create opportunity to grow and create for everyone who works there.

But at its worst, it can be a monument to an overinflated ego.  It can be every bit as tyrannical as a big business, in some cases even more so.  Mistakes made in arrogance, ignorance or narcissism can lead to the demise of the business in a heartbeat.  The vast majority of all new businesses fail in just a few short years.

Entrepreneurship and small business are the adrenalin boost that an opportunistic culture needs to thrive.  But they aren’t the whole of opportunity.

• Encourage people to win rather than whine.  Everyone hits walls.  America has always been a place where people knock walls down rather than complain about their existence.  America has always been a comeback culture, full of people who are readying themselves individually to…win.

Sadly, we’ve more and more become a whining culture.  In the midst of incredible opportunity and prosperity, with still relatively few barriers to entry and success, Americans are depressed, pessimistic, unhappy, and willing to scapegoat everything and everyone else.  This is, to say the least, unbecoming for an American.

Life is hard.  It’s full of problems, challenges, tragedies, disasters.  There are a thousand reasons why anyone shouldn’t be able to do what they’re actually capable of doing.  But America can be again what it was for so long – the can-do culture, the place where obstacles were meant to be overcome, the society where some of the ugliest words are don’t, can’t, and shouldn’t.